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 


 

















 


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


 


2

















 


(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.


 


3

















 


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:


 


4

















 


(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 


 


5

















 


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,


 


6

















 


(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 


 


7

















 


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.


 


[The remainder of this page is
intentionally left blank.]


 


8

















 


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

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
					



 


9