Document:

ex10_38.htm

    EXHIBIT 10.38

    

      STOCK OPTION
AGREEMENT

       

      This
Stock Option Agreement (this “Agreement”) is made
as of this 11th day of
July, 2007 (the “Effective Date”)
between Simmons Holdco, Inc., a Delaware corporation (the “Company”), and the
undersigned (the “Optionee”).  Certain
capitalized terms used herein are defined in Section 8
hereof.

       

      WHEREAS,
the Company believes it to be in the best interests of the Company and its
shareholders to take action to promote work-force stability, to reward
performance and otherwise align the Optionee’s interests with those of the
Company;

       

      WHEREAS,
accordingly, the Company desires to grant the Optionee a non-qualified stock
option under the Second Amended and Restated Simmons Holdco, Inc. Equity
Incentive Plan (the “Plan”) to acquire
shares of Class B Common Stock, par value $0.01 per share, of the Company (the
“Class B Common
Stock”); and

       

      WHEREAS,
the Company desires to be assured that the confidential information and goodwill
of the Company will be preserved for the exclusive benefit of the
Company.

       

      NOW,
THEREFORE, in consideration of the mutual covenants contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

       

      1. Grant of
Option.

       

      (a) Grant.  The
Company hereby grants to the Optionee under the Plan and subject to the terms
and conditions of the Plan a non-qualified stock option (the “Option”) to purchase
all or any part of an aggregate number of shares set forth below the Optionee’s
name on the signature page attached hereto (the “Shares”).

       

      (b) Exercise
Price.  The per share exercise price (“Exercise
Price”)  for the Shares covered by the Option shall be as set
forth below the Optionee’s name on the signature page attached
hereto.

       

      2. Vesting of
Option.

       

      (a) General.

       

      (i)          Vesting
Targets.  The Option shall vest and become exercisable with
respect to the Shares (the “Vested Shares”) in
accordance with this Section 2, based upon
the Company’s achievement of the Consolidated Adjusted EBITDA targets set forth
below (each, the “Target EBITDA”) for
each of the Company’s fiscal years ending December 29, 2007,
December 27, 2008, December 26, 2009 and December 25, 2010 (the “Measurement
Years”).

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      EBITDA
Targets

       

      (dollars
in millions)

      

      
        	
                Measurement

                Years

              	
                Target
      EBITDA

              	
                Cumulative
      Target EBITDA

              	
                90%
      of Target

                EBITDA

              	
                90%
      of Cumulative Target
      EBITDA

              	
                Eligible

                Shares

              
	
                2007

              	
                $190.0

              	
                $190.0

              	
                $171.0

              	
                $171.0

              	
                25%
      of Shares

              
	
                2008

              	
                $225.0

              	
                $415.0

              	
                $202.5

              	
                $373.5

              	
                25%
      of Shares

              
	
                2009

              	
                $240.0

              	
                $655.0

              	
                $216.0

              	
                $589.5

              	
                25%
      of Shares

              
	
                2010

              	
                $265.0

              	
                $920.0

              	
                $238.5

              	
                $828.0

              	
                25%
      of Shares

              

      

      

      (ii)          Adjustments.  The
minimum Target EBITDA numbers set forth above shall be equitably adjusted by the
Board for acquisitions and dispositions made by the Company (whether by purchase
or sale of assets or stock, merger, consolidation or otherwise) and such
adjustments may take into account the pro forma annual Consolidated Adjusted
EBITDA of any acquired business, as determined by the Board.

       

      (iii)          Performance
Based Vesting.  At the end of each Measurement Year, on the
Measurement Date, the percentage of Shares under the Option set forth above
shall be eligible to vest (the “Eligible Shares”). On
each Measurement Date, 50% of the Eligible Shares shall become Vested Shares if
at least 90% of the Target EBITDA amount was met for the prior Measurement
Year.  If more than 90% of the Target EBITDA amount was met for the
prior Measurement Year, then the Eligible Shares shall become Vested Shares on a
straight line basis such that an additional 5% of Eligible Shares shall become
Vested Shares for each 1% that actual Consolidated Adjusted EBITDA exceeds 90%
of the Target EBITDA amount.

      

      (b) Change of
Control.

       

      (i)           The
vesting of Shares that are not Vested Shares will accelerate as set forth below
upon a Change of Control solely if (a) the Company achieves at least 90% of the
Target EBITDA for the Measurement Year immediately preceding the year in which
the Change of Control occurs, and (b) the actual Consolidated Adjusted EBITDA
for the Measurement Year immediately preceding the year in which the Change of
Control occurs exceeds the actual Consolidated Adjusted EBITDA for the preceding
year.  If (x) the conditions set forth in clauses (a) and (b) above
are met, and (y) the Company achieves 90% of the Cumulative Target EBITDA above
for the Measurement Year completed immediately prior to the Change of Control,
then 50% of the Shares that were Eligible Shares but which did not previously
become Vested Shares (the “Missed Shares”) and
50% of the Shares that are not yet Eligible Shares shall become Vested Shares.
If (1) the conditions set forth in clauses (a) and (b) above are met, and (2)
the Company achieves more than 90% of the Cumulative Target EBITDA above for the
immediately preceding Measurement Year, then a number of Missed Shares and
Shares that are not yet Eligible Shares will become Vested Shares, determined on
a straight line basis such that an additional 5% of the Missed Shares and 5% of
the Shares that are not yet Eligible Shares will become Vested Shares for each
1% that actual Consolidated Adjusted EBITDA for the immediately preceding
Measurement Year exceeds 90% of the Cumulative Target EBITDA set forth
above.

      

      (ii)          Notwithstanding
the foregoing paragraph, the vesting of Shares that are not Vested Shares will
accelerate upon a Change of Control which occurs in the Measurement Year ending
December 29, 2007 as follows:  Shares that are not Vested Shares
will accelerate as set forth below upon a Change of Control solely if (a) the
Company achieves at least 90% of the Target EBITDA for the Measurement Year
immediately preceding the year in which the Change of Control occurs, and (b)
the actual Consolidated Adjusted EBITDA for the Measurement Year immediately
preceding the year in which the Change of Control occurs exceeds the actual
Consolidated Adjusted EBITDA for the preceding year.  If (x) the
conditions set forth in clauses (a) and (b) above are met, and (y) the Company
achieves 90% of the 2007 Year to Date Target EBITDA (as defined below) for the
month completed immediately prior to the Change of Control, then 50% of the
Shares that are not yet Eligible Shares shall become Vested
Shares.  The Target EBITDA for each month in 2007 is set forth below
and the 2007 Year to Date Target EBITDA represents the cumulative Target EBITDA
for the period commencing December 31, 2006 and ending on the last day of such
fiscal month (the "Year to Date Target
EBITDA").  If (1) the conditions set forth in clauses (a) and
(b) above are met, and (2) the Company achieves more than 90% of the 2007 Year
to Date Target EBITDA for the fiscal month completed immediately prior to the
Change of Control, then a number of Shares that are not yet Eligible Shares will
become Vested Shares, determined on a straight line basis such that an
additional 5% of the Shares that are not yet Eligible Shares will become Vested
Shares for each 1% that actual Consolidated Adjusted EBITDA for the period
commencing December 31, 2006 and ending on the last day of the fiscal month
immediately preceding the Change of Control exceeds 90% of the 2007 Year to Date
Target EBITDA.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      
        	
                Month

              	
                2007
      Monthly

                Target
      EBITDA

                (dollars
      in millions)

              	
                2007
      Year to Date

                Target
      EBITDA

                (dollars
      in millions)

              
	
                January

              	
                $18.9

              	
                $18.9

              
	
                February

              	
                $13.4

              	
                $32.3

              
	
                March

              	
                 $13.3

              	
                $45.7

              
	
                April

              	
                 $15.1

              	
                $60.8

              
	
                May

              	
                 $12.7

              	
                $73.5

              
	
                June

              	
                 $17.4

              	
                $90.9

              
	
                July

              	
                 $21.0

              	
                $111.9

              
	
                August

              	
                 $17.6

              	
                $129.5

              
	
                September

              	
                 $16.7

              	
                $146.2

              
	
                October

              	
                 $18.9

              	
                $165.1

              
	
                November

              	
                 $12.7

              	
                $177.9

              
	
                December

              	
                 $12.1

              	
                $190.0

              

      

      

       (iii)
Upon the occurrence of a Change of Control, the Option shall automatically
terminate and cease to be thereafter exercisable as to any Shares other than
those Shares that have become vested in accordance herewith.  Upon a
Change of Control, Vested Shares are subject to Section 13(b) of the
Plan.

       

      (c) In the
event that the Company achieves the Target EBITDA with respect to the
Measurement Year in which termination of Service occurs, then the Eligible
Shares with respect to such year multiplied by a fraction, the numerator of
which shall equal the number of whole months during such year that the Optionee
served on the Board or remained employed with the Company and the denominator of
which is 12, shall become Vested Shares as of the end of such year.

       

      3. Manner of Exercise of
Option; Adjustments.

       

      (a) To the
extent that the right to exercise the Option has vested in accordance with the
vesting schedule and such right is in effect, the Option may be exercised in
full or in part as to Vested Shares by giving written notice to the Company
stating the number of Shares exercised and accompanied by payment in full for
such Shares.  Payment may be either (i) in cash or by personal check
payable to the order of the Company, (ii) in shares of the Class B Common Stock
of the Company legally and beneficially owned by the Optionee, fully vested and
free of all liens, claims and encumbrances of every kind and valued at Fair
Market Value on the date of delivery, or (iii) any combination of (i) and (ii);
provided, however, that payment
of the exercise price by delivery of shares of Class B Common Stock of the
Company owned by such Optionee may be made only if such payment does not result
in a charge to earnings for financial accounting purposes as determined by the
Company.  Upon such exercise, delivery of a certificate for paid-up,
non-assessable Shares shall be made at the principal office of the Company, not
more than thirty (30) days from the date of receipt of notice by the
Company.

       

      (b) The
Company shall at all times during the Term of the Option reserve and keep
available such number of Shares of Class B Common Stock as will be sufficient to
satisfy the requirements of this Option.

       

      (c) Except as
expressly set forth herein, adjustments on changes in recapitalization,
reorganization and the like shall be made in accordance with Section 13 of the
Plan, as in effect on the date of this Agreement.

       

      4. Termination; Repurchase of
Shares.

       

      (a) Expiration.  The
Option shall expire on the earliest of (i) the expiration of the Term, (ii) the
date that is twelve (12) months following the date on which the Optionee’s
Service terminates as a result of the Optionee’s death or Disability, (iii) the
date that is three (3) months following the date on which the Optionee’s
termination of Service without Cause or resignation for Good Reason or (iv) on
the date of termination of Service if the Optionee’s Service is terminated with
Cause or due to voluntary resignation by the Optionee without Good Reason (the
“Termination
Date”).  However, the Optionee (or in the case of the
Optionee’s death or Disability, the Optionee’s representative) may exercise all
or a part of the Optionee’s Option at any time before the expiration of such
Option under the preceding sentence only to the extent that the Option has
become exercisable for Vested Shares pursuant to this Agreement on or before the
date the Optionee’s Service terminates. The balance of the Option (which is not
exercisable for and vested on the date Optionee’s Service terminates) shall
lapse when the Optionee’s Service terminates.  Notwithstanding the
foregoing, with respect to the portion of the Option that would vest in
accordance with Section 2(c), such
portion of the Option shall not terminate until (i) the date that is twelve (12)
months following the Measurement Date for the Measurement Year in which the
termination of Service occurs if the Optionee’s Service terminates as a result
of the Optionee’s death or Disability or (ii) the date that is three (3) months
following the Measurement Date for the Measurement Year in which the termination
of Service occurs if the Optionee’s Service is terminated for any other
reason.

       

      (b) In the
event that the Optionee’s Service terminates for any reason, then all Shares
purchased by the Optionee upon exercise of this Option (including any capital
stock issued with respect to such Shares by way of stock split, stock dividend
or other recapitalization and whether held by the Optionee or by one or more of
the Optionee’s transferees) will be subject to repurchase by the Company, at its
option (the “Repurchase Option”),
for Fair Market Value as of the date of repurchase.

       

      (c) The
Repurchase Option shall be exercised by the Company, or its designee, from time
to time, by delivering to the Optionee a written notice of exercise and a check
in the amount of Fair Market Value.  Upon delivery of such notice and
payment of the purchase price as described above, the Company, or its designee,
shall become the legal and beneficial owner of the Shares being repurchased and
all rights and interest therein or related thereto, and the Company, or its
designee, shall have the right to transfer to its own name the number of Shares
being repurchased without further action by the Optionee or any of his or her
transferees.  If the Company or its designee elect to exercise the
repurchase rights pursuant to this Section 4 and the
Optionee or his or her transferee fails to deliver the Shares in accordance with
the terms hereof, the Company, or its designee, may, at its option, in addition
to all other remedies it may have, deposit the purchase price in an escrow
account administered by an independent third party (to be held for the benefit
of and payment over to the Optionee or his or her transferee in accordance
herewith), whereupon the Company shall by written notice to the Optionee cancel
on its books the certificates(s) representing such Shares registered in the name
of the Optionee and all of the Optionee’s or his or her transferee’s right,
title, and interest in and to such Shares shall terminate in all
respects.

       

      (d) Notwithstanding
the foregoing, if at any time the Company elects to purchase any Shares pursuant
to this Section 4, the
Company shall pay the purchase price for the Shares it purchases (i) first,
by offsetting indebtedness, if any, owing from such Optionee to the Company and
(ii) then, by the Company’s delivery of cash for the remainder of the purchase
price, if any, against delivery of the certificates or other instruments
representing the Shares so purchased, duly endorsed; provided that, if any such
cash payment at the time such payment is required to be made would result
(A) in a violation of any law, statute, rule, regulation, policy, order,
writ, injunction, decree or judgment promulgated or entered by any federal,
state, local or foreign court or governmental authority applicable to the
Company or any of its Subsidiaries or any of its or their property or
(B) after giving effect thereto, a Financing Default, or (C) if the Board
determines in good faith that immediately prior to such purchase there shall
exist a Financing Default which prohibits such purchase, dividend or
distribution ((A) through (C) collectively the “Cash Deferral
Conditions”), the portion of the cash payment so affected may be made by
the Company’s delivery of a promissory note or senior preferred shares of the
Company with a liquidation preference equal to the balance of the purchase
price. The promissory note or senior preferred shares shall accrue interest or
yield, as the case may be, annually at the “prime rate” published in The Wall
Street Journal on the date of issuance, which interest or yield, as the case may
be, shall be payable at maturity or upon payment of distributions by the
Company. The value of each such senior preferred share shall as of its issuance
be deemed to equal (A) the portion of the cash payment paid by the issuance
of such preferred shares divided by (B) the number of senior preferred
shares so issued.  Any senior preferred shares or the promissory note
shall be redeemed or payable when and to the extent the Cash Deferral Condition
which prompted their issuance no longer exists.

       

      (e) In the
event that any Shares are repurchased pursuant to this Section 4, the
Optionee and his or her successors, assigns or Representatives shall take (at
the Company’s expense) all steps necessary and desirable to obtain all required
third-party, governmental and regulatory consents and approvals and take all
other actions necessary and desirable to facilitate consummation of such
repurchase in a timely manner.

       

      5. Restrictions on Transfer and
Voting.

       

      (a) The right
of the Optionee to exercise the Option shall not be assignable or transferable
by the Optionee other than by will or the laws of descent and distribution, and
the Option may be exercised during the lifetime of the Optionee only by him or
her.  The Option shall be null and void and without effect upon the
bankruptcy of the Optionee or upon any attempted assignment or transfer, except
as hereinabove provided, including without limitation any purported assignment,
whether voluntary or by operation of law, pledge, hypothecation or other
disposition contrary to the provisions hereof, or levy of execution, attachment,
trustee process or similar process, whether legal or equitable, upon the
Option.

       

      (b) As a
condition precedent to the Optionee’s exercise of any portion of the Option, the
Optionee will sign a joinder agreement to the Securityholders’ Agreement as an
“Employee” or “Senior Manager,” as the case may be, in which the Optionee agrees
that such Shares will be subject to the restrictions in the Securityholders’
Agreement.

       

      6. Representation
Letter and Investment Legend.

       

      (a) In the
event that for any reason the Shares to be issued upon exercise of the Option
shall not be effectively registered under the Securities Act of 1933, upon any
date on which the Option is exercised in whole or in part, the person exercising
the Option shall give a written representation to the Company in the form
attached hereto as Exhibit A and the
Company shall place an “investment legend” so-called, as described in Exhibit A, upon any
certificate for the Shares issued by reason of such exercise.

       

      (b) The
Company shall be under no obligation to qualify Shares or cause a registration
statement or post-effective amendment to any registration statement to be
prepared for the purpose of covering the issue of Shares.

       

      7. Restricted
Activities.

       

      (a) The
Optionee acknowledges that (1) the Company has separately bargained and paid
additional consideration for the restrictive covenants herein; (2) the Company
will provide certain benefits to the Optionee hereunder in reliance on such
covenants in view of the unique and essential nature of the services the
Optionee will perform on behalf of the Company and the irreparable injury that
would befall the Company should the Optionee breach such covenants; and (3) as
used in this Section
7 and for all terms defined in Section 8 that are
utilized in Section
7, the definition of the “Company” includes the Company and/or its
Subsidiaries, Affiliates, and the successors and assigns of each and any such
related entities.

       

      (b) The
Optionee agrees that the Optionee’s work for the Company has brought and will
bring Optionee into close contact with many of the Company’s Customers, Customer
Prospects, Vendors, Trade Secrets, and Confidential Information.  The
Optionee further agrees that the covenants in this Section 7 are
reasonable and necessary to protect the Company’s legitimate business interests
and its Customer, Customer Prospect, and/or Vendor relationships, Trade Secrets,
and Confidential Information.

       

      (c) The
Optionee agrees to faithfully perform the duties assigned to the Optionee and
will not engage in any other employment or business activity while employed by
the Company that might interfere with the Optionee’s full-time performance of
the Optionee’s duties for the Company or cause a conflict of
interest.  The Optionee agrees to abide by all of the Company’s
policies and procedures, which may be amended from time-to-time.

       

      (d) The
Optionee agrees that, due to Optionee’s position, the Optionee’s engaging in any
activity that may breach this Agreement will cause the Company great, immediate,
and irreparable harm.

       

      (e) Duty of
Confidentiality. The Optionee agrees that during the Optionee’s
employment with the Company and for a period of five (5) years following the
termination of such employment for any reason, the Optionee shall not directly
or indirectly divulge or make use of any Confidential Information outside of the
Optionee’s employment with the Company (so long as the information remains
confidential) without the prior written consent of the Company.  The
Optionee shall not directly or indirectly misappropriate, divulge, or make use
of Trade Secrets for an indefinite period of time, so long as the information
remains a Trade Secret as defined by the DUTSA and/or any other applicable
law.  The Optionee further agrees that if the Optionee is questioned
about information subject to this Agreement by anyone not authorized to receive
such information, the Optionee will notify the Company’s General Counsel within
24 hours.  The Optionee acknowledges that applicable law may impose
longer duties of non-disclosure, especially for Trade Secrets, and that such
longer periods are not shortened by this Agreement.

       

      (f) Return of Confidential
Information And Company Property.  The Optionee agrees to
return to the Company all Confidential Information and/or Trade Secrets within
three (3) calendar days following the termination of the Optionee’s employment
for any reason.  To the extent the Optionee maintains Confidential
Information and/or Trade Secrets in electronic form on any computers or other
electronic devices owned by the Optionee, the Optionee agrees to irretrievably
delete all such information and to confirm the fact of deletion in writing
within three (3) calendar days following termination of employment with the
Company for any reason.  The Optionee also agrees to return all
property in the Optionee’s possession at the time of the termination of the
employment with the Company, including but not limited to all documents,
records, tapes, and other media of every kind and description relating to the
Business of the Company and its Customers, Customer Prospects, and/or Vendors,
and any copies, in whole or in part, whether or not prepared by the Optionee,
all of which shall remain the sole and exclusive property of the
Company.

       

      (g) Proprietary
Rights.  Proprietary Rights shall be promptly and fully
disclosed by the Optionee to the Company’s General Counsel and shall be the
exclusive property of the Company as against the Optionee and the Optionee’s
successors, heirs, devisees, legatees and assigns.  The Optionee
hereby assigns to the Company Optionee’s entire right, title, and interest
therein and shall promptly deliver to the Company all papers, drawings, models,
data, and other material relating to any of the foregoing Proprietary Rights
conceived, made, developed, created or reduced to practice by the Optionee as
aforesaid.  All copyrightable Proprietary Rights shall be considered
“works made for hire.”  The Optionee shall, upon the Company’s request
and at its expense, execute any documents necessary or advisable in the opinion
of the Company’s counsel to assign, and confirm the Company’s title in the
foregoing Proprietary Rights and to direct issuance of patents or copyrights to
the Company with respect to such Proprietary Rights as are the Company’s
exclusive property as against the Optionee and/or the Optionee’s successors,
heirs, devisees, legatees and assigns under this Section 7(g) or to
vest in the Company title to such Proprietary Rights as against the Optionee
and/or the Optionee’s successors, heirs, devisees, legatees and assigns, the
expense of securing any such patent or copyright, however, to be borne by the
Company.

       

      (h) Non-Competition.  The
Optionee covenants and agrees that, during the term of Optionee’s employment
with the Company and for twelve (12) months after the termination thereof,
regardless of the reason for the employment termination, the Optionee will not,
directly or indirectly, anywhere in the Territory, on behalf of any Competitive
Business perform the same or substantially the same Job Duties.

       

      (i) Non-Solicitation of
Customers, Customer Prospects, and Vendors.  The Optionee also
covenants and agrees that during the term of Optionee’s employment with the
Company and for twelve (12) months after the termination thereof, regardless of
the reason for the employment termination, the Optionee will not, directly or
indirectly, solicit or attempt to solicit any business from any of the Company’s
Customers, Customer Prospects, or Vendors with whom the Optionee had Material
Contact during the last two (2) years of the Optionee’s employment with the
Company.

       

      (j) Non-Solicitation of
Employees.  The Optionee also covenants and agrees that during
the term of Optionee’s employment with the Company and for twelve (12) months
after the termination thereof, regardless of the reason for the employment
termination, the Optionee will not, directly or indirectly, on the Optionee’s
own behalf or on behalf of or in conjunction with any person or legal entity,
recruit, solicit, or induce, or attempt to recruit, solicit, or induce, any
non-clerical employee of the Company with whom the Optionee had personal contact
or supervised while performing the Optionee’s Job Duties, to terminate their
employment relationship with the Company.

       

      (k) Ownership of
Securities.  Notwithstanding the provisions set forth herein,
the Optionee shall have the right to (a) invest in or acquire any class of
securities issued by any firm, partnership, corporation, and/or any other entity
and/or person not engaged in any Competitive Business, or (b) acquire as a
passive investor (with no involvement in the operations or management of the
business) up to 1% of any class securities which is (i) issued by any
Competitive Business, and (ii) publicly traded on a national securities exchange
or over-the-counter market.

       

      (l) No
Disparagement.  Each of the parties hereto covenants and agrees
that, during the term of the Optionee’s employment with the Company and for
twelve (12) months after the termination thereof, regardless of the reason for
the employment termination, such party will not, directly or indirectly, either
in writing or by any other medium, make any disparaging, derogatory or negative
statement, comment or remark about the other parties hereto, or any of them, or
Thomas H. Lee Partners, or any other their respective officers, directors,
employees, Affiliates, Subsidiaries, successors and assigns, as the case may be;
provided, however, that this Section 7(l) shall
not be construed to require any Person to provide other than truthful testimony
when compelled to testify pursuant to an enforceable subpoena or court
order.

       

      8. Definitions.

       

      The
following terms shall have the meanings ascribed below:

       

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

       

      “Board” means the
Board of Directors of the Company, as constituted from time to
time.

       

      “Business of the
Company” means the highly competitive business of developing,
manufacturing, marketing, distributing, and/or selling sleep products, including
mattresses, foundations, changing pads and covers, and bedding components for
the same.

       

      “Cause” shall mean,
with respect to the Optionee, “Cause” as defined in any employment agreement
between the Optionee and the Company (or, if applicable, the Subsidiary
employing the Optionee) or, if the Optionee is not a party to an employment
agreement or “cause” is not defined therein, any one or more of the
following:

       

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

       

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

       

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

       

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

       

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

       

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

       

      “Class A Common Stock”
means the Company’s Class A Common Stock, $0.01 par value per
share.

       

      “Class B Common Stock”
has the meaning set forth in the Preamble hereto.

       

      “Competitive
Business(es)” include any firm, partnership, joint venture, corporation
and/or any other entity and/or person, including but not limited to Sealy
Corporation, Serta International, Spring Air Company, Select Comfort
Corporation, Tempur-Pedic International, Inc., King Koil Licensing Company,
Inc., International Bedding Corp., and/or any licensee of such entity, that
develops, manufactures, markets, distributes, and/or sells any of the sleep
products described in the definition for the “Business of the
Company.”

       

      “Confidential
Information” means information about the Company and its Customers,
Customer Prospects, and/or Vendors that is not generally known outside of the
Company, which Optionee learned in connection with the Optionee’s employment
with the Company.  Confidential Information may include, without
limitation: (1) the terms of this Agreement, except as necessary to inform
a subsequent employer of the restrictive covenants contained herein and/or the
Optionee’s attorney, spouse, or professional tax advisor only on the condition
that any subsequent disclosure by any such person shall be considered a
disclosure by the Optionee and a violation of this Agreement; (2) the
Company’s business policies, finances, and business plans; (3) the
Company’s financial projections, including but not limited to, annual sales
forecasts and targets and any computation(s) of the market share of Customers
and/or Customer Prospects; (4) sales information relating to the Company’s
product roll-outs; (5) customized software, marketing tools, and/or
supplies that the Optionee was provided access to by the Company and/or created;
(6) the identity of the Company’s Customers, Customer Prospects, and/or
Vendors (including names, addresses, and telephone numbers of Customers,
Customer Prospects, and/or Vendors); (7) any list(s) of the Company’s
Customers, Customer Prospects, and/or Vendors; (8) the account terms and
pricing upon which the Company obtains products and services from its Vendors;
(9) the account terms and pricing of sales contracts between the Company
and its Customers; (10) the proposed account terms and pricing of sales
contracts between the Company and its Customer Prospects; (11) the names
and addresses of the Company’s employees and other business contacts of the
Company; and (12) the techniques, methods, and strategies by which the
Company develops, manufactures, markets, distributes, and/or sells any of the
sleep products described in the definition for the “Business of the
Company.”

       

      “Consolidated Adjusted
EBITDA” has the meaning set forth in the Credit Agreement.

       

      “Credit Agreement”
shall mean the Second Amended and Restated Credit and Guaranty Agreement, dated
as of May 25, 2006, among Simmons Bedding Company, as Company, THL-SC Bedding
Company and certain subsidiaries of the Company, as Guarantors, the financial
institutions listed therein, as Lenders, Goldman Sachs Credit Partners L.P., as
Sole Bookrunner, Lead Arranger and Syndication Agent, Deutsche Bank AG, New York
Branch, as Administrative Agent and Collateral Agent, General Electric Capital
Corporation, as Co-Documentation Agent and Cit Lending Services Corporation, as
Co-Documentation Agent, as amended by the First Amendment thereto, dated as of
February 9, 2007, as amended and/or restated from time to time.

       

      “Customers” means any
firm, partnership, corporation and/or any other entity and/or Person that
purchased or purchases from the Company any of the sleep products described in
the definition for the “Business of the Company.”

       

      “Customer Prospects”
means any firm, partnership, corporation and/or any other entity and/or Person
reasonably expected by the Company to purchase from the Company any of the sleep
products described in the definition for the “Business of the
Company.”

       

      “Disability” shall
mean with respect to the Optionee, (i) “disability” as defined in any employment
agreement between the Optionee and the Company (or, if applicable, the
Subsidiary employing the Optionee) or (ii) if the Optionee is not party to an
employment agreement or “disability” is not defined therein, the Optionee’s
inability to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment, as determined by the Board
of Directors in its sole discretion.

       

      “DUTSA” means Delaware
Uniform Trade Secrets Act, 6 Del. Code Ann. §§ 2001-2011.

       

      “Fair Market Value”
shall be determined by the Board in good faith. Upon such determination, the
Company shall promptly provide the Optionee with notice of the Fair Market Value
so determined (the “Board
Notice”).  In the event of a determination of Fair Market Value
with respect to Class B Common Stock owned by a Senior Manager, such Senior
Manager shall have the right to contest such determination in good faith, by
delivery of written notice to the Company within ten (10) days of delivery of
the Board Notice. If the Senior Manager does not notify the Company of any
disagreement therewith, then the Fair Market Value shall be as set forth in the
Board Notice.  If the Senior Manager does notify the Company of his or
her disagreement with the Fair Market Value set forth in the Board Notice within
such 10-day time period, then the Company must retain an independent third party
appraiser to make such Fair Market Value determination (the “Final
Determination”), and such Final Determination shall govern; provided, however, that if the
Final Determination of Fair Market Value equals less than 110% of the Fair
Market Value set forth in the Board Notice, then the Senior Manager shall pay
for all costs and expenses of the third party appraiser.

       

      “Financing Default”
means any event of default or breach under (i) the Credit Agreement,
(ii) that certain senior unsecured floating rate loan facility by and among
THL-SC Bedding Company, certain of its subsidiaries, certain lenders, party
thereto and Deutsche Bank, A.G., Cayman Islands Branch, as administrative agent,
as amended, modified, restated or refinanced from time to time, (iii) the
covenant contained in any of the Indentures which permits repurchases by the
Company of employee stock not exceeding a specified amount in the aggregate, or
(iv) any other similar notes or instruments that the Company or its Subsidiaries
may issue from time to time.

      

      “Fully Diluted Shares”
means, as of any date of determination, the number of shares of Class A Common
Stock and Class B Common Stock outstanding, plus (without duplication) shares of
Class A Common Stock and Class B Common Stock issuable, whether at such time or
upon the passage of time or the occurrence of future events, upon the exercise,
conversion or exchange of all then-outstanding rights, warrants, options,
convertible securities, or exchangeable securities or indebtedness, or other
rights, exercisable for or convertible or exchangeable into, directly or
indirectly, Class A Common Stock or Class B Common Stock or securities
exercisable for or convertible or exchangeable into Class A Common Stock or
Class B Common Stock, as the case may be, whether at the time of issuance or
upon the passage of time or the occurrence of some future event.

       

      “Good Reason” shall
mean, with respect to the Optionee, “Good Reason” as defined in any employment
agreement between the Optionee and the Company (or, if applicable, the
Subsidiary employing the Optionee) or, if the Optionee is not a party to an
employment agreement or “good reason” is not defined therein:

       

      (a)           Any
reduction in the Optionee’s base salary;

       

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

       

      “Indentures” shall
mean (i) that certain Indenture, dated as of December 19, 2003, governing the
Senior Subordinated Notes of Simmons Bedding Company, a Subsidiary, due 2013, as
amended, modified, restated or refinanced from time to time, and (ii) that
certain Indenture, dated as of December 15, 2004, governing the 10% Senior
Discount Notes of Simmons Company, a Subsidiary, due 2014, as amended, modified,
restated or refinanced from time to time.

       

      “Job Duties” for the
Optionee are those job duties the Optionee performed for the twelve (12) months
prior to the Effective Date of this Agreement, as well as those duties as may
from time-to-time reasonably be prescribed by the Company during the period of
the Optionee’s employment with the Company.

       

      “Material Contact”
means personal contact or the supervision of the efforts of those who have
direct personal contact with Customers, Customer Prospects, or Vendors in an
effort to initiate or further a business relationship between the Company and
such Customers, Customer Prospects, or Vendors.

       

      “Measurement Date”
shall mean the date upon which the Company shall have received its audited
financial statements for the prior Measurement Year, beginning with the
Measurement Year ending December 29, 2007.

       

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

       

      “Plan” has the meaning
set forth in the Preamble hereto.

      

      “Proprietary Rights”
means any and all inventions, discoveries, developments, methods, processes,
compositions, works, supplier and customer lists (including information relating
to the generation and updating thereof), concepts, and ideas (whether or not
patentable or copyrightable) conceived, made, developed, created, or reduced to
practice by the Optionee (whether at the request or suggestion of the Company or
otherwise, whether alone or in conjunction with others, and whether during
regular hours of work or otherwise) prior to or during the Optionee’s
employment, which may be directly or indirectly useful in, or related to, the
Business of the Company or any business or products contemplated by the Company
while the Optionee was or is an employee, officer, or director of the
Company.

      

      “Representative”
means, with respect to the deceased Optionee, the duly appointed, qualified and
acting personal representative (or personal representatives collectively) of the
estate of the deceased Optionee (or portion of such estate that includes
Optionee Stock), whether such personal representative holds the position of
executor, administrator or other similar position qualified to act on behalf of
such estate.

       

      “Securities Act” means
the Securities Act of 1933, as amended, or any successor federal law then in
force.

       

      “Securityholders’
Agreement” means the Securityholders’ Agreement dated February 9, 2007
between the Company and certain stockholders of the Company, as amended,
modified or supplemented from time to time.

       

      “Senior Manager” shall
mean each of Charles R. Eitel, William S. Creekmuir and any other Persons
designated by the Board as Senior Managers (collectively, the “Senior
Managers”).

       

      “Service” shall mean
service as a full time employee or director of or consultant to the Company or
any of its Subsidiaries.

       

      “Subsidiary” means any
Person of which (i) a majority of the outstanding share capital, voting
securities or other equity interests are owned, directly or indirectly, by the
Company or (ii) the Company is entitled, directly or indirectly, to appoint a
majority of the board of directors or managers or comparable supervisory body of
such Person.

       

      “Term” means the
period starting on the date of this Agreement and expiring 10 years from the
date of this Agreement.

       

      “Territory” means the
United States, Puerto Rico and Canada.

       

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

       

      “Trade Secrets” means
Confidential Information which meets the additional requirements of the DUTSA
and/or under any other applicable law.

       

      “Vendors” means any
individual and/or entity that provided goods and services to the
Company.

       

      9. General
Provisions.

       

      (a) Severability.  It
is the desire and intent of the parties hereto that the provisions of this
Agreement be enforced to the fullest extent permissible under the laws and
public policies applied in each jurisdiction in which enforcement is
sought.  Accordingly, if any particular provision of this Agreement
shall be adjudicated by a court of competent jurisdiction to be invalid,
prohibited or unenforceable for any reason, such provision, as to such
jurisdiction, shall be ineffective, without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of this
Agreement or affecting the validity or enforceability of such provision in any
other jurisdiction.  Notwithstanding the foregoing, if such provision
could be more narrowly drawn so as not to be invalid, prohibited or
unenforceable in such jurisdiction, it shall, as to such jurisdiction, be so
narrowly drawn, without invalidating the remaining provisions of this Agreement
or affecting the validity or enforceability of such provision in any other
jurisdiction.

       

      (b) Entire
Agreement.  This Agreement embodies the complete agreement and
understanding among the parties hereto with respect to the subject matter hereof
and supersedes and preempts any prior understandings, agreements or
representations by or among the parties, written or oral, which may have related
to the subject matter hereof in any way, provided, however, that
notwithstanding the foregoing, if the Optionee is currently a party to any
non-competition or non-solicitation covenants with the Company or its
Subsidiaries and such covenants are to be governed by and construed in
accordance with the laws of the State of Delaware, without reference to
principles of conflict of laws, such covenants (together with any definitions
contained in such covenants and any exhibits or schedules referenced therein)
(collectively, the "Prior Covenants") shall not be superseded or restated but
instead shall be incorporated herein by reference.  The Prior
Covenants shall be read together with the covenants contained in Section 7 hereof in
such manner as to make such Prior Covenants and the covenants contained herein
enforceable to the fullest extent permissible under the laws of the State in
which enforcement is sought.

       

      (c) Counterparts.  This
Agreement may be executed in separate counterparts, each of which is deemed to
be an original and all of which taken together constitute one and the same
agreement.

       

      (d) Successors and
Assigns.  Except as otherwise provided herein, this Agreement
shall bind and inure to the benefit of and be enforceable by the Optionee, the
Company, and their respective successors, assigns, heirs, representative and
estate, as the case may be (including subsequent holders of the Shares);
provided that the rights and obligations of the Optionee under this Agreement
shall not be assignable except as permitted under Section 5
hereunder.

       

      (e) Governing Law and
Remedies.  The parties acknowledge and agree that they are
bound by their arbitration obligations under Exhibit B
attached hereto, which the parties also hereby agree to execute
contemporaneously and is an integral part of this Agreement.  The
parties agree and acknowledge that all provisions of this Agreement shall be
governed by and construed in accordance with the laws of the State of Delaware
exclusively and without reference to principles of conflict of
laws.  The Federal Arbitration Act (“FAA”) will supersede
state laws to the extent inconsistent.  The Arbitrator(s) shall have
no authority to apply the law of any other jurisdiction.

       

      _______                      Optionee’s
initials to acknowledge agreement to Governing Law and Remedies provision in
Section 9(e).

       

      (f) Remedies.  Each
of the parties to this Agreement and any such Person granted rights hereunder
whether or not such Person is a signatory hereto shall be entitled to enforce
its rights under this Agreement specifically to recover damages and costs
(including reasonable attorney’s fees) for any breach of any provision of this
Agreement and to exercise all other rights existing in its favor.  The
parties hereto agree and acknowledge that money damages may not be an adequate
remedy for any breach of the provisions of this Agreement and that any party and
any such Person granted rights hereunder whether or not such Person is a
signatory hereto may in its sole discretion submit the matter to arbitration for
specific performance and/or other injunctive relief (without posting any bond or
deposit) in order to enforce or prevent any violations of the provisions of this
Agreement.

       

      (g) Amendment and
Waiver.  The provisions of this Agreement may be amended and
waived only with the prior written consent of the Company and the Optionee and
no course of conduct or failure or delay in enforcing the provisions of this
Agreement shall be construed as a waiver of such provisions or affect the
validity, binding effect or enforceability of this Agreement or any provision
hereof.

       

      (h) Notices.  Any
notice provided for in this Agreement must be in writing and must be either
personally delivered, transmitted via facsimile, mailed by first class mail
(postage prepaid and return receipt requested) or sent by reputable overnight
courier service (charges prepaid) to the recipient at the address below
indicated or at such other address or to the attention of such other person as
the recipient party has specified by prior written notice to the sending
party.  Notices will be deemed to have been given hereunder and
received when delivered personally, when received if transmitted via facsimile,
five (5) days after deposit in the U.S. mail and one (1) day after deposit with
a reputable overnight courier service.

       

      If to the
Company, to:

       

      Simmons Holdco, Inc.

      One Concourse Parkway, Suite
800

      Atlanta,
GA  30328

      Attention:  Chief Financial
Officer and General Counsel

      

       

      With a
copy to:

       

      Thomas H.
Lee Partners, L.P.

      100
Federal Street, 35th Floor

      Boston,
MA  02110

      Attention:  Scott
A. Schoen

      Todd M. Abbrecht

      George R. Taylor

      

      If to the
Optionee, to the address set forth underneath the Optionee’s name on the
signature pages hereto.

       

      (i) Business
Days.  If any time period for giving notice or taking action
hereunder expires on a day which is a Saturday, Sunday or holiday in the state
in which the Company’s chief executive office is located, the time period for
giving notice or taking action shall be automatically extended to the business
day immediately following such Saturday, Sunday or holiday.

       

      (j) Survival of Representations,
Warranties and Agreements.  All representations, warranties and
agreements contained herein and in the Exhibits hereto shall survive the
consummation of the transactions contemplated hereby and the termination of this
Agreement indefinitely.

       

      (k) Descriptive
Headings.  The descriptive headings of this Agreement are
inserted for convenience only and do not constitute a part of this
Agreement.

       

      (l) Construction.  Where
specific language is used to clarify by example a general statement contained
herein, such specific language shall not be deemed to modify, limit or restrict
in any manner the construction of the general statement to which it
relates.  The language used in this Agreement shall be deemed to be
the language chosen by the parties to express their mutual intent, and no rule
of strict construction shall be applied against any party.

       

      (m) WAIVER OF JURY
TRIAL.  EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES
ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT
OF OR RELATING TO THIS AGREEMENT.

       

      (n) Nouns and
Pronouns.  Whenever the context may require, any pronouns used
herein shall include the corresponding masculine, feminine or neuter forms, and
the singular form of nouns and pronouns shall include the plural and vice
versa.

       

      (o) Acknowledgement and
Waiver.  The Optionee hereby represents and warrants that he or
she has access to adequate information regarding the terms of this Agreement,
the scope and effect of the provisions set forth herein and all other matters
encompassed by this Agreement, to make an informed and knowledgeable decision
with regard to enter into this Agreement.  The Optionee acknowledges
that he or she has received a copy of the Plan.  The Optionee further
represents and warrants that he or she has not relied on the Company in deciding
to enter into this Agreement and has instead made his or her own independent
analysis and decision to enter into this Agreement.

       

      (p) Rights as a
Shareholder.  The Optionee shall have no rights as a
shareholder with respect to any Shares that may be purchased by exercise of this
Option unless and until a certificate or certificates representing such Shares
are duly issued and delivered to the Optionee.  Any such issuance is
expressly conditioned upon the Optionee’s prior execution of a joinder agreement
to the Securityholders’ Agreement.  Except as otherwise expressly
provided in the Plan, no adjustment shall be made for dividends or other rights
for which the record date is prior to the date such stock certificate is
issued.

       

      (q) Withholding
Taxes.  Whenever Shares are to be issued upon exercise of this
Option, the Company shall have the right to require the Optionee (or his or her
successor, assign or Representatives) to remit to the Company an amount
sufficient to satisfy all federal, state and local withholding tax requirements
prior to issuance of the Shares and the delivery of any certificate or
certificates for such Shares.

       

      [Remainder
of Page Intentionally Left Blank]

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

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

       

      SIMMONS
HOLDCO, INC.

      

      

      

      By:  __________________________

      William S. Creekmuir

      Executive Vice President
and

      Chief Financial Officer

      

      

      

      

      

      

       

      

      

      

      

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      OPTIONEE:

      

      Dominick
Azevedo

       

      ______________________________

      Signature

      

       

      Address:
_____________________

         _____________________

         _____________________

      

      Social Security Number: _____________

       

      Number of
Shares:  3,440

       

      Per Share Exercise
Price:  $31.33

       

      Grant Date:  July 11,
2007

       

      

      

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      EXHIBIT
A

      TO
STOCK OPTION AGREEMENT

      

      

      Simmons
Holdco, Inc.

      One
Concourse Parkway, Suite 800

      Atlanta,
GA 30328

      

       

      Ladies
and Gentlemen:

       

      In
connection with the acquisition by me of _____ shares of Class B Common Stock,
par value $0.01 per share (the “Shares”) of Simmons
Holdco, Inc., a Delaware corporation (the “Company”), pursuant
to the exercise of an Option evidenced by a Stock Option Agreement, dated as of
________, 2007, I hereby represent to the Company as follows:

       

      (a)           I
hereby confirm that:  (i) the Shares to be received by me will be
acquired for investment only, for my own account, not as a nominee or agent and
not with a view to the sale or distribution of any part thereof; and (ii) I have
no current intention of selling, granting participation in or otherwise
distributing the Shares.  I further represent that I do not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participation to such person, or to any third person, with
respect to any of the Shares.

       

      (b)           I
understand that the Shares have not been registered under the Securities Act of
1933, as amended (the “1933 Act”) on the
basis that the acquisition of the Shares by me and the issuance of securities by
the Company to me is exempt from registration under the 1933 Act and that the
Company’s reliance on such exemption is predicated on my representations set
forth herein.

       

      (c)           I
represent that I have, either alone or together with the assistance of a
“purchaser representative” (as the term is defined in Regulation D promulgated
under the 1933 Act), such knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of my investment in
the Company.  I further represent that I am familiar with the business
and financial condition, properties, operations and prospects of the
Company.  I further represent that I have had, prior to my acquisition
of the Shares, the opportunity to ask questions of, and receive answers from,
the Company concerning the terms and conditions of the issuance and to obtain
information (to the extent the Company possessed such information or could
acquire it without unreasonable effort or expense) necessary to verify the
accuracy of any information furnished to me or to which I have had
access.  I am satisfied that there is no material information
concerning the condition, properties, operations and prospects of the Company of
which I am unaware.  I have made, either alone or together with my
advisors, such independent investigation of the Company as I deem to be, or my
advisors deem to be, necessary or advisable in connection with this
investment.

       

      (d)           I
understand that the Shares may not be sold, transferred or otherwise disposed of
without registration under the 1933 Act and applicable state securities laws, or
an exemption therefrom, and that in the absence of an effective registration
statement covering the Shares or an available exemption from registration under
the 1933 Act or applicable state securities laws, the Shares must be held
indefinitely.  In particular, I acknowledge that I am aware that the
Shares may not be sold pursuant to Rule 144 promulgated under the 1933 Act
unless all of the conditions of that Rule are met.  I represent that,
in the absence of an effective registration statement covering the Shares, I
will not sell, transfer or otherwise dispose of the Shares.

       

      (e)           I
represent that I (i) am capable of bearing the economic risk of holding the
unregistered Shares for an indefinite period of time and have adequate means for
providing for my current needs and contingencies, (ii) can afford to suffer a
complete loss of my investment in the Shares, and (iii) understand and have
taken cognizance of all risk factors related to the acquisition of the
Shares.

       

      (f)           I
understand that the acquisition of the Shares involves a high degree of risk and
there will be no established market for the Company’s capital stock and it is
not likely that any public market for such stock will develop in the near
future.

       

      (g)           I
represent that neither I nor anyone acting on my behalf has paid any commission
or other remuneration to any person in connection with the acquisition of the
Shares.

       

      (h)           Independent
of the additional restrictions on the transfer of the Shares contained herein, I
agree that I will not make a transfer, disposition or pledge of any of the
Shares other than pursuant to an effective registration statement under the 1933
Act and applicable state securities laws, unless and until:  (i) I
shall have notified the Company of the proposed disposition and shall have
furnished the Company with a statement of the circumstances surrounding the
disposition and (ii) if requested by the Company and at my expense or at the
expense of my transferee, I shall have furnished to the Company an opinion of
counsel, reasonably satisfactory (as to counsel and as to substance) to the
Company and its counsel, to the effect that such transfer may be made without
registration of the Shares under the 1933 Act, and applicable state securities
laws.

       

      (i)           I
acknowledge that all certificates evidencing the Shares shall bear the following
legend:

       

      “THE
SALE, TRANSFER, ASSIGNMENT, PLEDGE, OR ENCUMBRANCE OF THE SECURITIES REPRESENTED
BY THIS CERTIFICATE AND THE RIGHTS OF THE HOLDER OF SUCH SECURITIES IN RESPECT
OF THE ELECTION OF DIRECTORS ARE SUBJECT TO A SECURITYHOLDERS’ AGREEMENT DATED
FEBRUARY 9, 2007 AMONG THL BEDDING HOLDING COMPANY AND CERTAIN HOLDERS OF ITS
OUTSTANDING CAPITAL STOCK.  COPIES OF SUCH AGREEMENT MAY BE OBTAINED
AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE
TO THE SECRETARY OF THL BEDDING HOLDING COMPANY.

       

      THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
STATE SECURITIES OR BLUE SKY LAWS.  THESE SECURITIES MAY NOT BE SOLD
OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM
UNDER SAID ACT OR LAWS.”

       

      (j)           The
certificates evidencing the Shares shall also bear any legend required by any
applicable state securities law.

       

      (k)           In
addition, the Company shall make a notation regarding the restrictions on
transfer of the Shares in its stock books, and the Shares shall be transferred
on the books of the Company only if transferred or sold pursuant to an effective
registration statement under the 1933 Act and applicable state securities laws
covering such Shares or pursuant to and in compliance with the provisions of the
Securityholders’ Agreement, as amended.

       

      Very
truly yours,

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      EXHIBIT B - ARBITRATION
CLAUSE

       

      (1) In
consideration of the benefits described in the Stock Option Agreement executed
by DOMINICK AZEVEDO (the “Optionee” or “you”) and SIMMONS HOLDCO, INC., a
Delaware corporation (the “Company”), on the same date hereto and into which
this Exhibit A is
incorporated, (“Agreement”), the Company and you hereby agree that any
controversy or claim arising under federal, state and local statutory or common
or contract law between the Company and you involving the construction or
application of any of the terms, provisions, or conditions of the Agreement,
including, but not limited to, breach of contract, tort, and/or fraud, must be
submitted to arbitration on the written request of either party served on the
other.  Arbitration shall be the exclusive forum for any such
controversy.  For example, if the Company and you have a dispute
concerning the interpretation or enforceability of one or more restrictive
covenants, the parties will resolve the dispute exclusively through
arbitration.  The Arbitrator’s decision shall be final and binding on
both parties.

       

      (2) If any
claim or cause of action at law or in equity is filed by either party in any
state or federal court which results in arbitration being compelled and/or the
claim or cause of action being dismissed, stayed, and/or removed to arbitration
pursuant to this Agreement, the party who instituted the claim or cause of
action in state or federal court, either wholly or in substantial part, shall,
at the discretion of the Arbitrator(s), reimburse the respondent for its
reasonable attorneys’ fees, costs, and necessary disbursements to the extent
permitted by law, in addition to any other relief to which it may be entitled,
related to the state or federal court claim or action.

       

      (3) Excluding
the initial filing fee, which shall be borne by the claimant, the cost of
arbitration shall be borne by the Company, unless the Arbitrator determines that
any claim(s) brought by you was/were wholly frivolous or
fraudulent.  If an arbitration or any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the prevailing
party, either wholly or in substantial part, shall, at the discretion of the
Arbitrator, be entitled to its reasonable attorneys’ fees, costs, and necessary
disbursements to the extent permitted by law, in addition to any other relief to
which it may be entitled.

       

      (4) If the
Optionee submits any controversy or claim to arbitration, the arbitration will
be conducted in Atlanta, Georgia and all claims shall be submitted to and
administered by the American Arbitration Association’s Southeast Case Management
Center in Atlanta, Georgia.  If the Company submits any controversy or
claim to arbitration, the arbitration shall be conducted at the American
Arbitration Association’s Local or Regional Office that is geographically
closest to the Optionee’s place of residence and all claims shall be submitted
to and administered by the American Arbitration Association’s corresponding Case
Management Center.

       

      (5) The
arbitration shall comply with and be governed by the American Arbitration
Association’s Commercial Arbitration Rules (“Rules”) effective as of the
execution date below, to the extent such Rules are not contrary to the express
provisions of this Agreement.  The parties also agree that the
American Arbitration Association Optional Rules for Emergency Measures of
Protection (“Emergency Rules”) shall apply to proceedings brought by either
party.  The above Rules and Emergency Rules can be found at the
following page of the American Arbitration Association’s website, www.adr.org: http://www.adr.org/sp.asp?id=22440.  You
acknowledge that you should read these Rules and Emergency Rules and that it is
your responsibility to be familiar with them prior to signing the
Agreement.  If you are unable to access the Rules and/or Emergency
Rules at the above website, you can request a copy of them from a Company
official prior to signing the Agreement.

       

      (6) The
parties agree and acknowledge that all provisions of this Agreement shall be
governed by and construed in accordance with the laws of the State of
Delaware exclusively and without reference to principles of conflict of
laws.  The Federal Arbitration Act (“FAA”) will supersede state laws
to the extent inconsistent.  Any claim(s) involving the construction
or application of this Agreement must be submitted to arbitration within the
statute of limitations period for such claim(s) under Delaware state law and
shall be dismissed if the statute of limitations period is not
met.  The Arbitrator(s) shall have no authority to apply the law of
any other jurisdiction.

       

      (7) The
dispute shall be heard and determined by one Arbitrator, unless both parties
mutually consent in writing signed by you and an authorized representative of
Company to a panel of three (3) Arbitrators.  Unless both parties
mutually consent otherwise, the parties agree and request that the Arbitrator(s)
issue a reasoned award in accordance with Commercial Arbitration Rule
R-42(b).

       

      I
UNDERSTAND THAT BY SIGNING THIS AGREEMENT I AM GIVING UP MY RIGHT TO A JURY
TRIAL.

      

      

      Executed
effective as of this 11th day of
July, 2007.

      

      

      
        	
                 

                 

                 

                __________________________________

                Dominick
      Azevedo

                Social
      Security #:  __________________

              	
                Simmons
      Holdco, Inc.

                 

                 

                By:
      __________________________________

                      William
      S. Creekmuir

                      Executive
      Vice President and

                      Chief
      Financial Officerex10_39.htm

    EXHIBIT 10.39

    

      STOCK OPTION
AGREEMENT

       

      This
Stock Option Agreement (this “Agreement”) is made
as of this 16th day of
January, 2008 (the “Effective Date”)
between Simmons Holdco, Inc., a Delaware corporation (the “Company”), and the
undersigned (the “Optionee”).  Certain
capitalized terms used herein are defined in Section 8
hereof.

       

      WHEREAS,
the Company believes it to be in the best interests of the Company and its
shareholders to take action to promote work-force stability, to reward
performance and otherwise align the Optionee’s interests with those of the
Company;

       

      WHEREAS,
accordingly, the Company desires to grant the Optionee a non-qualified stock
option under the Second Amended and Restated Simmons Holdco, Inc. Equity
Incentive Plan (the “Plan”) to acquire
shares of Class B Common Stock, par value $0.01 per share, of the Company (the
“Class B Common
Stock”); and

       

      WHEREAS,
the Company desires to be assured that the confidential information and goodwill
of the Company will be preserved for the exclusive benefit of the
Company.

       

      NOW,
THEREFORE, in consideration of the mutual covenants contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

       

      1. Grant of
Option.

       

      (a) Grant.  The
Company hereby grants to the Optionee under the Plan and subject to the terms
and conditions of the Plan a non-qualified stock option (the “Option”) to purchase
all or any part of an aggregate number of shares set forth below the Optionee’s
name on the signature page attached hereto (the “Shares”).

       

      (b) Exercise
Price.  The per share exercise price (“Exercise
Price”)  for the Shares covered by the Option shall be as set
forth below the Optionee’s name on the signature page attached
hereto.

       

      2. Vesting of
Option.

       

      (a) General.

       

      (i)          Vesting
Targets.  The Option shall vest and become exercisable with
respect to the Shares (the “Vested Shares”) in
accordance with this Section 2, based upon
the Company’s achievement of the Consolidated Adjusted EBITDA targets set forth
below (each, the “Target EBITDA”) for
each of the Company’s fiscal years ending December 27, 2008, December 26,
2009, December 25, 2010 and December 27, 2011 (the “Measurement
Years”).

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      EBITDA
Targets

       

      (dollars
in millions)

      

      
        	
                Measurement

                Years

              	
                Target
      EBITDA

              	
                Cumulative
      Target EBITDA

              	
                90%
      of Target

                EBITDA

              	
                90%
      of Cumulative Target
      EBITDA

              	
                Eligible

                Shares

              
	
                2008

              	
                $225.0

              	
                $225.0

              	
                $202.5

              	
                $202.5

              	
                25%
      of Shares

              
	
                2009

              	
                $240.0

              	
                $464.0

              	
                $216.0

              	
                $418.5

              	
                25%
      of Shares

              
	
                2010

              	
                $265.0

              	
                $729.0

              	
                $238.5

              	
                $657.0

              	
                25%
      of Shares

              
	
                2011

              	
                (See
      Note Below)

              	
                (See
      Note Below)

              	
                (See
      Note Below)

              	
                (See
      Note Below)

              	
                25%
      of Shares

              

      

      

      Note:  The
2011 Targets will be determined by the Board of Directors at a later
date.

      

      (ii)          Adjustments.  The
minimum Target EBITDA numbers set forth above shall be equitably adjusted by the
Board for acquisitions and dispositions made by the Company (whether by purchase
or sale of assets or stock, merger, consolidation or otherwise) and such
adjustments may take into account the pro forma annual Consolidated Adjusted
EBITDA of any acquired business, as determined by the Board.

       

      (iii)          Performance
Based Vesting.  At the end of each Measurement Year, on the
Measurement Date, the percentage of Shares under the Option set forth above
shall be eligible to vest (the “Eligible
Shares”).  On each Measurement Date, 50% of the Eligible Shares
shall become Vested Shares if at least 90% of the Target EBITDA amount was met
for the prior Measurement Year.  If more than 90% of the Target EBITDA
amount was met for the prior Measurement Year, then the Eligible Shares shall
become Vested Shares on a straight line basis such that an additional 5% of
Eligible Shares shall become Vested Shares for each 1% that actual Consolidated
Adjusted EBITDA exceeds 90% of the Target EBITDA amount.

      

      (b) Change of
Control.

       

      (i)           The
vesting of Shares that are not Vested Shares will accelerate as set forth below
upon a Change of Control solely if (a) the Company achieves at least 90% of the
Target EBITDA for the Measurement Year immediately preceding the year in which
the Change of Control occurs, and (b) the actual Consolidated Adjusted EBITDA
for the Measurement Year immediately preceding the year in which the Change of
Control occurs exceeds the actual Consolidated Adjusted EBITDA for the preceding
year.  If (x) the conditions set forth in clauses (a) and (b) above
are met, and (y) the Company achieves 90% of the Cumulative Target EBITDA above
for the Measurement Year completed immediately prior to the Change of Control,
then 50% of the Shares that were Eligible Shares but which did not previously
become Vested Shares (the “Missed Shares”) and
50% of the Shares that are not yet Eligible Shares shall become Vested Shares.
If (1) the conditions set forth in clauses (a) and (b) above are met, and (2)
the Company achieves more than 90% of the Cumulative Target EBITDA above for the
immediately preceding Measurement Year, then a number of Missed Shares and
Shares that are not yet Eligible Shares will become Vested Shares, determined on
a straight line basis such that an additional 5% of the Missed Shares and 5% of
the Shares that are not yet Eligible Shares will become Vested Shares for each
1% that actual Consolidated Adjusted EBITDA for the immediately preceding
Measurement Year exceeds 90% of the Cumulative Target EBITDA set forth
above.

      

      (ii)          Notwithstanding
the foregoing paragraph, the vesting of Shares that are not Vested Shares will
accelerate upon a Change of Control which occurs in the Measurement Year ending
December 27, 2008 as follows:  Shares that are not Vested Shares
will accelerate as set forth below upon a Change of Control solely if (a) the
Company achieves at least 90% of the Target EBITDA for the Measurement Year
immediately preceding the year in which the Change of Control occurs, and (b)
the actual Consolidated Adjusted EBITDA for the Measurement Year immediately
preceding the year in which the Change of Control occurs exceeds the actual
Consolidated Adjusted EBITDA for the preceding year.  If (x) the
conditions set forth in clauses (a) and (b) above are met, and (y) the Company
achieves 90% of the 2008 Year to Date Target EBITDA (as defined below) for the
month completed immediately prior to the Change of Control, then 50% of the
Shares that are not yet Eligible Shares shall become Vested
Shares.  The Target EBITDA for each month in 2008 is set forth below
and the 2008 Year to Date Target EBITDA represents the cumulative Target EBITDA
for the period commencing December 30, 2007 and ending on the last day of such
fiscal month (the "Year to Date Target
EBITDA").  If (1) the conditions set forth in clauses (a) and
(b) above are met, and (2) the Company achieves more than 90% of the 2008 Year
to Date Target EBITDA for the fiscal month completed immediately prior to the
Change of Control, then a number of Shares that are not yet Eligible Shares will
become Vested Shares, determined on a straight line basis such that an
additional 5% of the Shares that are not yet Eligible Shares will become Vested
Shares for each 1% that actual Consolidated Adjusted EBITDA for the period
commencing December 30, 2007 and ending on the last day of the fiscal month
immediately preceding the Change of Control exceeds 90% of the 2008 Year to Date
Target EBITDA.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      
        	
                Month

              	
                2008
      Monthly

                Target
      EBITDA

                (dollars
      in millions)

              	
                2008
      Year to Date

                Target
      EBITDA

                (dollars
      in millions)

              
	
                January

              	
                $20.0

              	
                $20.0

              
	
                February

              	
                $15.0

              	
                $35.0

              
	
                March

              	
                $12.9

              	
                $47.9

              
	
                April

              	
                $22.8

              	
                $70.7

              
	
                May

              	
                $15.8

              	
                $86.5

              
	
                June

              	
                $18.1

              	
                $104.6

              
	
                July

              	
                $23.9

              	
                $128.5

              
	
                August

              	
                $22.6

              	
                $151.1

              
	
                September

              	
                $19.3

              	
                $170.4

              
	
                October

              	
                $22.2

              	
                $192.6

              
	
                November

              	
                $16.2

              	
                $208.8

              
	
                December

              	
                $16.2

              	
                $225

              

      

      

       (iii)
Upon the occurrence of a Change of Control, the Option shall automatically
terminate and cease to be thereafter exercisable as to any Shares other than
those Shares that have become vested in accordance herewith.  Upon a
Change of Control, Vested Shares are subject to Section 13(b) of the
Plan.

       

      (c) In the
event that the Company achieves the Target EBITDA with respect to the
Measurement Year in which termination of Service occurs, then the Eligible
Shares with respect to such year multiplied by a fraction, the numerator of
which shall equal the number of whole months during such year that the Optionee
served on the Board or remained employed with the Company and the denominator of
which is 12, shall become Vested Shares as of the end of such year.

       

      3. Manner of Exercise of
Option; Adjustments.

       

      (a) To the
extent that the right to exercise the Option has vested in accordance with the
vesting schedule and such right is in effect, the Option may be exercised in
full or in part as to Vested Shares by giving written notice to the Company
stating the number of Shares exercised and accompanied by payment in full for
such Shares.  Payment may be either (i) in cash or by personal check
payable to the order of the Company, (ii) in shares of the Class B Common Stock
of the Company legally and beneficially owned by the Optionee, fully vested and
free of all liens, claims and encumbrances of every kind and valued at Fair
Market Value on the date of delivery, or (iii) any combination of (i) and (ii);
provided, however, that payment
of the exercise price by delivery of shares of Class B Common Stock of the
Company owned by such Optionee may be made only if such payment does not result
in a charge to earnings for financial accounting purposes as determined by the
Company.  Upon such exercise, delivery of a certificate for paid-up,
non-assessable Shares shall be made at the principal office of the Company, not
more than thirty (30) days from the date of receipt of notice by the
Company.

       

      (b) The
Company shall at all times during the Term of the Option reserve and keep
available such number of Shares of Class B Common Stock as will be sufficient to
satisfy the requirements of this Option.

       

      (c) Except as
expressly set forth herein, adjustments on changes in recapitalization,
reorganization and the like shall be made in accordance with Section 13 of the
Plan, as in effect on the date of this Agreement.

       

      4. Termination; Repurchase of
Shares.

       

      (a) Expiration.  The
Option shall expire on the earliest of (i) the expiration of the Term, (ii) the
date that is twelve (12) months following the date on which the Optionee’s
Service terminates as a result of the Optionee’s death or Disability, (iii) the
date that is three (3) months following the date on which the Optionee’s
termination of Service without Cause or resignation for Good Reason or (iv) on
the date of termination of Service if the Optionee’s Service is terminated with
Cause or due to voluntary resignation by the Optionee without Good Reason (the
“Termination
Date”).  However, the Optionee (or in the case of the
Optionee’s death or Disability, the Optionee’s representative) may exercise all
or a part of the Optionee’s Option at any time before the expiration of such
Option under the preceding sentence only to the extent that the Option has
become exercisable for Vested Shares pursuant to this Agreement on or before the
date the Optionee’s Service terminates. The balance of the Option (which is not
exercisable for and vested on the date Optionee’s Service terminates) shall
lapse when the Optionee’s Service terminates.  Notwithstanding the
foregoing, with respect to the portion of the Option that would vest in
accordance with Section 2(c), such
portion of the Option shall not terminate until (i) the date that is twelve (12)
months following the Measurement Date for the Measurement Year in which the
termination of Service occurs if the Optionee’s Service terminates as a result
of the Optionee’s death or Disability or (ii) the date that is three (3) months
following the Measurement Date for the Measurement Year in which the termination
of Service occurs if the Optionee’s Service is terminated for any other
reason.

       

      (b) In the
event that the Optionee’s Service terminates for any reason, then all Shares
purchased by the Optionee upon exercise of this Option (including any capital
stock issued with respect to such Shares by way of stock split, stock dividend
or other recapitalization and whether held by the Optionee or by one or more of
the Optionee’s transferees) will be subject to repurchase by the Company, at its
option (the “Repurchase Option”),
for Fair Market Value as of the date of repurchase.

       

      (c) The
Repurchase Option shall be exercised by the Company, or its designee, from time
to time, by delivering to the Optionee a written notice of exercise and a check
in the amount of Fair Market Value.  Upon delivery of such notice and
payment of the purchase price as described above, the Company, or its designee,
shall become the legal and beneficial owner of the Shares being repurchased and
all rights and interest therein or related thereto, and the Company, or its
designee, shall have the right to transfer to its own name the number of Shares
being repurchased without further action by the Optionee or any of his or her
transferees.  If the Company or its designee elect to exercise the
repurchase rights pursuant to this Section 4 and the
Optionee or his or her transferee fails to deliver the Shares in accordance with
the terms hereof, the Company, or its designee, may, at its option, in addition
to all other remedies it may have, deposit the purchase price in an escrow
account administered by an independent third party (to be held for the benefit
of and payment over to the Optionee or his or her transferee in accordance
herewith), whereupon the Company shall by written notice to the Optionee cancel
on its books the certificates(s) representing such Shares registered in the name
of the Optionee and all of the Optionee’s or his or her transferee’s right,
title, and interest in and to such Shares shall terminate in all
respects.

       

      (d) Notwithstanding
the foregoing, if at any time the Company elects to purchase any Shares pursuant
to this Section 4, the
Company shall pay the purchase price for the Shares it purchases (i) first,
by offsetting indebtedness, if any, owing from such Optionee to the Company and
(ii) then, by the Company’s delivery of cash for the remainder of the purchase
price, if any, against delivery of the certificates or other instruments
representing the Shares so purchased, duly endorsed; provided that, if any such
cash payment at the time such payment is required to be made would result
(A) in a violation of any law, statute, rule, regulation, policy, order,
writ, injunction, decree or judgment promulgated or entered by any federal,
state, local or foreign court or governmental authority applicable to the
Company or any of its Subsidiaries or any of its or their property or
(B) after giving effect thereto, a Financing Default, or (C) if the Board
determines in good faith that immediately prior to such purchase there shall
exist a Financing Default which prohibits such purchase, dividend or
distribution ((A) through (C) collectively the “Cash Deferral
Conditions”), the portion of the cash payment so affected may be made by
the Company’s delivery of a promissory note or senior preferred shares of the
Company with a liquidation preference equal to the balance of the purchase
price. The promissory note or senior preferred shares shall accrue interest or
yield, as the case may be, annually at the “prime rate” published in The Wall
Street Journal on the date of issuance, which interest or yield, as the case may
be, shall be payable at maturity or upon payment of distributions by the
Company. The value of each such senior preferred share shall as of its issuance
be deemed to equal (A) the portion of the cash payment paid by the issuance
of such preferred shares divided by (B) the number of senior preferred
shares so issued.  Any senior preferred shares or the promissory note
shall be redeemed or payable when and to the extent the Cash Deferral Condition
which prompted their issuance no longer exists.

       

      (e) In the
event that any Shares are repurchased pursuant to this Section 4, the
Optionee and his or her successors, assigns or Representatives shall take (at
the Company’s expense) all steps necessary and desirable to obtain all required
third-party, governmental and regulatory consents and approvals and take all
other actions necessary and desirable to facilitate consummation of such
repurchase in a timely manner.

       

      5. Restrictions on Transfer and
Voting.

       

      (a) The right
of the Optionee to exercise the Option shall not be assignable or transferable
by the Optionee other than by will or the laws of descent and distribution, and
the Option may be exercised during the lifetime of the Optionee only by him or
her.  The Option shall be null and void and without effect upon the
bankruptcy of the Optionee or upon any attempted assignment or transfer, except
as hereinabove provided, including without limitation any purported assignment,
whether voluntary or by operation of law, pledge, hypothecation or other
disposition contrary to the provisions hereof, or levy of execution, attachment,
trustee process or similar process, whether legal or equitable, upon the
Option.

       

      (b) As a
condition precedent to the Optionee’s exercise of any portion of the Option, the
Optionee will sign a joinder agreement to the Securityholders’ Agreement as an
“Employee” or “Senior Manager,” as the case may be, in which the Optionee agrees
that such Shares will be subject to the restrictions in the Securityholders’
Agreement.

       

      6. Representation
Letter and Investment Legend.

       

      (a) In the
event that for any reason the Shares to be issued upon exercise of the Option
shall not be effectively registered under the Securities Act of 1933, upon any
date on which the Option is exercised in whole or in part, the person exercising
the Option shall give a written representation to the Company in the form
attached hereto as Exhibit A and the
Company shall place an “investment legend” so-called, as described in Exhibit A, upon any
certificate for the Shares issued by reason of such exercise.

       

      (b) The
Company shall be under no obligation to qualify Shares or cause a registration
statement or post-effective amendment to any registration statement to be
prepared for the purpose of covering the issue of Shares.

       

      7. Restricted
Activities.

       

      (a) The
Optionee acknowledges that (1) the Company has separately bargained and paid
additional consideration for the restrictive covenants herein; (2) the Company
will provide certain benefits to the Optionee hereunder in reliance on such
covenants in view of the unique and essential nature of the services the
Optionee will perform on behalf of the Company and the irreparable injury that
would befall the Company should the Optionee breach such covenants; and (3) as
used in this Section
7 and for all terms defined in Section 8 that are
utilized in Section
7, the definition of the “Company” includes the Company and/or its
Subsidiaries, Affiliates, and the successors and assigns of each and any such
related entities.

       

      (b) The
Optionee agrees that the Optionee’s work for the Company has brought and will
bring Optionee into close contact with many of the Company’s Customers, Customer
Prospects, Vendors, Trade Secrets, and Confidential Information.  The
Optionee further agrees that the covenants in this Section 7 are
reasonable and necessary to protect the Company’s legitimate business interests
and its Customer, Customer Prospect, and/or Vendor relationships, Trade Secrets,
and Confidential Information.

       

      (c) The
Optionee agrees to faithfully perform the duties assigned to the Optionee and
will not engage in any other employment or business activity while employed by
the Company that might interfere with the Optionee’s full-time performance of
the Optionee’s duties for the Company or cause a conflict of
interest.  The Optionee agrees to abide by all of the Company’s
policies and procedures, which may be amended from time-to-time.

       

      (d) The
Optionee agrees that, due to Optionee’s position, the Optionee’s engaging in any
activity that may breach this Agreement will cause the Company great, immediate,
and irreparable harm.

       

      (e) Duty of
Confidentiality. The Optionee agrees that during the Optionee’s
employment with the Company and for a period of five (5) years following the
termination of such employment for any reason, the Optionee shall not directly
or indirectly divulge or make use of any Confidential Information outside of the
Optionee’s employment with the Company (so long as the information remains
confidential) without the prior written consent of the Company.  The
Optionee shall not directly or indirectly misappropriate, divulge, or make use
of Trade Secrets for an indefinite period of time, so long as the information
remains a Trade Secret as defined by the DUTSA and/or any other applicable
law.  The Optionee further agrees that if the Optionee is questioned
about information subject to this Agreement by anyone not authorized to receive
such information, the Optionee will notify the Company’s General Counsel within
24 hours.  The Optionee acknowledges that applicable law may impose
longer duties of non-disclosure, especially for Trade Secrets, and that such
longer periods are not shortened by this Agreement.

       

      (f) Return of Confidential
Information And Company Property.  The Optionee agrees to
return to the Company all Confidential Information and/or Trade Secrets within
three (3) calendar days following the termination of the Optionee’s employment
for any reason.  To the extent the Optionee maintains Confidential
Information and/or Trade Secrets in electronic form on any computers or other
electronic devices owned by the Optionee, the Optionee agrees to irretrievably
delete all such information and to confirm the fact of deletion in writing
within three (3) calendar days following termination of employment with the
Company for any reason.  The Optionee also agrees to return all
property in the Optionee’s possession at the time of the termination of the
employment with the Company, including but not limited to all documents,
records, tapes, and other media of every kind and description relating to the
Business of the Company and its Customers, Customer Prospects, and/or Vendors,
and any copies, in whole or in part, whether or not prepared by the Optionee,
all of which shall remain the sole and exclusive property of the
Company.

       

      (g) Proprietary
Rights.  Proprietary Rights shall be promptly and fully
disclosed by the Optionee to the Company’s General Counsel and shall be the
exclusive property of the Company as against the Optionee and the Optionee’s
successors, heirs, devisees, legatees and assigns.  The Optionee
hereby assigns to the Company Optionee’s entire right, title, and interest
therein and shall promptly deliver to the Company all papers, drawings, models,
data, and other material relating to any of the foregoing Proprietary Rights
conceived, made, developed, created or reduced to practice by the Optionee as
aforesaid.  All copyrightable Proprietary Rights shall be considered
“works made for hire.”  The Optionee shall, upon the Company’s request
and at its expense, execute any documents necessary or advisable in the opinion
of the Company’s counsel to assign, and confirm the Company’s title in the
foregoing Proprietary Rights and to direct issuance of patents or copyrights to
the Company with respect to such Proprietary Rights as are the Company’s
exclusive property as against the Optionee and/or the Optionee’s successors,
heirs, devisees, legatees and assigns under this Section 7(g) or to
vest in the Company title to such Proprietary Rights as against the Optionee
and/or the Optionee’s successors, heirs, devisees, legatees and assigns, the
expense of securing any such patent or copyright, however, to be borne by the
Company.

       

      (h) Non-Competition.  The
Optionee covenants and agrees that, during the term of Optionee’s employment
with the Company and for twelve (12) months after the termination thereof,
regardless of the reason for the employment termination, the Optionee will not,
directly or indirectly, anywhere in the Territory, on behalf of any Competitive
Business perform the same or substantially the same Job Duties.

       

      (i) Non-Solicitation of
Customers, Customer Prospects, and Vendors.  The Optionee also
covenants and agrees that during the term of Optionee’s employment with the
Company and for twelve (12) months after the termination thereof, regardless of
the reason for the employment termination, the Optionee will not, directly or
indirectly, solicit or attempt to solicit any business from any of the Company’s
Customers, Customer Prospects, or Vendors with whom the Optionee had Material
Contact during the last two (2) years of the Optionee’s employment with the
Company.

       

      (j) Non-Solicitation of
Employees.  The Optionee also covenants and agrees that during
the term of Optionee’s employment with the Company and for twelve (12) months
after the termination thereof, regardless of the reason for the employment
termination, the Optionee will not, directly or indirectly, on the Optionee’s
own behalf or on behalf of or in conjunction with any person or legal entity,
recruit, solicit, or induce, or attempt to recruit, solicit, or induce, any
non-clerical employee of the Company with whom the Optionee had personal contact
or supervised while performing the Optionee’s Job Duties, to terminate their
employment relationship with the Company.

       

      (k) Ownership of
Securities.  Notwithstanding the provisions set forth herein,
the Optionee shall have the right to (a) invest in or acquire any class of
securities issued by any firm, partnership, corporation, and/or any other entity
and/or person not engaged in any Competitive Business, or (b) acquire as a
passive investor (with no involvement in the operations or management of the
business) up to 1% of any class securities which is (i) issued by any
Competitive Business, and (ii) publicly traded on a national securities exchange
or over-the-counter market.

       

      (l) No
Disparagement.  Each of the parties hereto covenants and agrees
that, during the term of the Optionee’s employment with the Company and for
twelve (12) months after the termination thereof, regardless of the reason for
the employment termination, such party will not, directly or indirectly, either
in writing or by any other medium, make any disparaging, derogatory or negative
statement, comment or remark about the other parties hereto, or any of them, or
Thomas H. Lee Partners, or any other their respective officers, directors,
employees, Affiliates, Subsidiaries, successors and assigns, as the case may be;
provided, however, that this Section 7(l) shall
not be construed to require any Person to provide other than truthful testimony
when compelled to testify pursuant to an enforceable subpoena or court
order.

       

      8. Definitions.

       

      The
following terms shall have the meanings ascribed below:

       

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

       

      “Board” means the
Board of Directors of the Company, as constituted from time to
time.

       

      “Business of the
Company” means the highly competitive business of developing,
manufacturing, marketing, distributing, and/or selling sleep products, including
mattresses, foundations, changing pads and covers, and bedding components for
the same.

       

      “Cause” shall mean,
with respect to the Optionee, “Cause” as defined in any employment agreement
between the Optionee and the Company (or, if applicable, the Subsidiary
employing the Optionee) or, if the Optionee is not a party to an employment
agreement or “cause” is not defined therein, any one or more of the
following:

       

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

       

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

       

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

       

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

       

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

       

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

       

      “Class A Common Stock”
means the Company’s Class A Common Stock, $0.01 par value per
share.

       

      “Class B Common Stock”
has the meaning set forth in the Preamble hereto.

       

      “Competitive
Business(es)” include any firm, partnership, joint venture, corporation
and/or any other entity and/or person, including but not limited to Sealy
Corporation, Serta International, Spring Air Company, Select Comfort
Corporation, Tempur-Pedic International, Inc., King Koil Licensing Company,
Inc., International Bedding Corp., and/or any licensee of such entity, that
develops, manufactures, markets, distributes, and/or sells any of the sleep
products described in the definition for the “Business of the
Company.”

       

      “Confidential
Information” means information about the Company and its Customers,
Customer Prospects, and/or Vendors that is not generally known outside of the
Company, which Optionee learned in connection with the Optionee’s employment
with the Company.  Confidential Information may include, without
limitation: (1) the terms of this Agreement, except as necessary to inform
a subsequent employer of the restrictive covenants contained herein and/or the
Optionee’s attorney, spouse, or professional tax advisor only on the condition
that any subsequent disclosure by any such person shall be considered a
disclosure by the Optionee and a violation of this Agreement; (2) the
Company’s business policies, finances, and business plans; (3) the
Company’s financial projections, including but not limited to, annual sales
forecasts and targets and any computation(s) of the market share of Customers
and/or Customer Prospects; (4) sales information relating to the Company’s
product roll-outs; (5) customized software, marketing tools, and/or
supplies that the Optionee was provided access to by the Company and/or created;
(6) the identity of the Company’s Customers, Customer Prospects, and/or
Vendors (including names, addresses, and telephone numbers of Customers,
Customer Prospects, and/or Vendors); (7) any list(s) of the Company’s
Customers, Customer Prospects, and/or Vendors; (8) the account terms and
pricing upon which the Company obtains products and services from its Vendors;
(9) the account terms and pricing of sales contracts between the Company
and its Customers; (10) the proposed account terms and pricing of sales
contracts between the Company and its Customer Prospects; (11) the names
and addresses of the Company’s employees and other business contacts of the
Company; and (12) the techniques, methods, and strategies by which the
Company develops, manufactures, markets, distributes, and/or sells any of the
sleep products described in the definition for the “Business of the
Company.”

       

      “Consolidated Adjusted
EBITDA” has the meaning set forth in the Credit Agreement.

       

      “Credit Agreement”
shall mean the Second Amended and Restated Credit and Guaranty Agreement, dated
as of May 25, 2006, among Simmons Bedding Company, as Company, THL-SC Bedding
Company and certain subsidiaries of the Company, as Guarantors, the financial
institutions listed therein, as Lenders, Goldman Sachs Credit Partners L.P., as
Sole Bookrunner, Lead Arranger and Syndication Agent, Deutsche Bank AG, New York
Branch, as Administrative Agent and Collateral Agent, General Electric Capital
Corporation, as Co-Documentation Agent and Cit Lending Services Corporation, as
Co-Documentation Agent, as amended by the First Amendment thereto, dated as of
February 9, 2007, as amended and/or restated from time to time.

       

      “Customers” means any
firm, partnership, corporation and/or any other entity and/or Person that
purchased or purchases from the Company any of the sleep products described in
the definition for the “Business of the Company.”

       

      “Customer Prospects”
means any firm, partnership, corporation and/or any other entity and/or Person
reasonably expected by the Company to purchase from the Company any of the sleep
products described in the definition for the “Business of the
Company.”

       

      “Disability” shall
mean with respect to the Optionee, (i) “disability” as defined in any employment
agreement between the Optionee and the Company (or, if applicable, the
Subsidiary employing the Optionee) or (ii) if the Optionee is not party to an
employment agreement or “disability” is not defined therein, the Optionee’s
inability to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment, as determined by the Board
of Directors in its sole discretion.

       

      “DUTSA” means Delaware
Uniform Trade Secrets Act, 6 Del. Code Ann. §§ 2001-2011.

       

      “Fair Market Value”
shall be determined by the Board in good faith. Upon such determination, the
Company shall promptly provide the Optionee with notice of the Fair Market Value
so determined (the “Board
Notice”).  In the event of a determination of Fair Market Value
with respect to Class B Common Stock owned by a Senior Manager, such Senior
Manager shall have the right to contest such determination in good faith, by
delivery of written notice to the Company within ten (10) days of delivery of
the Board Notice. If the Senior Manager does not notify the Company of any
disagreement therewith, then the Fair Market Value shall be as set forth in the
Board Notice.  If the Senior Manager does notify the Company of his or
her disagreement with the Fair Market Value set forth in the Board Notice within
such 10-day time period, then the Company must retain an independent third party
appraiser to make such Fair Market Value determination (the “Final
Determination”), and such Final Determination shall govern; provided, however, that if the
Final Determination of Fair Market Value equals less than 110% of the Fair
Market Value set forth in the Board Notice, then the Senior Manager shall pay
for all costs and expenses of the third party appraiser.

       

      “Financing Default”
means any event of default or breach under (i) the Credit Agreement,
(ii) that certain senior unsecured floating rate loan facility by and among
THL-SC Bedding Company, certain of its subsidiaries, certain lenders, party
thereto and Deutsche Bank, A.G., Cayman Islands Branch, as administrative agent,
as amended, modified, restated or refinanced from time to time, (iii) the
covenant contained in any of the Indentures which permits repurchases by the
Company of employee stock not exceeding a specified amount in the aggregate, or
(iv) any other similar notes or instruments that the Company or its Subsidiaries
may issue from time to time.

      

      “Fully Diluted Shares”
means, as of any date of determination, the number of shares of Class A Common
Stock and Class B Common Stock outstanding, plus (without duplication) shares of
Class A Common Stock and Class B Common Stock issuable, whether at such time or
upon the passage of time or the occurrence of future events, upon the exercise,
conversion or exchange of all then-outstanding rights, warrants, options,
convertible securities, or exchangeable securities or indebtedness, or other
rights, exercisable for or convertible or exchangeable into, directly or
indirectly, Class A Common Stock or Class B Common Stock or securities
exercisable for or convertible or exchangeable into Class A Common Stock or
Class B Common Stock, as the case may be, whether at the time of issuance or
upon the passage of time or the occurrence of some future event.

       

      “Good Reason” shall
mean, with respect to the Optionee, “Good Reason” as defined in any employment
agreement between the Optionee and the Company (or, if applicable, the
Subsidiary employing the Optionee) or, if the Optionee is not a party to an
employment agreement or “good reason” is not defined therein:

       

      (a)           Any
reduction in the Optionee’s base salary;

       

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

       

      “Indentures” shall
mean (i) that certain Indenture, dated as of December 19, 2003, governing the
Senior Subordinated Notes of Simmons Bedding Company, a Subsidiary, due 2013, as
amended, modified, restated or refinanced from time to time, and (ii) that
certain Indenture, dated as of December 15, 2004, governing the 10% Senior
Discount Notes of Simmons Company, a Subsidiary, due 2014, as amended, modified,
restated or refinanced from time to time.

       

      “Job Duties” for the
Optionee are those job duties the Optionee performed for the twelve (12) months
prior to the Effective Date of this Agreement, as well as those duties as may
from time-to-time reasonably be prescribed by the Company during the period of
the Optionee’s employment with the Company.

       

      “Material Contact”
means personal contact or the supervision of the efforts of those who have
direct personal contact with Customers, Customer Prospects, or Vendors in an
effort to initiate or further a business relationship between the Company and
such Customers, Customer Prospects, or Vendors.

       

      “Measurement Date”
shall mean the date upon which the Company shall have received its audited
financial statements for the prior Measurement Year, beginning with the
Measurement Year ending December 27, 2008.

       

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

       

      “Plan” has the meaning
set forth in the Preamble hereto.

      

      “Proprietary Rights”
means any and all inventions, discoveries, developments, methods, processes,
compositions, works, supplier and customer lists (including information relating
to the generation and updating thereof), concepts, and ideas (whether or not
patentable or copyrightable) conceived, made, developed, created, or reduced to
practice by the Optionee (whether at the request or suggestion of the Company or
otherwise, whether alone or in conjunction with others, and whether during
regular hours of work or otherwise) prior to or during the Optionee’s
employment, which may be directly or indirectly useful in, or related to, the
Business of the Company or any business or products contemplated by the Company
while the Optionee was or is an employee, officer, or director of the
Company.

      

      “Representative”
means, with respect to the deceased Optionee, the duly appointed, qualified and
acting personal representative (or personal representatives collectively) of the
estate of the deceased Optionee (or portion of such estate that includes
Optionee Stock), whether such personal representative holds the position of
executor, administrator or other similar position qualified to act on behalf of
such estate.

       

      “Securities Act” means
the Securities Act of 1933, as amended, or any successor federal law then in
force.

       

      “Securityholders’
Agreement” means the Securityholders’ Agreement dated February 9, 2007
between the Company and certain stockholders of the Company, as amended,
modified or supplemented from time to time.

       

      “Senior Manager” shall
mean each of Charles R. Eitel, William S. Creekmuir and any other Persons
designated by the Board as Senior Managers (collectively, the “Senior
Managers”).

       

      “Service” shall mean
service as a full time employee or director of or consultant to the Company or
any of its Subsidiaries.

       

      “Subsidiary” means any
Person of which (i) a majority of the outstanding share capital, voting
securities or other equity interests are owned, directly or indirectly, by the
Company or (ii) the Company is entitled, directly or indirectly, to appoint a
majority of the board of directors or managers or comparable supervisory body of
such Person.

       

      “Term” means the
period starting on the date of this Agreement and expiring 10 years from the
date of this Agreement.

       

      “Territory” means the
United States, Puerto Rico and Canada.

       

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

       

      “Trade Secrets” means
Confidential Information which meets the additional requirements of the DUTSA
and/or under any other applicable law.

       

      “Vendors” means any
individual and/or entity that provided goods and services to the
Company.

       

      9. General
Provisions.

       

      (a) Severability.  It
is the desire and intent of the parties hereto that the provisions of this
Agreement be enforced to the fullest extent permissible under the laws and
public policies applied in each jurisdiction in which enforcement is
sought.  Accordingly, if any particular provision of this Agreement
shall be adjudicated by a court of competent jurisdiction to be invalid,
prohibited or unenforceable for any reason, such provision, as to such
jurisdiction, shall be ineffective, without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of this
Agreement or affecting the validity or enforceability of such provision in any
other jurisdiction.  Notwithstanding the foregoing, if such provision
could be more narrowly drawn so as not to be invalid, prohibited or
unenforceable in such jurisdiction, it shall, as to such jurisdiction, be so
narrowly drawn, without invalidating the remaining provisions of this Agreement
or affecting the validity or enforceability of such provision in any other
jurisdiction.

       

      (b) Entire
Agreement.  This Agreement embodies the complete agreement and
understanding among the parties hereto with respect to the subject matter hereof
and supersedes and preempts any prior understandings, agreements or
representations by or among the parties, written or oral, which may have related
to the subject matter hereof in any way.

       

      (c) Counterparts.  This
Agreement may be executed in separate counterparts, each of which is deemed to
be an original and all of which taken together constitute one and the same
agreement.

       

      (d) Successors and
Assigns.  Except as otherwise provided herein, this Agreement
shall bind and inure to the benefit of and be enforceable by the Optionee, the
Company, and their respective successors, assigns, heirs, representative and
estate, as the case may be (including subsequent holders of the Shares);
provided that the rights and obligations of the Optionee under this Agreement
shall not be assignable except as permitted under Section 5
hereunder.

       

      (e) Governing Law and
Remedies.  The parties acknowledge and agree that they are
bound by their arbitration obligations under Exhibit B
attached hereto, which the parties also hereby agree to execute
contemporaneously and is an integral part of this Agreement.  The
parties agree and acknowledge that all provisions of this Agreement shall be
governed by and construed in accordance with the laws of the State of Delaware
exclusively and without reference to principles of conflict of
laws.  The Federal Arbitration Act (“FAA”) will supersede
state laws to the extent inconsistent.  The Arbitrator(s) shall have
no authority to apply the law of any other jurisdiction.

       

      _______                      Optionee’s
initials to acknowledge agreement to Governing Law and Remedies provision in
Section 9(e).

       

      (f) Remedies.  Each
of the parties to this Agreement and any such Person granted rights hereunder
whether or not such Person is a signatory hereto shall be entitled to enforce
its rights under this Agreement specifically to recover damages and costs
(including reasonable attorney’s fees) for any breach of any provision of this
Agreement and to exercise all other rights existing in its favor.  The
parties hereto agree and acknowledge that money damages may not be an adequate
remedy for any breach of the provisions of this Agreement and that any party and
any such Person granted rights hereunder whether or not such Person is a
signatory hereto may in its sole discretion submit the matter to arbitration for
specific performance and/or other injunctive relief (without posting any bond or
deposit) in order to enforce or prevent any violations of the provisions of this
Agreement.

       

      (g) Amendment and
Waiver.  The provisions of this Agreement may be amended and
waived only with the prior written consent of the Company and the Optionee and
no course of conduct or failure or delay in enforcing the provisions of this
Agreement shall be construed as a waiver of such provisions or affect the
validity, binding effect or enforceability of this Agreement or any provision
hereof.

       

      (h) Notices.  Any
notice provided for in this Agreement must be in writing and must be either
personally delivered, transmitted via facsimile, mailed by first class mail
(postage prepaid and return receipt requested) or sent by reputable overnight
courier service (charges prepaid) to the recipient at the address below
indicated or at such other address or to the attention of such other person as
the recipient party has specified by prior written notice to the sending
party.  Notices will be deemed to have been given hereunder and
received when delivered personally, when received if transmitted via facsimile,
five (5) days after deposit in the U.S. mail and one (1) day after deposit with
a reputable overnight courier service.

       

      If to the
Company, to:

       

      Simmons Holdco, Inc.

      One Concourse Parkway, Suite
800

      Atlanta,
GA  30328

      Attention:  Chief Financial
Officer and General Counsel

      

       

      With a
copy to:

       

      Thomas H.
Lee Partners, L.P.

      100
Federal Street, 35th Floor

      Boston,
MA  02110

      Attention:  Scott
A. Schoen

      Todd M. Abbrecht

      George R. Taylor

      

      If to the
Optionee, to the address set forth underneath the Optionee’s name on the
signature pages hereto.

       

      (i) Business
Days.  If any time period for giving notice or taking action
hereunder expires on a day which is a Saturday, Sunday or holiday in the state
in which the Company’s chief executive office is located, the time period for
giving notice or taking action shall be automatically extended to the business
day immediately following such Saturday, Sunday or holiday.

       

      (j) Survival of Representations,
Warranties and Agreements.  All representations, warranties and
agreements contained herein and in the Exhibits hereto shall survive the
consummation of the transactions contemplated hereby and the termination of this
Agreement indefinitely.

       

      (k) Descriptive
Headings.  The descriptive headings of this Agreement are
inserted for convenience only and do not constitute a part of this
Agreement.

       

      (l) Construction.  Where
specific language is used to clarify by example a general statement contained
herein, such specific language shall not be deemed to modify, limit or restrict
in any manner the construction of the general statement to which it
relates.  The language used in this Agreement shall be deemed to be
the language chosen by the parties to express their mutual intent, and no rule
of strict construction shall be applied against any party.

       

      (m) WAIVER OF JURY
TRIAL.  EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES
ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT
OF OR RELATING TO THIS AGREEMENT.

       

      (n) Nouns and
Pronouns.  Whenever the context may require, any pronouns used
herein shall include the corresponding masculine, feminine or neuter forms, and
the singular form of nouns and pronouns shall include the plural and vice
versa.

       

      (o) Acknowledgement and
Waiver.  The Optionee hereby represents and warrants that he or
she has access to adequate information regarding the terms of this Agreement,
the scope and effect of the provisions set forth herein and all other matters
encompassed by this Agreement, to make an informed and knowledgeable decision
with regard to enter into this Agreement.  The Optionee acknowledges
that he or she has received a copy of the Plan.  The Optionee further
represents and warrants that he or she has not relied on the Company in deciding
to enter into this Agreement and has instead made his or her own independent
analysis and decision to enter into this Agreement.

       

      (p) Rights as a
Shareholder.  The Optionee shall have no rights as a
shareholder with respect to any Shares that may be purchased by exercise of this
Option unless and until a certificate or certificates representing such Shares
are duly issued and delivered to the Optionee.  Any such issuance is
expressly conditioned upon the Optionee’s prior execution of a joinder agreement
to the Securityholders’ Agreement.  Except as otherwise expressly
provided in the Plan, no adjustment shall be made for dividends or other rights
for which the record date is prior to the date such stock certificate is
issued.

       

      (q) Withholding
Taxes.  Whenever Shares are to be issued upon exercise of this
Option, the Company shall have the right to require the Optionee (or his or her
successor, assign or Representatives) to remit to the Company an amount
sufficient to satisfy all federal, state and local withholding tax requirements
prior to issuance of the Shares and the delivery of any certificate or
certificates for such Shares.

       

      [Remainder
of Page Intentionally Left Blank]

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

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

       

      SIMMONS
HOLDCO, INC.

      

      

      

      By:  __________________________

      William S. Creekmuir

      Executive Vice President
and

      Chief Financial Officer

      

      

      

      

      

       

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      OPTIONEE:

      

      Dominick
Azevedo

       

      ______________________________

      Signature

      

       

      Address:
_____________________

         _____________________

         _____________________

      

      Social Security Number: _____________

       

      Number of
Shares:  6,120

       

      Per Share Exercise
Price:  $18.82

       

      Grant Date:  January 16,
2008

       

      

      

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      EXHIBIT
A

      TO
STOCK OPTION AGREEMENT

      

      

      Simmons
Holdco, Inc.

      One
Concourse Parkway, Suite 800

      Atlanta,
GA 30328

      

       

      Ladies
and Gentlemen:

       

      In
connection with the acquisition by me of _____ shares of Class B Common Stock,
par value $0.01 per share (the “Shares”) of Simmons
Holdco, Inc., a Delaware corporation (the “Company”), pursuant
to the exercise of an Option evidenced by a Stock Option Agreement, dated as of
________, 200_, I hereby represent to the Company as follows:

       

      (a)           I
hereby confirm that:  (i) the Shares to be received by me will be
acquired for investment only, for my own account, not as a nominee or agent and
not with a view to the sale or distribution of any part thereof; and (ii) I have
no current intention of selling, granting participation in or otherwise
distributing the Shares.  I further represent that I do not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participation to such person, or to any third person, with
respect to any of the Shares.

       

      (b)           I
understand that the Shares have not been registered under the Securities Act of
1933, as amended (the “1933 Act”) on the
basis that the acquisition of the Shares by me and the issuance of securities by
the Company to me is exempt from registration under the 1933 Act and that the
Company’s reliance on such exemption is predicated on my representations set
forth herein.

       

      (c)           I
represent that I have, either alone or together with the assistance of a
“purchaser representative” (as the term is defined in Regulation D promulgated
under the 1933 Act), such knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of my investment in
the Company.  I further represent that I am familiar with the business
and financial condition, properties, operations and prospects of the
Company.  I further represent that I have had, prior to my acquisition
of the Shares, the opportunity to ask questions of, and receive answers from,
the Company concerning the terms and conditions of the issuance and to obtain
information (to the extent the Company possessed such information or could
acquire it without unreasonable effort or expense) necessary to verify the
accuracy of any information furnished to me or to which I have had
access.  I am satisfied that there is no material information
concerning the condition, properties, operations and prospects of the Company of
which I am unaware.  I have made, either alone or together with my
advisors, such independent investigation of the Company as I deem to be, or my
advisors deem to be, necessary or advisable in connection with this
investment.

       

      (d)           I
understand that the Shares may not be sold, transferred or otherwise disposed of
without registration under the 1933 Act and applicable state securities laws, or
an exemption therefrom, and that in the absence of an effective registration
statement covering the Shares or an available exemption from registration under
the 1933 Act or applicable state securities laws, the Shares must be held
indefinitely.  In particular, I acknowledge that I am aware that the
Shares may not be sold pursuant to Rule 144 promulgated under the 1933 Act
unless all of the conditions of that Rule are met.  I represent that,
in the absence of an effective registration statement covering the Shares, I
will not sell, transfer or otherwise dispose of the Shares.

       

      (e)           I
represent that I (i) am capable of bearing the economic risk of holding the
unregistered Shares for an indefinite period of time and have adequate means for
providing for my current needs and contingencies, (ii) can afford to suffer a
complete loss of my investment in the Shares, and (iii) understand and have
taken cognizance of all risk factors related to the acquisition of the
Shares.

       

      (f)           I
understand that the acquisition of the Shares involves a high degree of risk and
there will be no established market for the Company’s capital stock and it is
not likely that any public market for such stock will develop in the near
future.

       

      (g)           I
represent that neither I nor anyone acting on my behalf has paid any commission
or other remuneration to any person in connection with the acquisition of the
Shares.

       

      (h)           Independent
of the additional restrictions on the transfer of the Shares contained herein, I
agree that I will not make a transfer, disposition or pledge of any of the
Shares other than pursuant to an effective registration statement under the 1933
Act and applicable state securities laws, unless and until:  (i) I
shall have notified the Company of the proposed disposition and shall have
furnished the Company with a statement of the circumstances surrounding the
disposition and (ii) if requested by the Company and at my expense or at the
expense of my transferee, I shall have furnished to the Company an opinion of
counsel, reasonably satisfactory (as to counsel and as to substance) to the
Company and its counsel, to the effect that such transfer may be made without
registration of the Shares under the 1933 Act, and applicable state securities
laws.

       

      (i)           I
acknowledge that all certificates evidencing the Shares shall bear the following
legend:

       

      “THE
SALE, TRANSFER, ASSIGNMENT, PLEDGE, OR ENCUMBRANCE OF THE SECURITIES REPRESENTED
BY THIS CERTIFICATE AND THE RIGHTS OF THE HOLDER OF SUCH SECURITIES IN RESPECT
OF THE ELECTION OF DIRECTORS ARE SUBJECT TO A SECURITYHOLDERS’ AGREEMENT DATED
FEBRUARY 9, 2007 AMONG THL BEDDING HOLDING COMPANY AND CERTAIN HOLDERS OF ITS
OUTSTANDING CAPITAL STOCK.  COPIES OF SUCH AGREEMENT MAY BE OBTAINED
AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE
TO THE SECRETARY OF THL BEDDING HOLDING COMPANY.

       

      THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
STATE SECURITIES OR BLUE SKY LAWS.  THESE SECURITIES MAY NOT BE SOLD
OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM
UNDER SAID ACT OR LAWS.”

       

      (j)           The
certificates evidencing the Shares shall also bear any legend required by any
applicable state securities law.

       

      (k)           In
addition, the Company shall make a notation regarding the restrictions on
transfer of the Shares in its stock books, and the Shares shall be transferred
on the books of the Company only if transferred or sold pursuant to an effective
registration statement under the 1933 Act and applicable state securities laws
covering such Shares or pursuant to and in compliance with the provisions of the
Securityholders’ Agreement, as amended.

       

      Very
truly yours,

      EXHIBIT B - ARBITRATION
CLAUSE

       

      (1) In
consideration of the benefits described in the Stock Option Agreement executed
by DOMINICK AZEVEDO (the “Optionee” or “you”) and SIMMONS HOLDCO, INC., a
Delaware corporation (the “Company”), on the same date hereto and into which
this Exhibit A is
incorporated, (“Agreement”), the Company and you hereby agree that any
controversy or claim arising under federal, state and local statutory or common
or contract law between the Company and you involving the construction or
application of any of the terms, provisions, or conditions of the Agreement,
including, but not limited to, breach of contract, tort, and/or fraud, must be
submitted to arbitration on the written request of either party served on the
other.  Arbitration shall be the exclusive forum for any such
controversy.  For example, if the Company and you have a dispute
concerning the interpretation or enforceability of one or more restrictive
covenants, the parties will resolve the dispute exclusively through
arbitration.  The Arbitrator’s decision shall be final and binding on
both parties.

       

      (2) If any
claim or cause of action at law or in equity is filed by either party in any
state or federal court which results in arbitration being compelled and/or the
claim or cause of action being dismissed, stayed, and/or removed to arbitration
pursuant to this Agreement, the party who instituted the claim or cause of
action in state or federal court, either wholly or in substantial part, shall,
at the discretion of the Arbitrator(s), reimburse the respondent for its
reasonable attorneys’ fees, costs, and necessary disbursements to the extent
permitted by law, in addition to any other relief to which it may be entitled,
related to the state or federal court claim or action.

       

      (3) Excluding
the initial filing fee, which shall be borne by the claimant, the cost of
arbitration shall be borne by the Company, unless the Arbitrator determines that
any claim(s) brought by you was/were wholly frivolous or
fraudulent.  If an arbitration or any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the prevailing
party, either wholly or in substantial part, shall, at the discretion of the
Arbitrator, be entitled to its reasonable attorneys’ fees, costs, and necessary
disbursements to the extent permitted by law, in addition to any other relief to
which it may be entitled.

       

      (4) If the
Optionee submits any controversy or claim to arbitration, the arbitration will
be conducted in Atlanta, Georgia and all claims shall be submitted to and
administered by the American Arbitration Association’s Southeast Case Management
Center in Atlanta, Georgia.  If the Company submits any controversy or
claim to arbitration, the arbitration shall be conducted at the American
Arbitration Association’s Local or Regional Office that is geographically
closest to the Optionee’s place of residence and all claims shall be submitted
to and administered by the American Arbitration Association’s corresponding Case
Management Center.

       

      (5) The
arbitration shall comply with and be governed by the American Arbitration
Association’s Commercial Arbitration Rules (“Rules”) effective as of the
execution date below, to the extent such Rules are not contrary to the express
provisions of this Agreement.  The parties also agree that the
American Arbitration Association Optional Rules for Emergency Measures of
Protection (“Emergency Rules”) shall apply to proceedings brought by either
party.  The above Rules and Emergency Rules can be found at the
following page of the American Arbitration Association’s website, www.adr.org: http://www.adr.org/sp.asp?id=22440.  You
acknowledge that you should read these Rules and Emergency Rules and that it is
your responsibility to be familiar with them prior to signing the
Agreement.  If you are unable to access the Rules and/or Emergency
Rules at the above website, you can request a copy of them from a Company
official prior to signing the Agreement.

       

      (6) The
parties agree and acknowledge that all provisions of this Agreement shall be
governed by and construed in accordance with the laws of the State of
Delaware exclusively and without reference to principles of conflict of
laws.  The Federal Arbitration Act (“FAA”) will supersede state laws
to the extent inconsistent.  Any claim(s) involving the construction
or application of this Agreement must be submitted to arbitration within the
statute of limitations period for such claim(s) under Delaware state law and
shall be dismissed if the statute of limitations period is not
met.  The Arbitrator(s) shall have no authority to apply the law of
any other jurisdiction.

       

      (7) The
dispute shall be heard and determined by one Arbitrator, unless both parties
mutually consent in writing signed by you and an authorized representative of
Company to a panel of three (3) Arbitrators.  Unless both parties
mutually consent otherwise, the parties agree and request that the Arbitrator(s)
issue a reasoned award in accordance with Commercial Arbitration Rule
R-42(b).

       

      I
UNDERSTAND THAT BY SIGNING THIS AGREEMENT I AM GIVING UP MY RIGHT TO A JURY
TRIAL.

      

      

      Executed
effective as of this 16th day of
January, 2008.

      

      

      
        	
                 

                 

                 

                __________________________________

                Dominick
      Azevedo

                Social
      Security #:  __________________

              	
                Simmons
      Holdco, Inc.

                 

                 

                By:
      __________________________________

                      William
      S. Creekmuir

                      Executive
      Vice President and

                      Chief
      Financial Officer

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