Document:

Amendment No. 1 to the Simmons Company Securityholders' Agreement

    SIMMONS
      COMPANY

     

    AMENDMENT
      NO. 1 TO THE

     

    SECURITYHOLDERS’
      AGREEMENT

     

    This
      Amendment No. 1 to the Securityholders’ Agreement (the
      “Amendment”)
      is entered into as of November 30th, 2006, by and among Simmons Company, a
      Delaware corporation (the “Company”),
      and each of those entities listed below (the “Investors”
      and each individually an “Investor”). All
      capitalized terms used in this Amendment shall have the respective meanings
      given to such terms in the Agreement (as defined below), unless otherwise
      defined herein.

     

    Recitals

     

    Whereas,
      the Company and the Investors entered into that certain Securityholders’
Agreement, dated as of December 19, 2003, by and among the Company, the
      Investors and the other parties thereto (the “Agreement”);

     

    Whereas,
      the Company and the Investors desire to amend the Agreement in certain respects;
      

     

    Whereas,
      pursuant to Section 7.1 of the Agreement, the Agreement may be amended in
      writing by each of the Company and holders of a majority of the Shares;
      and

     

    Whereas,
      the Investors hold a majority of the Shares.

     

    Now,
      Therefore,
      in consideration of the foregoing recitals and the mutual promises hereinafter
      set forth, the parties hereto agree as follows:

     

    1.  The
      Agreement is hereby amended as follows:

     

    (a) Definition
      of Call Price.
      The definition of “Call Price” is hereby deleted and replaced with the
      following:

     

    “Call
      Price”
      means (A) the per share Fair Market Value measured as of the date of such Senior
      Manager’s or Employee’s termination of employment, with respect to any Senior
      Manager whose employment is terminated pursuant to Section 3.5(a)(i) or due
      to
      death or “incapacity” (as such term is defined in the respective Senior
      Manager’s employment agreement) or any Employee who is terminated by the Company
      without Cause or due to death or Disability, and (B) the lesser of (x) his
      or
      her per share Investment Amount and (y) the per share Fair Market Value measured
      as of the date of such Employee’s or Senior Manager’s termination of employment,
      with respect to any Employee who is terminated by the Company for Cause or
      voluntarily leaves the Company or any Senior Manager who is terminated by the
      Company for “cause” (as such term is defined in the respective Senior Manager’s
      employment agreement) or voluntarily leaves the Company, other than for “good
      reason” (as such term is defined in the respective Senior Manager’s employment
      agreement).

     

    (a) Definition
      of Disability.
      The following definition of “Disability” is hereby added to the
      Agreement:

     

    “Disability”
      means the Employee shall have been unable to perform his or her duties by reason
      of any physical or mental illness, injury or other incapacity (a) for any period
      of sixty (60) consecutive days or (b) for a total of one hundred twenty (120)
      days in any period of twelve (12) consecutive calendar months, in the reasonable
      judgment of the Board, after consultation with such experts, if any, as the
      Board may deem necessary or advisable.

    

    2.  This
      Amendment shall be governed in all respects by the laws of the State of
      Delaware.

     

    3.  This
      Amendment may be executed in any number of counterparts, each of which shall
      be
      an original, but all of which together shall constitute one
      instrument. 

     

    4.  Except
      as expressly modified herein, the Agreement, as amended by this Amendment,
      shall
      remain in full force and effect.

     

    

     

    

     

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      REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

     

    

     

    
      
         

      

      
         

        
          

        

      

      
         

        
        

      

    

    In
      Witness Whereof,
      the
      parties hereto have executed this Amendment
      No. 1 to the Securityholders’ Agreement
      as of the date set forth in the first paragraph above.

     

    

     

    COMPANY:        

     

    SIMMONS
      COMPANY

     

    By: 
      /s/  William S. Creekmuir

     

    Name:
      William S. Creekmuir

     

    Title: 
      Executive Vice President and Chief Financial Officer

     

    

    INVESTORS:

     

    THOMAS
      H. LEE EQUITY FUND V, L.P.

    

    By:
      THL Equity Advisors V, LLC, its general partners

    

    By:
      Thomas H. Lee Partners, L.P., its sole member

    

    By:
      Thomas H. Lee Advisors LLC, its general partner

    

    

    By: 
      /s/ Scott A. Schoen

    Name: 
      Scott A. Schoen

    Title:
      Managing Director

    

    

    THOMAS
      H. LEE PARALLEL FUND V, L.P.

    

    By:
      THL Equity Advisors V, LLC, its general partner

    

    By:
      Thomas H. Lee Partners, L.P., its sole member

    

    By:
      Thomas H. Lee Advisors LLC, its general partner

    

    

    By: 
      /s/ Scott A. Schoen

    Name: 
      Scott A. Schoen

    Title:
      Managing Director

    

    

    THOMAS
      H. LEE CAYMAN FUND V, L.P.

    

    By:
      THL Equity Advisors V, LLC, its general partner

    

    By:
      Thomas H. Lee Partners, L.P., its sole member

    

    By:
      Thomas H. Lee Advisors LLC, its general partner

    

    

    By:
      /s/ Scott A. Schoen

    Name: 
      Scott A. Schoen

    Title:
      Managing DirectorAmended and Restated Simmons Company Equity Incentive Plan

    Amended
      and Restated

     

    Simmons
      Company

     

    Equity
      Incentive Plan

     

    Effective
      as of November 30, 2006

     

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

        
        

      

    

    
      	
              SECTION
                1.

            	
              PURPOSE

            	
              1

            
	 	 	 	 	 
	
              SECTION
                2.

            	
              ADMINISTRATION

            	
              1

            
	 	
              a.

            	
              Committees

            	
              1

            
	 	
              b.

            	
              Authority
                of the Board of Directors

            	
              1

            
	 	 	 	 	 
	
              SECTION
                3.

            	
              ELIGIBILITY

            	
              1

            
	 	 	 	 	 
	
              SECTION
                4.

            	
              STOCK
                SUBJECT TO PLAN

            	
              2

            
	 	
              a.

            	
              Basic
                Limitation

            	
              2

            
	 	
              b.

            	
              Additional
                Shares

            	
              2

            
	 	 	 	 	 
	
              SECTION
                5.

            	
              AWARDS

            	
              2

            
	 	
              a.

            	
              Types
                of Awards

            	
              2

            
	 	
              b.

            	
              Award
                Agreements

            	
              2

            
	 	
              c.

            	
              No
                Rights as a Shareholders

            	
              3

            
	 	 	 	 	 
	
              SECTION
                6.

            	
              OPTIONS

            	
              3

            
	 	
              a.

            	
              Option
                Agreement

            	
              3

            
	 	
              b.

            	
              Special
                ISO rules

            	
              3

            
	 	 	 	 	 
	
              SECTION
                7.

            	
              STOCK
                APPRECIATION RIGHTS

            	
              4

            
	 	
              a.

            	
              Generally

            	
              4

            
	 	
              b.

            	
              Stock
                Appreciation Rights Award Agreement

            	
              4

            
	 	 	 	 	 
	
              SECTION
                8.

            	
              STOCK
                AWARDS

            	
              4

            
	 	
              a.

            	
              Generally

            	
              4

            
	 	
              b.

            	
              No
                Purchase Price Necessary

            	
              5

            
	 	 	 	 	 
	
              SECTION
                9.

            	
              STOCK
                UNITS

            	
              5

            
	 	
              a.

            	
              Generally

            	
              5

            
	 	
              b.

            	
              Settlement
                of Stock 

            	
              5

            
	 	 	 	 	 
	
              SECTION
                10.

            	
              DIVIDEND
                EQUIVALENT RIGHTS

            	
              5

            
	 	
              a.

            	
              Generally

            	
              5

            
	 	
              b.

            	
              Settlement
                of Dividend Equivalent Rights

            	
              5

            
	 	 	 	 	 
	
              SECTION
                11.

            	
              PAYMENT
                FOR SHARES

            	
              5

            
	 	
              a.

            	
              General
                Rule

            	
              5

            
	 	
              b.

            	
              Surrender
                of Shares

            	
              5

            
	 	
              c.

            	
              Services
                Rendered

            	
              5

            
	 	
              d.

            	
              Promissory
                Note

            	
              6

            
	 	
              e.

            	
              Net
                Exercise

            	
              6

            
	 	
              f.

            	
              Exercise/Sale

            	
              6

            
	 	
              g.

            	
              Exercise
                of Discretion

            	
              6

            
	 	 	 	 	 
	
              SECTION
                12.

            	
              TERMINATION
                OF SERVICE

            	
              6

            
	 	
              a.

            	
              Termination
                of Service

            	
              6

            
	 	
              b.

            	
              Leave
                of Absence

            	
              7

            
	 	 	 	 	 
	
              SECTION
                13.

            	
              ADJUSTMENT
                OF SHARES

            	
              7

            
	 	
              a.

            	
              General

            	
              7

            
	 	
              b.

            	
              Mergers
                and Consolidations

            	
              7

            
	 	 	 	 	 
	
              SECTION
                14.

            	
              SECURITIES
                LAW REQUIREMENTS

            	
              8

            
	 	
              a.

            	
              Shares
                Not Registered

            	
              8

            
	 	
              b.

            	
              California
                Participants

            	
              8

            
	 	 	 	 	 
	
              SECTION
                15.

            	
              GENERAL
                TERMS

            	
              8

            
	 	
              a.

            	
              Nontransferability
                of Awards

            	
              8

            
	 	
              b.

            	
              Restrictions
                on Transfer of Shares

            	
              8

            
	 	
              c.

            	
              Withholding
                Requirements

            	
              9

            
	 	
              d.

            	
              No
                Retention Rights

            	
              9

            
	 	
              e.

            	
              Unfunded
                Plan

            	
              9

            
	 	 	 	 	 
	
              SECTION
                16.

            	
              DURATION
                AND AMENDMENTS

            	
              9

            
	 	
              a.

            	
              Term
                of the Plan

            	
              9

            
	 	
              b.

            	
              Right
                to Amend or Terminate the Plan

            	
              9

            
	 	
              c.

            	
              Effect
                of Amendment or Termination

            	
              10

            
	 	
              d.

            	
              Modification,
                Extension and Assumption of Awards

            	
              10

            
	 	 	 	 	 
	
              SECTION
                17.

            	
              DEFINITIONS

            	
              10

            
	 	
              a.

            	
              “Affiliate”

            	
              10

            
	 	
              b.

            	
              “Award”

            	
              10

            
	 	
              c.

            	
              “Board
                of Directors”

            	
              10

            
	 	
              d.

            	
              “Cause”

            	
              10

            
	 	
              e.

            	
              “Change
                in Control”

            	
              11

            
	 	
              f.

            	
              “Code”

            	
              11

            
	 	
              g.

            	
              “Committee”

            	
              11

            
	 	
              h.

            	
              “Company”

            	
              11

            
	 	
              i.

            	
              “Disability”

            	
              11

            
	 	
              j.

            	
              “Dividend
                Equivalent Right”

            	
              11

            
	 	
              k.

            	
              “Fair
                Market Value”

            	
              11

            
	 	
              l.

            	
              “Good
                Reason”

            	
              11

            
	 	
              m.

            	
              “Initial
                Public Offering”

            	
              12

            
	 	
              n.

            	
              “ISO”

            	
              12

            
	 	
              o.

            	
              “Nonstatutory
                Option”

            	
              12

            
	 	
              p.
                

            	
              “Option”

            	
              12

            
	 	
              q.

            	
              “Parent”

            	
              12

            
	 	
              r.

            	
              “Person”

            	
              12

            
	 	
              s.

            	
              “Plan”

            	
              12

            
	 	
              t.

            	
              “Recapitalization”

            	
              12

            
	 	
              u.

            	
              “Service”

            	
              12

            
	 	
              v.

            	
              “Share”

            	
              12

            
	 	
              w.

            	
              “Stock
                Appreciation Right”

            	
              12

            
	 	
              x.

            	
              “Stock
                Award”

            	
              12

            
	 	
              y.

            	
              “Stock
                Unit”

            	
              13

            
	 	
              z.

            	
              “Subsidiary”

            	
              13

            
	 	
              aa.

            	
              “THL”

            	
              13

            
	 	 	 	 
	
              SECTION
                18.

            	
              MISCELLANEOUS

            	
              13

            
	 	
              a.

            	
              Choice
                of Law

            	
              13

            
	 	
              b.

            	
              Execution

            	
              13

            
	 	 	 	 	 
	
              APPENDIX
                1 CALIFORNIA SECURITIES LAW REQUIREMENTS

            	
              1

            

    

    

    

     

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

        
          

        

      

    

    Amended
      and Restated

    Simmons
      Company

    Equity
      Incentive Plan

     

    This
      Amended and Restated Simmons Company Equity Incentive Plan amends and restates
      the THL Bedding Holding Company Equity Incentive Plan that was established
      by
      the Company effective as of December 19, 2003.

     

    SECTION
      1.  PURPOSE.

     

    The
      purpose of the Plan is to attract and retain the best available personnel,
      to
      provide additional incentive to persons who provide services to the Company
      and
      its Subsidiaries, and to promote the success of the Company’s business. Unless
      the context otherwise requires, capitalized terms used herein are defined in
      Section 17.

     

    SECTION
      2.  ADMINISTRATION.

     

    a.  Committees.
      The Plan shall be administered by the Board of Directors or, at its election,
      by
      one or more committees consisting of one or more members who have been appointed
      by the Board of Directors. Each committee shall have such authority and be
      responsible for such functions as may be delegated to it by the Board of
      Directors, and any reference to the Board of Directors in the Plan shall be
      construed as a reference to the committee with respect to functions delegated
      to
      it. If no Committee has been appointed, the entire Board of Directors shall
      administer the Plan.

     

    b.  Authority
      of the Board of Directors.
      The Board of Directors shall have full authority and sole discretion to take
      any
      actions it deems necessary or advisable for the administration and operation
      of
      the Plan, including, without limitation, the right to construe and interpret
      the
      provisions of the Plan or any Award, to provide for any omission in the Plan, to
      resolve any ambiguity or conflict under the Plan or any Award, to accelerate
      vesting of or otherwise waive any requirements applicable to any Award, to
      extend the term or any period of exercisability of any Award, to modify the
      purchase price or exercise price under any Award, to establish terms or
      conditions applicable to any Award and to review any decisions or actions made
      or taken by the Committee. All decisions, interpretations and other actions
      of
      the Board of Directors or, in the absence of any action by the Board of
      Directors, any Committee shall be final and binding on all participants and
      other persons deriving their rights from a participant. Notwithstanding anything
      to the contrary herein, no action taken by the Board of Directors shall
      adversely affect in any material respect the rights granted to any participant
      under any outstanding Award without the participant’s written
      consent.

     

    SECTION
      3.  ELIGIBILITY

     

    The
      Board of Directors is authorized to grant Awards to directors, employees and
      consultants of the Company or any direct or indirect corporate or other
      Subsidiary in which the Company owns at least 50% of the outstanding equity
      interests thereof. Employees who have been granted Awards shall be participants
      in the Plan with respect to such Awards. 

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    SECTION
      4.  STOCK
      SUBJECT TO PLAN.

     

    a.  Basic
      Limitation.
      Subject to the following provisions of this Section and Section 13(e), the
      maximum number of shares of Class B common stock, $.01 par value per share,
      of the Company that may be issued pursuant to Awards under the Plan is 781,775
      Shares. 

     

    b.  Additional
      Shares.
      In the event that any outstanding Award expires, is cancelled or otherwise
      terminated, any rights to acquire shares allocable to the unexercised or
      unvested portion of such Award shall again be available for the purposes of
      the
      Plan. In the event that Shares issued under the Plan are reacquired by the
      Company pursuant to any forfeiture provision, right of repurchase, right of
      first offer or withholding requirements, such Shares shall again be available
      for the purposes of the Plan. In the event a participant pays for any Award
      through the delivery of previously acquired Shares, the number of Shares
      available shall be increased by the number of shares delivered by the
      participant.

     

    SECTION
      5.  AWARDS.

     

    a.  Types
      of Awards.
      The Board of Directors may, in its sole discretion, make Awards of one or more
      of the following: Options, Stock Appreciation Rights, Stock Awards, Stock Units
      and Dividend Equivalent Rights. The Company shall make Awards directly or cause
      one or more of its Subsidiaries to make Awards; provided, however, that the
      Company shall be responsible for causing any such Subsidiary to comply with
      the
      terms of any Award and the Plan.

     

    b.  Award
      Agreements.
      Each Award made under the Plan shall be evidenced by a written agreement between
      the participant and the Company, and no Award shall be valid without any such
      agreement. An Award shall be subject to all applicable terms and conditions
      of
      the Plan and to any other terms and conditions which the Board of Directors
      in
      its sole discretion deems appropriate for inclusion in the Award agreement
      provided such terms and conditions are not inconsistent with the Plan.
      Accordingly, in the event of any conflict between the provisions of the Plan
      and
      any such agreement, the provisions of the Plan shall prevail. Awards made to
      California participants shall also be subject to the applicable requirements
      set
      forth in Appendix I.
      Each agreement evidencing an Award shall provide, in addition to any terms
      and
      conditions required to be provided in such agreement pursuant to any other
      provision of this Plan, the following terms:

     

    
      	(i)  	
              Number
                of Shares.
                The number of Shares subject to the Award, if any, which number shall
                be
                subject to adjustment in accordance with Section 13 of the
                Plan.

            

    

     

    
      	(ii)  	
              Price.
                Where applicable, each agreement shall designate the price, if any,
                to
                acquire any Shares underlying the Award, which price shall be payable
                in a
                form described in Section 11 and subject to adjustment pursuant to
                Section
                13.

            

    

     

    
      	(iii)  	
              Vesting.
                Each agreement shall specify the dates and events on which all or
                any
                installment of the Award shall be vested and nonforfeitable. Such
                provisions, may include, without limitation, a provision that Awards
                vest
                upon a Change in Control.

            

    

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    c.  No
      Rights as a Shareholder.
      A participant, or a transferee of a participant, shall have no rights as a
      shareholder with respect to any Shares covered by an Award until Shares are
      actually issued in the name of such person (or if Shares will be held in street
      name, to a broker who will hold such Shares on behalf of such
      person).

     

    SECTION
      6.  OPTIONS.

     

    a.  Option
      Agreement.
      The Board of Directors, may in its sole discretion, grant Options. Each
      agreement evidencing an Award of Options shall contain the following
      information, which shall be determined by the Board of Directors, in its sole
      discretion:

     

    
      	(i)  	
              ISO/Nonstatutory
                Option.
                Each agreement shall designate an Option as either an ISO or a
                Nonstatutory Option.

            

    

     

    
      	(ii)  	
              Exercisability.
                Each agreement shall specify the dates and events when all or any
                installment of the Option becomes
                exercisable.

            

    

     

    
      	(iii)  	
              Term.
                Each agreement shall state the term of each Option (including the
                circumstances under which such Option will expire prior to the stated
                term
                thereof), which shall not exceed ten (10) years from the date of
                grant or
                such shorter term as may be required by Section 6(b)(iii) below for
                Ten
                Percent Shareholders. 

            

    

     

    b.  Special
      ISO Rules.
      The following rules apply to ISO grants in addition to any other rule that
      may
      apply under this Plan:

     

    
      	(i)  	
              ISO
                Participants.
                ISOs may only be granted to employees of the Company, a Parent or
                a
                Subsidiary.

            

    

     

    
      	(ii)  	
              Exercise
                Price.
                The exercise price of an ISO shall not be less than one hundred percent
                (100%) of the Fair Market Value of a Share on the date of grant or
                such
                higher price as may be required by Section 6(b)(iii) below for Ten
                Percent
                Shareholders.

            

    

     

    
      	(iii)  	
              Ten
                Percent Shareholders.
                An individual who owns more than ten percent (10%) of the total combined
                voting power of all classes of outstanding stock of the Company,
                its
                Parent or any of its Subsidiaries shall not be eligible for designation
                as
                a participant under an ISO unless (A) the exercise price is at least
                one
                hundred ten percent (110%) of the Fair Market Value of a Share on
                the date
                of grant and (B) the ISO is not exercisable after the expiration
                of five
                (5) years from the date of grant. In determining stock ownership
                for
                purposes hereof, the attribution rules of Section 424(d) of the Code
                shall
                apply.

            

    

     

    
      	(iv)  	
              Dollar
                Limitation.
                The aggregate Fair Market Value of Shares (determined as of the respective
                date or dates of grant) for which one or more Options granted to
                any
                participant under the Plan (or any other option plan of the Company
                or any
                Parent or Subsidiary) may for the first time become exercisable as
                ISOs
                during any one (1) calendar year shall not exceed the sum of One
                Hundred
                Thousand Dollars ($100,000). To the extent a participant holds two
                (2) or
                more Options which become exercisable for the first time in the same
                calendar year, such Options shall qualify as ISOs on the basis of
                the
                order in which such Options were granted.

            

    

     

    
      	(v)  	
              Failure
                to Qualify.
                If all or a portion of an Award granted as an ISO fails (or later
                ceases
                to) qualify as an ISO, such Option or portion thereof shall be treated
                as
                a Nonstatutory Option.

            

    

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    SECTION
      7.  STOCK
      APPRECIATION RIGHTS.

     

    a.  Generally.
      The Board of Directors may, in its sole discretion, grant Stock Appreciation
      Rights, including a concurrent grant of Stock Appreciation Rights in tandem
      with
      any Option. A Stock Appreciation Right means a right to receive a payment in
      cash, Shares or a combination thereof in an amount equal to the excess of (i)
      the Fair Market Value, or other specified valuation, of a number of Shares
      on
      the date the right is exercised over (ii) the Fair Market Value, or other
      specified valuation, of such Shares on the date the right is granted. If a
      Stock
      Appreciation Right is granted in tandem with or in substitution for an Option,
      the designated Fair Market Value in the Award agreement shall reflect the Fair
      Market Value of the Shares underlying the Awards on the date the Option is
      granted.

     

    b.  Stock
      Appreciation Rights Award Agreement.
      Each agreement evidencing an Award of Stock Appreciation Rights shall contain
      the following information, which shall be determined by the Board of Directors,
      in its sole discretion:

     

    
      	(i)  	
              Base
                Value.
                Each agreement shall specify the base value of the Shares above which
                a
                participant shall be entitled to share in the appreciation in the
                value of
                such Shares.

            

    

     

    
      	(ii)  	
              Exercisability.
                Each agreement shall specify the dates and events when all or any
                installment of the Stock Appreciation Rights becomes
                exercisable.

            

    

     

    
      	(iii)  	
              Term.
                Each agreement shall state the term of each Stock Appreciation Right
                (including the circumstances under which such Stock Appreciation
                Right
                will expire prior to the stated term thereof), which shall not exceed
                ten
                (10) years from the date of grant.

            

    

     

    SECTION
      8.  STOCK
      AWARDS.

     

    a.  Generally.
      The Board of Directors may, in its sole discretion, make Stock Awards by
      granting or selling Shares under the Plan. A Restricted Stock Award shall be
      an
      Award of Shares that is subject to a substantial risk of forfeiture, as
      determined by the Board of Directors in its sole discretion, and set forth
      in
      the Restricted Stock Agreement. Payment in Shares of all or a portion of any
      bonus under any other arrangement may be treated by the Board of Directors
      as an
      Award of Shares under the Plan. A Stock Award shall not be deemed made until
      accepted by a participant in a manner described by the Board of Directors at
      the
      time of grant.

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    b.  No
      Purchase Price Necessary.
      In lieu of a purchase price, a Stock Award may be made in consideration of
      services previously rendered by a participant to the Company or its
      Subsidiaries.

     

    SECTION
      9.  STOCK
      UNITS.

     

    a.  Generally.
      The Board of Directors may, in its sole discretion, grant Stock Units, which
      in
      each case shall be a notional account representing Shares.

     

    b.  Settlement
      of Stock Units.
      Stock Units shall be settled in Shares unless the agreement evidencing the
      Award
      expressly provides for settlement of all or a portion of the Stock Units in
      cash
      equal to the value of the Shares that would otherwise be distributed in
      settlement of such units. Shares distributed to settle a Stock Unit may be
      issued with or without payment or consideration therefor, except as may be
      required by applicable law or the Board of Directors in its sole discretion
      as
      set forth in the agreement evidencing the Award. The Board of Directors may,
      in
      its sole discretion, establish a program to permit participants to defer
      payments and distributions made in respect of Stock Units.

     

    SECTION
      10.  DIVIDEND
      EQUIVALENT RIGHTS.

     

    a.  Generally.
      The Board of Directors may, in its sole discretion, grant Dividend Equivalent
      Rights with respect to any Award.

     

    b.  Settlement
      of Dividend Equivalent Rights.
      Dividend Equivalent Rights may be settled in cash, Shares, or other securities
      or property, all as provided in the Award agreement. The Board of Directors
      may,
      in its sole discretion, grant stock units, which in each case shall be a
      notional account representing Shares. The Board of Directors may, in its sole
      discretion, establish a program to permit participants to defer payments and
      distributions made in respect Dividend Equivalent Rights.

     

    SECTION
      11.  PAYMENT
      FOR SHARES.

     

    a.  General
      Rule.
      The purchase price of Shares issued under the Plan shall be payable in cash
      or
      personal check at the time when such Shares are purchased, except as otherwise
      provided in this Section 11.

     

    b.  Surrender
      of Shares.
      At the sole discretion of the Board of Directors, all or any part of the
      purchase price and any applicable withholding requirements may be paid by
      surrendering, or attesting to the ownership of, Shares that are already owned
      by
      the participant. Such Shares shall be surrendered to the Company in good form
      for transfer and shall be valued at their Fair Market Value on the date when
      the
      Award is exercised. The participant shall not surrender, or attest to the
      ownership of, Shares in payment of any portion of the purchase price (or
      withholding) if such action would cause the Company or any Subsidiary to
      recognize a compensation expense (or additional compensation expense) with
      respect to the applicable Award for financial reporting purposes, unless the
      Board of Directors consents thereto.

     

    c.  Services
      Rendered.
      At the sole discretion of the Board of Directors, Shares may be awarded under
      the Plan in consideration of services rendered to the Company, a Parent or
      a
      Subsidiary prior to or after the Award.

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

    d.  Promissory
      Note.
      At the sole discretion of the Board of Directors, all or a portion of the
      purchase price under an Award under the Plan and any applicable withholding
      requirements may be paid with a full-recourse promissory note. However, the
      par
      value of the Shares, if newly issued, shall be paid in cash. The Shares shall
      be
      pledged as security for payment of the principal amount of the promissory note
      and interest thereon. The interest rate payable under the terms of the
      promissory note shall not be less than the minimum rate (if any) required to
      avoid the imputation of additional interest under the Code. Subject to the
      foregoing, the Board of Directors (at its sole discretion) shall specify the
      term, interest rate, amortization requirements (if any) and other provisions
      of
      such note.

     

    e.  Net
      Exercise.
      At the sole discretion of the Board of Directors on or after an Initial Public
      Offering, payment of all or any portion of the purchase price under any Award
      under the Plan and any applicable withholding requirements may be made by
      reducing the number of Shares otherwise deliverable pursuant to the Award by
      the
      number of such Shares having a Fair Market Value equal to the purchase
      price.

     

    f.  Exercise/Sale.
      At the sole discretion of the Board of Directors on or after an Initial Public
      Offering, payment may be made in whole or in part by the delivery (on a form
      prescribed by the Company) of an irrevocable direction (i) to a securities
      broker approved by the Company to sell Shares and to deliver all or part of
      the
      sales proceeds to the Company, or (ii) to pledge Shares to a securities broker
      or lender approved by the Company as security for a loan, and to deliver all
      or
      part of the loan proceeds to the Company, in each case in payment of all or
      part
      of the purchase price and any withholding requirements.

     

    g.  Exercise
      of Discretion.
      Should the Board of Directors exercise its sole discretion to permit the
      participant to pay the purchase price under an Award in whole or in part in
      accordance with Subsections (b) through (f) above, it shall not be bound to
      permit such alternative method of payment for the remainder of any such Award
      or
      with respect to any other Award or participant under the Plan.

     

    SECTION
      12.  TERMINATION
      OF SERVICE.

     

    a.  Termination
      of Service.
      If a participant’s Service terminates for any reason other than for Cause, then
      unless the Award Agreement provides otherwise:

     

    
      	(i)  	
              Options/Stock
                Appreciation Rights.
                Any outstanding Options or Stock Appreciation Rights shall expire
                on the
                earliest of: (A) the expiration of their term, (B) the date that
                is twelve
                (12) months following termination of the participant’s Service as a result
                of death or Disability, (C) the date that is three (3) months following
                the participant’s termination of Service without Cause or resignation for
                Good Reason or (D) on the date of termination of Service if the
                participant’s Service is terminated with Cause or due to voluntary
                resignation by the participant without Good Reason (as applicable,
                the
                “Expiration
                Date”).
                However, in the case of Options, a participant (or in the case of
                the
                participant’s death or Disability, the participant’s representative) may
                exercise all or a part of the participant’s Options at any time before the
                Expiration Date of such Options only to the extent that such Options
                had
                become exercisable for vested Shares (in accordance with the terms
                of such
                Option or otherwise under the Plan) on or before the date the
                participant’s Service terminates. The balance of the Options (which are
                not exercisable and vested on the Expiration Date) shall lapse when
                the
                participant’s Service terminates.

            

    

     

    If
      by virtue of this provision, an ISO is not exercised within three (3) months
      after a participant’s employment terminates, then unless such participant’s
      employment termination is due to his death or Disability, the ISO shall be
      treated as a Nonstatutory Option.

     

    
      	(ii)  	
              Stock
                Awards/Stock Units.
                The terms of the applicable Restricted Stock Agreement shall govern
                the
                terms and conditions of a participant’s Award with respect to termination
                of service.

            

    

     

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

    b.  Leave
      of Absence.
      For purposes of this Section, Service shall be deemed to continue while a
      participant is a bona fide leave of absence, if such leave is approved by the
      Company in writing or if continued crediting of service for this purpose is
      expressly required by the terms of such leave or by applicable law (as
      determined by the Board of Directors).

     

    SECTION
      13.  ADJUSTMENT
      OF SHARES.

     

    a.  General.
      If there shall be a Recapitalization, an adjustment shall be made to each
      outstanding Award such that each such Award shall thereafter be exercisable
      or
      payable, as the case may be, in such securities, cash and/or other property
      as
      would have been received in respect of Shares subject to (or referenced by)
      such
      Award had such Award been exercised and/or settled in full immediately prior
      to
      such Recapitalization and such an adjustment shall be made successively each
      time any such change shall occur. In addition, in the event of any
      Recapitalization, to prevent dilution or enlargement of participants’ rights
      under the Plan, the Board of Directors shall, and will have the authority to
      adjust, in a fair and equitable manner, the number and kind of Shares that
      may
      be issued under the Plan, the number and kind of Shares subject to outstanding
      Awards, and the purchase price applicable to outstanding Awards. Should the
      vesting of any Award be conditioned upon the Company’s attainment of performance
      conditions, the Board of Directors may make such adjustments to the terms and
      conditions of such Awards and the criteria therein to recognize unusual and
      nonrecurring events affecting the Company or in response to changes in
      applicable laws, regulations or accounting principles. Notwithstanding the
      foregoing, the Board of Directors shall not without a participant’s consent make
      any adjustment to an ISO that does not comply with the rules of Section 424(a)
      of the Code or would otherwise cause the ISO to fail to qualify as an ISO for
      purposes of Section 422 of the Code.

     

    b.  Mergers
      and Consolidations.
      In the event that the Company is a party to a merger or consolidation,
      outstanding Awards shall be subject to the agreement of merger or consolidation.
      Such agreement, without the participants’ consent, may provide for:

     

    
      	(i)  	
              The
                continuation or assumption of such outstanding Awards under the Plan
                by
                the Company (if it is the surviving corporation) or by the surviving
                corporation or its parent;

            

    

     

    
      	(ii)  	
              The
                substitution by the surviving corporation or its parent of stock
                awards
                with substantially the same terms for such outstanding Awards;
                

            

    

     

    
      	(iii)  	
              The
                acceleration of the vesting of or right to exercise such outstanding
                Awards immediately prior to or as of the date of the merger or
                consolidation, and the expiration of such outstanding Awards to the
                extent
                not timely exercised or purchased by the date of the merger or
                consolidation or other date thereafter designated by the Board of
                Directors; or

            

    

     

    
      	(iv)  	
              The
                cancellation of all or any portion of such outstanding Awards by
                a cash
                payment of the excess, if any, of the fair market value of the Shares
                subject to such outstanding Awards or portion thereof being canceled
                over
                the purchase price with respect to such Awards or portion thereof
                being
                canceled.

            

    

     

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

    SECTION
      14.  SECURITIES
      LAW REQUIREMENTS.

     

    a.  Shares
      Not Registered.
      Shares shall not be issued under the Plan unless the issuance, payment and
      delivery of such Shares comply with (or are exempt from) all applicable
      requirements of law, including (without limitation) the Securities Act of 1933,
      as amended, the rules and regulations promulgated thereunder, State securities
      laws and regulations, and the regulations of any stock exchange or other
      securities market on which the Company’s securities may then be traded. The
      Company shall not be obligated to file any registration statement under any
      applicable securities laws to permit the purchase or issuance of any Shares
      under the Plan, and accordingly any certificates for Shares may have an
      appropriate legend or statement of applicable restrictions endorsed thereon.
      Each participant and any person deriving its rights from any participant shall,
      as a condition to the purchase or issuance of any Shares under the Plan, deliver
      to the Company an agreement or certificate containing such representations,
      warranties and covenants as the Company may deem necessary or appropriate to
      ensure that the issuance of Shares is not required to be registered under any
      applicable securities laws.

     

    b.  California
      Participants.
      If an Award shall be made to a participant based in California, then such Award
      shall meet the additional requirements set forth in Appendix
      I.

     

    SECTION
      15.  GENERAL
      TERMS.

     

    a.  Nontransferability
      of Awards.
      No Award (other than vested Awards of Shares) may be transferred, assigned,
      pledged or hypothecated by any participant during the participant’s lifetime,
      whether by operation of law or otherwise, or be made subject to execution,
      attachment or similar process, other than assignments or transfers (i) by will
      or the laws of descent and distribution, and the Award may be exercised during
      the lifetime of the participant only by him or her, and (ii) to a trust,
      partnership, limited liability company or other similar vehicle established
      and
      maintained solely for the benefit of the participant’s spouse and descendants
      (natural or adopted) provided the participant controls such vehicle; provided
      that all terms regarding termination of the Award and repurchase of the Shares
      issued upon exercise shall continue to apply and shall be deemed to be with
      reference to the Service of the original participant transferring the Award.
      

     

    b.  Restrictions
      on Transfer of Shares.
      Any Shares issued under the Plan shall be subject to such vesting and special
      forfeiture conditions, repurchase rights, rights of first offer and other
      transfer restrictions as the Board of Directors may determine. Such restrictions
      shall be set forth in the applicable Restricted Stock Agreement or Stock Option
      Agreement, and shall apply in addition to any restrictions that may apply to
      holders of Shares generally.

     

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

    c.  Withholding
      Requirements.
      As a condition to the receipt or purchase of Shares pursuant to an Award, a
      participant shall make such arrangements as the Board of Directors may require
      for the satisfaction of any federal, State, local or foreign withholding
      obligations that may arise in connection with such receipt or purchase. The
      participant shall also make such arrangements as the Board of Directors may
      require for the satisfaction of any federal, State, local or foreign withholding
      obligations that may arise in connection with the disposition of Shares acquired
      pursuant to an Award.

     

    d.  No
      Retention Rights.
      Nothing in the Plan or in any Award granted under the Plan shall confer upon
      a
      participant any right to continue in Service for any period of specific duration
      or interfere with or otherwise restrict in any way the rights of the Company
      (or
      any Parent or Subsidiary employing or retaining the participant) or of the
      participant, which rights are hereby expressly reserved by each, to terminate
      his or her Service at any time and for any reason, with or without
      Cause.

     

    e.  Unfunded
      Plan.
      Participants shall have no right, title or interest whatsoever in or to any
      investments which the Company may make to aid it in meeting its obligations
      under the Plan. Nothing contained in the Plan, and no action taken pursuant
      to
      its provisions, shall create or be construed to create a trust of any kind,
      nor
      a fiduciary relationship between the Company and any participant, beneficiary,
      legal representative or any other person. To the extent that any person acquires
      a right to receive payments from the Company under the Plan, such right shall
      be
      no greater than the rights of an unsecured general creditor of the Company.
      All
      payments to be made hereunder shall be paid from the general funds of the
      Company and no special or separate fund shall be established and no segregation
      of assets shall be made to assure payment of such amounts. The Plan is not
      intended to be subject to the Employee Retirement Income Security Act of 1974,
      as amended.

     

    SECTION
      16.  DURATION
      AND AMENDMENTS.

     

    a.  Term
      of the Plan.
      The Plan, as set forth herein, shall become effective on the date of its
      adoption by the Board of Directors, subject to the approval of the majority
      of
      the Company’s shareholders. If a majority of the shareholders fail to approve
      the Plan within 12 months of its adoption by the Board of Directors, any
      Awards that have already been made shall be rescinded, and no additional Awards
      shall be made thereafter under the Plan. The Plan shall terminate automatically
      on the day preceding the tenth anniversary of its adoption by the Board of
      Directors unless earlier terminated pursuant to Subsection (b)
      below.

     

    b.  Right
      to Amend or Terminate the Plan.
      The Board of Directors may amend, suspend or terminate the Plan at any time
      and
      for any reason; provided, however, that any amendment of the Plan (except as
      provided in Section 13) which increases the maximum number of Shares issuable
      to
      any person or available for issuance under the Plan in the aggregate, changes
      the legal entity authorized to make Awards under this Plan from the Company
      (or
      its successor) to any other legal entity or which materially changes the class
      of persons who are eligible for the grant of ISOs, shall be subject to the
      approval of the Company’s shareholders. Shareholder approval shall not be
      required for any other amendment of the Plan.

     

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

    c.  Effect
      of Amendment or Termination.
      Any amendment of the Plan shall not adversely affect in any material respect
      any
      participant’s rights under any Award previously made or granted under the Plan
      without the participant’s consent. No Shares shall be issued or sold under the
      Plan after the termination thereof, except pursuant to an Award granted prior
      to
      such termination. The termination of the Plan shall not affect any Awards
      outstanding on the termination date.

     

    d.  Modification,
      Extension and Assumption of Awards.
      Within the limitations of the Plan, the Board of Directors may modify, extend
      or
      assume outstanding Awards or may provide for the cancellation of outstanding
      Awards in return for the grant of new Awards for the same or a different number
      of Shares and at the same or a different price. The foregoing notwithstanding,
      no modification of an Awards shall, without the consent of the participant,
      materially impair the participant’s rights or increase the participant’s
      obligations under such Award or impair the economic value of any such
      Award.

     

    SECTION
      17.  DEFINITIONS.

     

    a.  “Affiliate”
      of any particular Person means any other Person controlling, controlled by
      or
      under common control with such particular Person or, with respect to any
      individual, such individual’s spouse and descendants (whether natural or
      adopted) and any trust, partnership, limited liability company or similar
      vehicle established and maintained solely for the benefit of (or the sole
      members or partners of which are) such individual, such individual’s spouse
      and/or such individual’s descendants.

     

    b.  “Award”
      shall mean the grant of an Option, Stock Appreciation Right, Stock Award, Stock
      Unit, or Dividend Equivalent Right under the Plan.

     

    c.  “Board
      of Directors”
      shall mean the Board of Directors of the Company, as constituted from time
      to
      time.

     

    d.  “Cause”
      shall mean with respect to a participant “Cause” as defined in any employment
      agreement between the participant and the Company (or, if applicable, the
      Subsidiary employing the participant) or if the participant is not a party
      to an
      employment agreement or “cause” is not defined therein, the following unless
      another meaning is specifically provided by the Board of Directors or in the
      participant’s Award agreement:

     

    
      	(i)  	
              Any
                conviction or plea of guilty or nolo contendere to any felony or
                a crime
                involving fraud, personal dishonesty or moral turpitude (whether
                or not in
                connection with his employment), 

            

    

     

    
      	(ii)  	
              Repeated
                or consistent failure or refusal to perform the participant’s duties or
                fulfill his or her responsibilities to the Company, after verbal
                notice
                and ten (10) days opportunity to cure,

            

    

     

    
      	(iii)  	
              Any
                breach of any written policy or any confidential or proprietary
                information, non-compete or non-solicitation covenant for the benefit
                of
                the Company or any of its affiliates,
                or

            

    

     

    
      	(iv)  	
              Commission
                of any fraud, embezzlement, misappropriation of funds, breach of
                fiduciary
                duty or other act of dishonesty against the
                Company.

            

    

     

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

    e.  “Change
      in Control”
      shall mean the consummation of a transaction, whether in a single transaction
      or
      in a series of related transactions that are consummated contemporaneously
      (or
      consummated pursuant to contemporaneous agreements), with any other party or
      parties, other than an Affiliate of THL, on an arm's-length basis, pursuant
      to
      which (a) a party or group (as defined under Rule 13d under the Securities
      Exchange Act of 1934, as amended) who is not a stockholder of the Company on
      December 19, 2003, acquires, directly or indirectly (whether by merger, stock
      purchase, recapitalization, reorganization, redemption, issuance of capital
      stock or otherwise), more than 50% of the voting stock of the Company, (b)
      such
      party or parties, directly or indirectly, acquire assets constituting all or
      substantially all of the assets of the Company and its subsidiaries on a
      consolidated basis, or (c) prior to an initial public offering of the Company
      common stock pursuant to an offering registered under the Securities Act, Thomas
      H. Lee Equity Fund V, L.P., a Delaware limited partnership, and its affiliates,
      cease to have the ability to elect, directly or indirectly, a majority of the
      Board of Directors.

     

    A
      transaction shall not constitute a Change in Control if its sole purpose is
      to
      change the state of the Company’s incorporation or to create a holding company
      that will be owned in substantially the same proportions by the persons who
      held
      the Company’s securities immediately before such transaction.

     

    f.  “Code”
      shall mean the Internal Revenue Code of 1986, as amended.

     

    g.  “Committee”
      shall mean a committee of the Board of Directors, as described in
      Section 2(a).

     

    h.  “Company”
      shall mean Simmons Company, a Delaware corporation.

     

    i.  “Disability”
      shall mean with respect to a participant, (i) “disability” as defined in any
      employment agreement between the between the participant and the Company (or,
      if
      applicable, the Subsidiary employing the participant) or (ii) if the participant
      is not a party to an employment agreement or “disability” is not defined
      therein, the participant’s inability to engage in any substantial gainful
      activity by reason of any medically determinable physical or mental impairment,
      as determined by the Board of Directors in its sole discretion, unless another
      meaning is specifically provided in the participant’s Award agreement;
provided,
      however, that
      in either case and solely for purposes of determining whether an Option
      continues to qualify as an ISO, Disability shall have the meaning described
      in
      Section 22(e)(3) of the Code.

     

    j.  “Dividend
      Equivalent Right”
      shall mean an Award that entitles the holder to receive for each eligible Share
      that is subject to (or referenced by) such Award an amount equal to the
      dividends paid on one Share at such time as dividends are otherwise paid to
      shareholders of the Company or, if later, when the Award becomes
      vested.

     

    k.  “Fair
      Market Value”
      shall mean the fair market value of a Share, as determined by the Board of
      Directors in good faith. Such determination shall be conclusive and binding
      on
      all persons

     

    l.  “Good
      Reason”
      shall mean with respect to a participant “Good Reason” as defined in any
      employment agreement between the participant and the Company (or, if applicable,
      the Subsidiary employing the participant) or if the participant is not a party
      to an employment agreement or “good reason” is not defined therein, the
      following unless another meaning is specifically provided by the Board of
      Directors or in the participant’s Award agreement:

     

    
      	(i)  	
              Any
                reduction in a participant’s base
                salary;

            

    

     

    
      	(ii)  	
              Any
                requirement that a participant be required to relocate his place
                of
                employment thirty-five (35) or more miles away from his current place
                of
                employment, which new location is also thirty-five (35) or more miles
                away
                from the participant’s residence.

            

    

     

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

    m.  “Initial
      Public Offering”
      shall mean a firm commitment underwritten public offering of Shares or other
      event the result of which is that Shares are tradable on the New York Stock
      Exchange, American Stock Exchange, NASDAQ National Market or similar market
      system.

     

    n.  “ISO”
      shall mean an incentive stock option described in Section 422(b) of the
      Code.

     

    o.  “Nonstatutory
      Option”
      shall mean a stock option not described in Sections 422(b) of the
      Code.

     

    p.  “Option”
      shall mean an ISO or Nonstatutory Option granted under the Plan and entitling
      the holder to purchase Shares.

     

    q.  “Parent”
      shall mean any corporation (other than the Company) in an unbroken chain of
      corporations ending with the Company, if each of the corporations other than
      the
      Company owns stock possessing fifty percent (50%) or more of the total combined
      voting power of all classes of stock in one of the other corporations in such
      chain. A corporation that attains the status of a Parent on a date after the
      adoption of the Plan shall be considered a Parent commencing as of such
      date.

     

    r.  “Person”
      shall be construed broadly and shall include, without limitation, an individual,
      a partnership, an investment fund, a limited liability company, a corporation,
      an association, a joint stock company, a trust, a joint venture, an
      unincorporated organization and a governmental entity or any department, agency
      or political subdivision thereof.

     

    s.  “Plan”
      shall mean this Amended and Restated Simmons Company Equity Incentive
      Plan.

     

    t.  “Recapitalization”
      shall mean an event or series of events affecting the capital structure of
      the
      Company such as a stock split, reverse stock split, stock dividend,
      distribution, recapitalization, combination or reclassification of the Company’s
      securities.

     

    u.  “Service”
      shall mean service as an employee, director or consultant.

     

    v.  “Share”
      shall mean one share of Class B common stock of the Company, with a par value
      of
      $.01 per Share.

     

    w.  “Stock
      Appreciation Right”
      shall have the meaning described in Section 7(a).

     

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

    x.  “Stock
      Award”
      shall have the meaning described in Section 8(a).

     

    y.  “Stock
      Unit”
      shall have the meaning described in Section 9(a).

     

    z.  “Subsidiary”
      shall mean any corporation (other than the Company) in an unbroken chain of
      corporations beginning with the Company, if each of the corporations other
      than
      the last corporation in the unbroken chain owns stock possessing fifty percent
      (50%) or more of the total combined voting power of all classes of stock in
      one
      of the other corporations in such chain. A corporation that attains the status
      of a Subsidiary on a date after the adoption of the Plan shall be considered
      a
      Subsidiary commencing as of such date.

     

    aa.  “THL”
      means Thomas H. Lee Equity Fund V, L.P., a Delaware limited partnership, Thomas
      H. Lee Parallel Fund V, L.P., Thomas H. Lee Cayman Fund V, L.P., 1997 Thomas
      H.
      Lee Nominee Trust, Thomas H. Lee Investors Limited Partnership, Putnam
      Investments Holdings, LLC, Putnam Investments Employees’ Securities Company I
      LLC, and Putnam Investments Employees’ Securities Company II, LLC.

     

    SECTION
      18.  MISCELLANEOUS.

     

    a.  Choice
      of Law.
      This Agreement shall be governed by, and construed in accordance with, the
      laws
      of the State of Delaware, as such laws are applied to contracts entered into
      and
      performed in such State.

     

    b.  Execution.
      To record the adoption of the Plan by the Board of Directors, the Company has
      caused its authorized officer to execute the same.

     

    Simmons
      Company

     

    By:
      /s/ William Creekmuir

     

    Title:
      Executive Vice President and Chief Financial Officer

    

    
      
        
           

        

        
        

      

      
        13

        
          

        

      

      
        
        

        
          

        

      

    

    APPENDIX
      I

     

    CALIFORNIA
      SECURITIES LAW REQUIREMENTS.

     

    The
      terms of this Appendix I apply only to Awards that would be subject to Section
      25110 of the California Corporations Code or any successor law but for the
      exemption contained in Section 25102(o) of the California Corporation Code
      (or
      any successor law). For purposes of determining the applicability of the
      California securities law requirements contained in this Subsection, all Awards
      shall be deemed made in the State in which the participant is principally
      employed by the Company or any Parent or Subsidiary (as determined by the
      employer’s records) on the date of grant or issuance of the Award. Except as
      modified by the provisions of this Appendix I, all the other relevant provisions
      of the Plan shall be applicable to such Awards.

     

    (i)  Number
      of Securities.
      At no time shall the total number of securities issuable upon exercise of all
      outstanding Options and the total number of Shares provided for under this
      or
      any stock bonus or similar plan or agreement of the Company exceed the
      applicable percentage calculated in accordance with Title 10 California Code
      of
      Regulations, Chapter 3, Subchapter 2, Article 4, Subarticle 4, Section
      260.140.45.,

     

    (ii) Exercise
      Price.
      The Exercise Price of an Option shall not be less than eighty-five percent
      (85%)
      of the Fair Market Value on the date of grant (one hundred ten percent (110%)
      of
      the Fair Market Value on the date of grant for an Option granted to Ten Percent
      Shareholders).

     

    (ii) Purchase
      Price.
      The purchase price of an Award of Shares shall not be less than eighty-five
      percent (85%) of the Fair Market Value on the date of issuance (one hundred
      percent (100%) of the Fair Market Value on the date of issuance for an Award
      granted to Ten Percent Shareholders).

     

    (iv) Vesting
      and Exercisability.
      Except in the case of an Option granted to a Consultant, officer of the Company
      (or any Parent or Subsidiary), or any member of the Board of Directors, each
      Option shall become exercisable and vested with respect to at least twenty
      percent (20%) of the total number of Shares subject to such Option each year,
      beginning no later than one (1) year after the date of grant.

     

    (v) Repurchase
      Rights.
      Except in the case of an Award granted or issued to a Consultant, officer of
      the
      Company (or any Parent or Subsidiary), or any member of the Board of Directors,
      any rights of the Company to repurchase Shares acquired under the Plan
      applicable to a participant whose Service terminates:

     

    (A) Shall
      be exercised by the Company (if at all) within ninety (90) days after the date
      the participant’s Service terminates (or for Shares upon the exercise of an
      Award after Service terminates, within ninety (90) days after the date of such
      exercise)
      and shall terminate on the date of an Initial Public Offering, and

    (B) Shall
      lapse at the rate of at least twenty percent (20%) of the Shares subject to
      such
      Award per year (regardless of the portion of the Award exercised or
      exercisable), with the initial lapse to occur no later than one (1) year after
      the date of grant, to the extent the repurchase right permits repurchase at
      less
      than Fair Market Value. Any repurchase right shall not be exercisable for less
      than the original purchase price paid by a participant.

    

    (v) Limited
      Transferability Rights.

    

    (A) A
      Nonstatutory Option or other right to acquire shares (other than an ISO) may,
      to
      the extent permitted by the Board of Directors, be assigned in whole or in
      part
      during the participant’s lifetime (1) as a gift to one or more members of the
      participant’s immediate family or (2) by instrument to an inter vivos or
      testamentary trust in which such Award is to be passed to beneficiaries upon
      the
      death of the trustor (settlor). The terms applicable to the assigned portion
      shall be the same as those in effect for the Award immediately prior to such
      assignment and shall be set forth in such documents issued to the assignee
      as
      the Board of Directors may deem appropriate.

    

    (B) Except
      as provided in Subsection (A) above, an Award may not be assigned or transferred
      other than by will or by the laws of descent and distribution following the
      participant’s death.

    

    (vi) Financial
      Reports. The
      Company shall deliver a financial statement at least annually to each
      participant holding Awards or Shares issued under the Plan, unless such
      participant is a key employee whose duties in connection with the Company assure
      such individual access to equivalent information.

     

     

    
      
         

      

      
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