Option Agreement dated October 25, 2005



 Exhibit 10.4 
  
 TEMPUR-PEDIC INTERNATIONAL INC. 
 2003 EQUITY INCENTIVE PLAN 
  
 STOCK OPTION AGREEMENT 
 (Bhaskar Rao) 
  
 THIS AGREEMENT dated as
of October 25, 2005, between Tempur-Pedic International Inc., a corporation organized under the laws of the State of Delaware (the “Company”), and Mr. Bhaskar Rao, residing at the address identified below (the
“Optionee”). 
  
 1.    Grant of Option. Pursuant and subject to the Company’s 2003 Equity Incentive Plan as attached hereto (as the same may be amended from time to time, the “Plan”), the Company grants to
you, the Optionee, an option (the “Option”) to purchase from the Company all or any part of a total of 25,000 shares (the “Optioned Shares”) of the common stock, par value $.01 per share, of the Company (the
“Stock”), at a price per share equal to $10.66. The Grant Date of this Option is as of October 25, 2005. 
  
 2.    Character of Option. Subject to the limitations set forth in Section 7.1(f) of the Plan, this Option is to be
treated as an “incentive stock option” within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended. 
  
 3.    Duration of Option. Subject to the following sentence, this Option shall expire at 5:00 p.m. on October 25, 2015.
However, if your employment or other association with the Company and its Affiliates ends before that date (including because your employer ceased to be an Affiliate), this Option shall expire at 5:00 p.m. on October 25, 2015 or, if
earlier, the date specified in whichever of the following applies: 
  
 (a)    If the termination of your employment or other association is on account of your death or disability, the first anniversary of the date your employment ends. 
  
 (b)    If the termination of your
employment or other association is due to any other reason, three (3) months after your employment or other association ends. 
  
 4.    Exercise of Option. 
  
 (a)    Until this Option expires, you may exercise it as to the number of Optioned Shares identified in the table
below, in full or in part, at any time on or after the applicable exercise date or dates identified in the table. However, during any period that this Option remains outstanding after your employment or other association with the Company and its
Affiliates ends, including because your employer ceased to be an Affiliate, you may exercise it only to the extent it was exercisable immediately prior to the end of your employment or other association. The procedure for exercising this Option is
described in Section 7.1(e) of the Plan. You may pay the exercise price due on exercise by delivering other shares of Stock of equivalent Market Value provided you have owned such shares of Stock for at least six months. 
  

			
	 Number of Shares
in Each Installment

	  	 Initial Exercise Date
for Shares in Installment


	 6,250
	  	October 25, 2006
	 1,562
	  	January 25, 2006
	 1,563
	  	April 25, 2007
	 1,562
	  	July 25, 2007
	 1,563
	  	October 25, 2007
	 1,562
	  	January 25, 2007
	 1,563
	  	April 25, 2008
	 1,562
	  	July 25, 2008

  

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	 1,563
	 	October 25, 2008
	 1,562
	 	January 25, 2008
	 1,563
	 	April 25, 2009
	 1,562
	 	July 25, 2009
	 1,563
	 	October 25, 2009

  
 5.    Transfer of Option. Except as provided in Section 6.4 of the Plan, you may not transfer this Option except by will or the laws of descent and distribution, and, during your lifetime, only you may
exercise this Option. 
  
 6.    Incorporation of Plan Terms. This Option is granted subject to all of the applicable terms and provisions of the Plan, including but not limited to the limitations on the Company’s obligation to deliver
Optioned Shares upon exercise set forth in Section 10 (Settlement of Awards). 
  
 7.    Miscellaneous. This Agreement shall be construed and enforced in accordance with the laws of the State of Delaware, without regard to the conflict of laws principles thereof and shall
be binding upon and inure to the benefit of any successor or assign of the Company and any executor, administrator, trustee, guardian, or other legal representative of you. Capitalized terms used but not defined herein shall have the meaning
assigned under the Plan. This Agreement may be executed in one or more counterparts all of which together shall constitute but one instrument. 
  
 8.    Tax Consequences. The Company makes no representation or warranty as to the tax treatment to you of your receipt or
exercise of this Option or upon your sale or other disposition of the Optioned Shares. You should rely on your own tax advisors for such advice. In particular, you acknowledge that in any event, as a result of the limitations set forth in
Section 7.1(f) of the Plan, a significant portion of this Option will not be treated as an Incentive Option. 
  

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 IN WITNESS WHEREOF, the parties have
executed this Agreement as a sealed instrument as of the date first above written. 
  

							
	 TEMPUR-PEDIC INTERNATIONAL INC.
  
	 	 	 	 
	 By:
	 	  /s/ H. THOMAS BRYANT	 	 	 	  /s/ BHASKAR RAO
	 Title:
	 	  President	 	 	 	  Signature of Optionee
				
	 	 	 	 	 	 	  Bhaskar Rao
	 	 	 	 	 	 	  Name of Optionee
				
	 	 	 	 	 	 	   Optionee’s Address:

				
	 	 	 	 	 	 	 
				
	 	 	 	 	 	 	 
				
	 	 	 	 	 	 	 

  

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