Vice President-human Resources Employment Agreement

EXHIBIT 10.35


SIMMONS COMPANY
SIMMONS HOLDINGS, INC.
ONE CONCOURSE PARKWAY, SUITE 600
ATLANTA, GEORGIA 30328


October 11, 2001


Mr. Robert K. Barton 5285 Brooke Lake Drive Dunwoody, Georgia 30338


Dear Ken:


This letter confirms your agreement with Simmons Company (the "Company") and Simmons Holdings, Inc. ("Holdings") concerning the remainder of your employment, your deferred resignation and your severance arrangements, as follows:


1. It is agreed that, effective July 16, 2001 (the "Effective Date" of this Agreement), you are reassigned from the position of Executive Vice President - Human Resources to the position of Special Projects Executive, reporting to the Chairman and Chief Executive Officer of the Company or his designee. During the remainder of your employment with the Company, your base salary will continue at the rate in effect on July 15, 2001. Subject to your satisfaction of the conditions and other provisions as set forth in Paragraph 3, below, you will also be eligible to earn a bonus for the Company's fiscal year ending December 29, 2001 (the "2001 Fiscal Year") in accordance with Section IV.B of the employment agreement between you and the Company dated as of June 29, 1998 (the "Employment Agreement"). Options issued to you to purchase the common stock, $0.01 par value, of Holdings ("Holdings Common Stock") pursuant to the Stock Option Agreements between you and Holdings dated as of October 29, 1998, September 23, 1999 and November 17, 2000 (collectively, the "Stock Option Agreements") will continue to be eligible to vest during the remainder of your employment in accordance with the terms of the Stock Option Agreements, as modified by Paragraph 3(f) below. You will not be eligible for an annual bonus for the Company's fiscal year ending December 28, 2002 or thereafter; nor will you be eligible, in Fiscal Year 2002 or thereafter, for additional stock option grants or awards of phantom shares under the Company's Phantom ESOP Plan for senior management or further vesting of options or phantom shares previous granted or awarded. During the remainder of your employment, you may continue to participate in group benefit plans made generally available by the Company to its employees, to the extent permitted by plan terms and Company policies and by applicable law. Without limiting the generality of the foregoing sentence, the Company will make a contribution to your account under its 401(k) Plan for the 2001 Plan year if permitted by plan terms and applicable law.


2. Subject to earlier termination in accordance with Section VII or subsection B, C or D of Section VIII of the Employment Agreement or earlier termination by the Company on a date prior to January 1, 2002 other than for death, disability or "Cause, you hereby voluntarily and irrevocably resign your employment, and all positions and offices held by you, with the Company, Holdings or any of the Company's other Affiliates, effective January 1, 2002 (the "Resignation Date"), and the Company hereby accepts your resignation, effective as of that date. Nothing in this letter shall be construed as an early retirement election.


3. In the event that your employment with the Company terminates on January 1, 2002 as a result of your resignation or in the event that your employment is terminated by the Company on a date prior to January 1, 2002 other than for death, disability or "Cause," as defined in Section VIII D(i) of the Employment Agreement, (the "Early Separation Date"), then, in consideration of your acceptance of this Agreement and subject to your material compliance, after the Resignation Date or, as applicable, the Early Separation Date, with your obligations under this Agreement and under Section IX of the Employment Agreement which survive termination of your employment, the Company will provide you the following:


a) Within ten business days following the effective date of the Release
of Claims, as defined below, or, if later, February 1, 2002, you will
receive a payment in the amount of Three Hundred and Thirty-Four
Thousand, Eight Hundred and Seventy-Five Dollars ($334,875.00). In
addition, if your employment ends as of the Early Separation Date, the
Company will continue to pay you your base salary from the next
business day immediately following the Early Separation Date through
January 1, 2002, which payments shall commence on the next regular
payday which is at least five business days following the effective
date of the Release of Claims, but shall be retroactive to the next
business day immediately following the Early Separation Date.


b) The Company will pay you a bonus for Fiscal Year 2001, if earned, in
accordance with your bonus program in effect on July 15, 2001, which
bonus shall be determined on the basis of the Company's audited Fiscal
Year 2001 financial results in accordance with the terms of the bonus
program and shall be payable to you on or about April, 2002, at the
time such bonuses are paid to other employee participants or, if later,
within ten business days following the effective date of the Release of
Claims. Payment of the bonus described here shall be in full
satisfaction of any right you have to a bonus for Fiscal Year 2001
under Section IV.B of the Employment Agreement for Fiscal Year 2001.


c) Following the Resignation Date or, if applicable, the Early
Separation Date, the Company will continue your participation and that
of your spouse and dependent children to the extent that they are
qualified beneficiaries under the federal law known as "COBRA" (your
"qualified beneficiaries") in its group health and dental plans, as in
effect from time to time, until the earlier of the date you become
Medicare eligible or the date you otherwise cease to be eligible for
coverage under the plans. During your participation in the Company's
group health and dental plans, the Company will contribute to the
premium cost of your participation and that of your qualified
beneficiaries at the same rate that it contributes for its active
employees and their


qualified beneficiaries. In the event that you cease to be eligible to
participate in the Company's group health and dental plans prior to
becoming Medicare eligible, then, from that date through the date on
which you become Medicare eligible, the Company shall provide
alternative health and dental coverage for you on terms as comparable
to Company group health and dental plans in which you had been
participating as is reasonably available and shall contribute toward
the premium cost of that coverage the difference between the premium
cost and the contribution made by active employees toward the premium
cost of the Company's group health and/or dental plans (as applicable).
In order to be eligible for the Company's contributions hereunder,
however, you must pay, from month to month in advance, by the date
specified by the Company, an amount equal to the contribution toward
the premium cost of coverage paid by active full-time employees
generally. Coverage under the Company's group health and dental plans
to which you and your qualified beneficiaries are entitled under COBRA
shall run concurrently with your coverage hereunder.


d) Following the Resignation Date or, if applicable, the Early
Separation Date, the Company will continue your participation in its
employee health and welfare plans (exclusive of its health and dental
plans, for which provision is made in subsection (c) directly above) in
which you are a participant on the Resignation Date, as in effect from
time to time, (the "Welfare Plans"), on the same terms applicable to
employees in positions comparable to that which you held immediately
prior to the Effective Date of this Agreement, until the earlier of
December 31, 2002 or the date you otherwise cease to be eligible for
coverage under the Welfare Plans. In the event that you cease to be
eligible to participate in any of the Welfare Plans prior to December
31, 2002, then, from that date until December 31, 2002, Company will
provide you, at its cost, alternative coverage on terms as comparable
as is reasonably available to those of the applicable Welfare Plan, as
then effect.


e) Following the Resignation Date or, if applicable, the Early
Separation Date, until December 31, 2002, you shall be entitled to
participate in the Company's financial planning program for executives
on the same terms applicable to other participants and the Company
shall continue to pay the cost of your membership in the athletic club
in which you held membership on the Effective Date of this Agreement.


f) For the purpose of determining the number of shares of Holdings
Common Stock which become exercisable and the number of phantom shares
of Holdings Common Stock which shall be awarded and vested in
accordance with clause (iv) of Section 5 (and for no other purpose),
your employment shall be deemed to have continued through the last day
of the Company's 2001 Fiscal Year and, if so required for vesting for
the 2001 Fiscal Year, through April 1, 2002 (the "Fiscal 2001 Release
Date").


g) The Company will provide you outplacement services through an
outplacement firm selected by you, to a maximum cost to the Company for
such services of Twenty-Three


Thousand Dollars ($23,000). Payment will be made by the Company
directly to the outplacement firm upon invoicing.


h) The Company will reimburse up to Five Thousand Dollars ($5000) of
legal fees and expenses incurred by you incident to the legal review
and negotiation of this Agreement.


In order to be eligible for the payments and other benefits set forth in this Paragraph 3, however, you must also sign, no earlier than the day following the Resignation Date or, if applicable, the Early Separation Date, and no later than twenty-two days thereafter, the release of claims included with this Agreement and marked "Attachment A" (the "Release of Claims") and, having signed the Release of Claims, you must not revoke it in a timely manner thereafter.


4. As of the Effective Date, subsection A and subsection D (ii) of Section VIII of the Employment Agreement shall be of no further force or effect. If your employment with the Company is terminated other than by reason of your resignation on January 1, 2002, that termination will be governed, as applicable, by Section VII or subsection B, C or D of Section VIII of the Employment Agreement, as amended hereby; provided, however, that if the Company terminates your employment prior to January 1, 2002 other than for death, disability or Cause, Paragraph 3 of this Agreement shall apply.


5. Pursuant to the rights of Holdings under Section 4.1 of the Stockholders Agreement dated as of September 23, 1999 by and among you, the Company, Holdings, Simmons Holdings, LLC, the parties listed on Exhibit A thereto and State Street Bank & Trust Company, solely as trustee of the Simmons Company Employee Stock Ownership Trust, (the "1999 Stockholders' Agreement"), Holdings will repurchase and you will sell and deliver the stock certificates for:


(i) 140,181 shares (the "Shares") of the common stock of
Holdings ("Holdings Common Stock") held by you at a price per
share of $9.05;


(ii) 76,731 shares of Holdings Common Stock that may be
purchased on the exercise of the options (the "Options")
issued to you pursuant to the Stock Option Agreements between
you and Holdings dated as of October 29, 1998, September 23,
1999 and November 17, 2000 (collectively, the "Stock Option
Agreements") at a price per share equal to $9.05 less the
applicable exercise price per share;


(iii) 18,859.867696 phantom shares of Holdings Common Stock
(previously awarded to you under the Company's Phantom ESOP
Plan for senior management) at a price per share of $9.05; and


(iv) the number of shares, if any, of Holdings Common Stock
that are not exercisable on the date of this letter, first
written above, but that become exercisable as of the date your
employment with the Company terminates, which number shall
determined in accordance with the Stock Option Agreements, at
a price per share equal to $9.05 less the


applicable exercise price per share, and the number of phantom
shares, if any, of Holdings Common Stock that are not vested
as of the date of this letter, first written above, but that
are vested as of the date your employment the Company
terminates, which number shall be determined in accordance
with the Company's Phantom ESOP Plan for senior management at
a price per share of $9.05.


a) The aggregate repurchase amount under subparagraph (i) above shall
be $1,268,638 (the "Stock Repurchase Amount") and under subparagraphs
(ii) and (iii) above together shall be $557,049.29 (together, the
"Remuneration Amount" and, with (i), the "Repurchase Amounts"). You
hereby agree that, except as set forth in subparagraph (iv) above, no
options to purchase stock of Holdings held by you will have vested as
of the date your employment terminates and that all unvested options
shall be cancelled as of that date.


b) The Repurchase Amounts will be payable to you by Holdings pursuant
to two (2) promissory notes. The note for the Stock Repurchase Amount
shall be in the form attached hereto as Exhibit A (the "Stock Note")
and the note for the Remuneration Amount shall be in the form attached
hereto as Exhibit B (the "Remuneration Note" and, with the Stock Note,
the "Two Notes"). The Two Notes shall be issued to you by Holdings
within ten business days following the date your employment terminates,
provided that you have complied with your obligations as set forth in
Paragraph 5 (c) immediately hereafter.


c) You will deliver to Charles R. Eitel at the Company, no later than
the fifth business day immediately following the later of the date your
employment with the Company terminates or December 31, 2001, (A) the
stock certificate representing the Shares, together with the enclosed
stock transfer power, and (B) all stock option certificates held by
you.


d) The Two Notes will bear interest from the date your employment
terminates, computed on the basis of a 365-day year, on the principal
amount from time to time unpaid, at a per annum rate equal to eight
percent (8%).


e) The first installment payment (the "First Installment"), in the
amount of twenty-five percent of ...