Document:

Tempur-Pedic International Inc. 2003 Equity Incentive Plan

 Exhibit 10.17 
  
 TEMPUR-PEDIC INTERNATIONAL INC. 
  
 2003 EQUITY INCENTIVE PLAN 

 TABLE OF CONTENTS 
  

			
	1.	  	Purpose	  	1
			
	2.	  	Definitions	  	1
			
	3.	  	Term of the Plan	  	5
			
	4.	  	Stock Subject to the Plan	  	5
			
	5.	  	Administration	  	5
			
	6.	  	Authorization of Grants	  	6
			
	7.	  	Specific Terms of Awards	  	7
			
	8.	  	Adjustment Provisions	  	13
			
	9.	  	Change of Control	  	15
			
	10.	  	Settlement of Awards	  	16
			
	11.	  	Reservation of Stock	  	18
			
	12.	  	Limitation of Rights in Stock; No Special Service Rights	  	18
			
	13.	  	Unfunded Status of Plan	  	19
			
	14.	  	Nonexclusivity of the Plan	  	19
			
	15.	  	Termination and Amendment of the Plan	  	19
			
	16.	  	Notices and Other Communications	  	19
			
	17.	  	Governing Law	  	20

  

 TEMPUR-PEDIC INTERNATIONAL INC.

  
 2003 EQUITY INCENTIVE
PLAN 
  
 1. Purpose 
  
 This Plan is intended to encourage ownership of Stock by employees,
consultants and directors of the Company and its Affiliates and to provide additional incentive for them to promote the success of the Company’s business through the grant of Awards of or pertaining to shares of the Company’s Stock. The
Plan is intended to be an incentive stock option plan within the meaning of Section 422 of the Code, but not all Awards are required to be Incentive Options. 
  
 2. Definitions 
  
 As used in this Plan, the following terms shall have the following meanings: 
  
 2.1. Accelerate, Accelerated, and Acceleration, means: (a) when used with respect to an Option or Stock
Appreciation Right, that as of the time of reference the Option or Stock Appreciation Right will become exercisable with respect to some or all of the shares of Stock for which it was not then otherwise exercisable by its terms; (b) when used with
respect to Restricted Stock or Restricted Stock Units, that the Risk of Forfeiture otherwise applicable to the Stock or Units shall expire with respect to some or all of the shares of Restricted Stock or Units then still otherwise subject to the
Risk of Forfeiture; and (c) when used with respect to Performance Units, that the applicable Performance Goals shall be deemed to have been met as to some or all of the Units. 
  
 2.2. Acquisition means a merger or consolidation of the Company with or into another person or the sale, transfer, or
other disposition of all or substantially all of the Company’s assets to one or more other persons in a single transaction or series of related transactions. 
  
 2.3. Affiliate means any corporation, partnership, limited liability company, business trust, or other entity
controlling, controlled by or under common control with the Company. 
  
 2.4. Award means any grant or sale pursuant to the Plan of Options, Stock Appreciation Rights, Performance Units, Restricted Stock, Restricted Stock Units or Stock Grants. 
  
 2.5. Award Agreement means an agreement between the Company and the recipient of an Award, setting forth the
terms and conditions of the Award. 
  
 2.6. Board means the
Company’s Board of Directors. 

 2.7. Change of Control means the occurrence of any of the following after the date of the approval
of the Plan by the Board: 
  
 (a) an Acquisition, unless
securities possessing more than 50% of the total combined voting power of the survivor’s or acquiror’s outstanding securities (or the securities of any parent thereof) are held by a person or persons who held securities possessing more
than 50% of the total combined voting power of the Company’s outstanding securities immediately prior to that transaction, or 
  
 (b) any person or group of persons (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended and in effect from time to
time) directly or indirectly acquires beneficial ownership (determined pursuant to Securities and Exchange Commission Rule 13d-3 promulgated under the said Exchange Act) of securities possessing more than 50% of the total combined voting power of
the Company’s outstanding securities pursuant to a tender or exchange offer made directly to the Company’s stockholders that the Board does not recommend such stockholders accept, other than (i) the Company or an Affiliate, (ii) an
employee benefit plan of the Company or any of its Affiliates, (iii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Affiliates, or (iv) an underwriter temporarily holding securities
pursuant to an offering of such securities, or 
  
 (c) over a
period of 36 consecutive months or less, there is a change in the composition of the Board such that a majority of the Board members (rounded up to the next whole number, if a fraction) ceases, by reason of one or more proxy contests for the
election of Board members, to be composed of individuals who either (i) have been Board members continuously since the beginning of that period, or (ii) have been elected or nominated for election as Board members during such period by at least a
majority of the Board members described in the preceding clause (i) who were still in office at the time that election or nomination was approved by the Board; or 
  
 (d) a majority of the Board votes in favor of a decision that a Change in Control has occurred. 
  
 2.8. Code means the Internal Revenue Code of 1986, as amended from
time to time, or any successor statute thereto, and any regulations issued from time to time thereunder. 
  
 2.9. Committee means the Compensation Committee of the Board, which in general is responsible for the administration of the Plan, as provided in
Section 5 of the Plan. For any period during which no such committee is in existence “Committee” shall mean the Board and all authority and responsibility assigned to the Committee under the Plan shall be exercised, if at all, by the
Board. 
  
 2.10. Company means Tempur-Pedic International
Inc., a corporation organized under the laws of the State of Delaware. 
  

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 2.11. Covered Employee means an employee who is a “covered employee” within the meaning
of Section 162(m) of the Code. 
  
 2.12. Grant Date
means the date as of which an Option is granted, as determined under Section 7.1(a). 
  
 2.13. Incentive Option means an Option which by its terms is to be treated as an “incentive stock option” within the meaning of Section 422 of the Code. 
  
 2.14. Market Value means the value of a share of Stock on a
particular date determined by such methods or procedures as may be established by the Committee. Unless otherwise determined by the Committee, the Market Value of Stock as of any date is the closing price for the Stock as reported on the New York
Stock Exchange (or on any other national securities exchange on which the Stock is then listed) for that date or, if no closing price is reported for that date, the closing price on the next preceding date for which a closing price was reported. For
purposes of Awards effective as of the effective date of the Company’s initial public offering, Market Value of Stock shall be the price at which the Company’s Stock is offered to the public in its initial public offering. 
  
 2.15. Nonstatutory Option means any Option that is not an
Incentive Option. 
  
 2.16. Option means an option to
purchase shares of Stock. 
  
 2.17. Optionee means a
Participant to whom an Option shall have been granted under the Plan. 
  
 2.18. Participant means any holder of an outstanding Award under the Plan. 
  
 2.19. Performance Criteria means the criteria that the Committee selects for purposes of establishing the Performance Goal or Performance Goals for a Participant for a Performance Period. The Performance
Criteria used to establish Performance Goals are limited to: pre- or after-tax net earnings, sales growth, operating earnings, operating cash flow, return on net assets, return on stockholders’ equity, return on assets, return on capital, Stock
price growth, stockholder returns, gross or net profit margin, earnings per share, price per share of Stock, and market share, any of which may be measured either in absolute terms or as compared to any incremental increase or as compared to results
of a peer group. The Committee will, but within the time prescribed by Section 162(m) of the Code in the case of Qualified Performance-Based Awards, objectively define the manner of calculating the Performance Criteria it selects to use for such
Performance Period for such Participant. 
  
 2.20. Performance
Goals means, for a Performance Period, the written goals established by the Committee for the Performance Period based upon the Performance Criteria. Depending on the Performance Criteria used to establish such Performance Goals, the Performance
Goals may be expressed in terms of overall Company performance or the performance of a division, business unit, subsidiary, or an individual. 
  

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 2.21. Performance Period means the one or more periods of time, which may be of varying and
overlapping durations, selected by the Committee, over which the attainment of one or more Performance Goals will be measured for purposes of determining a Participant’s right to, and the payment of, a Performance Unit. 
  
 2.22. Performance Unit means a right granted to a Participant under
Section 7.5, to receive cash, Stock or other Awards, the payment of which is contingent on achieving Performance Goals established by the Committee. 
  
 2.23. Plan means this 2003 Equity Incentive Plan of the Company, as amended from time to time, and including any attachments or addenda hereto.

  
 2.24. Qualified Performance-Based Awards means Awards
intended to qualify as “performance-based compensation” under Section 162(m) of the Code. 
  
 2.25. Restricted Stock means a grant or sale of shares of Stock to a Participant subject to a Risk of Forfeiture. 
  
 2.26. Restriction Period means the period of time, established by the
Committee in connection with an Award of Restricted Stock, during which the shares of Restricted Stock are subject to a Risk of Forfeiture described in the applicable Award Agreement. 
  
 2.27. Risk of Forfeiture means a limitation on the right of the Participant to retain Restricted Stock or Restricted
Stock Units, including a right in the Company to reacquire shares of Restricted Stock at less than their then Market Value, arising because of the occurrence or non-occurrence of specified events or conditions. 
  
 2.28. Restricted Stock Units means rights to receive shares of Stock
at the close of a Restriction Period, subject to a Risk of Forfeiture. 
  
 2.29. Stock means common stock, par value $0.01 per share, of the Company, and such other securities as may be substituted for Stock pursuant to Section 8. 
  
 2.30. Stock Appreciation Right means a right to receive any excess in the Market Value of shares of Stock (except as
otherwise provided in Section 7.2(c)) over a specified exercise price. 
  
 2.31. Stock Grant means the grant of shares of Stock not subject to restrictions or other forfeiture conditions. 
  
 2.32. Stockholders’ Agreement means any agreement by and among the holders of at least a majority of the outstanding voting securities
of the Company and setting forth, among other provisions, restrictions upon the transfer of shares of Stock or on the exercise of rights appurtenant thereto (including but not limited to voting rights). 
  
 2.33. Ten Percent Owner means a person who owns, or is
deemed within the meaning of Section 422(b)(6) of the Code to own, stock possessing more than 10% of the 
  

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 total combined voting power of all classes of stock of the Company (or any parent or subsidiary corporations of the
Company, as defined in Sections 424(e) and (f), respectively, of the Code). Whether a person is a Ten Percent Owner shall be determined with respect to an Option based on the facts existing immediately prior to the Grant Date of the Option.

  
 3.    Term of the Plan 
  
 Unless the Plan shall have been earlier terminated by the Board, Awards may
be granted under this Plan at any time in the period commencing on the date of approval of the Plan by the Board and ending immediately prior to the tenth anniversary of the earlier of the adoption of the Plan by the Board or approval of the Plan by
the Company’s stockholders. Awards granted pursuant to the Plan within that period shall not expire solely by reason of the termination of the Plan. Awards of Incentive Options granted prior to stockholder approval of the Plan are expressly
conditioned upon such approval, but in the event of the failure of the stockholders to approve the Plan shall thereafter and for all purposes be deemed to constitute Nonstatutory Options. 
  
 4.    Stock Subject to the Plan 
  
 At no time shall the number of shares of Stock issued pursuant to or subject to outstanding Awards granted under the Plan
exceed 8,000,000 shares of Stock; subject, however, to the provisions of Section 8 of the Plan. For purposes of applying the foregoing limitation, if any Option or Stock Appreciation Right expires, terminates, or is cancelled for any reason
without having been exercised in full, or if any other Award is forfeited by the recipient, the shares not purchased by the Optionee or which are forfeited by the recipient shall again be available for Awards to be granted under the Plan. In
addition, settlement of any Award shall not count against the foregoing limitations except to the extent settled in the form of Stock. Shares of Stock issued pursuant to the Plan may be either authorized but unissued shares or shares held by the
Company in its treasury. 
  
 5.    Administration

  
 The Plan shall be administered by the Committee;
provided, however, that at any time and on any one or more occasions the Board may itself exercise any of the powers and responsibilities assigned the Committee under the Plan and when so acting shall have the benefit of all of the provisions
of the Plan pertaining to the Committee’s exercise of its authorities hereunder; and provided further, however, that the Committee may delegate to an executive officer or officers the authority to grant Awards hereunder to employees who
are not officers, and to consultants, in accordance with such guidelines as the Committee shall set forth at any time or from time to time. Subject to the provisions of the Plan, the Committee shall have complete authority, in its discretion, to
make or to select the manner of making all determinations with respect to each Award to be granted by the Company under the Plan including the employee, consultant or director to receive the Award and the form of Award. In making such
determinations, the Committee may 
  

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 take into account the nature of the services rendered by the respective employees, consultants, and directors, their
present and potential contributions to the success of the Company and its Affiliates, and such other factors as the Committee in its discretion shall deem relevant. Subject to the provisions of the Plan, the Committee shall also have complete
authority to interpret the Plan, to prescribe, amend and rescind rules and regulations relating to it, to determine the terms and provisions of the respective Award Agreements (which need not be identical), and to make all other determinations
necessary or advisable for the administration of the Plan. The Committee’s determinations made in good faith on matters referred to in the Plan shall be final, binding and conclusive on all persons having or claiming any interest under the Plan
or an Award made pursuant to hereto. 
  
 6. Authorization of Grants

  
 6.1.    Eligibility.  The Committee may grant from time to time and at any time prior to the termination of the Plan one or more Awards, either alone or in combination with any other Awards, to any
employee of or consultant to one or more of the Company and its Affiliates or to non-employee member of the Board or of any board of directors (or similar governing authority) of any Affiliate. However, only employees of the Company, and of any
parent or subsidiary corporations of the Company, as defined in Sections 424(e) and (f), respectively, of the Code, shall be eligible for the grant of an Incentive Option. Further, in no event shall the number of shares of Stock covered by Options
or other Awards granted to any one person in any one calendar year exceed 25% of the aggregate number of shares of Stock subject to the Plan. 
  
 6.2.    General Terms of Awards.  Each grant of an Award shall be subject to all applicable terms and conditions of
the Plan (including but not limited to any specific terms and conditions applicable to that type of Award set out in the following Section), and such other terms and conditions, not inconsistent with the terms of the Plan, as the Committee may
prescribe. No prospective Participant shall have any rights with respect to an Award, unless and until such Participant has executed an agreement evidencing the Award, delivered a fully executed copy thereof to the Company, and otherwise complied
with the applicable terms and conditions of such Award. 
  
 6.3.    Effect of Termination of Employment, Etc.  Unless the Committee shall provide otherwise with respect to any Award, if the Participant’s employment or other association with the Company and
its Affiliates ends for any reason, including because of the Participant’s employer ceasing to be an Affiliate, (a) any outstanding Option or Stock Appreciation Right of the Participant shall cease to be exercisable in any respect not later
than 90 days following that event and, for the period it remains exercisable following that event, shall be exercisable only to the extent exercisable at the date of that event, and (b) any other outstanding Award of the Participant shall be
forfeited or otherwise subject to return to or repurchase by the Company on the terms specified in the applicable Award Agreement. Military or sick leave or other bona fide leave shall not be deemed a termination of employment or other association,
provided that it does not exceed the 
  

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 longer of ninety (90) days or the period during which the absent Participant’s reemployment rights, if any, are
guaranteed by statute or by contract. 
  
 6.4. Transferability
of Awards. Except as otherwise provided in this Section 6.4, Awards shall not be transferable, and no Award or interest therein may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the
laws of descent and distribution. All of a Participant’s rights in any Award may be exercised during the life of the Participant only by the Participant or the Participant’s legal representative. However, the Committee may, at or after the
grant of an Award of a Nonstatutory Option, or shares of Restricted Stock, provide that such Award may be transferred by the recipient to a family member; provided, however, that any such transfer is without payment of any consideration
whatsoever and that no transfer shall be valid unless first approved by the Committee, acting in its sole discretion. For this purpose, “family member” means any child, stepchild, grandchild, parent, stepparent, spouse, former spouse,
sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, any person sharing the employee’s household (other than a tenant or employee), a trust in
which the foregoing persons have more than fifty (50) percent of the beneficial interests, a foundation in which the foregoing persons (or the Participant) control the management of assets, and any other entity in which these persons (or the
Participant) own more than fifty (50) percent of the voting interests. 
  
 7.     Specific Terms of Awards 
  

	    	7.1.     Options. 

  
 (a) Date of Grant. The granting of an Option shall take place at the time specified in the Award Agreement. Only if expressly so provided in the
applicable Award Agreement shall the Grant Date be the date on which the Award Agreement shall have been duly executed and delivered by the Company and the Optionee. 
  
 (b) Exercise Price. The price at which shares of Stock may be acquired under each Incentive Option shall be not less
than 100% of the Market Value of Stock on the Grant Date, or not less than 110% of the Market Value of Stock on the Grant Date if the Optionee is a Ten Percent Owner. The price at which shares may be acquired under each Nonstatutory Option shall not
be so limited solely by reason of this Section. 
  
 (c) Option
Period. No Incentive Option may be exercised on or after the tenth anniversary of the Grant Date, or on or after the fifth anniversary of the Grant Date if the Optionee is a Ten Percent Owner. The Option period under each Nonstatutory Option
shall not be so limited solely by reason of this Section. 
  
 (d)
Exercisability. An Option may be immediately exercisable or become exercisable in such installments, cumulative or non-cumulative, as the Committee may determine. In the case of an Option not otherwise immediately exercisable in full, the
Committee may Accelerate such Option in whole or in part at any 
  

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 time; provided, however, that in the case of an Incentive Option, any such Acceleration of the Option would not
cause the Option to fail to comply with the provisions of Section 422 of the Code or the Optionee consents to the Acceleration. 
  
 (e) Method of Exercise. An Option may be exercised by the Optionee giving written notice, in the manner provided in Section 16, specifying the
number of shares with respect to which the Option is then being exercised. The notice shall be accompanied by payment in the form of cash or check payable to the order of the Company in an amount equal to the exercise price of the shares to be
purchased or, if the Committee had so authorized on the grant of an Incentive Option or on or after grant of an Nonstatutory Option (and subject to such conditions, if any, as the Committee may deem necessary to avoid adverse accounting effects to
the Company) by delivery to the Company of 
  
 (i) shares of
Stock having a Market Value equal to the exercise price of the shares to be purchased, or 
  
   (ii) unless prohibited by applicable law, the Optionee’s executed promissory note in the principal amount equal to the
exercise price of the shares to be purchased and otherwise in such form as the Committee shall have approved. 
  
 If the Stock is traded on an established market, payment of any exercise price may also be made through and under the terms and conditions of any formal cashless exercise program authorized by the Company entailing
the sale of the Stock subject to an Option in a brokered transaction (other than to the Company). Receipt by the Company of such notice and payment in any authorized or combination of authorized means shall constitute the exercise of the Option.
Within thirty (30) days thereafter but subject to the remaining provisions of the Plan, the Company shall deliver or cause to be delivered to the Optionee or his agent a certificate or certificates for the number of shares then being purchased. Such
shares shall be fully paid and nonassessable. 
  
 (f) Limit on
Incentive Option Characterization. An Incentive Option shall be considered to be an Incentive Option only to the extent that the number of shares of Stock for which the Option first becomes exercisable in a calendar year do not have an aggregate
Market Value (as of the date of the grant of the Option) in excess of the “current limit”. The current limit for any Optionee for any calendar year shall be $100,000 minus the aggregate Market Value at the date of grant of the
number of shares of Stock available for purchase for the first time in the same year under each other Incentive Option previously granted to the Optionee under the Plan, and under each other incentive stock option previously granted to the Optionee
under any other incentive stock option plan of the Company and its Affiliates, after December 31, 1986. Any shares of Stock which would cause the foregoing limit to be violated shall be deemed to have been granted under a separate Nonstatutory
Option, otherwise identical in its terms to those of the Incentive Option. 
  

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 (g) Notification of Disposition. Each person exercising any Incentive Option granted under the
Plan shall be deemed to have covenanted with the Company to report to the Company any disposition of such shares prior to the expiration of the holding periods specified by Section 422(a)(1) of the Code and, if and to the extent that the realization
of income in such a disposition imposes upon the Company federal, state, local or other withholding tax requirements, or any such withholding is required to secure for the Company an otherwise available tax deduction, to remit to the Company an
amount in cash sufficient to satisfy those requirements. 
  
 7.2.
Stock Appreciation Rights. 
  
 (a) Tandem or
Stand-Alone. Stock Appreciation Rights may be granted in tandem with an Option (at or, in the case of a Nonstatutory Option, after, the award of the Option), or alone and unrelated to an Option. Stock Appreciation Rights in tandem with an Option
shall terminate to the extent that the related Option is exercised, and the related Option shall terminate to the extent that the tandem Stock Appreciation Rights are exercised. 
  
 (b) Exercise Price. Stock Appreciation Rights shall have such exercise price as the Committee may determine,
except that in the case of Stock Appreciation Rights in tandem with Options, the exercise price of the Stock Appreciation Rights shall equal the exercise price of the related Option. 
  
 (c) Other Terms. Except as the Committee may deem inappropriate or inapplicable in the circumstances, Stock
Appreciation Rights shall be subject to terms and conditions substantially similar to those applicable to a Nonstatutory Option. In addition, an Stock Appreciation Right related to an Option which can only be exercised during limited periods
following a Change in Control may entitle the Participant to receive an amount based upon the highest price paid or offered for Stock in any transaction relating to the Change in Control or paid during the thirty (30) day period immediately
preceding the occurrence of the change in control in any transaction reported in the stock market in which the Stock is normally traded. 
  
 7.3. Restricted Stock. 
  
 (a) Purchase Price. Shares of Restricted Stock shall be issued under the Plan for such consideration, in cash, other property or services, or any
combination thereof, as is determined by the Committee. 
  
 (b)
Issuance of Certificates. Each Participant receiving a Restricted Stock Award, subject to subsection (c) below, shall be issued a stock certificate in respect of such shares of Restricted Stock. Such certificate shall be registered in the
name of such Participant, and, if applicable, shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Award substantially in the following form: 
  

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 The transferability of this certificate and the shares represented by this certificate are subject to the
terms and conditions of the Tempur-Pedic International Inc. 2003 Equity Incentive Plan and an Award Agreement entered into by the registered owner and Tempur-Pedic International Inc. Copies of such Plan and Agreement are on file in the offices of
Tempur-Pedic International Inc. 
  
 (c) Escrow of Shares.
The Committee may require that the stock certificates evidencing shares of Restricted Stock be held in custody by a designated escrow agent (which may but need not be the Company) until the restrictions thereon shall have lapsed, and that the
Participant deliver a stock power, endorsed in blank, relating to the Stock covered by such Award. 
  
 (d) Restrictions and Restriction Period. During the Restriction Period applicable to shares of Restricted Stock, such shares shall be subject to
limitations on transferability and a Risk of Forfeiture arising on the basis of such conditions related to the performance of services, Company or Affiliate performance or otherwise as the Committee may determine and provide for in the applicable
Award Agreement. Any such Risk of Forfeiture may be waived or terminated, or the Restriction Period shortened, at any time by the Committee on such basis as it deems appropriate. 
  
 (e) Rights Pending Lapse of Risk of Forfeiture or Forfeiture of Award. Except as otherwise provided in the Plan or
the applicable Award Agreement, at all times prior to lapse of any Risk of Forfeiture applicable to, or forfeiture of, an Award of Restricted Stock, the Participant shall have all of the rights of a stockholder of the Company, including the right to
vote, and the right to receive any dividends with respect to, the shares of Restricted Stock. The Committee, as determined at the time of Award, may permit or require the payment of cash dividends to be deferred and, if the Committee so determines,
reinvested in additional Restricted Stock to the extent shares are available under Section 4. 
  
 (f) Lapse of Restrictions. If and when the Restriction Period expires without a prior forfeiture of the Restricted Stock, the certificates for such shares shall be delivered to the Participant promptly if not
theretofore so delivered. 
  
 7.4. Restricted Stock Units.

  
 (a) Character. Each Restricted Stock Unit shall entitle
the recipient to a share of Stock at a close of such Restriction Period as the Committee may establish and subject to a Risk of Forfeiture arising on the basis of such conditions relating to the performance of services, Company or Affiliate
performance or otherwise as the Committee may determine and provide for in the applicable Award Agreement. Any such Risk of Forfeiture may be waived or terminated, or the Restriction Period shortened, at any time by the Committee on such basis as it
deems appropriate. 
  
 (b) Form and Timing of Payment.
Payment of earned Restricted Stock Units shall be made in a single lump sum following the close of the applicable Restriction 
  

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 Period. At the discretion of the Committee, Participants may be entitled to receive payments equivalent to any dividends
declared with respect to Stock referenced in grants of Restricted Stock Units but only following the close of the applicable Restriction Period and then only if the underlying Stock shall have been earned. Unless the Committee shall provide
otherwise, any such dividend equivalents shall be paid, if at all, without interest or other earnings. 
  
 7.5. Performance Units. 
  
 (a) Character. Each Performance Unit shall entitle the recipient to the value of a specified number of shares of Stock, over the initial value for
such number of shares, if any, established by the Committee at the time of grant, at the close of a specified Performance Period to the extent specified Performance Goals shall have been achieved. 
  
 (b) Earning of Performance Units. The Committee shall set Performance
Goals in its discretion which, depending on the extent to which they are met within the applicable Performance Period, will determine the number and value of Performance Units that will be paid out to the Participant. After the applicable
Performance Period has ended, the holder of Performance Units shall be entitled to receive payout on the number and value of Performance Units earned by the Participant over the Performance Period, to be determined as a function of the extent to
which the corresponding Performance Goals have been achieved. 
  
 (c) Form and Timing of Payment. Payment of earned Performance Units shall be made in a single lump sum following the close of the applicable Performance Period. At the discretion of the Committee, Participants may be entitled to
receive any dividends declared with respect to Stock which have been earned in connection with grants of Performance Units which have been earned, but not yet distributed to Participants. The Committee may permit or, if it so provides at grant
require, a Participant to defer such Participant’s receipt of the payment of cash or the delivery of Stock that would otherwise be due to such Participant by virtue of the satisfaction of any requirements or goals with respect to Performance
Units. If any such deferral election is required or permitted, the Committee shall establish rules and procedures for such payment deferrals. 
  
 7.6. Stock Grants. Stock Grants shall be awarded solely in recognition of significant contributions to the success of the Company or its
Affiliates, in lieu of compensation otherwise already due and in such other limited circumstances as the Committee deems appropriate. Stock Grants shall be made without forfeiture conditions of any kind. 
  
 7.7. Qualified Performance-Based Awards. 
  
 (a) Purpose. The purpose of this Section 7.7 is to provide the
Committee the ability to qualify Awards as “performance-based compensation” under Section 162(m) of the Code. If the Committee, in its discretion, decides to grant an 
  

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Award as a Qualified Performance-Based Award, the provisions of this Section 7.7 will control over any contrary provision contained in the Plan. In the
course of granting any Award, the Committee may specifically designate the Award as intended to qualify as a Qualified Performance-Based Award. However, no Award shall be considered to have failed to qualify as a Qualified Performance-Based Award
solely because the Award is not expressly designated as a Qualified Performance-Based Award, if the Award otherwise satisfies the provisions of this Section 7.7 and the requirements of Section 162(m) of the Code and the regulations thereunder
applicable to “performance-based compensation.” 
  
 (b)
Authority. All grants of Awards intended to qualify as Qualified Performance-Based Awards and determination of terms applicable thereto shall be made by the Committee or, if not all of the members thereof qualify as “outside
directors” within the meaning of applicable IRS regulations under Section 162 of the Code, a subcommittee of the Committee consisting of such of the members of the Committee as do so qualify. Any action by such a subcommittee shall be
considered the action of the Committee for purposes of the Plan. 
  
 (b) Applicability. This Section 7.7 will apply only to those Covered Employees, or to those persons who the Committee determines are reasonably likely to become Covered Employees in the period covered by an Award, selected by the
Committee to receive Qualified Performance-Based Awards. The Committee may, in its discretion, grant Awards to Covered Employees that do not satisfy the requirements of this Section 7.7. 
  
 (c) Discretion of Committee with Respect to Qualified Performance-Based Awards. Options may be granted as Qualified
Performance-Based Awards in accordance with Section 7.1, except that the exercise price of any Option intended to qualify as a Qualified Performance-Based Award shall in no event be less that the Market Value of the Stock on the date of grant. With
regard to other Awards intended to qualify as Qualified Performance-Based Awards, such as Restricted Stock, Restricted Stock Units, or Performance Units, the Committee will have full discretion to select the length of any applicable Restriction
Period or Performance Period, the kind and/or level of the applicable Performance Goal, and whether the Performance Goal is to apply to the Company, a Subsidiary or any division or business unit or to the individual. Any Performance Goal or Goals
applicable to Qualified Performance-Based Awards shall be objective, shall be established not later than ninety (90) days after the beginning of any applicable Performance Period (or at such other date as may be required or permitted for
“performance-based compensation” under Section 162(m) of the Code) and shall otherwise meet the requirements of Section 162(m) of the Code, including the requirement that the outcome of the Performance Goal or Goals be substantially
uncertain (as defined in the regulations under Section 162(m) of the Code) at the time established. 
  
 (d) Payment of Qualified Performance-Based Awards. A Participant will be eligible to receive payment under a Qualified Performance-Based Award
which is subject to achievement of a Performance Goal or Goals only if the applicable 
  

 -12- 

 Performance Goal or Goals period are achieved within the applicable Performance Period, as determined by the Committee.
In determining the actual size of an individual Qualified Performance-Based Award, the Committee may reduce or eliminate the amount of the Qualified Performance-Based Award earned for the Performance Period, if in its sole and absolute discretion,
such reduction or elimination is appropriate. 
  
 (e) Maximum
Award Payable. The maximum Qualified Performance-Based Award payment to any one Participant under the Plan for a Performance Period is the number of shares of Stock set forth in Section 4 above, or if the Qualified Performance-Based Award is
paid in cash, that number of shares multiplied by the Market Value of the Stock as of the date the Qualified Performance-Based Award is granted. 
  
 (f) Limitation on Adjustments for Certain Events. No adjustment of any Qualified Performance-Based Award pursuant to Section 8 shall be made except
on such basis, if any, as will not cause such Award to provide other than “performance-based compensation” within the meaning of Section 162(m) of the Code. 
  
 7.8. Awards to Participants Outside the United States. The Committee may modify the terms of any Award under the
Plan, granted to a Participant who is, at the time of grant or during the term of the Award, resident or primarily employed outside of the United States in any manner deemed by the Committee to be necessary or appropriate in order that the Award
shall conform to laws, regulations, and customs of the country in which the Participant is then resident or primarily employed, or so that the value and other benefits of the Award to the Participant, as affected by foreign tax laws and other
restrictions applicable as a result of the Participant’s residence or employment abroad, shall be comparable to the value of such an Award to a Participant who is resident or primarily employed in the United States. The Committee may establish
supplements to, or amendments, restatements, or alternative versions of, the Plan for the purpose of granting and administrating any such modified Award. No such modification, supplement, amendment, restatement or alternative version may increase
the share limit of Section 4. 
  
 8. Adjustment Provisions 
  
 8.1. Adjustment for Corporate Actions. All of the share numbers set
forth in the Plan reflect the capital structure of the Company as of [insert date of closing of IPO]. Subject to Section 8.2, if subsequent to that date the outstanding shares of Stock (or any other securities covered by the Plan by reason of
the prior application of this Section) are increased, decreased, or exchanged for a different number or kind of shares or other securities, or if additional shares or new or different shares or other securities are distributed with respect to shares
of Stock, through merger, consolidation, sale of all or substantially all the property of the Company, reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split, or other similar distribution with respect
to such shares of Stock, an appropriate and proportionate adjustment will be made in (i) the maximum numbers and kinds of shares provided in 
  

 -13- 

 
Section 4, (ii) the numbers and kinds of shares or other securities subject to the then outstanding Awards, (iii) the exercise price for each share or other
unit of any other securities subject to then outstanding Options and Stock Appreciation Rights (without change in the aggregate purchase price as to which such Options or Rights remain exercisable), and (iv) the repurchase price of each share of
Restricted Stock then subject to a Risk of Forfeiture in the form of a Company repurchase right. 
  
 8.2. Treatment in Certain Acquisitions. Subject to any provisions of then outstanding Awards granting greater rights to the holders thereof, in the
event of an Acquisition in which outstanding Awards are not Accelerated in full pursuant to Section 9, any then outstanding Awards shall nevertheless Accelerate in full if not assumed or replaced by comparable Awards referencing shares of the
capital stock of the successor or acquiring entity or parent thereof, and thereafter (or after a reasonable period following the Acquisition, as determined by the Committee) terminate. As to any one or more outstanding Awards which are not otherwise
Accelerated in full by reason of such Acquisition, the Committee may also, either in advance of an Acquisition or at the time thereof and upon such terms as it may deem appropriate, provide for the Acceleration of such outstanding Awards in the
event that the employment of the Participants should subsequently terminate following the Acquisition. Each outstanding Award that is assumed in connection with an Acquisition, or is otherwise to continue in effect subsequent to the Acquisition,
will be appropriately adjusted, immediately after the Acquisition, as to the number and class of securities and other relevant terms in accordance with Section 8.1.1 
  
 8.3.
Dissolution or Liquidation. Upon dissolution or liquidation of the Company, other than as part of an Acquisition or similar transaction, each outstanding Option and Stock Appreciation Right shall terminate, but the Optionee or Stock
Appreciation Right holder shall have the right, immediately prior to the dissolution or liquidation, to exercise the Option or Stock Appreciation Right to the extent exercisable on the date of dissolution or liquidation. 
  
 8.4. Adjustment of Awards Upon the Occurrence of Certain Unusual or
Nonrecurring Events. In the event of any corporate action not specifically covered by the preceding Sections, including but not limited to an extraordinary cash distribution on Stock, a corporate separation or other reorganization or
liquidation, the Committee may make such adjustment of outstanding Awards and their terms, if any, as it, in its sole discretion, may deem equitable and appropriate in the circumstances. The Committee may make adjustments in the terms and conditions
of, and the criteria included in, Awards in recognition of unusual or nonrecurring events (including, without limitation, the events described in this Section) affecting the Company or the financial statements of the Company or of changes in
applicable laws, regulations, or accounting principles, whenever the Committee determines that such adjustments are appropriate in order to 
  

 1/Note that Change of Control, as defined, includes certain transactions which are also “Acquisitions.” Therefore, both Section 8.2 and Article 9 may apply to the same event. 
  

 -14- 

 prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan.

  
 8.5.     Related Matters. Any
adjustment in Awards made pursuant to this Section 8 shall be determined and made, if at all, by the Committee and shall include any correlative modification of terms, including of Option exercise prices, rates of vesting or exercisability, Risks of
Forfeiture, applicable repurchase prices for Restricted Stock, and Performance Goals and other financial objectives which the Committee may deem necessary or appropriate so as to ensure the rights of the Participants in their respective Awards are
not substantially diminished nor enlarged as a result of the adjustment and corporate action other than as expressly contemplated in this Section 8. No fraction of a share shall be purchasable or deliverable upon exercise, but in the event any
adjustment hereunder of the number of shares covered by an Award shall cause such number to include a fraction of a share, such number of shares shall be adjusted to the nearest smaller whole number of shares. No adjustment of an Option exercise
price per share pursuant to this Section 8 shall result in an exercise price which is less than the par value of the Stock. 
  
 9.    Change of Control 
  
 Except as otherwise provided below, upon the occurrence of a Change in Control: 
  
 (a)  any and all Options and Stock Appreciation Rights not already exercisable in full shall Accelerate with
respect to 50% of the shares for which such Options or Stock Appreciation Rights are not then exercisable; 
  
 (b)  any Risk of Forfeiture applicable to Restricted Stock and Restricted Stock Units which is not based on achievement of Performance Goals
shall lapse with respect to 50% of the Restricted Stock and Restricted Stock Units still subject to such Risk of Forfeiture immediately prior to the Change of Control; and 
  
 (c)  All outstanding Awards of Restricted Stock and Restricted Stock Units conditioned on the achievement of
Performance Goals and the target payout opportunities attainable under outstanding Performance Units shall be deemed to have been satisfied as of the effective date of the Change in Control as to a pro rata number of shares based on the assumed
achievement of all relevant Performance Goals and the length of time within the Performance Period which has elapsed prior to the Change in Control. All such Awards of Performance Units and Restricted Stock Units shall be paid to the extent earned
to Participants in accordance with their terms within thirty (30) days following the effective date of the Change in Control. 
  
 None of the foregoing shall apply, however, (i) in the case of an Qualified Performance-Based Award specifically designated as such by the Committee at the time of grant
(except to the extent allowed by Section 162(m) of the Code), (ii) in the case of any Award pursuant to an Award Agreement requiring other or additional terms upon a Change in Control (or similar event), or (iii) if specifically prohibited under
applicable 
  

 -15- 

 laws, or by the rules and regulations of any governing governmental agencies or national securities exchanges.

  
 10. Settlement of Awards 
  
 10.1. In General. Options and Restricted Stock shall be settled in
accordance with their terms. All other Awards may be settled in cash, Stock, or other Awards, or a combination thereof, as determined by the Committee at or after grant and subject to any contrary Award Agreement. The Committee may not require
settlement of any Award in Stock pursuant to the immediately preceding sentence to the extent issuance of such Stock would be prohibited or unreasonably delayed by reason of any other provision of the Plan. 
  
 10.2. Violation of Law. Notwithstanding any other provision of the
Plan or the relevant Award Agreement, if, at any time, in the reasonable opinion of the Company, the issuance of shares of Stock covered by an Award may constitute a violation of law, then the Company may delay such issuance and the delivery of a
certificate for such shares until (i) approval shall have been obtained from such governmental agencies, other than the Securities and Exchange Commission, as may be required under any applicable law, rule, or regulation and (ii) in the case where
such issuance would constitute a violation of a law administered by or a regulation of the Securities and Exchange Commission, one of the following conditions shall have been satisfied: 
  
 (a) the shares are at the time of the issue of such shares effectively registered under the Securities Act of 1933; or

  
 (b) the Company shall have determined, on such basis as it
deems appropriate (including an opinion of counsel in form and substance satisfactory to the Company) that the sale, transfer, assignment, pledge, encumbrance or other disposition of such shares or such beneficial interest, as the case may be, does
not require registration under the Securities Act of 1933, as amended or any applicable State securities laws. 
  
 The Company shall make all reasonable efforts to bring about the occurrence of said events. 
  
 10.3. Corporate Restrictions on Rights in Stock. Any Stock to be issued pursuant to Awards granted under the Plan
shall be subject to all restrictions upon the transfer thereof which may be now or hereafter imposed by the charter, certificate or articles, and by-laws, of the Company. Whenever Stock is to be issued pursuant to an Award, if the Committee so
directs at or after grant, the Company shall be under no obligation to issue such shares until such time, if ever, as the recipient of the Award (and any person who exercises any Option, in whole or in part), shall have become a party to and bound
by the Stockholders’ Agreement, if any. In the event of any conflict between the provisions of this Plan and the provisions of the Stockholders’ Agreement, the provisions of the Stockholders’ Agreement shall control except as required
to fulfill the intention that this Plan constitute an incentive stock option plan within the meaning of 
  

 -16- 

 Section 422 of the Code, but insofar as possible the provisions of the Plan and such Agreement shall be construed so as
to give full force and effect to all such provisions. 
  
 10.4.
Investment Representations. The Company shall be under no obligation to issue any shares covered by any Award unless the shares to be issued pursuant to Awards granted under the Plan have been effectively registered under the Securities Act
of 1933, as amended, or the Participant shall have made such written representations to the Company (upon which the Company believes it may reasonably rely) as the Company may deem necessary or appropriate for purposes of confirming that the
issuance of such shares will be exempt from the registration requirements of that Act and any applicable state securities laws and otherwise in compliance with all applicable laws, rules and regulations, including but not limited to that the
Participant is acquiring the shares for his or her own account for the purpose of investment and not with a view to, or for sale in connection with, the distribution of any such shares. 
  
 10.5. Registration. If the Company shall deem it necessary or desirable to register under the Securities Act of 1933,
as amended or other applicable statutes any shares of Stock issued or to be issued pursuant to Awards granted under the Plan, or to qualify any such shares of Stock for exemption from the Securities Act of 1933, as amended or other applicable
statutes, then the Company shall take such action at its own expense. The Company may require from each recipient of an Award, or each holder of shares of Stock acquired pursuant to the Plan, such information in writing for use in any registration
statement, prospectus, preliminary prospectus or offering circular as is reasonably necessary for that purpose and may require reasonable indemnity to the Company and its officers and directors from that holder against all losses, claims, damage and
liabilities arising from use of the information so furnished and caused by any untrue statement of any material fact therein or caused by the omission to state a material fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances under which they were made. In addition, the Company may require of any such person that he or she agree that, without the prior written consent of the Company or the managing underwriter in any
public offering of shares of Stock, he or she will not sell, make any short sale of, loan, grant any option for the purchase of, pledge or otherwise encumber, or otherwise dispose of, any shares of Stock during the 180 day period commencing on the
effective date of the registration statement relating to the underwritten public offering of securities. Without limiting the generality of the foregoing provisions of this Section 10.5, if in connection with any underwritten public offering of
securities of the Company the managing underwriter of such offering requires that the Company’s directors and officers enter into a lock-up agreement containing provisions that are more restrictive than the provisions set forth in the preceding
sentence, then (a) each holder of shares of Stock acquired pursuant to the Plan (regardless of whether such person has complied or complies with the provisions of clause (b) below) shall be bound by, and shall be deemed to have agreed to, the same
lock-up terms as those to which the Company’s directors and officers are required to adhere; and (b) at the request of the Company or such managing underwriter, each such person shall execute and deliver a lock-up agreement in form and
substance equivalent to that which is required to be executed by the Company’s directors and officers. 
  

 -17- 

 10.6.     Placement of Legends; Stop Orders; etc.   Each share of
Stock to be issued pursuant to Awards granted under the Plan may bear a reference to the investment representation made in accordance with Section 10.4 in addition to any other applicable restriction under the Plan, the terms of the Award and if
applicable under the Stockholders’ Agreement and to the fact that no registration statement has been filed with the Securities and Exchange Commission in respect to such shares of Stock. All certificates for shares of Stock or other securities
delivered under the Plan shall be subject to such stock transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations, and other requirements of any stock exchange upon which the Stock is then listed, and
any applicable federal or state securities law, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. 
  
 10.7.    Tax Withholding.  Whenever shares of Stock are issued or to be issued pursuant
to Awards granted under the Plan, the Company shall have the right to require the recipient to remit to the Company an amount sufficient to satisfy federal, state, local or other withholding tax requirements if, when, and to the extent required by
law (whether so required to secure for the Company an otherwise available tax deduction or otherwise) prior to the delivery of any certificate or certificates for such shares. The obligations of the Company under the Plan shall be conditional on
satisfaction of all such withholding obligations and the Company shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the recipient of an Award. However, in such cases
Participants may elect, subject to the approval of the Committee, to satisfy an applicable withholding requirement, in whole or in part, by having the Company withhold shares to satisfy their tax obligations. Participants may only elect to have
Shares withheld having a Market Value on the date the tax is to be determined equal to the minimum statutory total tax which could be imposed on the transaction. All elections shall be irrevocable, made in writing, signed by the Participant, and
shall be subject to any restrictions or limitations that the Committee deems appropriate. 
  
 11.    Reservation of Stock 
  
 The Company shall at all times during the term of the Plan and any outstanding Awards granted hereunder reserve or otherwise keep available such number of shares of Stock as will be sufficient to satisfy the
requirements of the Plan (if then in effect) and the Awards and shall pay all fees and expenses necessarily incurred by the Company in connection therewith. 
  
 12.    Limitation of Rights in Stock; No Special Service Rights 
  
 A Participant shall not be deemed for any purpose to be a stockholder of the Company with respect to any of the shares of
Stock subject to an Award, unless and until a certificate shall have been issued therefor and delivered to the Participant or his agent. Any Stock to be issued pursuant to Awards granted under the Plan shall be subject to all restrictions upon the
transfer thereof which may be now or hereafter imposed by the 
  

 -18- 

 Certificate of Incorporation and the By-laws of the Company. Nothing contained in the Plan or in any Award Agreement
shall confer upon any recipient of an Award any right with respect to the continuation of his or her employment or other association with the Company (or any Affiliate), or interfere in any way with the right of the Company (or any Affiliate),
subject to the terms of any separate employment or consulting agreement or provision of law or corporate articles or by-laws to the contrary, at any time to terminate such employment or consulting agreement or to increase or decrease, or otherwise
adjust, the other terms and conditions of the recipient’s employment or other association with the Company and its Affiliates. 
  
 13.    Unfunded Status of Plan 
  
 The Plan is intended to constitute an “unfunded” plan for incentive compensation, and the Plan is not intended to constitute a plan subject to
the provisions of the Employee Retirement Income Security Act of 1974, as amended. With respect to any payments not yet made to a Participant by the Company, nothing contained herein shall give any such Participant any rights that are greater than
those of a general creditor of the Company. In its sole discretion, the Committee may authorize the creation of trusts or other arrangements to meet the obligations created under the Plan to deliver Stock or payments with respect to Options, Stock
Appreciation Rights and other Awards hereunder, provided, however, that the existence of such trusts or other arrangements is consistent with the unfunded status of the Plan. 
  
 14.    Nonexclusivity of the Plan 
  
 Neither the adoption of the Plan by the Board nor the submission of the Plan to the stockholders of the Company shall be
construed as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including without limitation, the granting of stock options and restricted stock other than under the Plan, and such
arrangements may be either applicable generally or only in specific cases. 
  
 15.    Termination and Amendment of the Plan 
  
 The Board may at any time terminate the Plan or make such modifications of the Plan as it shall deem advisable. Unless the Board otherwise expressly provides, no amendment of the Plan shall affect the terms of any
Award outstanding on the date of such amendment. In any case, no termination or amendment of the Plan may, without the consent of any recipient of an Award granted hereunder, adversely affect the rights of the recipient under such Award. 

 
 The Committee may amend the terms of any Award theretofore granted,
prospectively or retroactively, provided that the Award as amended is consistent with the terms of the Plan, but no such amendment shall impair the rights of the recipient of such Award without his or her consent. 
  

 -19- 

 16.    Notices and Other Communications 
  
 Any notice, demand, request or other communication hereunder to any party
shall be deemed to be sufficient if contained in a written instrument delivered in person or duly sent by first class registered, certified or overnight mail, postage prepaid, or telecopied with a confirmation copy by regular, certified or overnight
mail, addressed or telecopied, as the case may be, (i) if to the recipient of an Award, at his or her residence address last filed with the Company and (ii) if to the Company, at its principal place of business, addressed to the attention of its
Treasurer, or to such other address or telecopier number, as the case may be, as the addressee may have designated by notice to the addressor. All such notices, requests, demands and other communications shall be deemed to have been received: (i) in
the case of personal delivery, on the date of such delivery; (ii) in the case of mailing, when received by the addressee; and (iii) in the case of facsimile transmission, when confirmed by facsimile machine report. 
  
 17.    Governing Law 
  
 The Plan and all Award Agreements and actions taken thereunder shall be
governed, interpreted and enforced in accordance with the laws of the State of Delaware, without regard to the conflict of laws principles thereof. 
  

 -20-Tempur-Pedic International Inc. 2003 Employee Stock Purchase Plan

 Exhibit 10.18 
  
 TEMPUR-PEDIC INTERNATIONAL INC. 
  
 2003 EMPLOYEE STOCK PURCHASE PLAN 

			
	1.	  	Purpose	  	1
			
	2.	  	Definitions	  	1
			
	3.	  	Eligibility	  	3
			
	4.	  	Offering Periods	  	3
			
	5.	  	Participation	  	3
			
	6.	  	Method of Payment of Contributions	  	4
			
	7.	  	Grant of Option	  	5
			
	8.	  	Exercise of Option	  	6
			
	9.	  	Delivery	  	6
			
	10.	  	Voluntary Withdrawal; Termination of Employment	  	6
			
	11.	  	Interest	  	7
			
	12.	  	Stock	  	7
			
	13.	  	Administration	  	7
			
	14.	  	Designation of Beneficiary	  	8
			
	15.	  	Transferability of Options and Shares	  	8
			
	16.	  	Use of Funds	  	8
			
	17.	  	Reports	  	8
			
	18.	  	Adjustments Upon Changes in Capitalization; Corporate Transactions	  	9
			
	19.	  	Amendment or Termination	  	10
			
	20.	  	Notices	  	10
			
	21.	  	Conditions to Issuance of Shares	  	11
			
	22.	  	Term of Plan; Effective Date	  	11

  

 TEMPUR-PEDIC INTERNATIONAL INC. 
  
 2003 EMPLOYEE STOCK PURCHASE PLAN 
  
 The following constitute the provisions of the 2003 Employee Stock Purchase Plan of Tempur-Pedic International Inc.

  
 1. Purpose 
  
 The purpose of the Plan is to provide employees of the Company and its
Designated Subsidiaries with an opportunity to purchase Common Stock of the Company. It is the intention of the Company to have the Plan qualify as an “Employee Stock Purchase Plan” under Section 423 of the Code. The provisions of the Plan
shall, accordingly, be construed so as to extend and limit participation in a manner consistent with the requirements of that section of the Code. 
  
 2. Definitions 
  
 2.1. Board means the Board of Directors of the Company. 
  
 2.2. Code means the Internal Revenue Code of 1986, as amended. 
  
 2.3. Common Stock means the Common Stock, par value $0.01 per
share, of the Company. 
  
 2.4. Company means
Tempur-Pedic International Inc., a Delaware corporation. 
  
 2.5.
Compensation means all regular straight time compensation including commissions but shall not include payments for overtime, shift premium, incentive compensation, incentive payments, bonuses and other irregular or infrequent
compensation or benefits. 
  
 2.6. Continuous Status as an
Employee means the absence of any interruption or termination of service as an Employee. Continuous Status as an Employee shall not be considered interrupted in the case of (i) sick leave; (ii) military leave; (iii) any other leave of
absence approved by the Administrator, provided that such leave is for a period of not more than 90 days, unless reemployment upon the expiration of such leave is guaranteed by contract or statute, or unless provided otherwise pursuant to Company
policy adopted from time to time; or (iv) in the case of transfers between locations of the Company or between the Company and its Designated Subsidiaries. 
  
 2.7. Contributions means all amounts credited to the account of a participant pursuant to the Plan. 
  
 2.8. Corporate Transaction means a merger or consolidation of
the Company with and into another person or the sale, transfer, or other disposition of all or 

 substantially all of the Company’s assets to one or more persons (other than any wholly-owned subsidiary of the
Company) in a single transaction or series of related transactions. 
  
 2.9. Designated Subsidiaries means the Subsidiaries which have been designated by the Board from time to time in its sole discretion as eligible to participate in the Plan. 
  
 2.10. Employee means any person, including an Officer, who is
customarily employed for at least twenty (20) hours per week and more than five (5) months in a calendar year by the Company or one of its Designated Subsidiaries. 
  
 2.11. Exchange Act means the Securities Exchange Act of 1934, as amended. 
  
 2.12 Initial Offering Period means the first Offering Period of
the Plan. 
  
 2.13. Offering Commencement Date means
the first business day of each Offering Period of the Plan. 
  
 2.14. Offering Period means any of the periods, generally of six (6) months duration, as set forth in Section 4. 
  
 2.15. Officer means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder. 
  
 2.16. Offering
Termination Date means the last business day of each Offering Period of the Plan. 
  
 2.17. Plan means this Employee Stock Purchase Plan. 
  
 2.18. Purchase Price means with respect to an Offering Period an amount equal to 85% of the Fair Market Value (as defined in Section 7.2
below) of a Share on the Offering Commencement Date or on the Offering Termination Date, whichever is lower; provided, however, that (i) if there is an increase in the number of Shares available for issuance under the Plan as a result of a
stockholder-approved amendment to the Plan, (ii) all or a portion of such additional Shares are to be issued with respect to the Offering Period underway at the time of such increase (“Additional Shares”), and (iii) the Fair
Market Value of a Share of Common Stock on the date of such increase (the “Approval Date Fair Market Value”) is higher than the Fair Market Value on the Offering Commencement Date for such Offering Period, then in such
instance the Purchase Price with respect to Additional Shares shall be 85% of the Approval Date Fair Market Value or the Fair Market Value of a Share of Common Stock on the Offering Termination Date, whichever is lower. 
  
 2.19. Share means a share of Common Stock, as adjusted in
accordance with Section 18 of the Plan. 
  

 -2- 

 2.20. Subsidiary means a corporation, domestic or foreign, of which not less than 50% of
the voting shares are held by the Company or a Subsidiary, whether or not such corporation now exists or is hereafter organized or acquired by the Company or a Subsidiary. 
  
 Other terms are defined in the following sections: 
  

	Term

	  	Section

	 Additional Shares
	  	2.18
	 Administrator
	  	13
	 Approved Date Fair Market Value
	  	2.18
	 Fair Market Value
	  	7.2
	 IPO Date
	  	4
	 Nasdaq
	  	7.2
	 New Offering Termination Date
	  	18.2
	 NYSE
	  	7.2
	 Price to Public
	  	5.3
	 Reserves
	  	18.1

  
 3. Eligibility 
  
 3.1. Any person who is an Employee as of the Offering Commencement Date of a
given Offering Period shall be eligible to participate in such Offering Period under the Plan, subject to the requirements of Sections 5.1 and 5.3 and the limitations imposed by Section 423(b) of the Code. 
  
 3.2. Any provisions of the Plan to the contrary notwithstanding, no Employee
shall be granted an option under the Plan (i) if, immediately after the grant, such Employee (taking into account stock which would be attributed to such Employee pursuant to Section 424(d) of the Code) would own capital stock of the Company and/or
hold outstanding options to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or of any Subsidiary of the Company, or (ii) if such option would permit his or her
rights to purchase stock under all employee stock purchase plans (described in Section 423 of the Code) of the Company and its Subsidiaries to accrue at a rate which exceeds twenty-five Thousand Dollars ($25,000) of the Fair Market Value (as defined
in Section 7.2 below) of such stock (determined at the time such option is granted) for each calendar year in which such option is outstanding at any time. 
  
 4. Offering Periods 
  
 Each Offering Period will begin on January 1 or July 1 and end on the next following June 30 or December 31, respectively. However, the Initial Offering
Period shall commence on the beginning of the effective date of the Registration Statement on Form S-1 for the initial public offering of the Company’s Common Stock (the “IPO Date”) and continue until June 30, 2004. At
any time and from time to time, the Board may change the duration and/or the frequency of Offering Periods with respect to future Offering Periods or suspend operation of the Plan with respect to Offering Periods not yet commenced. 
  
 5. Participation 
  
 5.1. An eligible Employee may become a participant in the Plan by completing a subscription agreement on the form provided
by the Company and filing it with the Company’s payroll office at least three (3) business days prior to the applicable Offering Commencement Date, unless a later time for filing the subscription agreement is set by the Board for all eligible
Employees with respect to a given Offering Period. The subscription agreement shall set forth the percentage of the participant’s Compensation (subject to Section 6.1 below) to be paid as Contributions pursuant to the Plan. 
  

 -3- 

 5.2. Payroll deductions shall commence on the first payroll following the Offering Commencement Date and
shall end on the last payroll paid on or prior to the Offering Termination Date of the Offering Period to which the subscription agreement is applicable, unless sooner terminated by the participant as provided in Section 10. 
  
 5.3. Participation in the Plan for the Initial Offering Period shall be on
the same terms and conditions as are set forth in the Plan in respect of Offering Periods generally, except as and to the extent otherwise expressly set forth in this Section 5.3: 
  
 (a) All eligible Employees as of the Offering Commencement Date of the Initial Offering Period shall automatically
participate in the Plan and be granted an option pursuant to the Plan as of such Offering Commencement Date. Eligible Employees shall neither be required to submit a subscription agreement to participate in the Initial Offering Period nor be
permitted to decline to participate in the Initial Offering Period (but any Contributions of a participant for the Initial Offering Period may be withdrawn as provided in Section 10). However, any participation as to subsequent Offering Periods
shall require submission of a subscription agreement and compliance with all other applicable provisions of the Plan. 
  
 (b) For purposes of determining the exercise price of options granted on the Offering Commencement Date of the Initial Offering Period, the Fair Market
Value of a Share as of such Offering Commencement Date shall be the “Price to Public” as set forth in the final prospectus filed with the Securities and Exchange Commission pursuant to Rule 424 under the Securities Act of
1933, as amended. 
  
 (c) At any time after the effectiveness of
the Company’s Registration Statement on Form S-8 with respect to the Plan, but no later than June 25, 2004, a participant in the Plan for the Initial Offering Period may deliver to the Company’s Controller by payment in cash or personal
check amounts for credit as Contributions under the Plan with respect to the Initial Offering Period. Such payment must be accompanied by a completed subscription payment form which has been approved by the Company or its designee, such as the
Administrator. 
  
 (d) The total Contributions credited to a
participant’s account under the Plan for the Initial Offering Period pursuant to subsection (c) above, when combined with any payments made into such participant’s account by payroll deductions, shall not exceed ten percent (10%) of the
participant’s Compensation for the Initial Offering Period. Any excess shall be promptly refunded to the participant following the Offering Termination Date of the Initial Offering Period. 
  
 6. Method of Payment of Contributions 
  
 6.1. A participant shall elect to have payroll deductions made on each
payday during the Offering Period in an amount not less than one percent (1%) and not more than ten percent (10%) (or such other percentage as the Board may establish from time to time before an Offering Commencement Date) of such participant’s
Compensation on each payday during the Offering Period. All payroll deductions made by a participant shall be 
  

 -4- 

 credited to his or her account under the Plan. A participant may not make any additional payments into such account.

  
 6.2. A participant may discontinue his or her participation in
the Plan as provided in Section 10. In addition, if the Board has so announced to Employees at least five (5) days prior to the scheduled beginning of the next Offering Period to be affected by the Board’s determination, a participant may, on
one occasion only during each Offering Period, change the rate of his or her Contributions with respect to the Offering Period by completing and filing with the Company a new subscription agreement authorizing a change in the payroll deduction rate.
Any such change in rate shall be effective as of the first payroll period following the date of filing of the new subscription agreement, if the agreement is filed at least ten (10) business days prior to such period and, if not, as of the second
following payroll period. 
  
 6.3. Notwithstanding the foregoing,
to the extent necessary to comply with Section 423(b)(8) of the Code and Section 3.2 herein, a participant’s payroll deductions may be decreased during any Offering Period scheduled to end during the current calendar year to 0%. Payroll
deductions reduced to 0% in compliance with this Section 6.3 shall re-commence automatically at the rate provided in such participant’s subscription agreement at the beginning of the first Offering Period which is scheduled to end in the
following calendar year, unless terminated by the participant as provided in Section 10. 
  
 7. Grant of Option 
  
 7.1. On the Offering Commencement Date of each Offering Period, each eligible Employee participating in such Offering Period shall be granted an option to purchase on the Offering Termination Date of that Offering Period a number of Shares
determined by dividing such Employee’s Contributions accumulated prior to such Offering Termination Date and retained in the participant’s account as of the Offering Termination Date by the applicable Purchase Price. However, the maximum
number of Shares an Employee may purchase during each Offering Period shall be 5,000 shares, or such other maximum amount determined from time to time by the Board prior to the applicable Offering Period, and provided further that such purchase
shall be subject to the limitations set forth in Sections 3.2 and 12. 
  
 7.2. The fair market value of the Company’s Common Stock on a given date (the “Fair Market Value”) shall be (i) the closing sales price on the New York Stock Exchange (“NYSE”) or the
National Association of Securities Dealers Automated Quotations (“NASDAQ”) if the Common Stock is listed on NASDAQ (or, in the event that the Common Stock is not traded on such date, on the immediately preceding trading date)
or, (ii) determined by the Board in its discretion based on the closing sales price of the Common Stock for such date (or, in the event that the Common Stock is not traded on such date, on the immediately preceding trading date), as reported by the
NYSE (or NASDAQ if listed on that exchange) or, (iii) if the closing sales price is not reported, the 
  

 -5- 

 mean of the bid and asked prices per share of the Common Stock as reported by NYSE (or NASDAQ if listed on that
exchange). 
  
 8. Exercise of Option 
  
 Unless a participant withdraws from the Plan as provided in Section 10, his
or her option for the purchase of Shares will be exercised automatically on the Offering Termination Date of an Offering Period, and the maximum number of full Shares subject to the option will be purchased at the applicable Purchase Price with the
accumulated Contributions in his or her account. No fractional Shares shall be issued. The Shares purchased upon exercise of an option hereunder shall be deemed to be transferred to the participant on the Offering Termination Date. During his or her
lifetime, a participant’s option to purchase Shares hereunder is exercisable only by him or her. 
  
 9. Delivery 
  
 As
promptly as practicable after each Offering Termination Date of each Offering Period, the Company shall arrange the delivery to each participant, as appropriate, of a certificate representing the Shares purchased upon exercise of his or her option.
Any payroll deductions accumulated in a participant’s account which are not sufficient to purchase a full Share shall be retained in the participant’s account for the subsequent Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 below. Any other amounts left over in a participant’s account after an Offering Termination Date shall be returned to the participant. 
  
 10. Voluntary Withdrawal; Termination of Employment 
  
 10.1. A participant may withdraw all but not less than all of the Contributions credited to his or her account under the
Plan at any time prior to each Offering Termination Date by giving written notice to the Company. All of the participant’s Contributions credited to his or her account will be paid to him or her promptly after receipt of his or her notice of
withdrawal and his or her option for the current Offering Period will be automatically terminated, and no further Contributions for the purchase of Shares will be made during the Offering Period. 
  
 10.2. Upon termination of the participant’s Continuous Status as an
Employee prior to the Offering Termination Date of an Offering Period for any reason, including retirement or death, the Contributions credited to his or her account will be returned to him or her or, in the case of his or her death, to the person
or persons entitled thereto under Section 14, and his or her option will be automatically terminated. 
  
 10.3. In the event an Employee fails to remain in Continuous Status as an Employee of the Company for at least twenty (20) hours per week during the
Offering Period in which the employee is a participant, he or she will be deemed to have elected to withdraw from the Plan and the Contributions credited to his or her account will be returned to him or her and his or her option terminated.

  

 -6- 

 10.4. A participant’s withdrawal during an Offering Period will not have any effect upon his or her
eligibility to participate in a succeeding Offering Period or in any similar plan which may hereafter be adopted by the Company. 
  
 11. Interest 
  
 No interest shall accrue on the Contributions of a participant in the Plan. 
  
 12. Stock 
  
 12.1. Subject to adjustment as provided in Section 18, the maximum number of Shares which shall be made available for sale under the Plan shall be 500,000
Shares. Notwithstanding the foregoing, and subject to adjustment in accordance with Section 18 no more than an aggregate of 500,000 Shares may be issued pursuant to this Plan. If the Board determines that, on a given Offering Termination Date, the
number of shares with respect to which options are to be exercised may exceed (i) the number of shares of Common Stock that were available for sale under the Plan on the Offering Commencement Date, or (ii) the number of shares available for sale
under the Plan on such Offering Termination Date, the Board may in its sole discretion provide that the Company shall make a pro rata allocation of the Shares available for purchase on such Offering Commencement Date or Offering Termination Date, as
applicable, in as uniform a manner as shall be practicable and as it shall determine in its sole discretion to be equitable among all participants exercising options to purchase Common Stock on such Offering Termination Date. The Company may make
pro rata allocation of the Shares available on the Offering Commencement Date of the applicable Offering Period pursuant to the preceding sentence, notwithstanding any authorization of additional Shares for issuance under the Plan by the
Company’s stockholders subsequent to such Offering Commencement Date. 
  
 12.2. The participant shall have no interest or voting right in Shares covered by his or her option until such option has been exercised. 
  
 12.3. Shares to be delivered to a participant under the Plan will be registered in the name of the participant or in the
name of the participant and his or her spouse, as directed by the participant. 
  
 13. Administration 
  
 The Board, or a committee
named by the Board, shall supervise and administer the Plan and shall have full power to adopt, amend and rescind any rules deemed desirable and appropriate for the administration of the Plan and not inconsistent with the Plan, to construe and
interpret the Plan, and to make all other determinations necessary or advisable for the administration of the Plan. The Board’s determinations made in good faith on matters referred to in this Plan shall be final, binding and conclusive on all
persons having or claiming any interest under this Plan. 
  
 The
Board may from time to time designate an employee or retain a third party to address routine administrative matters. Any employee or third party so designated may be referred to herein as the “Administrator.” 
  

 -7- 

 14.    Designation of Beneficiary 
  
 14.1.  A participant may file a written designation of a
beneficiary who is to receive any Shares and cash, if any, from the participant’s account under the Plan in the event of such participant’s death subsequent to the end of an Offering Period but prior to delivery to him or her of such
Shares and cash. Any such beneficiary shall also be entitled to receive any cash from the participant’s account under the Plan in the event of such participant’s death prior to the Offering Termination Date of an Offering Period.

  
 14.2.  Such designation of beneficiary may be
changed by the participant at any time by written notice. In the event of the death of a participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such participant’s death, the Company shall
deliver such Shares and/or cash to the executor or administrator of the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such Shares
and/or cash to the spouse or to any one or more dependents or relatives of the participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate. 
  
 15.    Transferability of Options and Shares 
  
 Neither Contributions credited to a participant’s account nor any
rights with regard to the exercise of an option or to receive Shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution, or as provided in Section 14) by
the participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds in accordance with Section 10. In addition, if the Board has
so announced to Employees at least five (5) days prior to the scheduled beginning of the next Offering Period to be affected by the Board’s determination, any Shares acquired on the Offering Termination Date of such Offering Period may be
subject to restrictions specified by the Board on the transfer of such Shares. 
  
 Any participant selling or transferring any or all of his or her Shares purchased pursuant to the Plan must provide written notice of such sale or transfer to the Company within five (5) business days after the date
of sale or transfer. Such notice to the Company shall include the gross sales price, if any, the Offering Period during which the Shares being sold were purchased by the participant, the number of Shares being sold or transferred and the date of
sale or transfer. 
  
 16.    Use of Funds 

 
 All Contributions received or held by the Company under the Plan may be
used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such Contributions from its other assets. 
  
 17.    Reports 
  
 Individual accounts will be maintained for each participant in the Plan. Statements of account will be given to participating Employees at least annually,
which statements will set forth the amounts of Contributions, the per Share Purchase Price, the number of Shares purchased and the remaining cash balance, if any. 
  
  
  

 -8- 

 18.    Adjustments Upon Changes in Capitalization; Corporate Transactions 
  
 18.1.    Adjustment.  Subject to any
required action by the stockholders of the Company, the number of shares covered by each option under the Plan which has not yet been exercised and the number of Shares which have been authorized for issuance under the Plan but have not yet been
placed under option (collectively, the “Reserves”), as well as the maximum number of shares of Common Stock which may be purchased by a participant in an Offering Period, the number of shares of Common Stock set forth in
Section 12.1 above, and the price per Share of Common Stock covered by each option under the Plan which has not yet been exercised, shall be proportionately adjusted for any increase or decrease in the number of the Company’s issued Shares
resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock (including any such change in the number of Shares of Common Stock effected in connection with a change in domicile of the
Company), or any other increase or decrease in the number of Shares effected without receipt of consideration by the Company; provided however that conversion of any convertible securities of the Company shall not be deemed to have been
“effected without receipt of consideration.” Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. 
  
 18.2.    Corporate Transactions.  In the event of a dissolution or liquidation of the
Company, the Offering Period then in progress will terminate immediately prior to the consummation of such action, unless otherwise provided by the Board. In the event of a Corporate Transaction, each option outstanding under the Plan shall be
assumed or an equivalent option shall be substituted by the successor corporation or a parent or Subsidiary of such successor corporation. In the event that the successor corporation refuses to assume or substitute for outstanding options, the
Offering Period then in progress shall be shortened and a new Offering Termination Date shall be set (the “New Offering Termination Date”), as of which date the Offering Period then in progress will terminate. The New
Offering Termination Date shall be on or before the date of consummation of the transaction and the Board shall notify each participant in writing, at least ten (10) days prior to the New Offering Termination Date, that the Offering Termination Date
for his or her option has been changed to the New Offering Termination Date and that his or her option will be exercised automatically on the New Offering Termination Date, unless prior to such date he or she has withdrawn from the Offering Period
as provided in Section 10. For purposes of this Section 18, an option granted under the Plan shall be deemed to be assumed, without limitation, if, at the time of issuance of the stock or other consideration upon a Corporate Transaction, each holder
of an option under the Plan would be entitled to receive upon exercise of the option the same number and kind of shares of stock or the same amount of property, cash or securities as such holder would have been entitled to receive upon the
occurrence of the transaction if the holder had been, immediately prior to the transaction, the holder of the number of Shares of Common Stock covered by the option at such time (after giving effect to any adjustments in the number of Shares covered
by the option as provided for in this Section 18); provided however that if the consideration received in the transaction is not solely common stock of the successor corporation or its parent (as defined in 
  

 -9- 

 Section 424(e) of the Code), the Board may, with the consent of the successor corporation, provide for the consideration
to be received upon exercise of the option to be solely common stock of the successor corporation or its parent equal in Fair Market Value to the per Share consideration received by holders of Common Stock in the transaction. 
  
 The Board may, if it so determines in the exercise of its sole discretion,
also make provision for adjusting the Reserves, as well as the price per Share of Common Stock covered by each outstanding option, in the event that the Company effects one or more reorganizations, recapitalizations, rights offerings or other
increases or reductions of Shares of its outstanding Common Stock, and in the event of the Company’s being consolidated with or merged into any other corporation. 
  
 19. Amendment or Termination 
  
 19.1. The Board may at any time and for any reason terminate or amend the Plan. Except as provided in Section 18, no such termination of the Plan may
affect options previously granted, provided that the Plan or an Offering Period may be terminated by the Board on an Offering Termination Date or by the Board’s setting a new Offering Termination Date with respect to an Offering Period then in
progress if the Board determines that termination of the Plan and/or the Offering Period is in the best interests of the Company and its stockholders or if continuation of the Plan and/or the Offering Period would cause the Company to incur adverse
accounting charges as a result of the Plan. Except as provided in Section 18 and in this Section 19, no amendment to the Plan shall make any change in any option previously granted which adversely affects the rights of any participant. 

 
 19.2. Without stockholder consent and without regard to whether any
participant rights may be considered to have been adversely affected, the Board (or its committee) shall be entitled to change the Offering Periods, limit the frequency and/or number of changes in the amount withheld during an Offering Period,
establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, permit payroll withholding in excess of the amount designated by a participant in order to adjust for delays or mistakes in the Company’s
processing of properly completed withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each participant properly
correspond with amounts withheld from the participant’s Compensation, and establish such other limitations or procedures as the Board (or its committee) determines in its sole discretion advisable which are consistent with the Plan. 

 
 20. Notices 
  
 All notices or other communications by a participant to the Company under or in connection with the Plan shall be deemed to
have been duly given when received in the 
  

 -10- 

 form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof.

  
 21. Conditions to Issuance of Shares 
  
 Shares shall not be issued with respect to an option unless the exercise of
such option and the issuance and delivery of such Shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and
regulations promulgated thereunder, applicable state securities laws and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such
compliance. 
  
 As a condition to the exercise of an option, the
Company may require the person exercising such option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any of the aforementioned applicable provisions of law. 
  
 22. Term of Plan; Effective Date 
  
 The Plan shall become effective upon the IPO Date. It shall continue in effect until December 31, 2008 unless sooner terminated under Section 19.

  

 -11- 

 SAMPLE 
  
 TEMPUR-PEDIC INTERNATIONAL INC. 
  
 2003 EMPLOYEE STOCK PURCHASE PLAN 
  
 SUBSCRIPTION AGREEMENT 
  
 New Election          
  
 Change of Election           
  
 1. I,
                                        
    , hereby elect to participate in the Tempur-Pedic International Inc. 2003 Employee Stock Purchase Plan (the “Plan”) for the Offering Period
                    ,              to
                        ,             , and subscribe
to purchase shares of the Company’s Common Stock in accordance with this Subscription Agreement and the Plan. 
  
 2. I elect to have Contributions in the amount of             % of my Compensation, as
those terms are defined in the Plan, applied to this purchase. I understand that this amount must not be less than 1% and not more than 10% of my Compensation during the Offering Period. (Please note that no fractional percentages are permitted).

  
 3. I hereby authorize payroll deductions from each paycheck
during the Offering Period at the rate stated in Item 2 of this Subscription Agreement. I understand that all payroll deductions made by me shall be credited to my account under the Plan and that I may not make any additional payments into such
account. I understand that all payments made by me shall be accumulated, without interest or earnings, for the purchase of shares of Common Stock at the applicable purchase price determined in accordance with the Plan. I further understand that,
except as otherwise set forth in the Plan, shares will be purchased for me automatically on the Offering Termination Date of each Offering Period unless I otherwise withdraw from the Plan by giving written notice to the Company for such purpose.

  
 4. I understand that I may discontinue at any time prior to
the Offering Termination Date my participation in the Plan as provided in Section 10 of the Plan. I acknowledge that, unless I discontinue my participation in the Plan as provided in Section 10 of the Plan, my election will continue to be effective
for each successive Offering Period. 
  
 5. I have received a copy
of the complete Tempur-Pedic International Inc. 2003 Employee Stock Purchase Plan. I understand that my participation in the Plan is in all respects subject to the terms of the Plan. 
  
 6. Shares purchased for me under the Plan should be issued in the name(s) of (name of employee or employee and spouse only):

	 	

  

	 	

  
 7. In the event of my death, I hereby designate the following as my beneficiary(ies) to receive all payments and shares due to me under the Plan: 
  

	 NAME: (Please print)
	 	 	 	

	 	 	 	 	(First)                (Middle)                (Last)
			
	
	 	 	 	

	 (Relationship)
	 	 	 	 (Address)

			
	 	 	 	 	

  
 8. I understand that
if I dispose of any shares received by me pursuant to the Plan within 2 years after the Offering Commencement Date (the first day of the Offering Period during which I purchased such shares) or within 1 year after the Offering Termination Date, I
will be treated for federal income tax purposes as having received ordinary compensation income at the time of such disposition in an amount equal to the excess of the fair market value of the shares on the Offering Termination Date over the price
which I paid for the shares, regardless of whether I disposed of the shares at a price less than their fair market value at the Offering Termination Date. The remainder of the gain or loss, if any, recognized on such disposition will be treated as
capital gain or loss. 
  
 I hereby agree to notify the Company in
writing within 30 days after the date of any such disposition, and I will make adequate provision for federal, state or other tax withholding obligations, if any, which arise upon the disposition of the Common Stock. The Company may, but will not be
obligated to, withhold from my compensation the amount necessary to meet any applicable withholding obligation including any withholding necessary to make available to the Company any tax deductions or benefits attributable to the sale or early
disposition of Common Stock by me. 
  
 9. If I dispose of such
shares at any time after expiration of the 2-year and 1-year holding periods, I understand that I will be treated for federal income tax purposes as having received compensation income only to the extent of an amount equal to the lesser of (1) the
excess of the fair market value of the shares at the time of such disposition over the purchase price which I paid for the shares under the option, or (2) 15% of the fair market value of the shares on the Offering Commencement Date. The remainder of
the gain or loss, if any, recognized on such disposition will be treated as capital gain or loss. 
  
 I understand that this tax summary is only a summary and is subject to change. I further understand that I should consult a tax advisor concerning certain
tax implications of the purchase and sale of stock under the Plan. 
  

 -2- 

 10. I hereby agree to be bound by the terms of the Plan. The effectiveness of this Subscription Agreement
is dependent upon my eligibility to participate in the Plan. 
  
 SIGNATURE:
                                       
                      
  
 SOCIAL SECURITY #:
                                       
      
  
 DATE:
                                       
                                  
  
  

 -3- 

 SAMPLE 
  
 TEMPUR-PEDIC INTERNATIONAL INC. 
  
 2003 EMPLOYEE STOCK PURCHASE PLAN 
  
 EXERCISE AGREEMENT FOR THE INITIAL OFFERING PERIOD 
  
 1. I have received a copy of the complete Tempur-Pedic International Inc. 2003 Employee Stock Purchase Plan (the “Plan”). I
understand that my participation in the Plan is in all respects subject to the terms of the Plan. 
  
 2. Shares purchased for me under the Plan should be issued in the name(s) of (name of employee or employee and spouse only): 
  

	 	 	 	 	

	 	 	 	 	 
	 	 	 	 	

  
 3. In the event of my
death, I hereby designate the following as my beneficiary(ies) to receive all shares due to me under the Plan: 
  

	NAME: (Please print)	 	 	 	

	 	 	 	 	(First)                 (Middle)
                (Last)
	 	 	 	 	 
	                                      
                                        
     	 	 	 	

	(Relationship)	 	 	 	(Address)
	 	 	 	 	

  
 4. I understand that
if I dispose of any shares received by me pursuant to the Plan within 2 years after the Offering Commencement Date (the first day of the Offering Period during which I purchased such shares) or within 1 year after the Offering Termination Date, I
will be treated for federal income tax purposes as having received ordinary compensation income at the time of such disposition in an amount equal to the excess of the fair market value of the shares on the Offering Termination Date over the price
which I paid for the shares, regardless of whether I disposed of the shares at a price less than their fair market value at the Offering Termination Date. The remainder of the gain or loss, if any, recognized on such disposition will be treated as
capital gain or loss. 
  
 I hereby agree to notify the Company in
writing within 30 days after the date of any such disposition, and I will make adequate provision for federal, state or other tax withholding obligations, if any, which arise upon the disposition of the Common Stock. The Company may, but will not be
obligated to, withhold from my compensation the amount necessary to meet any applicable withholding obligation including any 

 withholding necessary to make available to the Company any tax deductions or benefits attributable to the sale or early
disposition of Common Stock by me. 
  
 5. If I dispose of such
shares at any time after expiration of the 2-year and 1-year holding periods, I understand that I will be treated for federal income tax purposes as having received compensation income only to the extent of an amount equal to the lesser of (1) the
excess of the fair market value of the shares at the time of such disposition over the purchase price which I paid for the shares under the option, or (2) 15% of the fair market value of the shares on the Offering Commencement Date. The remainder of
the gain or loss, if any, recognized on such disposition will be treated as capital gain or loss. 
  
 I understand that this tax summary is only a summary and is subject to change. I further understand that I should consult a tax advisor concerning certain
tax implications of the purchase and sale of stock under the Plan. 
  
 6. I hereby agree to be bound by the terms of the Plan. The effectiveness of this Subscription Agreement is dependent upon my eligibility to participate in the Plan. 
  
 SIGNATURE:
                                       
                                        

 
 SOCIAL SECURITY #:
                                       
                      
  
 DATE:
                                       
                                        
              
  
  

 -2- 

 SAMPLE 
  
 TEMPUR-PEDIC INTERNATIONAL INC. 
  
 2003 EMPLOYEE STOCK PURCHASE PLAN 
  
 NOTICE OF WITHDRAWAL 
  
 I,
                            , hereby elect to withdraw my participation in the Tempur-Pedic
International Inc. 2003 Employee Stock Purchase Plan (the “Plan”) for the Offering Period that began on
                            ,
            . This withdrawal covers all Contributions credited to my account and is effective on the date designated below. 
  
 I understand that all Contributions credited to my account will be paid to me
within ten (10) business days of receipt by the Company of this Notice of Withdrawal and that my option for the current period will automatically terminate, and that no further Contributions for the purchase of shares can be made by me during the
Offering Period. 
  
 The undersigned further understands and
agrees that he or she shall be eligible to participate in succeeding Offering Periods only by delivering to the Company a new Subscription Agreement. 
  

	 Dated:                                     
                                 
	 	 	 	                                      
                                        
     
	 	 	 	 	Signature of Employee
	 	 	 	 	  
                                       
                                        
     

	 	 	 	 	Social Security Number

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