Exhibit 10.46

 

409A AMENDMENT TO EMPLOYMENT AGREEMENT

 

This 409A AMENDMENT TO EMPLOYMENT AGREEMENT (this “Amendment”) is made and
entered into as of December 30, 2008, by and between Sealy Corporation, a
Delaware Corporation (the “Company”) and the individual employee or former
employee executing this Amendment as indicated on the last page hereof (the
“Employee”).

 

WHEREAS, the Company and the Employee are Parties to an employment agreement
(the employment agreement, with any previous amendments and any related
separation agreement(s), collectively the “Agreement”); and

 

WHEREAS, Congress amended the Internal Revenue Code of 1986, as amended (the
“Code”) to enact a new Section 409A of the Code (such Section, with the
Regulations and other official guidance issued thereunder, collectively
“Section 409A”); and

 

WHEREAS, Section 409A regulates “nonqualified deferred compensation” plans and
arrangements as very broadly defined (payments and benefits which are so defined
as nonqualified deferred compensation are referred to herein as “NQDC”); and

 

WHEREAS, Section 409A provides for a penalty on an employee covered by such NQDC
for violation of Section 409A in the amount of a twenty percent (20%) additional
tax on such NQDC, plus applicable interest; and

 

WHEREAS, the Company is proposing to amend the Employee’s Agreement to assist
the Employee in avoiding such tax and interest and to make other desirable
changes; and

 

WHEREAS, the Company and the Employee now wish to amend the Agreement to comply
with the requirements of Section 409A; and

 

WHEREAS, the Agreement permits the Parties to amend the Agreement by a writing
signed by each Party.

 

NOW, THEREFORE, in consideration of the foregoing, of the mutual promises
contained herein and of other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree to
amend the Agreement as set forth herein, effective January 1, 2009, except as
otherwise provided herein.

 

1.                                       Terminology.  This Amendment shall
amend the terminology of the Agreement as provided herein.  Initially
capitalized words and terms used in this Amendment and not otherwise defined in
this Amendment shall have the meanings ascribed to them in the Agreement unless
the context otherwise clearly indicates.

 

2.                                       Intent.  The intent of the Parties is
that payments and benefits under the Agreement as amended by this Amendment (the
“Amended Agreement”) comply with Section 409A and, accordingly, to the maximum
extent permitted, the Amended Agreement shall be interpreted to be in compliance
therewith.  To the extent that any provision of the Agreement is

 

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modified in order to comply with Section 409A, such modification shall be made
in good faith and shall, to the maximum extent reasonably possible, maintain the
original intent and economic benefit to the Employee and the Company of the
applicable provision without violating the provisions of Section 409A.  While
the Company is providing this Amendment to assist the Employee in complying with
Section 409A, in no event whatsoever shall the Company be liable for any
additional tax, interest or penalty that may be imposed on the Employee by
Section 409A or damages for failing to comply with Section 409A.

 

3.                                     Separation from Service.  The Agreement
is hereby amended by providing that a termination of employment shall not be
deemed to have occurred for purposes of any provision of the Amended Agreement
providing for the payment of any amounts or benefits upon or following a
termination of employment unless such termination is also a “Separation from
Service” within the meaning of Section 409A as described in Section 15 of this
Amendment, and, for purposes of any such provision of the Agreement, references
to a “termination,” “termination of employment” or like terms shall mean
“Separation from Service.”   The intent of this change is to comply with the
provisions of Section 409A which forbid the payment of NQDC except on certain
payment events, one of which is a Separation from Service as defined, but
subject to certain employer elections.  In addition, certain favorable
rules apply to payments and benefits conditioned on a Separation from Service. 
The Company’s elections with respect to the definition of “Separation from
Service” are reflected in Section 15 of this Amendment.

 

4.                                     Good Reason.  The Agreement is hereby
amended by deleting the Section of the Agreement defining “Good Reason” (and
containing certain procedural rules) in its entirety and the substitution in
lieu thereof of the definition (and procedural rules) set forth in Section 15 of
this Amendment.  The intent of this change is to comply with the provisions of
Section 409A which treat payment of what might otherwise be deemed NQDC as other
than NQDC and thus not subject to certain restrictions (including the “Delay
Period” as described below) if it is paid due to an involuntary Separation from
Service and then treats Separation from Service for a “Good Reason” as an
involuntary Separation from Service (subject to restrictions on the definition
of “Good Reason”).

 

5.                                     Specified Employee.  Notwithstanding any
other payment schedule provided in the Amended Agreement to the contrary, if the
Employee is deemed as of the date of Separation from Service to be a “Specified
Employee” within the meaning of that term under Section 409A and the Company’s
specified employee policy, then each of the following shall apply:

 

(a)                                  With regard to any payment that is
considered NQDC payable on account of a Separation from Service, such payment
shall be made on the date which is the earlier of (i) the first business day
following the expiration of the six (6) month period measured from the date of
such Separation from Service of the Employee, and (ii) the thirtieth (30th) day
following the date of the Employee’s death (the “Delay Period”) to the extent
required under Section 409A.  Upon the expiration of the Delay Period, all
payments delayed pursuant to this Section (whether they would have otherwise
been payable in a single sum or in installments in the absence of such delay)
shall be paid to the Employee (or his personal representative in the event of
his death) in a lump sum, and all remaining payments due under the Agreement
shall be paid or provided in accordance with the normal payment dates specified
for them herein; and

 

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(b)                                 To the extent that benefits to be provided
during the Delay Period are considered NQDC provided on account of a Separation
from Service, and such benefits are not otherwise exempt from Section 409A, the
Employee shall pay the cost of such benefits during the Delay Period, and the
Company shall reimburse the Employee, to the extent that such costs would
otherwise have been paid by the Company or to the extent that such benefits
would otherwise have been provided by the Company at no cost to the Employee,
the Company’s share of the cost of such benefits upon expiration of the Delay
Period, and any remaining benefits shall be reimbursed or provided by the
Company in accordance with the procedures specified in the Amended Agreement.

 

6.                                     Benefits and Reimbursements.   To the
extent that reimbursements of expenses or in-kind benefits to be provided
following the Employee’s Separation from Service are not excluded from the
definition of NQDC pursuant to Section 409A (and particularly including Treas.
Reg. 1.409A-1(b)(9)(v)) and from the application of Treas. Reg. 1.409A-3(i)(1),
then such reimbursements of expenses and in-kind benefits shall be subject to
the following rules:  (i) all reimbursements of eligible expenses under the
Amended Agreement shall be made on or before the last day of the Employee’s
taxable year following the taxable year in which such expenses were incurred by
the Employee, (ii) no right to reimbursement or in-kind benefit shall be subject
to liquidation or exchange for another benefit; (iii) the amount of expenses
eligible for reimbursement, or in-kind benefits provided during an Employee’s
taxable year shall not in any way affect the expenses eligible for
reimbursement, or in-kind benefits to be provided, in any other taxable year
(other than Section 409A permitted limits on medical benefits);
(iv) reimbursement of expenses and in-kind benefits will be provided for the
time period  specified in the Amended Agreement; and (v) subject to the
foregoing provisions of this Section 6, reimbursement of expenses and in-kind
benefits will be provided as for active employees.

 

7.                                     Separate Payments.  For purposes of
Section 409A, the Employee’s right to receive any installment severance payments
due to a Separation from Service pursuant to the Amended Agreement shall be
treated as a right to receive a series of separate and distinct payments. 
Whenever a payment under the Agreement specifies a payment period with reference
to a number of days, the actual date of payment within the specified period
shall be within the sole discretion of the Company.

 

8.                                     Offsets.  Notwithstanding any other
provision of the Amended Agreement to the contrary, in no event shall any
payment under the Amended Agreement that constitutes NQDC be subject to offset
by any other amount unless otherwise permitted by Section 409A.

 

9.                                     Payment Schedule.  Unless the Amended
Agreement provides a specified and objectively determinable payment schedule to
the contrary, as in Section 14 of this Amendment (with respect to bonus and
bonus related installments) to the extent that any payment of base salary or
other compensation is to be paid for a specified continuing period of time
beyond the date of the Employee’s Separation from Service in accordance with the
Company’s payroll practices (or other similar term), the installment payments of
such base salary or other compensation shall be made upon such schedule as in
effect upon the date of termination, but no less frequently than monthly.

 

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10.                               Executive Severance Benefit Plan.  The
Agreement gives the Employee an election between the cash severance payments
under the Company’s Executive Severance Benefit Plan and the cash severance
provisions of the Agreement.  Because choices between severance payment
schedules violate Section 409A, notwithstanding any contrary provision of the
Agreement or the Executive Severance Benefit Plan, the Employee shall not have
the option of electing a cash payment under the Executive Severance Benefit Plan
and will cease to participate in such plan effective December 31, 2008 if he has
not already ceased participation prior to that date.

 

11.                               Alternate Satisfaction of Company’s
Obligations.  The Agreement provides that the Company may in some cases (and
must in others) provide an economically equivalent benefit if a promised one
cannot be provided at all or on the promised basis.  Because such a provision
might require substitution of one payment or benefit for another on a basis
prohibited by Section 409A, the Parties agree that if the Company cannot provide
a promised benefit or an “Alternative Benefit” in compliance with Section 409A,
the Parties are left to their legal remedies.  It may be noted that 409A
provides that certain legal settlements are permissible.

 

12.                               Acceleration for Taxes.  While Section 409A
generally prohibits the acceleration of NQDC payments, it permits acceleration
in certain circumstances to pay taxes where taxes are levied before the NQDC
payment otherwise would be made.  The Company agrees that it will accelerate
payments for taxes to the extent permitted by Section 409A where provision for
such payment is not otherwise made.

 

13.                               Elimination of Benefit.  If the Employee’s
Agreement provides for an immediate lump sum severance payment and one or more
installment alternatives, the Parties agree that the installment alternatives
are not available.  While it is anticipated that any such lump sum payment would
be a “short term deferral” for purposes of Section 409A (and not NQDC subject to
the Delay Period), for the avoidance of doubt, such a lump sum amount shall be
bifurcated into two payments as follows:

 

(a)                                  one payment will be in the amount permitted
as an involuntary (including for Good Reason) severance payment not considered
NQDC (i.e. basically twice the lesser of (i) annual compensation or (ii) the
amount which may be treated as compensation by tax qualified retirement plans,
reduced by other amounts considered as such severance pay and not otherwise
excluded from NQDC); and

 

(b)                                 the other payment will be the excess of the
total amount over the amount described in (a), if any such excess exists;

 

with both payments to be made at the same time unless the amount described in
(b) is determined to be subject to the Delay Period and therefore payable in
accordance with Section 5 of this Amendment.

 

14.                               Bonus Installment Payments.   If the
Employee’s Agreement provides for one or more payments related to his bonus
opportunity, other than a bonus incorporated into the lump sum severance payment
referred to in Section 13 of this Amendment, this Section 14 shall apply to such
payments as follows:

 

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(a)                                  Calculated Bonus.  If the Agreement
provides for a bonus calculated as provided under the Bonus Plan and payable due
to his Separation from Service but to which the Employee otherwise would not be
entitled for the fiscal year of his Separation from Service (for example, a pro
rata bonus calculated based on the portion of such fiscal year during which he
was employed), such amount shall be paid as an installment on the first
February 25 following the close of the calendar year in which his Separation
from Service occurs; and

 

(b)                                 Target Bonus.  If the Agreement provides for
the payment of one or more bonus amounts calculated at target under the Bonus
Plan, such amounts shall be paid in installments as follows:

 

(i)                                   an installment calculated with respect to
the remaining portion of the fiscal year in which the Separation from Service
occurs (for example, a pro rata target bonus calculated based on the portion of
such fiscal year following such Separation from Service) shall be paid on
February 25 of the following calendar  year;

 

(ii)                                an installment calculated with respect to
any subsequent fiscal year shall be paid on February 25 of the calendar year
next following the calendar year in which such fiscal year ends; but

 

(iii)                             any installment described in Subsection
14(b)(i) or (ii) which would be paid later than the last installment of the
Employee’s salary continuation will be paid simultaneously with that last
installment payment of salary continuation.

 

15.                               Certain Definitions and Rules.  The following
definitions and rules apply for purposes of the Amended Agreement:

 

(a)                                  For purposes of the Amended Agreement,
“Separation from Service” means a “separation from service” as defined for
purposes of Section 409A for purposes of determining when a distribution may be
made under the terms of a nonqualified deferred compensation plan or
arrangement.  In general, a Separation from Service for purposes of the Amended
Agreement occurs when there is a good faith severance of the employment
relationship between the Company and its Affiliates and the Employee due to the
Employee’s death, retirement or other “termination of employment” (as that term
is defined for purposes of identifying a Separation from Service for purposes of
Section 409A).  Specifically, the following shall apply:

 

(i)                                   The Employee will not be deemed to have a
Separation from Service while on military leave, sick leave, or other bona fide
(i.e., where there is a reasonable expectation that the Employee will return)
leave of absence if the period of such leave does not exceed six (6) months, or,
if longer, so long as the Employee retains a right to reemployment with the
Company or an Affiliate by law or contract.  If the leave exceeds six (6) months
and the Employee does not retain such a reemployment right, the Separation from

 

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Service occurs on the first day following such six (6) months.  However, where
the leave is due to any medically determinable physical or mental impairment
that can be expected to result in death or can be expected to last for a
continuous period of not less than six (6) months, where such impairment causes
the employee to be unable to perform the duties of his or her position of
employment or any substantially similar position of employment, twenty-nine (29)
months will be substituted for six (6) months for purposes of this Subsection
15(a)(i);

 

(ii)                                The Employee will not be considered to have
a Separation from Service merely due to transfer between employee and
independent contractor status (including status as a director of the Company);

 

(iii)                             Whether a “termination of employment,” as
defined for purposes of the definition of Separation from Service under
Section 409A, has occurred is determined based on whether the facts and
circumstances indicate that the Company or Affiliate and the Employee reasonably
anticipated that:

 

(A)                            no further services would be performed after a
certain date; or

 

(B)                              that the level of bona fide services the
Employee would perform after such date (whether as an employee or independent
contractor, including as a director) would permanently decrease to less than
fifty percent (50%) of the average level of bona fide services provided in the
immediately preceding thirty-six (36) months.

 

For purposes of determining whether a Separation from Service has occurred, the
word “Affiliate” shall mean any corporation which would be defined as a member
of a controlled group of corporations which includes the Company or any business
organization which would be defined as a trade or business (whether or not
incorporated) which is under “common control” with the Company within the
meaning of Sections 414(b) and (c) of the Code but, in each case, only during
the periods any such corporation or business organization would be so defined.

 

(b)                               For purposes of the Amended Agreement, “Good
Reason” means, and related procedural rules are:

 

(i)                                   any material reduction in either the
annual base salary of the Employee or the Target Annual Bonus Percentage or
maximum annual bonus percentage applicable to the Employee under the Bonus Plan,

 

(ii)                                any material reduction in the position,
authority or office of the Employee,

 

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(iii)                             any material reduction in the Employee’s
responsibilities or duties for the Company,

 

(iv)                            any material adverse change or reduction in the
aggregate “Minimum Benefits,” as hereinafter defined, provided to the Employee
as of the date of the Agreement (provided that any material reduction in such
aggregate Minimum Benefits that is required by law or applies generally to all
Employees of the Company shall not constitute “Good Reason” as defined
hereunder),

 

(v)                               any relocation of the Employee’s principal
place of work with the Company to a place which reasonably would necessitate the
Employee’s relocation of his principal residence,

 

(vi)                            the material breach or material default by the
Company of any of its agreements or obligations under any provision of the
Agreement, or

 

(vii)                         failure of the purchaser, in connection with a
sale or transfer of all or substantially all of the assets of the Company, to
assume the Agreement in accordance with the provisions of the Agreement.

 

As used in this Subsection 15(b), an “adverse change or material reduction” in
the aggregate Minimum Benefits shall be deemed to result from any reduction or
any series of reductions which, in the aggregate, exceeds five percent (5%) (or
such other minimum required percentage reduction in excess of five percent (5%)
which is deemed to be material under Section 409A of the value of such aggregate
Minimum Benefits determined as of the date of the Agreement.  As used in this
Subsection 15(b), Minimum Benefits are life insurance, accidental death, long
term disability, short term disability, medical, dental, and vision benefits and
the Company’s expense reimbursement policy.

 

The Employee, within ninety (90) days following the existence of a condition
which constitutes a Good Reason, shall give written notice to the Company of
such Good Reason describing such Good Reason in detail and giving the Company
thirty (30) days to cure the condition.  The Company may indicate in writing
that it acknowledges that the condition constitutes a Good Reason and that it is
waiving its right to cure the condition.  Such a waiver closes the cure period
upon receipt by the Employee.  Unless otherwise required by Section 409A of the
Code, a Good Reason condition will not be considered to come into existence
until the later of the actual existence of the condition or the date the
Employee knew or should have known of the existence of the condition.  If the
Company does not waive the right to cure the condition and does in fact cure the
condition within thirty (30) days following receipt of such notice, then such
condition shall no longer provide a basis for the Employee’s

 

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Separation from Service to be deemed for Good Reason.  If the Company does not
cure the condition causing such Good Reason within the cure period, the Employee
must resign within thirty (30) days following the close of such cure period (as
such close may be accelerated by the Company’s waiver) in order for such
resignation to be deemed to be for such Good Reason.  If the Employee does not
give the written notice of Good Reason described above to the Company within
ninety (90) days following the existence of a condition which constitutes a Good
Reason, then such Good Reason shall no longer provide a basis for the Employee’s
Separation from Service with the Company for Good Reason.

 

16.                                 Continued Effect.  Except as specifically
modified herein, the Agreement shall remain in full force and effect in
accordance with all of its terms and conditions.

 

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IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the
Agreement as of the date first written above.

 

 

 

SEALY CORPORATION

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

 

 

Title:

 

 

 

 

 

 

EMPLOYEE

 

 

 

 

 

 

 

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