UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A
Proxy
Statement Pursuant to Section 14(a) of
the
Securities Exchange Act of 1934 (Amendment No. __)
Filed by
the Registrant x
Filed by
a Party other than the Registrant o
Check the
appropriate box:
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o Preliminary
Proxy Statement
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o Confidential,
for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
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x Definitive
Proxy Statement
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o Definitive
Additional Materials
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o Soliciting
Material Pursuant to § 240.14a-12
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TEMPUR-PEDIC
INTERNATIONAL INC.
(Name of
Registrant as Specified In Its Charter)
(Name of
Person(s) Filing Proxy Statement, if other than the Registrant)
Payment
of Filing Fee (Check the appropriate box):
x No
fee required.
o Fee
computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
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(1)
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Title
of each class of securities to which transaction
applies:
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(2)
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Aggregate
number of securities to which transaction
applies:
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(3)
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Per
unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was
determined):
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(4)
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Proposed
maximum aggregate value of
transaction:
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(5)
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Total
fee paid:
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o
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Fee
paid previously with preliminary materials.
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o
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Check
box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its
filing.
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(1)
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Amount
previously paid:
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(2)
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Form,
Schedule or Registration Statement
No.:
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(3)
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Filing
Party:
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(4)
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Date
Filed:
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2008
ANNUAL MEETING OF SHAREHOLDERS
TUESDAY,
MAY 6, 2008
10:00 A.M.
NOTICE
OF MEETING AND PROXY STATEMENT
YOUR
VOTE IS IMPORTANT
Tempur-Pedic
International Inc. (the “Company”) will hold its 2008 Annual Meeting of
Shareholders at the offices of Bingham McCutchen LLP, 16th Floor,
150 Federal Street, Boston, Massachusetts 02110 on Tuesday, May 6,
2008, at 10:00 a.m. At the Annual Meeting, stockholders will:
(1) elect nine directors to each serve for a one-year term and until
the director’s successor has been duly elected and qualified, (2)
approve the Company’s Amended and Restated 2003 Equity Incentive Plan,
(3) ratify the appointment of Ernst & Young LLP as the Company’s
independent auditors for the year ending December 31, 2008, and (4) transact
such other business as may properly come before the meeting or any adjournment
thereof.
If you
are a shareholder of record, you may vote in any one of four ways: in person by
attending the Annual Meeting, by Internet, by telephone, or by mail using the
enclosed proxy card. Specific voting information is included under the caption
“Voting Procedures.” Only stockholders of record at the close of business on
March 7, 2008, are entitled to vote. On March 7, 2008, 74,595,057 shares of the
Company’s common stock were outstanding. Each share entitles the holder to one
vote.
Our Board
of Directors asks you to vote in favor of the director nominees, the approval of
the Amended and Restated 2003 Equity Incentive Plan and the ratification of
Ernst & Young LLP as the Company’s independent registered public accounting
firm. This Proxy Statement provides you with detailed information about each of
these matters. We encourage you to read this Proxy Statement
carefully.
Important Notice Regarding the
Availability of Proxy Materials
for
the Shareholder Meeting to be Held on May 6, 2008
The Proxy
Statement and Annual Report on Form 10-K and the means to vote by Internet
are available at http://www.proxyvote.com.
Instead
of receiving paper copies of future annual reports and Proxy Statements in the
mail, you can elect to receive an e-mail that will provide an electronic link to
these documents. Choosing to receive your proxy materials online will save us
the cost of producing and mailing documents to you as well as conserve natural
resources. With electronic delivery, we will notify you by e-mail as soon as the
annual report and Proxy Statement are available on the Internet, and you can
easily submit your shareholder votes online. If you are a shareholder of record,
you may enroll in the electronic delivery service at the time you vote by
marking the appropriate box on your proxy card, by selecting electronic delivery
if you vote on the Internet, or at any time in the future by going directly to
www.proxyvote.com,
selecting the “Investor Service Direct” option, and following the enrollment
instructions. If you are a beneficial holder, you may also have the opportunity
to receive annual meeting materials electronically. Please check the information
provided in the proxy materials mailed to you by your brokerage firm, bank or
trustee.
All of
our stockholders are cordially invited to attend the Annual
Meeting.
By Order of the Board
of Directors,
&#
160; 
&#
160; DALE E.
WILLIAMS
&#
160; Executive Vice
President, Chief Financial Officer, and Secretary
Lexington, Kentucky
March 24, 2008
Picture identification will be
required to enter the Annual Meeting. Cameras and recording equipment will not
be permitted at the Annual Meeting.
2008
PROXY STATEMENT
ANNUAL
MEETING OF SHAREHOLDERS
The 2008
Annual Meeting of Shareholders of Tempur-Pedic International
Inc.
will be
held at the offices of Bingham McCutchen LLP, 16th
Floor,
150
Federal St., Boston, MA 02110
May 6,
2008 at 10:00 A.M.
PROXY VOTING
OPTIONS
YOUR VOTE IS
IMPORTANT!
Important
Notice Regarding Availability of Proxy Materials:
The 2008
Proxy Statement and 2007 Annual Report are available at
www.ProxyVote.com
Whether
or not you expect to attend in person, we urge you to vote your shares by phone,
via the Internet, or by signing, dating, and returning the enclosed proxy card
at your earliest convenience. This will ensure the presence of a quorum at the
meeting. Promptly voting your shares will save us the expense and extra work of
additional solicitation. Submitting your proxy now will not prevent you from
voting your stock at the meeting if you want to do so, as your vote by proxy is
revocable at your option.
Voting by
the Internet or telephone is fast and
convenient, and your vote is immediately confirmed and tabulated. Most
important, by using the Internet or telephone, you help us reduce postage and
proxy tabulation costs. Or, if you prefer, you can vote by mail by returning the
enclosed proxy card in the addressed, prepaid envelope
provided.
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VOTE BY INTERNET
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VOTE BY TELEPHONE
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VOTE BY MAIL
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http://www.proxyvote.com
24 hours
a day/7 days a week
Use
the Internet to vote your
proxy.
Have your proxy card
in
hand when you access the
web
site.
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1-800-690-6903
toll-free
24 hours
a
day/7 days a week
Use
any touch-tone telephone
to
vote your proxy. Have your
proxy
card in hand when you call.
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Sign
and date the proxy card and
return
it in the enclosed postage-
paid
envelope.
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If you vote your proxy by
Internet or by telephone, please do NOT mail back the proxy card. You can
access, view and download this year’s Annual Report on Form 10-K and Proxy
Statement at
http://www.proxyvote.com.
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TEMPUR-PEDIC
INTERNATIONAL INC.
1713
Jaggie Fox Way
Lexington,
Kentucky 40511
Annual
Meeting of Stockholders To Be Held on Tuesday, May 6, 2008
Our
Board of Directors is soliciting proxies for the 2008 Annual Meeting of
Stockholders. The 2008 Annual Meeting of Stockholders of Tempur-Pedic
International Inc. will be held at 10:00 a.m., local time on May 6, 2008 at the
offices of Bingham McCutchen LLP, 16th Floor,
150 Federal Street, Boston, Massachusetts 02110. This Proxy Statement
contains important information for you to consider when deciding how to vote on
the matters brought before the meeting. Please read it carefully.
Notice
of the meeting and availability of the voting materials, which include this
Proxy Statement and a proxy card, was mailed to stockholders on or about March
24, 2008. Our principal executive offices are located at
1713 Jaggie Fox Way, Lexington, Kentucky 40511. Our telephone number is
(800) 878-8889. As used in this Proxy Statement, the term “Tempur-Pedic
International” refers to Tempur-Pedic International Inc. and the terms “we,”
“our,” “ours,” “us,” and “Company” refer to Tempur-Pedic International Inc. and
its consolidated subsidiaries.
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Q:
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Who may vote at the meeting? |
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A:
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Our
Board set March 7, 2008 as the record date for the meeting. All
stockholders who owned Tempur-Pedic International common stock of record
at the close of business on March 7, 2008 may attend and vote at the
meeting. Each stockholder is entitled to one vote for each share of common
stock held on all matters to be voted on. On March 7, 2008, 74,595,057
shares of Tempur-Pedic International common stock were
outstanding.
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Q:
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How
many votes does Tempur-Pedic International need to be present at the
meeting?
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A:
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A
majority of Tempur-Pedic International’s outstanding shares of common
stock as of the record date must be present at the meeting in order to
hold the meeting and conduct business. This is called a quorum. Shares are
counted as present at the meeting if you:
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▪
are present and vote in person at the meeting;
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▪
have properly submitted a proxy card;
or
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| ▪ voted via the internet, by telephone or in writing. | |
| Q: |
What
proposals will be voted on at the meeting?
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| A: |
There
are three proposals scheduled to be voted on at the
meeting:
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▪ Election
of nine (9) directors to each serve for a one-year term and until the
director’s successor has been duly elected and qualified (Proposal
One).
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▪
Approval of our Amended and Restated 2003 Equity Incentive
Plan (Proposal Two).
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▪ Ratification
of the appointment of the firm of Ernst & Young LLP as
Tempur-Pedic International’s independent auditors for the year ending
December 31, 2008 (Proposal Three).
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| Q: |
What are
the voting requirement to approve the proposals?
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| A: |
In
Proposal One for the election of directors, those nine nominees who
receive the highest number of affirmative “FOR” votes of the shares
present or represented and entitled to vote at the meeting will be
elected. Proposals Two and Three require the affirmative “FOR” vote of a
majority of the shares of common stock present or represented and entitled
to vote at the Annual
Meeting.
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Q:
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How
would my shares be voted if I do not specify how they should be
voted?
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A:
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If
you sign and return your proxy card without indicating how you want your
shares to be voted, the Proxy Committee appointed by the Board will vote
your shares as follows:
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| Proposal One: "FOR" the election of nine (9) directors to each serve for a one-year term and until the director's successor has been duly elected and qualified. | ||
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Proposal
Two: "FOR" the approval of our Amended and Restated 2003 Equity
Incentive Plan.
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Proposal
Three: "FOR" the ratification of the appointment of the firm of Ernst
& Young LLP as Tempur-Pedic International’s independent auditors for
the year ending December 31, 2008.
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Q:
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How
are the votes counted?
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A:
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For
Proposal One, you may vote “FOR” or “WITHHOLD” with respect to each
specific nominee. For Proposals Two and Three, you may vote “FOR,”
“AGAINST,” or “ABSTAIN.” Abstentions and broker “non-votes” are counted as
present and entitled to vote for purposes of determining a quorum. A
broker “non-vote” occurs when a nominee holding shares for a beneficial
owner does not vote on a particular proposal because the nominee does not
have discretionary voting power with respect to that item and has not
received instructions from the beneficial owner.
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Proposal
One - Election of Directors
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Abstentions
and broker non-votes are not counted for purposes of the election of
directors.
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Proposal
Two and Three – Approval of our Amended and Restated 2003 Equity Incentive
Plan, Ratification of Auditors, and any Other Matters
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An
abstention is counted as a vote against the approval of our Amended and
Restated 2003 Equity Incentive Plan (Proposal Two) and against the
ratification of the independent auditor (Proposal Three). A
broker non-vote is not counted for purposes of ratification of the
independent auditor and all other matters to properly come before the
meeting.
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Voting
results will be tabulated and certified by our transfer agent,
ComputerShare Trust Company, N.A.
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Q:
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How
may I vote my shares in person at the meeting?
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A:
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Shares
held directly in your name as the stockholder of record may be voted in
person at the meeting. If you choose to attend the meeting, please bring
the enclosed proxy card and proof of identification for entrance to the
meeting. If you hold your shares in street name, you must request a legal
proxy from your stockbroker in order to vote at the
meeting.
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| Q: | How can I vote my shares without attending the meeting? | |
| A: |
You
may vote in person at the meeting or by proxy. We recommend you vote by
proxy even if you plan to attend the meeting. You can always change your
vote at the meeting. Giving us your proxy means you authorize us to vote
your shares at the meeting in the manner you direct.
If
your shares are held in your name, you can vote by proxy in three
convenient ways:
Via
Internet: Go to http://www.proxyvote.com
and follow the instructions. You will need to enter the control
number printed on your proxy card.
By
Telephone: Call toll-free 1-800-690-6903 and follow the
instructions. You will need to enter the control number printed on your
proxy card.
In
Writing: Complete, sign, date and return your proxy card
in the enclosed envelope.
If
your shares are held in street name, you may vote by submitting voting
instructions to your stockbroker or nominee. In most cases, you will be
able to do this by mail. Please refer to the summary instructions included
on your proxy card. For shares held in street name, the voting instruction
card will be included by your stockbroker or
nominee.
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You
may submit your proxy by mail by signing your proxy card or, for shares
held in street name, by following the voting instruction card included by
your stockbroker or nominee and mailing it in the enclosed, postage-paid
envelope. If you provide specific voting instructions, your shares will be
voted as you have instructed.
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Q:
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How
can I change my vote after I return my proxy card?
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A:
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You
may revoke your proxy and change your vote at any time before the final
vote at the meeting. You may do this by signing and submitting a new proxy
card with a later date or by attending the meeting and voting in person.
Attending the meeting will not revoke your proxy unless you specifically
request it.
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Q:
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What
is Tempur-Pedic International’s voting recommendation?
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A:
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Our
Board of Directors recommends that you vote your shares “FOR” each of the
nominees to the Board (Proposal One), “FOR” the proposed approval of
our Amended and Restated 2003 Equity Incentive Plan (Proposal
Two), and “FOR” the ratification of the appointment of Ernst & Young
LLP as Tempur-Pedic International’s independent auditors for the year
ending December 31, 2008 (Proposal Three).
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Q:
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Where
can I find the voting results of the meeting?
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A:
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The
preliminary voting results will be announced at the meeting. The final
results will be published in our quarterly report on Form 10-Q for
the second quarter of 2008.
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ELECTION
OF DIRECTORS
Tempur-Pedic
International’s Board of Directors currently consists of nine members, each
serving a one-year term. The nominees for this year’s election of directors
include: H. Thomas Bryant, Francis A. Doyle, John Heil, Peter K. Hoffman, Sir
Paul Judge, Nancy F. Koehn, Christopher A. Masto, P. Andrews McLane, and Robert
B. Trussell, Jr. The nominees, if elected, will each serve a one-year term until
Tempur-Pedic International’s annual meeting in 2009 or until his or her
respective successor is elected and qualified. Each of the nominees has
consented to serve a one-year term. There are no family relationships among our
executive officers and directors.
All of the
nominees are standing for re-election, except for Mr. Heil. Our Board
of Directors elected Mr. Heil to the Board of Directors on March 4, 2008 upon the
recommendation of the Board’s Nominating and Corporate Governance
Committee.
VOTE
REQUIRED
The nine
persons receiving the highest number of votes represented by outstanding shares
of common stock present or represented by proxy and entitled to vote at the
Annual Meeting will be elected.
THE BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE ELECTION TO THE
BOARD OF DIRECTORS OF EACH OF THE FOLLOWING NOMINEES:
H. Thomas Bryant, 60, joined Tempur-Pedic
International in July 2001. In April 2006, Mr. Bryant was promoted to the role
of Chief Executive Officer and elected a member of Tempur-Pedic
International's Board of Directors. From July 2001 to December 2004, Mr.
Bryant served as Executive Vice President and President of North American
Operations. From December 2004 to April 2006, Mr. Bryant served as President of
Tempur-Pedic International. Prior to joining Tempur-Pedic International, from
1998 to 2001, Mr. Bryant was the President and Chief Executive Officer of
Stairmaster Sports & Medical Products, Inc. From 1989 to 1997, Mr. Bryant
served in various senior management positions at Dunlop Maxfli Sports
Corporation, most recently as President. Prior to that, Mr. Bryant spent 15
years in various management positions at Johnson & Johnson. Mr. Bryant
received his B.S. degree from Georgia Southern University. In February 2008, Mr.
Bryant announced his plan to retire as President and Chief Executive Officer
effective mid-year 2008.
Francis A. Doyle,
59, has
served as a member of Tempur-Pedic International’s Board of Directors since
April 2003. Mr. Doyle has served as President and Chief Executive Officer
of Connell Limited Partnership since 2001. From 1972 to 2001, he was a partner
at PricewaterhouseCoopers LLP, where he was Global Technology and E-Business
Leader and a member of the firm’s Global Leadership Team. He currently serves on
the Board of Directors of Liberty Mutual Holding Company, Inc. and Citizens
Financial Group. He is a trustee of the Joslin Diabetes Clinic and Boston
College. Mr. Doyle is a certified public accountant and holds a
B.S. degree and an M.B.A. degree from Boston College.
John Heil, 55,
has served as a member of Tempur-Pedic International’s Board of Directors since
March 4, 2008. Since January 2007, Mr. Heil has served as Spectrum
Brands Inc.'s Co-Chief Operating and President, Global Pet Supplies. From June
2004 until January 2007, Mr. Heil served as President of United Pet Group,
a global manufacturer and marketer of pet supplies and a division of
Spectrum Brands and United Industries. Mr. Heil first joined United
Pet Group as Chairman and Chief Executive Officer in
June 2000. Prior to joining United Pet Group, Mr. Heil spent
twenty-five years with the H. J. Heinz Company in various executive management
positions including President and Managing Director of Heinz Pet Products,
President of Heinz Specialty Pet and Executive Vice President of StarKist
Seafood. Mr. Heil is also a member of the board of directors of VCA Antech, Inc.
(Veterinary Centers of America) and is a member of their audit committee. Mr.
Heil holds a BA degree in economics from Lycoming College.
Peter K. Hoffman,
59, has
served as a member of Tempur-Pedic International’s Board of Directors since
October 2006. From January 1, 2000, Mr. Hoffman served as President of
Global Grooming for The Procter & Gamble Company (formerly The Gillette
Company) until his retirement at the end of 2006. Mr. Hoffman spent over 34
years with The Gillette Company and Procter & Gamble in executive positions
both in North America and Europe, including roles as President, Global Blades
and Razors; President, Duracell North Atlantic; and President, Braun North
America. Mr. Hoffman received an A.B. degree in Economics from Columbia
University and an M.B.A. degree with distinction from the Tuck School of
Business, Dartmouth College, where he was elected an Edward Tuck
Scholar.
Sir Paul
Judge, 58, has served as a member of Tempur-Pedic International’s Board
of Directors since July 2004. Sir Paul Judge is chairman of the Royal Society
for the Encouragement of Arts, Manufactures and Commerce, Deputy Chairman of the
American Management Association and President of the United Kingdom Chartered
Management Institute. After thirteen years working for Cadbury Schweppes, Sir
Paul led the buyout of that company’s food operations to form Premier Brands,
becoming its chairman. Sir Paul was subsequently chairman of Food from Britain,
director general of the Conservative Party and a ministerial adviser at the UK
Cabinet Office. Sir Paul Judge has served on the board of Standard Bank Group
Ltd of Johannesburg since June 2003 and Schroder Income Growth Fund plc, since
December 1995, and as a member of the Advisory Board for Barclays Private Bank.
In 1996, he became a Knight Bachelor in recognition of his public and political
service. He was an Open Scholar at Trinity College, University of Cambridge,
graduating in 1971, and received an M.B.A. in 1973 from the Wharton Business
School.
Nancy F.
Koehn, 48, has served as a member of Tempur-Pedic International’s Board
of Directors since March 2004. Ms. Koehn has been a Professor of Business
Administration at Harvard Business School since July 2001. From July 1997
through June 2001, Ms. Koehn was an Associate Professor at Harvard Business
School. From July 1991 through June 1997, she was an Assistant Professor
at Harvard Business School. She is the author of a number of books on various
business topics, including her most recent book, Brand New: How Entrepreneurs Earned Consumers’
Trust from Wedgwood to Dell, and has written and supervised numerous case
studies. Ms. Koehn consults with many companies and speaks frequently before
business leaders on a range of subjects including strategic branding, leading in
turbulent times, visionary entrepreneurs—past and present—and competing on the
demand side in the Information Revolution. In 2001, Business 2.0 named Ms. Koehn
one of 19 leading business gurus in the United States. Ms. Koehn holds a B.A.
degree from Stanford University, an M.A. degree in Public Policy from the
Harvard University Kennedy School of Government and an M.A. degree and a Ph.D.
degree in European History from Harvard University.
Christopher A. Masto,
40, has
served as a member of Tempur-Pedic International’s Board of Directors since
November 2002. Mr. Masto is a Managing Director of Friedman
Fleischer & Lowe, LLC, which he co-founded in 1997. Prior to 1997, he
worked as a management consultant with Bain & Company. Prior to that,
Mr. Masto was employed at Morgan Stanley & Co., where he worked in
the investment banking department. He currently serves on the board of
Archimedes Technology Group. Mr. Masto graduated magna cum laude from
Brown University with an Sc.B. in Electrical Engineering and received his M.B.A.
degree from Harvard Business School.
P. Andrews
McLane, 60, has served as Chairman
of Tempur-Pedic International’s Board of Directors since November 2002.
Mr. McLane joined TA Associates, Inc. in 1979, where he is Senior
Managing Director. Mr. McLane’s activity at TA Associates centers on
buyouts and leveraged recapitalizations of companies in the consumer, financial
services and business services sectors. Mr. McLane is a director of
Advisory Research, Numeric Investors Arnhold and S. Bleichroeder Advisers, LLC
and Steve and Barry’s University Sportswear and also serves on the boards of the
United States Ski and Snowboard Team and St. Paul’s School. Mr. McLane
graduated from Dartmouth College with an A.B. degree and from the Tuck
School of Business at Dartmouth with an M.B.A. degree.
Robert B. Trussell,
Jr., 56, has served as a member of Tempur-Pedic International’s Board of
Directors or its predecessors since 1992, and has served as Vice Chairman of the
Board of Directors since April 2006. Mr. Trussell served as Chief Executive
Officer of Tempur-Pedic International until May 2006, and served in that
capacity at Tempur-Pedic International or its predecessor since November 2002.
From 1994 to December 2004, Mr. Trussell served as President of Tempur-Pedic
International or one of the predecessors to Tempur-Pedic International. Prior to
joining Tempur-Pedic International, Mr. Trussell was general partner of several
racing limited partnerships that owned racehorses in England, France and the
United States. He was also the owner of several start-up businesses in the
equine lending and insurance business. Mr. Trussell received his B.S. degree
from Marquette University.
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Name
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Age
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Position
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H.
Thomas Bryant
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60
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President
and Chief Executive Officer
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Matthew
D. Clift
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48
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Executive
Vice President of Global Operations
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David
Montgomery
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47
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Executive
Vice President and President of International
Operations
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Richard
W. Anderson
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48
|
Executive
Vice President and President, North America
|
||||
|
Dale
E. Williams
|
45
|
Executive
Vice President, Chief Financial Officer, and Secretary
|
||||
|
Bhaskar
Rao
|
42
|
Chief
Accounting Officer and Vice President of Strategic
Planning
|
||||
H. Thomas Bryant joined
Tempur-Pedic International in July 2001. In April 2006, Mr. Bryant was promoted
to the role of Chief Executive Officer and elected a member of the board of
directors. From July 2001 to December 2004, Mr. Bryant served as Executive Vice
President and President of North American Operations. From December 2004 to
April 2006, Mr. Bryant served as President of Tempur-Pedic International. Prior
to joining Tempur-Pedic International, from 1998 to 2001, Mr. Bryant was the
President and Chief Executive Officer of Stairmaster Sports & Medical
Products, Inc. From 1989 to 1997, Mr. Bryant served in various senior management
positions at Dunlop Maxfli Sports Corporation, most recently as President. Prior
to that, Mr. Bryant spent 15 years in various management positions at Johnson
& Johnson. Mr. Bryant received his B.S. degree from Georgia Southern
University. In February 2008, Mr. Bryant announced his plan to retire as
President and Chief Executive Officer effective mid-year
2008.
Matthew D. Clift joined
Tempur-Pedic International in December 2004 and serves as Executive Vice
President of Global Operations, with responsibilities including manufacturing
and research and development. From 1991 to December 2004, Mr. Clift was employed
by Lexmark International where he most recently served as Vice President and
General Manager of the consumer printer division. From 1981 to 1991, Mr. Clift
was employed by IBM Corporation and held several management positions in
research and development and manufacturing. Mr. Clift obtained his B.S. degree
in chemical engineering from the University of Kentucky.
David Montgomery joined
Tempur-Pedic International in February 2003 and serves as Executive Vice
President and President of International Operations, with responsibilities
including marketing and sales. From 2001 to November 2002, Mr. Montgomery was
employed by Rubbermaid, Inc., where he served as President of Rubbermaid Europe.
From 1988 to 2001, Mr. Montgomery held various management positions at Black
& Decker Corporation, most recently as Vice President of Black & Decker
Europe, Middle East and Africa. Mr. Montgomery received his B.A. degree, with
honors, from L’ Ecole Superieure de Commerce de Reims, France and Middlesex
Polytechnic, London.
Richard W. Anderson joined
Tempur-Pedic International in July 2006 and serves as Executive Vice President
and President, North America. From 1983 to 2006, Mr. Anderson was
employed by The Gillette Company, which became a part of Procter & Gamble in
2005. Mr. Anderson most recently served as the Vice President of Marketing for
Oral-B and Braun in North America. Previously, Mr. Anderson was the Vice
President of Global Business Management for Duracell. Mr. Anderson
has held several management positions in marketing and sales as well as
overseeing branding, product development and strategic planning. Mr. Anderson
obtained B.S. and M.B.A. degrees from Virginia Tech.
Dale E. Williams joined
Tempur-Pedic International in July 2003 and serves as Executive Vice President,
Chief Financial Officer and Secretary. From November 2001 to September 2002, Mr.
Williams served as Vice President and Chief Financial Officer of Honeywell
Control Products, a division of Honeywell International, Inc.
From September 2002, when he left Honeywell in connection with a
reorganization, to July 2003, Mr. Williams received severance from Honeywell and
was not employed. From 2000 to 2001, Mr. Williams served as Vice President and
Chief Financial Officer of Saga Systems, Inc./Software AG, Inc. Prior to that,
Mr. Williams spent 15 years in various management positions at General Electric
Company, most recently as Vice President and Chief Financial Officer of GE
Information Services, Inc. Mr. Williams received his B.A. degree in finance from
Indiana University.
Bhaskar Rao joined Tempur-Pedic
International in January 2004 as Director of Financial Planning and Analysis. In
October 2005, Mr. Rao was promoted to Vice President of Strategic Planning. In
May 2006, Mr. Rao was promoted to the position of Chief Accounting Officer and
continues to serve as Vice President of Strategic Planning. From 2002 until
December 2003, Mr. Rao was employed by Ernst & Young as a Senior Manager in
the assurance and business advisory group. Mr. Rao was employed by
Arthur Anderson from 1994 until 2002, when the Louisville, Kentucky office was
acquired by Ernst & Young. Mr. Rao graduated from
Bellarmine University with B.A. degrees in Accounting and Economics. Mr.
Rao is also a Certified Public Accountant.
AND
RELATED MATTERS
The
following materials related to our corporate governance and related matters are
available on our website at: http://investor.tempurpedic.com/
under the caption “Corporate Governance”:
|
•
|
Mission
Statement
|
|
|
•
|
Core
Values
|
|
|
•
|
Corporate
Governance Guidelines
|
|
|
•
|
Code
of Business Conduct and Ethics for Employees, Executive Officers and
Directors
|
|
|
•
|
Policy
on Complaints of Accounting, Internal Accounting Controls and Auditing
Matters
|
|
|
•
|
Policy
on Insider Trading and Confidentiality
|
|
|
•
|
Audit
Committee Charter
|
|
|
•
|
Compensation
Committee Charter
|
|
|
•
|
Nominating
and Corporate Governance Committee Charter
|
|
|
•
|
Committees
Membership
|
|
|
•
|
Contact
the Presiding Director
|
Copies may also be obtained, free of
charge, by writing to: Tempur-Pedic International Inc., 1713 Jaggie
Fox Way Lexington, Kentucky 40511, Attention: Investor
Relations. Please specify which document you would like to
receive.
The Board
of Directors held eight (8) meetings in 2007, and acted by written consent seven
(7) times. Each director attended 75% or more of the combined total number of
meetings of the Board of Directors and its committees held in 2007 during the
period in which they served as directors or committee members, except for Sir
Paul Judge who attended 68%.
Our
corporate governance guidelines provide that a majority of the Board of
Directors shall consist of independent directors within the meaning of the New
York Stock Exchange Rules governing the composition of the Board of Directors
and its committees (the “NYSE Independence Rules”). The Board of
Directors has determined that none of Francis A. Doyle, John Heil, Peter K.
Hoffman, Sir Paul R. Judge, Nancy F. Koehn, Christopher A. Masto or P. Andrews
McLane have a material relationship with the Company (either directly or as a
partner, stockholder or officer of an organization that has a relationship with
the Company) within the meaning of the NYSE Independence Rules and accordingly
are “independent” for purposes of the NYSE Independence Rules.
The Board
of Directors has determined that H. Thomas Bryant does not qualify as an
independent director under the NYSE Independence Rules because he serves as
President and Chief Executive Officer of Tempur-Pedic International. The Board
of Directors has also determined that Robert B. Trussell, Jr. does not qualify
as an independent director under the NYSE Independence Rules as he was employed
as the Chief Executive Officer of Tempur-Pedic International within the last
three years.
The
standing committees of the Board of Directors are the Audit Committee, the
Compensation Committee, and the Nominating and Corporate Governance
Committee.
|
The
Audit Committee
|
The
members of the Audit Committee are Francis A. Doyle (Chair), Peter K. Hoffman,
Sir Paul Judge and Nancy F. Koehn. The Board has determined that each member of
the Audit Committee is independent as defined in the NYSE Independence Rules and
the rules of the SEC. The Board has also determined that Mr. Doyle is an
audit committee financial expert within the meaning of Item 7 (d) (3) (iv) of
Schedule 14A of the Securities and Exchange Act of 1934, as amended (Exchange
Act) and has “accounting or related financial management expertise” within the
meaning of the applicable New York Stock Exchange rules. The Audit Committee was
established in accordance with Section 3(a)(58) of the Exchange
Act.
The
Audit Committee of the Board of Directors is responsible for providing
independent, objective oversight with respect to Tempur-Pedic International’s
accounting and financial reporting functions, internal and external audit
functions, and systems of internal controls over financial reporting and legal,
ethical, and regulatory compliance. Some of the Audit Committee’s
responsibilities include:
|
•
|
reviewing
the scope of internal and independent audits;
|
|
|
•
|
reviewing
the Company’s quarterly and annual financial statements and annual report
on Form 10-K;
|
|
|
•
|
reviewing
the adequacy of management’s implementation of internal
controls;
|
|
|
•
|
reviewing
the Company’s accounting policies and procedures and significant changes
in accounting policies;
|
|
|
•
|
reviewing
the Company’s business conduct and ethics policies and
practices;
|
|
|
•
|
reviewing
the Company’s policies with respect to risk assessment and risk
management;
|
|
|
•
|
reviewing
information to be disclosed and types of presentations to be made in
connection with the Company’s earnings press releases, as well as
financial information and earnings guidance provided to analysts and
rating agencies;
|
|
|
•
|
preparing
an annual evaluation of the committee’s performance;
|
|
|
•
|
reporting
regularly to the Board on the committee’s activities;
and
|
|
|
•
|
appointing
the independent public accountants and reviewing their independence and
performance and the reasonableness of their
fees.
|
|
The
Audit Committee has established whistle blower procedures, which provide for (a)
the receipt, retention, and treatment of complaints received regarding
accounting, internal accounting controls, or auditing matters; and (b) the
confidential, anonymous submission by employees of the issuer of concerns
regarding questionable accounting or auditing matters. Tempur-Pedic
International also has a confidential, anonymous reporting system which is
web-based and available to all employees. All reports are treated
confidentially.
The
Audit Committee met eleven (11) times in 2007. A copy of the Audit Committee
charter as adopted by our Board of Directors is available on Tempur-Pedic
International’s website at http://investor.tempurpedic.com/,
under the caption “Corporate Governance.”
|
The
Compensation Committee
|
The
members of the Compensation Committee are Peter K. Hoffman (Chair), Sir Paul
Judge, and Francis A. Doyle. The Board of Directors has determined that
each member of the Compensation Committee is independent as defined in the NYSE
Independence Rules. The committee’s responsibilities include:
|
•
|
reviewing
and approving on an annual basis the corporate goals and objectives with
respect to compensation for the chief executive officer, evaluating at
least once a year the chief executive officer's performance in light of
these established goals and objectives and, based upon these evaluations,
determining and approving the chief executive officer's annual
compensation, including salary, bonus, incentive and equity
compensation;
|
|
|
•
|
reviewing
on an annual basis the Company's compensation structure for officers and
employees other than the chief executive officer and making
recommendations to the Board regarding the compensation of these officers
and employees;
|
|
| • | reviewing on an annual basis the Company's compensation structure for its directors and making recommendations to the Board regarding the compensation of directors; | |
| • | reviewing the Company's incentive compensation and other stock-based plans and recommending changes in such plans to the Board as needed, having and exercising all the authority of the Board with respect to the administration of such plans; | |
|
•
|
reviewing
executive officer compensation for compliance with Section 16 of the
Exchange Act and Section 162(m) of the Internal Revenue Code of 1986, as
amended, and other applicable laws, rules and
regulations;
|
|
|
|
||
|
•
|
reviewing
and approving employment agreements, severance arrangements and change in
control agreements and provisions when, and if, appropriate, as well as
any special supplemental benefits;
|
|
|
•
|
reviewing
with management the “Compensation Discussion and Analysis” section in the
Company’s Proxy Statement;
|
|
|
•
|
preparing
and publishing an annual executive compensation report in the Company's
Proxy Statement;
|
|
|
•
|
preparing
an annual evaluation of the committee's
performance;
|
|
|
•
|
reporting
regularly to the Board on the committee's
activities;
|
|
|
•
|
performing
any other activities consistent with the committee’s charter, the
Company's by-laws and governing law, as the committee or the Board deems
appropriate; and
|
|
|
• |
with
respect to any reference in the committee’s charter to NYSE or Securities
and Exchange Commission (SEC) requirements, complying with these
requirements when listed by the NYSE or subject to the requirements of the
SEC.
|
The
Compensation Committee, in its role as administrator under the Company’s 2003
Equity Incentive Plan, has delegated authority to the Company’s President and
Chief Executive Officer to grant certain options within certain specified
parameters.
In
determining the compensation of our executive officers, our President and Chief
Executive Officer recommends performance objectives to the Compensation
Committee, and assists the Compensation Committee to determine if the
performance objectives have been achieved.
Since
2005, the compensation committee has periodically engaged Frederick W. Cook
& Co., Inc., an executive compensation consultant, to evaluate the Company’s
overall compensation structure and equity compensation for the Company’s
executive officers. In 2007, Cook reviewed the employment agreements and equity
compensation for the Company’s Chief Executive Officer and Chief Financial
Officer. For a further description of the services Cook has provided, see
“Executive Compensation – Compensation Discussion and Analysis.”
The
Compensation Committee met three (3) times in 2007 and acted by written consent
ten (10) times. A copy of the Compensation Committee charter as
adopted by our Board of Directors is available on Tempur-Pedic International’s
website at
http://investor.tempurpedic.com/, under the caption “Corporate
Governance.”
No
member of our Compensation Committee serves as a member of the Board of
Directors or Compensation Committee of any entity that has one or more executive
officers serving as members of our Board of Directors or Compensation
Committee.
|
The
Nominating and Corporate Governance
Committee
|
The
members of the Nominating and Corporate Governance Committee are P. Andrews
McLane (Chair), Nancy F. Koehn and Christopher A. Masto. The Board of Directors
has determined that each member of the Nominating and Corporate Governance
Committee is independent as defined in the NYSE Independence Rules. The
committee’s responsibilities include:
|
•
|
identifying
individuals qualified to become members of the Board;
|
|
|
•
|
recommending
to the Board director nominees to be presented at the annual meeting of
stockholders and to fill vacancies on the Board;
|
|
|
•
|
considering
and making recommendations concerning director nominees proposed by
stockholders;
|
|
|
•
|
reviewing
and recommending to the Board annual members to each standing committee of
the Board;
|
|
|
•
|
reviewing
and evaluating related party transactions; and
|
|
|
•
|
developing
and recommending to the Board corporate governance guidelines for the
Company.
|
The
Nominating and Corporate Governance Committee met one (1) time in
2007. A copy of the Nominating and Corporate Governance Committee
charter as adopted by our Board of Directors is available on Tempur-Pedic
International’s website at http://investor.tempurpedic.com/
under the caption “Corporate Governance.”
Director
Qualifications
The
Nominating and Corporate Governance Committee of the Board of Directors is
responsible for reviewing with the Board of Directors from time to time the
appropriate qualities, skills and characteristics desired of members of the
Board of Directors in the context of the needs of the business and the
composition of the Board of Directors. This assessment includes
consideration of the following minimum qualifications that the Nominating and
Corporate Governance Committee believes must be met by all
directors:
|
•
|
a
reputation for integrity, honesty and adherence to high ethical
standards;
|
|
|
•
|
the
ability to exercise sound business judgment;
|
|
| • |
substantial
business or professional experience and the ability to offer meaningful
advice and guidance to the Company’s management based on that experience;
and
|
|
| • |
to
devote the time and effort necessary to fulfill their responsibilities to
the Company.
|
The
Nominating and Corporate Governance Committee also considers numerous other
qualities, skills and characteristics when evaluating director nominees,
including whether the nominee has specific strengths that would augment existing
skills and experience of the Board of Directors, such as an understanding of and
experience in technology, accounting, governance, finance or marketing and
whether the nominee has leadership experience with public companies or other
sophisticated and complex organizations.
Process
for Identifying and Evaluating Director Nominees
The Nominating and Corporate Governance
Committee has established a process for identifying and evaluating nominees for
director. Although the Nominating and Corporate Governance Committee
will consider nominees recommended by stockholders, the Committee believes that
the process it uses to identify and evaluate nominees for director is designed
to produce nominees that possess the educational, professional, business and
personal attributes that are best suited to further the Company's mission. The
Committee may identify nominees through the use of professional search firms
that may utilize proprietary screening techniques to match candidates to the
Committee's specified qualifications. The Committee may also receive
recommendations from existing directors, executive officers, key business
partners, and trade or industry affiliations. The Committee will evaluate
nominations at regular or special meetings, and in evaluating nominations, will
seek to achieve a balance of knowledge, experience and capability on the Board
and to address the membership criteria set forth above under "Director
Qualifications." The Board itself is ultimately responsible for recommending
candidates for election to the stockholders or for appointing individuals to
fulfill a vacancy.
In 2007, the Company did not employ a
search firm or pay fees to any third party to either search for or evaluate
Board nominee candidates.
Procedures
for Recommendation of Director Nominees by Stockholders
The Nominating and Corporate Governance
Committee will consider director candidates recommended by our stockholders. In
evaluating candidates recommended by our stockholders, the Nominating and
Corporate Governance Committee applies the same criteria set forth above under
“Director Qualifications.” Any stockholder recommendations of director nominees
proposed for consideration by the Nominating and Governance Committee should
include the nominee's name and qualifications for Board membership and should be
addressed in writing to the Committee, care of: Tempur-Pedic
International Inc., 1713 Jaggie Fox Way, Lexington, Kentucky 40511,
Attention: Corporate Secretary. In addition, the Company’s bylaws
permit stockholders to nominate directors for consideration at an annual
stockholder meeting in accordance with certain procedures described in this
Proxy Statement under the heading “Stockholder Proposals for 2009 Proxy
Statement.”
The Board
of Directors has designated P. Andrews McLane as the “presiding director” as
that term is defined in applicable New York Stock Exchange Rules.
Stockholders or other interested parties wishing to communicate with our Board
of Directors can call (859) 514-4605 and leave a message for the presiding
director. You may also contact the presiding director by e-mail at
presidingdirector@tempurpedic.com or by going to Tempur-Pedic International’s
website at
http://investor.tempurpedic.com/ under the caption “Corporate
Governance — Contact the Presiding Director.” Regardless of the method you
use, the presiding director will be able to view your unedited message. The
presiding director will determine whether to relay your message to other members
of the Board.
Executive
sessions, or meetings of the outside (non-management) directors without
management present, are held regularly. In 2007, executive sessions
were held after three (3) regularly scheduled meetings of the Board of
Directors. Executive sessions are led by P. Andrews McLane, the presiding
director.
Tempur-Pedic
International has not made any charitable contributions to any charitable
organization in which a director serves as an executive officer in which, within
the preceding three years, such contributions in any single year exceeded the
greater of $1 million, or 2% of such organization’s consolidated gross
revenues.
In
accordance with our Corporate Governance Guidelines, all directors are generally
expected to attend the annual meeting of stockholders. At our last annual
meeting, which was held on May 7, 2007, all of the directors standing for
re-election to the Board attended.
The
following table sets forth information as of March 7, 2008 regarding the
beneficial ownership of our outstanding equity securities by:
|
•
|
each
person known to beneficially own more than 5% of Tempur-Pedic
International’s outstanding common stock;
|
|
|
•
|
each
of Tempur-Pedic International’s directors and Named Executive Officers (as
defined below in “Executive Compensation”); and
|
|
|
•
|
all
of Tempur-Pedic International’s directors and executive officers and 5%
stockholders as a group.
|
|
Beneficial
ownership of shares is determined under Rule 13d-3(d)(1) of the Exchange Act and
generally includes any shares over which a person exercises sole or shared
voting or investment power and the number of shares that can be acquired within
sixty (60) days upon exercise of an option. Common stock subject to these
options is deemed to be outstanding for the purpose of computing the ownership
percentage of the person holding such options, but is not deemed to be
outstanding for the purpose of computing the ownership percentage of any other
person. The table assumes 74,595,057 shares of common stock outstanding as
of the close of market on March 7, 2008.
Except as
otherwise indicated, the persons named in the table below have sole voting and
investment power with respect to all shares of common stock held by them. Unless
otherwise indicated, the address of each officer, director and
5% stockholder listed below is c/o Tempur-Pedic International Inc.,
1713 Jaggie Fox Way, Lexington, Kentucky 40511.
|
Shares Beneficially
Owned
|
||||||||
|
Number
of
|
Percentage
|
|||||||
|
Name of Beneficial Owner:
|
Shares
|
of Class
|
||||||
|
5%
Stockholders:
|
||||||||
|
AMVESCAP
PLC (1)
|
10,284,135
|
13.8
|
%
|
|||||
|
TA
Associates Funds (2)
|
4,437,877
|
6.0
|
%
|
|||||
|
Munder
Capital Management (3)
|
3,851,424
|
5.2
|
%
|
|||||
|
Executive
Officers and Directors:
|
||||||||
|
H.
Thomas Bryant (4)
|
666,586
|
*
|
||||||
|
David
Montgomery (5)
|
544,838
|
*
|
||||||
|
Matthew
D. Clift (6)
|
236,084
|
*
|
||||||
|
Richard
W. Anderson (7)
|
18,750
|
*
|
||||||
|
Dale
E. Williams (8)
|
306,812
|
*
|
||||||
|
P.
Andrews McLane (9)
|
5,023,725
|
6.7
|
%
|
|||||
|
Christopher
A. Masto (10)
|
198,795
|
*
|
||||||
|
Francis
A. Doyle (11)
|
299,468
|
*
|
||||||
|
Nancy
F. Koehn (12)
|
74,100
|
*
|
||||||
|
Sir
Paul Judge (13)
|
74,100
|
*
|
||||||
|
Robert
B. Trussell, Jr. (14)
|
150,385
|
*
|
||||||
|
Peter
K. Hoffman (15)
|
34,400
|
*
|
||||||
|
John
Heil
|
—
|
*
|
||||||
|
All
executive officers and directors as a group (14 persons)
(16):
|
7,676,279
|
10.3
|
%
|
|||||
|
*
|
Represents
ownership of less than one percent
|
|
(1)
|
Amounts
shown reflect the aggregate number of shares of common stock held by AIM
Advisors, Inc., AIM Capital Management, Inc., AIM Funds Management, Inc,
INVESCO Asset Management Deutschland GmbH, INVESCO Asset Management
Limited, INVESCO Institutional (N.A.), Inc., INVESCO Management S.A. and
PowerShares Capital Management LLC (collectively AMVESCAP PLC) based on
information set forth in a Schedule 13G filed with the SEC on February 13,
2008. The address of AMVESCAP PLC is 1360 Peachtree, NE, Atlanta, GA
30309.
|
|
(2)
|
Amounts
shown reflect the aggregate number of shares of common stock held by TA IX
L.P., TA/Atlantic and Pacific IV L.P., TA/ Advent VIII L.P.,
TA Strategic Partners Fund A L.P., TA Strategic Partners Fund B L.P.,
TA Investors LLC, TA Subordinated Debt Fund, L.P., TA Associates,
Inc., TA Associates IX LLC, TA Associates VII LLC and TA Associates SDF
LLC (collectively, the “TA Associates Funds”). Investment and voting
control of the TA Associates Funds is held by TA Associates, Inc. No
stockholder, director, or officer of TA Associates, Inc. has voting
or investment power with respect to shares held by TA Associates
Funds. Voting and investment power with respect to such shares is vested
in a four-person Investment Committee comprised of Jeffrey S. Barber,
Brian J. Conway, C. Kevin Landry, and P. Andrews McLane.
Mr. McLane is Senior Managing Director of TA Associates, Inc., the
manager of the general partner of TA IX L.P., TA Advent VIII L.P. and TA
Subordinated Debt Fund, L.P.; the manager of TA Investors LLC; and the
general partner of TA/ Atlantic and Pacific IV L.P., TA Strategic
Partners Fund A L.P. and TA Strategic Partners Fund B L.P. The
address of the TA Associates Funds is c/o TA Associates, Inc.,
John Hancock Tower, 56th
Floor, 200 Clarendon Street, Boston, MA 02116.
|
|
|
(3)
|
Amounts
shown reflect the aggregate number of shares of common stock held by
Munder Capital Management based on information set forth in Schedule 13G
filed with the SEC on February 14, 2008. The address of Munder Capital
Management is 480 Pierce Street, Birmingham, MI 48009.
|
|
|
(4)
|
Includes
232,290 shares of common stock issuable upon exercise of outstanding and
currently exercisable options. Also includes 325,000 shares of common
stock which Mr. Bryant pledged to Wachovia Capital Markets LLC on February
1, 2007 pursuant to a variable forward contract, which is expected to
settle in February 2009.
|
|
|
(5)
|
Includes
87,500 shares of common stock issuable upon exercise of outstanding and
currently exercisable options.
|
|
|
(6)
|
Includes
206,250 shares of common stock issuable upon exercise of outstanding and
currently exercisable options.
|
|
|
(7)
|
Includes
18,750 shares of common stock issuable upon exercise of outstanding and
currently exercisable options.
|
|
|
(8)
|
Includes
65,625 shares of common stock issuable upon exercise of outstanding and
currently exercisable options.
|
|
|
(9)
|
Mr. McLane
is Senior Managing Director of TA Associates, Inc., the manager of the
general partner of TA IX L.P., TA Advent VIII L.P. and TA Subordinated
Debt Fund, L.P.; the manager of TA Investors LLC; and the general partner
of TA/ Atlantic and Pacific IV L.P., TA Strategic Partners Fund A
L.P. and TA Strategic Partners Fund B L.P. Accordingly,
Mr. McLane may be deemed to beneficially own shares owned by TA IX
L.P., TA Advent VIII L.P., TA Subordinated Debt Fund, L.P., TA
Investors LLC, TA/ Atlantic and Pacific IV L.P., TA Strategic
Partners Fund A L.P. and TA Strategic Partners Fund B L.P. Mr. McLane
disclaims beneficial ownership of any such shares in which he does not
have a pecuniary interest. The address for Mr. McLane is
c/o TA Associates, Inc., John Hancock Tower, 56th
Floor, 200 Clarendon Street, Boston, MA 02116. Includes
556,448 shares held individually and in family trusts and 29,400 shares of
common stock issuable upon exercise of outstanding and currently
exercisable options.
|
|
|
(10)
|
Includes
26,400 shares of common stock issuable upon exercise of outstanding and
currently exercisable options. The address for Mr. Masto is c/o Friedman
Fleischer & Lowe, LLC, One Maritime Plaza, 22nd Floor, San Francisco,
CA 94111.
|
|
|
(11)
|
Includes
271,094 shares of common stock issuable upon exercise of outstanding and
currently exercisable options. The address for Mr. Doyle is
c/o Connell Limited Partnership, One International Place,
Fort Hill Square, Boston, MA 02110.
|
|
|
(12)
|
Includes
74,100 shares of common stock issuable upon exercise of outstanding and
currently exercisable options. The address for Ms. Koehn is
Harvard Business School, Rock Center 110, Boston, MA
02163.
|
|
|
(13)
|
Includes
74,100 shares of common stock issuable upon exercise of outstanding and
currently exercisable options. The address for Sir Paul Judge
is 88 The Panaromic, 152 Grosvenor Road, London SW1V 3JL
England.
|
|
|
(14)
|
Amount
reflects the aggregate number of shares owned by RBT Investments, LLC and
Robert B. Trussell and Martha O. Trussell, Tenants in Common, and includes
50,285 shares of common stock issuable upon exercise of outstanding and
currently exercisable options.
|
|
|
(15)
|
Includes
34,400 shares of common stock issuable upon exercise of outstanding and
currently exercisable options. The address for Mr. Hoffman is
c/o Tempur –Pedic International Inc.,1713 Jaggie Fox Way, Lexington, KY
40511.
|
|
|
(16)
|
Includes
1,218,430 shares of common stock issuable upon exercise of outstanding and
currently exercisable options.
|
|
TEMPUR-PEDIC
INTERNATIONAL INC.
Overview
of Compensation Program
The Compensation Committee of our Board
of Directors has responsibility for establishing, monitoring and overseeing our
Company’s compensation philosophy and objectives. In the paragraphs that follow,
we provide an overview and analysis of our compensation philosophy, the material
compensation decisions we have made with respect to our compensation philosophy
and the material factors that we considered when making those
decisions.
Throughout
this Proxy Statement, those persons who served as (i) our principal executive
officer during the year ended December 31, 2007, (ii) our principal financial
officer during the year ended December 31, 2007 and (iii) our other three most
highly compensated executive officers for the year ended December 31, 2007 are
collectively referred to as our “Named Executive Officers”. The
compensation programs described below apply in many cases to larger groups of
the Company’s employees other than the five Named Executive
Officers.
Compensation
Philosophy and Objectives
Our
senior management compensation plan is designed to attract, motivate and retain
our management talent and to reward our management for strong Company
performance and successful execution of our key business plans and strategies.
We believe that our compensation philosophy aligns management incentives with
the long-term interests of our stockholders. We compensate our senior management
through a mix of base salary, annual incentive bonus and equity compensation
that ties pay to performance and is designed to provide pay that is competitive
with individuals holding comparable positions and providing similar results at
companies of similar size, value and complexity. While the mix of
these elements varies by an employee’s level in the organization, a majority of
the potential compensation for senior management, consistent with our
compensation philosophy, is considered “at risk” based on Company and individual
performance. In 2007, approximately 77% of our Chief Executive Officer’s
compensation was at risk dependent on performance and approximately 64% - 74% of
the other Named Executive Officers’ compensation was at risk dependent on
performance. We currently provide long-term incentives in the form of
periodic equity compensation grants, but we do not offer deferred compensation
plans, retirement plans (other than our 401K plan) or performance-based equity
awards (other than our equity grants) to any of our employees.
Compensation
Process
The
Compensation Committee reviews our Chief Executive Officer’s compensation
annually and makes determinations regarding annual merit increases and other
changes in salary, annual incentive bonus and equity compensation. The Chief
Executive Officer reviews the compensation of the other Named Executive Officers
annually and makes recommendations to the Compensation Committee regarding
annual merit increases and annual incentive bonuses, which are further discussed
below. The Board, upon recommendation of the Compensation Committee, reviews and
approves the compensation for our executive officers, other than our Chief
Executive Officer. The Named Executive Officers meet annually to review the
performance of each senior manager and subsequently meet with the appropriate
senior manager to review the performance of each applicable employee of the
Company. The conclusions reached and recommendations made with respect to
employees other than the Named Executive Officers, including salary adjustments
and annual incentive bonuses, are based on the reviews and presented to the
Chief Executive Officer for approval, with any equity awards to be approved by
the Compensation Committee.
Overview
In developing our Company’s
compensation structure, the Compensation Committee has sought to develop a
compensation program for its Named Executive Officers which would also align
with shareholder return. To achieve this goal, the Compensation
Committee has retained outside consultants to provide advice with respect to the
Company’s compensation structure for its Named Executive Officers, including
information regarding the Company’s compensation structure and compensation
levels compared to a peer group.
Use
of Outside Consultants and Peer Groups
Since 2005, the Compensation Committee
has periodically engaged Frederick W. Cook & Co., Inc. (Cook), an executive
compensation consultant, to assist in the evaluation of our overall compensation
structure. Through these engagements, Cook has provided comparative
analyses of the Company’s overall compensation structure, specifically reviewed
the compensation of our Chief Executive Officer and has developed a comparative
peer group for the Company.
Cook completed two reports in June
2006, which addressed the annual incentive bonuses and equity compensation plans
for our Chief Executive Officer and the other Named Executive Officers. As part
of these reports, Cook summarized the competitive data and comparisons of the
Company’s Chief Executive and other Named Executive Officers to the comparable
competitive market data for executive officers at comparable levels in the peer
group. Based on these reports, Cook reported that on average base salaries for
the Company’s Named Executive Officers approximate the market median, and
determined that target total annual compensation for the Company’s Named
Executive Officers was at or below the market median as compared to the peer
group. With respect to long term incentive compensation, the Cook reports
provided data for the peer group regarding annualized long term incentive grant
values. However, because we have made multi-year grants of options to our Named
Executive Officers rather than annual option grants, Cook did not include a
comparison of the Company’s long term incentive grant compensation to the market
data. Upon reviewing the results of the June 2006 report, the Compensation
Committee determined that no further overall changes to the equity compensation
structure for the Named Executive Officers were required at that time.
In October 2007, the Compensation
Committee engaged Cook again to review our peer group companies and provide an
overall analysis of the compensation structure for the Company’s Named Executive
Officers. Cook provided the Compensation Committee with the results
of its study in November 2007 (2007 Cook Report). The 2007 Cook
Report focused on the Company’s Named Executive Officers and confirmed the
current peer group. The 2007 Cook Report covered total direct
compensation, including base salaries, annual incentive bonuses and long-term
incentive compensation as well as competitive trends and practices in executive
compensation.
The 2007 Cook Report summarized the
competitive data and comparisons of the Company’s Chief Executive and other
Named Executive Officers to the comparable competitive market data for executive
officers at comparable levels in the peer group. Based on these reports,
Cook reported that on average base salaries for the Company’s Named Executive
Officers approximate the market median, except for the Chief Executive Officer
and Chief Financial Officer, whose base salaries were somewhat below the
median. The 2007 Cook Report indicated that the target bonus percentages
for our Named Executive Officers, other than the Chief Executive Officer, were
slightly below the median of the peer group. The 2007 Cook Report also indicated
that long-term incentive compensation levels for our Named Executive Officers
were generally at or above the median after spreading the present value of our
four-year option grants across the relevant four years. However, the 2007 Cook
Report indicated that Mr. Anderson, who was hired during the middle of 2006, had
the lowest long-term incentive value and number of shares. Finally, the
2007 Cook Report concluded that target total annual compensation for the
Company’s Named Executive Officers was at the market median, except for the
Chief Financial Officer who was slightly below the market median.
As discussed further below under
“Compensation Components”, the Compensation
Committee determined that our overall compensation structure and levels were
generally competitive. However, in the four specific instances indicated
by the Cook Report, the Committee and the Board, as appropriate, implemented
adjustments for the Named Executive Officers in 2008 in line with these
findings, as discussed below under “Compensation Components”.
Peer
Group
In its
2005 report, Cook developed an initial comparative peer group for the Company,
which was later modified in its April 2006 report. The June 2006
reports and 2007 Cook Report used the same peer group as created in April 2006
when performing Cook’s comparative analysis. In selecting the peer group, Cook
included branded consumer products companies that had comparable revenues, net
income, and market capitalization. The 2007 Cook Report confirmed this peer
group. While consistency from year to year is desirable, the
Compensation Committee expects that it will review the peer group in future
years and consider updates to it as appropriate. Set forth below is
the peer group of branded consumer products companies used by Cook to assess the
competitiveness and cost effectiveness of our executive compensation plan in the
2006 reports and the 2007 Cook Report:
|
Callaway
Golf
Central
Garden & Pet
Columbia
Sportswear
Elizabeth
Arden
Fossil
Guess
|
Herman
Miller
Nautilus
Nu
Skin Enterprises
Oakley
Phillips-Van
Heusen
Quiksilver
|
Sealy
Select
Comfort
Steelcase
Timberland
Tupperware
Brands
Under
Armour
Wolverine
World Wide
|
Compensation
Components
Based on our
compensation philosophy, the three principal components of our compensation
include the following:
|
•
|
Base
Salary
|
|
|
•
|
Annual
Incentive Bonus
|
|
|
•
|
Equity
Compensation
|
|
Overall, the
Compensation Committee seeks to strike a balance among these three components,
with an emphasis on ensuring that a majority of the total potential compensation
for the Company’s Named Executive Officers is significantly at risk and tied to
overall Company performance.
Base
Salary
In
determining the annual base salary for our senior management, including each of
our Named Executive Officers, our goal is to provide a reasonable level of
guaranteed compensation that is set at a competitive level. Each
individual’s initial or starting base salary is a result of the person’s
previous experience, prior compensation history and the current compensation
level of other senior managers within the Company with similar experience and
responsibility.
All of our
employees, including each of our Named Executive Officers and senior managers,
are required to establish individual objectives at the beginning of each year.
Each employee’s set of objectives is approved by his or her supervising manager,
with each of the employee’s objectives to be consistent with our core values and
strategic objectives. In the case of Mr. Bryant, our President and Chief
Executive Officer, the goals and objectives are approved by the Compensation
Committee. All other Named Executive Officers’ objectives are initially approved
by Mr. Bryant, subsequently reviewed by our Compensation Committee and upon
recommendation from the Compensation Committee, approved by the Board. Each
employee’s performance is reviewed annually and merit increases to an
individual’s base salary are aligned with overall Company and individual
performance and successful execution of their individual
objectives.
With respect
to our employees, including our Named Executive Officers, the base salary
increase in any year is based on prevailing market practices and economic
conditions. For 2007, the average increases in base salaries for all
employees, including Named Executive Officers were approximately
4%. Similarly, in 2008, increases are targeted at approximately 4% on
average.
In
determining the 2008 base salary increase for Mr. Bryant and Mr. Williams, the
Compensation Committee sought to raise their base salaries to a level near the
median of the comparative peer group used in the 2007 Cook
Report. Accordingly, the 2008 base salary for Mr. Bryant reflected an
8% increase based on a peer group adjustment plus a 4% merit increase, and the
base salary for Mr. Williams reflected a 6% increase based on a peer group
adjustment plus a 4% merit increase. As the base salaries for the
other Named Executive Officers were at or near the median, the Compensation
Committee determined that no peer group adjustments were required and approved
merit increases of 4% to 5%.
The amount of
each Named Executive Officer’s base salary increase based on their individual
performance and execution of their objectives for the applicable year, expressed
as a percentage of their base salary immediately prior to the increase, is set
forth below:
|
Named
Executive Officer
|
Base
Salary Changes
|
|||||||
|
2008
|
2007
|
|||||||
|
H.
Thomas Bryant
|
12 | % (1) | 4 | % | ||||
|
Dale
E. Williams
|
10 | % (2) | 5 | % | ||||
|
Matthew
D. Clift
|
5 | % | 6 | % | ||||
|
David
Montgomery
|
4 | % | 4 | % | ||||
|
Richard
W. Anderson
|
4 | % | 5 | % | ||||
(1) 4%
merit increase and 8% adjustment relative to peer group data
(2) 4%
merit increase and 6% adjustment relative to peer group data
The annual
incentive bonus is a lump-sum cash payment for each senior
manager. The amount of the bonus is linked to the achievement of
specific financial and operating targets or strategic
initiatives. Our senior managers are eligible to receive annual
incentive bonuses set at a targeted percentage of their base salary. The
Compensation Committee believes senior management, such as the Named Executive
Officers, who hold positions affording them the authority to make critical
decisions affecting the Company’s overall performance, should have a material
percentage of their annual compensation contingent upon the Company’s
performance, with the Chief Executive Officer’s percentage at a higher level
than the other Named Executive Officers.
The
Compensation Committee’s practice has been to set the targeted annual incentive
bonus level for the Chief Executive Officer at 100% of his base salary and the
targeted annual incentive bonus level for each of the other Named Executive
Officers at 50% of their base salaries. In 2008, based in part upon
the results of the 2007 Cook Report, the Compensation Committee decided to set
the targeted annual incentive bonus for the Named Executive Officers, other
than the Chief Executive Officer, at 55% of the Named Executive Officers’ base
salary in order to more closely match the peer group. Based on the
comparison to the peer group and the Chief Executive Officer’s overall
responsibility for the performance of the Company, the Compensation Committee
decided to continue to base the size of his annual incentive bonus at 100% of
his base salary. The following table sets forth the targeted
annual incentive bonus levels for each Named Executive Officer shown as a
percentage of their base salaries:
|
Named
Executive Officer
|
Targeted
Annual Incentive Bonus
|
|||||||
|
2008
|
2007
|
|||||||
|
H.
Thomas Bryant
|
100 | % | 100 | % | ||||
|
Dale
E. Williams
|
55 | % | 50 | % | ||||
|
Matthew
D. Clift
|
55 | % | 50 | % | ||||
|
David
Montgomery
|
55 | % | 50 | % | ||||
|
Richard
W. Anderson
|
55 | % | 50 | % | ||||
The annual
incentive bonus for our Named Executive Officers is comprised of two components:
(i) a Company goals component and (ii) an Individual goals component.
Two-thirds of the bonus is derived from the Company goals component and
one-third is derived from the Individual goals component. The Company goals
component is tied to the Company’s achievement of specific financial targets.
The Individual goals component relates to the successful execution of individual
objectives established at the beginning of each year as determined in the
discretion of the Compensation Committee or the Board of Directors, as
applicable.
20
The Company
goals component of the annual incentive bonus for each of our Named Executive
Officers is based on targeted net sales and earnings before interest and taxes
(EBIT). Each year, these performance targets are selected to motivate
the Named Executive Officers to achieve profitable business growth consistent
with the Company’s long-term financial objectives. The Company goals component
of the annual incentive bonus is established using a matrix to allow for
payments between 50% and 200% of the targeted Company goals component, depending
on the level of net sales and EBIT for each year. A failure to meet
the minimum requirement may result in no bonus payment with respect to the
Company goals component of the bonus plan. In calculating the Company
goals payout, the Compensation Committee considers material, unanticipated or
unusual events that affect the financial targets.
The
Individual goals component of the annual incentive bonus for the Named Executive
Officers is heavily weighted toward the successful completion of individual
objectives. In the case of Mr. Bryant, our Chief Executive Officer,
the goals and objectives are approved by the Compensation Committee. The goals
and objectives for all of the other Named Executive Officers are initially
approved by the Chief Executive Officer, subsequently reviewed by the
Compensation Committee and, upon recommendation by the Compensation Committee,
approved by the Board. The Individual goals component of the annual incentive
bonus targets 100% payout for the achievement of an executive’s annual
objectives. Payments can range from no bonus payment to 200% of the
targeted Individual goals component, based on individual performance. The
determination of whether the Individual goals component of the bonus has been
met and to what degree is based on the subjective determination of the
Compensation Committee, and in exercising this discretion the Compensation
Committee looks broadly at each executive’s performance against individual
objectives and the overall performance of the applicable Named Executive
Officers within their specific area of responsibility.
The purpose
of the Company goals component, represented by the targeted net sales and EBIT
of the Company, and the purpose of the Individual goals component, represented
by the achievement of individual targets, are to focus the Named Executive
Officers on behaviors that support the overall performance and success of our
Company. Individual and Company goals are set with a reasonable level
of difficulty that require the Company and Named Executive Officers to perform
at a high level in order to meet the goals and objectives, and the likelihood of
attaining these goals and objectives is not assured.
The annual
incentive bonus plan for 2007 was consistent with the Company’s bonus plan for
2006, with the financial target matrix updated for new net sales and EBIT
targets for 2007. The matrix expressed a range of targets for total
net sales (ranging from $1.040 billion to $1.077 billion) and EBIT (ranging from
$217 million to $245 million) as established by the Compensation
Committee. At the time the Compensation Committee established the
targets for the Company goals component for 2007, the Compensation Committee
believed that these targets were commensurate with the long-term growth
objectives of our business and reflected a performance that would require strong
operating execution. Our Compensation Committee considered the target
levels for 2007 to be challenging for executives to achieve and believed that
they required our management to significantly increase the Company’s net sales
and EBIT from 2006. During 2007, the Company achieved net sales of
$1.1 billion and EBIT of $243.4 million. As a result, each Named
Executive Officer received 192% of the targeted Company goals
component.
The
individual objectives for the Individual goals component of the annual incentive
bonus for 2007 for the Company’s Named Executive Officers included the
following: improving overall productivity; maintaining personnel
succession and development plans; evaluating other potential business
opportunities; growing unaided brand awareness in the United States; the
successful implementation of new customer relationship management software;
completing a U.S. order management and network redesign project; introducing new
products according to the product plan; significantly improving customer service
metrics and global IT system uptime; integrating a new subsidiary in Austria;
establishing a new medical institutional business model in Europe; introducing
new mattress models in Europe; formalizing an efficient policy for FIN 48
compliance; decreasing external professional fees; introducing strategic
dashboard deployment to executive management; and successfully completing the
2007 audit plan. The completion of the Individual goals component by
each Named Executive Officer during 2007 varied, and this component was paid out
as follows: Mr. Bryant at 140% of his target; Mr. Clift at 150% of his target;
Mr. Anderson at 130% of his target; Mr. Williams at 130% of his target and Mr.
Montgomery at 90% of his target.
Based on the
relative weight of the Company goals component (two-thirds) and the Individual
goals component (one-third), each Named Executive Officer received a percentage
of their overall target incentive bonus potential for 2007 as follows: Mr.
Bryant, 175%; Mr. Clift, 178%; Mr. Anderson, 171%; Mr. Williams, 171%; and Mr.
Montgomery, 158%.
21
In reviewing
the Chief Executive Officer’s performance for 2007, the Compensation Committee
concluded that both Mr. Bryant’s individual achievements and the Company’s
performance had been strong. The Compensation Committee noted that
the Company had made several significant achievements,
including: above target sales and earning per share growth, increased
free cash flow, market share growth and significant retail channel revenue
growth, and double digit growth across the Company’s two geographic segments and
across all its product lines. In addition, the Compensation
Committee recognized other non-financial achievements, such as the
development of the Company’s robust strategic plan, the successful roll-out of
the Company’s new advertising campaign , and overall organizational
development of the Company. The Compensation Committee concluded that
2007 represented another year of substantial progress for the Company under Mr.
Bryant’s leadership. After the review of these achievements, the Compensation
Committee determined that Mr. Bryant’s annual incentive bonus payment reflected
his achievements for 2007.
The remainder
of our senior management team have diverse performance goals and receive annual
incentive bonuses set at a targeted percentage of their base salary that are
tied to the Company’s and business units’ goals. The Named Executive Officers
retain the right to adjust bonus payments for the remaining senior managers
based on individual and Company performance.
Equity
Compensation
Members of
senior management, including our Named Executive Officers, are eligible to
receive equity compensation awards under our equity incentive plans. We believe
that providing equity awards as a component of compensation for senior managers
aligns the interests of senior managers with the interests of our stockholders
by focusing the executive on the long-term growth of the Company, and not
short-term individual performance. In addition, we believe that stock options
provide an additional method of compensation where the return for each senior
manager is directly tied to stockholders’ return on their investment. Our stock
option awards typically have a four year vesting period and are based on
continued employment.
Under our
equity compensation design, the timing and size of the awards differ between
Named Executive Officers and all other members of senior
management. Our Named Executive Officers typically receive stock
option awards in their first year of employment and receive awards approximately
every four years when their previous awards become fully vested. This practice
is designed to provide the Named Executive Officer a long-term focus that allows
them to manage the business for the long term and aligns the interest of
stockholders rather than managing for the short term. In contrast, members of
senior management other than our Named Executive Officers typically receive
grants on an annual basis based on their job level at the time and their
individual and Company performance for the year.
In June 2006,
Mr. Bryant received a stock option award grant of 700,000 shares. At that time,
Mr. Bryant was promoted to President and Chief Executive Officer, and his
previous option grant in the amount of 964,713 shares of common stock was nearly
vested. In June 2006, Mr. Montgomery received an award of 350,000 stock options
and Mr. Williams received an award of 250,000 stock options as their previous
grants were nearly vested. Mr. Anderson received two grants of stock options in
2006. When he joined the Company in 2006, we granted Mr. Anderson
stock options for 100,000 shares. In December 2006, we granted Mr. Anderson
options for 75,000 shares based on his initial performance. In 2004,
we granted restricted stock units to Mr. Clift in connection with his initial
compensation package with the Company. This award was provided to Mr. Clift in
order to offset lost equity compensation from his previous employer. Mr. Clift
also received stock option awards of 300,000 shares in November 2004 and 150,000
shares in December 2005. Because Mr. Clift’s awards are still
vesting, he was not awarded any equity incentive grants in 2006.
In January
2008, the Company granted to Mr. Anderson an option award for
100,000 shares of our common stock, at an exercise price of $20.02. The
vesting schedule for that award provides that twenty-five percent (25%) of
the option shares vest on the first anniversary date of the date of grant, and
thereafter twenty-five percent (25%) shall vest on every annual anniversary date
until all shares are vested. In addition, if a change of control of
the Company occurs and Mr. Anderson’s employment is terminated but not for cause
or if Mr. Anderson resigns for good reason (in each case as defined in his
employment agreement) within twelve (12) months after the occurrence of a change
of control, Mr. Anderson’s next installment of 25,000 shares will accelerate and
vest as of the date of his termination of employment. Mr. Anderson
received this option grant to bring his total option holdings to a level similar
to the option holdings of the other Named Executive Officers other than the
Chief Executive Officer, based on continued strong performance since joining the
Company in June, 2006. We did not issue any stock option grants or
similar equity awards to our Named Executive Officers in 2007.
In setting
the size of these equity awards, the Compensation Committee takes into account a
number of factors, including the Named Executive Officer’s position with the
Company, prevailing market conditions and the overall size of the executive
officer’s compensation package, as well as the studies completed by Cook, the
executive compensation consultant.
The remaining
senior managers typically receive grants on an annual basis based on their
individual and the Company’s performance. Historically, these awards are granted
by the Compensation Committee in December of each year to coincide with annual
performance reviews and completion of the budget cycle. These stock option
awards typically have ranged between 5,000 and 35,000 shares. In addition,
individual stock option awards are granted throughout the year as needed with
respect to hiring new members of senior management or promotions of employees
into senior management positions. These awards also typically have ranged
between 5,000 and 35,000 stock options.
In January
2008, our board of directors adopted minimum stock ownership guidelines for our
Named Executive
Officers and directors. The principal objective of the guidelines is to enhance
the linkage between the interests of stockholders and our executive officers and
directors through a minimum level of stock ownership. The guidelines
provide that, within 5 years, the Chief Executive Officer should own a fixed
number of shares equal to 5 times his base salary, and that all other Named
Executive Officers should own a fixed number of shares equal to three times the
executive’s base salary. Our directors also are required to own,
within five years, a fixed number of shares equal to four times the director’s
annual retainer. Unexercised vested stock options count towards an
individual’s ownership (based on the anticipated after tax value), but unvested
stock options and unvested restricted stock are not counted towards an
individual’s ownership. Until the guidelines are met, executive
officers and directors are required to retain 50% of the net after-tax value of
any shares obtained by option exercise or restricted stock unit exercise or sale
of vested restricted stock.
Other
Benefits
We offer a
401K plan to all of our employees, including our senior management and Named
Executive Officers. The plan is designed to allow employees to defer current
earnings and recognize them later in accordance with statutory regulations when
their individual income tax rates may be more beneficial. The Company typically
matches 100% of the first three percent of each employee’s salary that is
deferred and 50% of the fourth and fifth percent of salary deferred. However,
the decision to make the match is at the sole discretion of the Company. The
Company made the matching contribution in 2007 for all participating
employees.
The Company
does not have any defined contribution or defined benefit pension plans. There
are no alternate plans in place for senior management. In April 2006, Mr.
Trussell retired as Chief Executive Officer of Tempur-Pedic International and
remained on the board of Directors as Vice Chairman. At the time of his
retirement, Mr. Trussell received cash compensation of $43,600 related to the
unused accumulated vacation time that he had accrued. No other payments were
made to Mr. Trussell.
The Company
also has various broad-based employee benefit plans. Named Executive Officers
participate in these plans on the same terms as eligible, non-executive
employees, subject to any legal limits on the amounts that may apply. The Named
Executive Officers receive an annual car allowance.
Each of our
Named Executive Officers is a party to an employment agreement with the Company.
These employment agreements provide for severance arrangements in the event of
termination of employment in certain circumstances and also provide for
non-competition, non-solicitation and confidentiality agreements. These
severance arrangements are discussed in more detail below under “Potential
Payments Upon Termination Or Change In Control”. The employment agreements for
the Named Executive Officers other than Mr. Bryant were put in place at the time
they became employees with the Company (in certain cases, prior to the Company’s
initial public offering in 2003). Mr. Bryant’s employment agreement was put in
place in 2002 and amended in its entirety when he became Chief Executive Officer
in 2006. We believe that these agreements, including the severance provisions,
are necessary to allow us to be competitive in recruiting and retaining top
talent for executive officer positions. The Compensation Committee has not to
date believed it necessary to revise the severance and related terms in these
employment agreements; however, the Company amended Mr. Williams’ employment
agreement in March of 2008 to more closely align the severance and
related provisions with the corresponding provisions in the employment
agreement for the other Named Executive Officers. A part of its
analysis of the reasonableness of each individual element of compensation and
each Named Executive Officer’s compensation package as a whole, the Committee
expects that it will periodically conduct an analysis of each of these
arrangements for reasonableness and market competitiveness.
Tax
and Accounting Implications
Deductibility of
Compensation
Section
162(m) of the Code limits the Company’s deduction for compensation paid to the
executive officers named in the Summary Compensation Table to $1 million unless
certain requirements are met. For 2007, the requirements for deductible
compensation under Section 162(m) were met for all executive officers. The
policy of the Compensation Committee with respect to Section 162(m) is to
establish and maintain a compensation program that will optimize the
deductibility of compensation. However, the Compensation Committee may exercise
its right to use judgment, where appropriate, to respond to changing business
conditions or to an executive officer’s individual performance, or to authorize
compensation which may not in a specific case be fully deductible by the
Company.
Accounting
for Stock-Based Compensation
As of January
1, 2006, the Company began accounting for stock-based payments, including its
Equity Incentive Plans and Employee Stock Purchase Plan, in accordance with FASB
Statement 123(R), “Share Based Payments.”
The
information contained in this report shall not be deemed to be “soliciting
material” or “filed” or incorporated by reference in future filings with the
Securities and Exchange Commission, or subject to the liabilities of Section 18
of the Exchange Act, except to the extent that Tempur-Pedic International
specifically incorporates it by reference into a document filed under the
Securities Act of 1933, as amended (the “Securities Act”), or the Exchange
Act.
The
Compensation Committee is comprised entirely of independent
directors. The Compensation Committee has reviewed the Compensation
Discussion and Analysis required by Item 402(b) of Regulation S-K with
management and, based on such review and discussions, the Compensation Committee
recommended to the Board that the Compensation Discussion and Analysis be
included in this Proxy Statement and incorporated by reference into the
Company’s Annual Report on Form 10-K for the year ended December 31,
2007.
Submitted
by,
COMPENSATION
COMMITTEE
Peter K.
Hoffman (Chair)
Francis
A. Doyle
Sir Paul
Judge
The
following table sets forth information concerning the annual and long-term
compensation for services in all capacities to Tempur-Pedic International for
the year ended December 31, 2007 of those persons who served as
(i) our principal executive officer during the year ended December 31,
2007, (ii) our principal financial officer during the year ended December 31,
2007 and (iii) our other three most highly compensated executive officers
for the year ended December 31, 2007. We refer to our principal executive
officer, principal financial officer and the other three most highly compensated
executive officers collectively as our “Named Executive Officers”.
|
Non-equity
|
||||||||||||||||||||||||||||||||
|
Stock
|
Incentive
Plan
|
All
Other
|
||||||||||||||||||||||||||||||
|
|
Bonus
|
Awards
|
Option
|
Compensation
|
Compensation
|
Total
|
||||||||||||||||||||||||||
|
Name
and Principal Position
|
Year
|
Salary
($)
|
($)
(6)
|
($)
|
Awards($)
(7)
|
($)
(6)
|
($)
(8)
|
($)
|
||||||||||||||||||||||||
|
H.
Thomas Bryant — President and Chief Executive Officer(1)
|
2007
|
$
|
623,537
|
$
|
290,909
|
$
|
—
|
$
|
1,025,215
|
$
|
799,119
|
$
|
22,057
|
$
|
2,760,837
|
|||||||||||||||||
|
2006
|
537,305
|
198,000
|
—
|
571,121
|
311,550
|
21,938
|
1,639,914
|
|||||||||||||||||||||||||
|
Dale
E. Williams — Executive
Vice-President, Chief Financial Officer and Secretary
(2)
|
2007
|
309,987
|
67,158
|
—
|
326,204
|
198,673
|
17,230
|
919,252
|
||||||||||||||||||||||||
|
2006
|
294,054
|
48,757
|
—
|
307,525
|
76,718
|
19,441
|
746,495
|
|||||||||||||||||||||||||
|
Matthew
D. Clift — Executive Vice-President, Global Operations (3)
|
2007
|
344,867
|
86,224
|
438,162
|
202,125
|
221,066
|
17,230
|
1,309,675
|
||||||||||||||||||||||||
|
2006
|
324,121
|
53,741
|
438,162
|
202,125
|
84,560
|
20,832
|
1,123,541
|
|||||||||||||||||||||||||
|
David
Montgomery — Executive Vice-President, President of International
Operations (4)
|
2007
|
461,455
|
68,671
|
—
|
442,495
|
293,437
|
86,790
|
1,352,848
|
||||||||||||||||||||||||
|
2006
|
408,798
|
71,635
|
—
|
315,290
|
112,717
|
72,838
|
981,278
|
|||||||||||||||||||||||||
|
Richard
W. Anderson — Executive Vice-President, President North America
(5)
|
2007
|
314,711
|
68,182
|
—
|
296,561
|
201,701
|
8,230
|
889,385
|
||||||||||||||||||||||||
|
2006
|
132,692
|
34,750
|
—
|
66,143
|
38,944
|
79,043
|
351,572
|
|||||||||||||||||||||||||
|
(1)
|
Mr.
Bryant was promoted to the position of Chief Executive Officer at our
Annual Meeting of Stockholders on April 28, 2006. He retained the position
of President of Tempur-Pedic International, and was elected as a member of
our Board of Directors.
|
|
|
(2)
|
Mr.
Williams was promoted to the position of Executive Vice President on May
7, 2007.
|
|
|
(3)
|
On
December 1, 2004, Mr. Clift was awarded 70,000 restricted stock units. The
fair market value of Tempur-Pedic International’s common stock on that
date was $19.30, resulting in a restricted stock award of $1,351,000. For
stock awards granted, the value shown is what is also included in the
Company’s financial statements in accordance with FAS 123(R). See the
Company’s Annual Report for the year ended December 31, 2006 for a
complete description of the FAS 123(R)
valuation.
|
| (4) | Mr. Montgomery’s salary is paid in British Pounds (₤) and is converted to United States Dollars ($) using the monthly payments translated at the average rate for the months in the year ended December 31, 2007. Mr. Montgomery’s Non-Equity Incentive Plan Compensation is denominated in British Pounds and has been converted to United States Dollars using the conversion rate for the date paid to Mr. Montgomery. | |
|
(5)
|
Mr.
Anderson joined the Company in July 2006 and received a bonus of $10,000
at the time he accepted employment with us. The remainder of this amount
is representative of annual bonus payouts which were earned in 2006 and
paid in February 2007.
|
|
|
(6)
|
Bonus
and Non-equity Incentive Plan Compensation payouts were earned in 2007 and
paid in February 2008 to Mr. Bryant, Mr. Williams, Mr. Clift, Mr.
Montgomery and Mr. Anderson, pursuant to the 2007 Executive Incentive
Bonus Plan, which is discussed in the “Compensation Discussion and
Analysis” section of this Proxy Statement.
|
|
|
(7)
|
For
stock options granted, the value set forth is also included in the
Company’s financial statements in accordance with FAS 123(R). See the
Company’s Annual Report for the year ended December 31, 2007 for a
complete description of the FAS 123(R) valuation.
|
|
|
(8)
|
Represents
amounts paid on behalf of each of the Named Executive Officers for the
following three respective categories of compensation: (i) premiums
for life, accidental death and dismemberment insurance and long-term
disability benefits, (ii) contributions to our defined contribution
plans and (iii) car allowance. Amounts for each of the Named Executive
Officers for each of the three respective preceding categories is as
follows: Mr. Bryant: (2007 – $1,030, $13,827, $7,200; 2006 – $1,330,
$13,408, $7,200); Mr. Williams: (2007 – $1,030, $9,000,
$7,200; 2006 – $1,330, $10,911, $7,200); Mr. Clift (2007 –
$1,030, $9,000, $7,200; 2006 – $1,330, $12,302, $7,200);
Mr. Montgomery: (2007 – $6,492, $46,146, $30,017; 2006 – $5,192,
$39,295, $27,647, ); and Mr. Anderson: (2007 – $1,030, $0, $7,200; 2006 –
$443, $0, $3,600). Mr. Anderson received relocation expenses in the amount
of $75,000 which is included in “All Other Compensation.” Mr. Montgomery
also received tax preparation fees in the amount of $833 and $705 which is
in “All Other Compensation” for the years ended December 31, 2007 and
2006, respectively.
|
The table
below sets forth the outstanding stock option awards classified as exercisable
and unexercisable as of December 31, 2007 for each of our Named Executive
Officers. The table also sets forth unvested stock awards assuming a market
value of $25.97, the closing market price of our common stock on December 31,
2007.
|
Option
Awards
|
Stock
Awards
|
||||||||||||||||||
|
Market
|
|||||||||||||||||||
|
Number
of
|
Value
of
|
||||||||||||||||||
|
Number
of
|
Securities
|
Shares
or
|
|||||||||||||||||
|
`
|
Securities
|
Underlying
|
Number
of
|
Units
of
|
|||||||||||||||
|
Underlying
|
Unexercised
|
Shares
or
|
Stock
that
|
||||||||||||||||
|
Unexercised
|
Options
|
Option
|
Option
|
Units
that
|
Have
Not
|
||||||||||||||
|
Name
|
Options
(#)
Exercisable
|
(#)
Unexercisable
|
Exercise
Price
($)
|
Expiration
Date
|
Have
Not
Vested
(#)
|
Vested
($)
|
|||||||||||||
|
H.
Thomas Bryant
|
13,540
|
—
|
(1)
|
$
|
2.86
|
8/13/2013
|
|||||||||||||
|
262,500
|
437,500
|
(2)
|
13.92
|
6/23/2016
|
|||||||||||||||
|
Dale
E. Williams
|
65,625
|
—
|
(3)
|
2.38
|
7/7/2013
|
||||||||||||||
|
—
|
250,000
|
(4)
|
13.47
|
6/28/2016
|
|||||||||||||||
|
Matthew
D. Clift
|
150,000
|
75,000
|
19.30
|
12/1/2014
|
11,666
|
(5)
|
$
|
302,966
|
|||||||||||
|
37,500
|
75,000
|
(6)
|
12.37
|
12/15/2015
|
|||||||||||||||
|
David
Montgomery
|
7,966
|
—
|
(1)
|
2.86
|
8/13/2013
|
||||||||||||||
|
—
|
350,000
|
(7)
|
13.47
|
6/28/2016
|
|||||||||||||||
|
Richard
W. Anderson
|
—
|
75,000
|
(8)
|
13.16
|
7/18/2016
|
||||||||||||||
|
18,750
|
56,250
|
(9)
|
20.27
|
12/21/2016
|
|||||||||||||||
|
(1)
|
These
options, granted on September 30, 2003, have a 10-year term. Twenty-five
percent (25%) of these options became exercisable on the one-year
anniversary of grant and the remaining shares become exercisable in equal
installments on a quarterly basis over the subsequent twelve (12)
quarters.
|
|
|
(2)
|
These
options, granted on June 23, 2006, have a 10-year term. Twenty-five
percent (25%) of these options became exercisable on the one-year
anniversary of grant and the remaining shares become exercisable in equal
installments on a quarterly basis over the subsequent twelve (12)
quarters.
|
|
|
(3)
|
These
options, granted on July 7, 2003, have a 10-year term. Twenty-five percent
(25%) of these options became exercisable on the one-year anniversary of
grant and the remaining shares become exercisable in equal installments on
a quarterly basis over the subsequent twelve (12)
quarters.
|
|
|
(4)
|
These
options, granted on June 28, 2006, have a 10-year term. Twenty-five
percent (25%) of these options became exercisable on July 7, 2008 and the
remaining shares become exercisable in equal installments on a quarterly
basis over the subsequent twelve (12) quarters.
|
|
|
(5)
|
These
restricted stock units, granted on December 1, 2004, vest in six (6)
installments semi-annually with the first vesting date being July 1,
2005.
|
|
|
(6)
|
These
options, granted on December 15, 2005, have a 10-year term and became
exercisable in equal installments over four years, beginning with the
one-year anniversary of the grant date.
|
|
|
(7)
|
These
options, granted on June 28, 2006, have a 10-year term. Twenty-five
percent (25%) of these options became exercisable on February 24, 2008 and
the remaining shares become exercisable in equal installments on a
quarterly basis over the subsequent twelve
quarters.
|
|
|
(8)
|
These
options, granted on July 18, 2006, have a 10-year term and became
exercisable in equal installments over four years, beginning with the
one-year anniversary of the grant date.
|
|
|
(9)
|
These
options, granted on December 21, 2006, have a 10-year term and became
exercisable in equal installments over four years, beginning with the
one-year anniversary of the grant
date.
|
The
following table sets forth certain information regarding options and stock
awards exercised and vested, respectively,
during the year ended December 31, 2007, for our Named Executive
Officers.
|
Option
Awards
|
Stock
Awards
|
|||||||||||||||
|
Number
of
|
Number
of Shares
|
|||||||||||||||
|
Shares
Acquired
on
|
Value
Realized on
|
Acquired
on Vesting
|
Value
Realized on
|
|||||||||||||
|
Name
|
Exercise
(#)
|
Exercise
($)
|
(#)(1)
|
Vesting
($)
|
||||||||||||
|
H.
Thomas Bryant
|
557,813
|
$
|
12,723,715
|
—
|
—
|
|||||||||||
|
Dale
E. Williams
|
342,891
|
8,219,097
|
—
|
—
|
||||||||||||
|
Matthew
D. Clift
|
37,500
|
483,000
|
11,667
|
$
|
249,790
|
|||||||||||
|
50,000
|
644,000
|
11,666
|
314,049
|
|||||||||||||
|
25,000
|
397,000
|
—
|
—
|
|||||||||||||
|
David
Montgomery
|
478,813
|
11,495,442
|
—
|
—
|
||||||||||||
|
Richard
W. Anderson
|
25,000
|
605,500
|
—
|
—
|
||||||||||||
Except
for the Named Executive Officers set forth in the table above, no other Named
Executive Officer exercised a stock option award in 2007.
Tempur-Pedic International has entered into
agreements and adopted plans that require us to provide compensation and/or
other benefits to each Named Executive Officer in the event of that executive’s
termination of employment under certain circumstances. The table below sets
forth the amounts payable to each Named Executive Officer assuming the executive
officer’s employment had terminated under various scenarios on December 31, 2007 (the last
business day of 2007).
Except as
otherwise expressly indicated, the amounts set forth in the table below do
not represent the actual sums a Named Executive Officer would receive if his
employment were terminated or there were a change of control of Tempur-Pedic
International. Rather, the amounts below generally represent only estimates,
based upon assumptions described in the footnotes to the table, of certain
payments and benefits that the Named Executive Officers who were employed by
Tempur-Pedic International or any of its subsidiaries on December 31, 2007
would have been entitled to receive had any of the identified events occurred on
such date. Moreover, for all of the Named Executive Officers, the amounts set
forth in the table necessarily are based upon the benefit plans and agreements
that were in effect as of December 31, 2007. Payments which Tempur-Pedic
International may make in the future upon an employee’s termination of
employment or upon a change of control of Tempur-Pedic International will be
based upon benefit plans and agreements in effect at that time, and the terms of
any such future plans and agreements may be materially different than the terms
of our benefit plans and agreements as of December 31, 2007.
|
Termination
|
||||||||||||||||||
|
Termination
|
Employee
|
Termination
|
Due
to
|
|||||||||||||||
|
By
Company
|
Termination
|
By
Company
|
Death
or
|
|||||||||||||||
|
Without
Cause
|
For
Good Reason
|
For
Cause
|
Disability
|
|||||||||||||||
|
Name
|
Benefits
and Payments
|
($)
(1) (2)
|
($)
(1) (2)
|
($)
|
($)
(3)
|
|||||||||||||
|
H.
Thomas Bryant
|
Cash
Severance
|
$ |
2,836,600
|
(4) | $ |
1,872,000
|
—
|
$ |
1,849,000
|
(5) | ||||||||
|
Insurance
Benefits
|
15,532
|
15,532 | ||||||||||||||||
|
Dale
E. Williams
|
Cash
Severance
|
231,777
|
231,777
|
—
|
77,259
|
|||||||||||||
|
Insurance
Benefits
|
4,457 | 4,457 | ||||||||||||||||
|
Matthew
D. Clift
|
Cash
Severance
|
515,924
|
515,924
|
—
|
306,975
|
|||||||||||||
|
Insurance
Benefits
|
8,915 | 5,615 | ||||||||||||||||
|
David
Montgomery
|
Cash
Severance
|
692,182
|
692,182
|
—
|
306,890
|
|||||||||||||
|
Insurance
Benefits
|
3,302 | 3,302 | ||||||||||||||||
|
Richard
W. Anderson
|
Cash
Severance
|
472,500
|
472,500
|
—
|
157,500
|
|||||||||||||
|
Insurance
Benefits
|
8,915 | 8,915 | ||||||||||||||||
|
(1)
|
Reflects
cash severance including two (2) years of base salary for Mr. Bryant, six
(6) months of base salary for Mr. Williams (prior to giving effect to his
amended and restated employment agreement which extended his severance
period to twelve (12) months), and twelve (12) months of base salary for
all other Named Executive Officers, payable in accordance with the normal
payroll practices of the Company and pro-rata portion of any Performance
Bonus/Non-Equity Incentive compensation with respect to the Bonus Year in
which the termination occurs.
|
||
|
(2)
|
Upon
termination by the Company without cause or termination by the employee
for good reason, each Named Executive Officer would be entitled to the
continuation of welfare plans of the Company as detailed in the
“Compensation Discussion and Analysis” for the duration of the officer’s
applicable severance period. The severance period for Mr. Bryant is two
(2) years, six (6) months for Mr. Williams (prior to giving effect to his
amended and restated employment agreement which extended his severance
period to twelve (12) months) and twelve (12) months for all other Named
Executive Officers .
|
||
|
(3)
|
Upon
termination due to death or disability, each Named Executive Officer would
receive a pro-rata portion of any Performance Bonus that would be payable
with respect to the Bonus Year in which the termination
occurs.
|
||
|
(4)
|
According
to Mr. Bryant’s June 26, 2006 Stock Option Agreement, if Mr. Bryant is
terminated by the company without cause, then the number of Unvested
Optioned Shares that would otherwise vest and become Vested Optioned
Shares during the one year period after the Termination date shall
immediately vest and become Vested Optioned Shares as of the Termination
Date, but no additional Unvested Optioned Shares will become Vested
Optioned Shares after such date.
|
||
|
(5)
|
According
to Mr. Bryant’s June 26, 2006 Stock Option Agreement, if Mr. Bryant is
terminated upon death or disability then fifty percent (50%) of any
Optioned Shares that were Unvested Optioned Shares on such date shall
immediately vest and become Vested Optioned Shares as of the Termination
Date, but no additional Unvested Optioned Shares shall become Vested
Optioned Shares after such date.
|
||
Employment
Arrangements
On June
29, 2006 we entered into an amended and restated employment agreement with H.
Thomas Bryant, effective April 28, 2006, providing for his employment as
President and Chief Executive Officer. The agreement has an initial term of two
years and a perpetual one-year renewal term. Either party may elect not to renew
the agreement, upon written notice, 90 days prior to the expiration of the
initial or renewal term. Mr. Bryant’s agreement provides for an annual base
salary of $600,000, subject to annual adjustment by our Board of Directors
beginning January 1, 2007, a variable performance bonus set to a target of Mr.
Bryant’s base salary if certain criteria are met, and options to purchase shares
of our common stock. In connection with his decision to retire, Mr.
Bryant has elected not to renew his employment agreement for an additional
term. As a result, after April 28, 2008, Mr. Bryant will be an
at-will employee. In addition, Mr. Bryant will be subject to a
two-year non-compete provision upon the termination of his employment with
the Company.
On July
11, 2003, we entered into an executive employment agreement with Dale E.
Williams. In March 2008 we amended and restated the employment agreement in its
entirety to reflect Mr. Williams’ promotion to Executive Vice President in
2007. The agreement provides for his employment as Executive Vice
President, Chief Financial Officer and Secretary, or such other executive
position as may be assigned by our Chief Executive Officer. The agreement
has an initial term of one year and a perpetual one-year renewal term. Either
party may terminate the agreement, upon written notice, 90 days prior to the
expiration of the initial or any renewal term. The agreement provides for an
annual base salary of $225,000, subject to annual adjustment by our Board of
Directors beginning January 1, 2004, a variable performance bonus set to a
target of Mr. Williams’ base salary if certain criteria are met, and options to
purchase shares of our common stock.
On
September 12, 2003, we entered into an executive employment agreement with David
Montgomery, effective February 24, 2003, providing for his employment as
Executive Vice President and President, Tempur-International Limited, or such
other executive position as may be assigned by our Chief Executive Officer. The
agreement provides that employment shall continue unless and until terminated by
either party. Mr. Montgomery may terminate employment with six months written
notice. We may terminate his employment with 12 months written notice. The
agreement provides for an annual base salary of £192,500, subject to an annual
adjustment of our Board of Directors on or about January 1 of each year
beginning with January 1, 2004, and a variable performance bonus set to a target
of Mr. Montgomery’s base salary if certain criteria are met.
On
December 1, 2004, we entered into an executive employment agreement with Matthew
D. Clift, providing for his employment as Executive Vice President, Operations
or such other executive position as may be assigned from time to time by our
Chief Executive Officer. The agreement has an initial term of one year and a
perpetual one-year renewal term. Either party may terminate the agreement, upon
written notice, 90 days prior to the expiration of the initial or renewal term.
The agreement provides for an annual base salary of $300,000, subject to annual
adjustment by our Board of Directors beginning January 1, 2006, a variable
performance bonus set to a target of Mr. Clift’s base salary if certain criteria
are met, a one-time hiring bonus, options to purchase shares of our common
stock, and a grant of restricted stock units.
On July
6, 2006, we entered into an executive employment agreement with Richard W.
Anderson, effective July 18, 2006, providing for his employment as Executive
Vice President, President North America or such other executive position as may
be assigned by our Chief Executive Officer. The agreement has an initial term of
one year and a perpetual one-year renewal term. Either party may terminate the
agreement, upon written notice, 90 days prior to the expiration of the initial
or renewal term. The agreement provides for an annual base salary of $300,000,
subject to annual adjustment by our Board of Directors beginning January 1,
2007, a variable performance bonus set to a target of Mr. Anderson’s base salary
if certain criteria are met, a one-time hiring bonus and options to purchase
shares of our common stock.
By the
terms of their employment agreements Mr. Bryant, Mr. Williams, Mr. Montgomery,
Mr. Clift and Mr. Anderson are prohibited from disclosing certain confidential
information and trade secrets, soliciting any employee for one or two years
following their employment and working with or for any competing companies
during their employment and for one or two years thereafter.
All other
senior managers are deemed to be “at will” employees and are not under contract.
As such, there are no formal policies regarding severance benefits for these
employees.
Termination
of Employment Arrangements and Change in Control Arrangements
The
Company’s Named Executive Officers’ employment, stock option and restricted
stock unit award agreements provide certain protections to the Named Executive
Officers in the event of their termination as summarized below (additional
details and the complete definitions can be found in the actual employment,
stock option and restricted stock award agreements, which have been filed with
the SEC):
Severance. Generally, if Mr.
Bryant is terminated without cause or resigns for good reason, he will receive 2
years of base salary and any unpaid base salary, the value of any accrued unused
vacation, a pro-rata portion of any performance bonus (based on the number of
days of the applicable year prior to the effective date of termination and based
on 100% of the Target Bonus), reimbursement of expenses, and any stock options
to which he is entitled under his stock option agreements.
If any of
the other named executive officers is terminated without cause or resigns for
good reason, he will receive 12 months of base salary and any unpaid base
salary, the value of any accrued unused vacation, a pro-rata portion of any
performance bonus (based on the number of days of the applicable year prior to
the effective date of termination), reimbursement of expenses, and any stock
options and/or restricted stock units to which he is entitled under his stock
award agreements. However, Mr. Montgomery’s agreement generally provides that he
will receive his yearly salary plus medical and insurance benefits for 12
months, as well as his annual auto allowance and annual pension
benefits.
Benefit Continuation. If Mr.
Bryant is terminated without cause or resigns for good reason, he will continue
to participate in the Company’s retirement plans for an additional 2 years. If
any of the other Named Executive Officers is terminated without cause or resigns
for good reason, he will continue to participate in the Company’s retirement
plans for an additional 12 months.
Equity Vesting Acceleration.
Under Mr. Bryant's Stock Option Agreement dated September 30, 2003, a
pro-rata portion of the next quarterly vesting amount (based on the number of
days elapsed between the prior quarterly vesting date and the date of
termination) of his stock options vest immediately if he is terminated without
cause or resigns for good reason. Mr. Bryant’s Stock Option Agreement dated June
26, 2006 provides that if (a) he is terminated without cause or resigns for good
reason, any unvested options will accelerate for the one year period after his
employment ends; and (b) if his employment ends as a result of death or
disability, 50% of his unvested options accelerate immediately.
For the
other Named Executive Officers, under stock option award agreements entered into
pursuant to the 2002 Stock Option Plan, a pro-rata portion (based on the number
of days elapsed between the prior quarterly vesting date and the date of
termination) of the next quarterly vesting amount of that employee’s stock
option vest immediately if he is terminated without cause or resigns for good
reason.
For the
other Named Executive Officers, there is no acceleration of vesting of equity
upon termination under stock option agreements entered into pursuant to the 2003
Equity Incentive Plan, except for Mr. Clift. Mr. Clift’s restricted stock units
vest immediately if he is terminated without cause, if his employment ends as a
result of death or disability, or if he resigns for good reason.
Receipt
of any severance and benefits is conditioned on the Named Executive Officer
signing a release and waiver of claims in a form satisfactory to the Company. No
Named Executive Officers are entitled to gross-ups associated with taxes owed on
Change in Control payments or taxes due to Internal Revenue Code Section
280G.
The
severance arrangements and change of control arrangements for our Named
Executive Officers were determined primarily through the agreements negotiated
at the time these employees were hired or promoted by the Company:
|
•
|
We
entered into employment agreements with Mr. Bryant on October 4, 2002, Mr.
Williams in July 2003 and Mr. Montgomery in September 2003, all prior to
the Company’s initial public offering in December 2003. The
terms of these employment agreements and related stock option agreements
were developed based on negotiations between the applicable executive and
the Board of Directors of the Company at that time, which was controlled
by several private equity investors. These contracts specified
the compensation and other benefits to be paid upon a termination of
employment or upon a change of control as described
above.
|
|
|
•
|
Mr.
Clift joined the Company in December 2004, and Mr. Anderson joined the
Company in July 2006, after the Company went public. However, the terms of
their employment agreements regarding severance and other payments upon
termination of employment and a change of control were structured
similarly to the other Named Executive Officers (other than Mr. Bryant).
However, we granted restricted stock units to Mr. Clift with his initial
compensation package to offset lost equity compensation from his previous
employer. The terms of Mr. Clift’s employment agreement provide that these
restricted stock units vest immediately if he is terminated without cause,
if his employment ends as a result of death or disability, or if he
resigns for good reason.
|
|
|
•
|
In
June 2006 Mr. Bryant and the Company amended and restated his employment
agreement when he was promoted to Chief Executive Officer. At that time,
Mr. Bryant and the Company agreed to modify his severance and change of
control provisions. Those modifications included provisions stating that
(i) if Mr. Bryant is terminated without cause or resigns for good reason,
he would receive an additional year of vesting on unvested options; and
(ii) if his employment ends as a result of death or disability, then 50%
of his unvested options accelerate immediately. However, the agreement
does not provide for any vesting upon a change of control, unlike his
prior option grants. The Compensation Committee approved these changes as
part of the overall negotiation of his amended employment agreement, and
after considering the April 2006 report prepared by Cook in April 2006 as
described above under “Compensation Process”.
|
|
|
• |
In
March 2008, Mr. Williams and the Company amended and restated his
employment agreement to reflect his promotion to Executive Vice President
in 2007. The modifications included extending his severance
period and benefits maintenance period from six (6) to twelve (12) months,
which is consistent with the agreements for the Company’s other Executive
Vice Presidents.
|
|
Except for the amendments
to Mr. Bryant's employment agreement and Mr. Williams' employment agreement, the
Company has not amended any of the provisions regarding payments upon
termination or change of control in the original agreements with its other Named
Executive Officers.
Certain
Definitions
“Good Reason.”
Mr. Bryant’s employment agreement generally defines “Good Reason” as
relocation of his principal workplace, his demotion from his position as Chief
Executive Officer, or the Company’s material breach of his employment agreement.
The employment agreements for Messrs. Williams, Clift and Anderson generally
define “Good Reason” as relocation of their principal workplace, or the
Company’s material breach of their employment agreements.
“For Cause.”
The employment agreements for Messrs Bryant, Williams, Clift and Anderson
each generally define “For Cause” as the employee’s (a) willful and continued
failure to substantially perform his assigned duties with the Company, (b)
willful engagement in illegal conduct, (c) conviction of, or guilty plea or nolo
contendere to, any felony, or (d) commission of an act of fraud, embezzlement,
or misappropriation against the Company, including, but not limited to, the
offer, payment, solicitation or acceptance of any unlawful bribe or kickback
with respect to the Company’s business. Mr. Montgomery’s employment agreement
does not provide for a “For Cause” termination, but does provide that he can be
immediately terminated upon written notice on a variety of grounds, including a
serious breach of his employment agreement, gross misconduct or any willful
neglect in the discharge of his duties.
“Change of Control.”
The 2002 Stock Option Plan does not employ this term. However, under
stock option award agreements entered into pursuant to that Plan, 50% of
unvested stock options immediately vest upon (a) any sale of all or
substantially all of the assets of the Company and its subsidiaries, or (b) any
merger or consolidation of the Company, or any transaction where the
Company is acquired by the purchase of a majority of its outstanding Common
Stock, and in each such case, the holders of a majority of the outstanding
Common Stock before such merger, consolidation or sale cease to hold, directly
or indirectly, a majority of the Common Stock of the Company or a majority of
the common stock of the successor to the Company immediately following such
merger, consolidation or sale.
Under the
2003 Equity Incentive Plan, “Change of Control” is generally defined as an
acquisition of a third party, unless the Company’s existing stockholders
continue to hold at least 50% of the outstanding stock; (b) an acquisition of
more than 50% of the total combined voting power of the Company’s outstanding
securities pursuant to a tender or exchange offer made directly to the Company’s
stockholders that the Board does not recommend the stockholders accept; (c) over
a period of 36 consecutive months or less, there is a change in the composition
of a majority of the Board, without the approval of existing Board members; or
(d) if a majority of the Board votes in favor of a decision that a Change in
Control has occurred.
For the Named
Executive Officers’ stock option and restricted stock unit award agreements
entered into pursuant to the 2003 Equity Incentive Plan, except for Mr. Bryant
whose stock options do not accelerate and Mr. Anderson’s option grant in January
2008 (described below), upon a Change in Control (a) any outstanding stock
options or stock appreciation rights that are not fully exercisable shall
accelerate and become exercisable with respect to 50% of those shares which are
not then exercisable, (b) any risk of forfeiture applicable to restricted stock
and restricted stock units which is not based on achievement of performance
goals shall lapse with respect to 50% of the restricted stock and restricted
stock units still subject to such risk of forfeiture, and (c) all outstanding
restricted stock and restricted stock unit awards conditioned on the achievement
of performance goals shall be deemed to have been satisfied as to a pro rata
number of shares based on the assumed achievement of all relevant performance
goals and the length of time within the performance period which has elapsed
prior to the Change in Control.
In January
2008, the Company granted to Mr. Anderson an option award for
100,000 shares of our common stock. Pursuant to this agreement, if a change
of control of the Company occurs and Mr. Anderson’s employment is terminated but
not for cause or if Mr. Anderson resigns for good reason (in each case as
defined in his employment agreement) within twelve (12) months after the
occurrence of a change of control, Mr. Anderson’s next installment of 25,000
shares will accelerate and vest as of the date of his termination of
employment. The Compensation Committee approved the terms of this
option grant after taking into account the 2007 Cook Report as described above
under “Compensation Process”.
The following
table sets forth the cash, equity awards and other compensation earned, paid or
awarded, as the case may be, to each of the Company’s non-employee directors
during the year ended December 31, 2007.
|
Fees
Earned or
|
Option
|
|||||||||||
|
Name
|
Paid
in
Cash ($) (1)
|
Awards
($)(7)
|
Total
($)
|
|||||||||
|
Jeffery
S. Barber
|
$
|
32,667
|
(2)
|
$
|
40,062
|
$
|
72,729
|
|||||
|
Francis
A. Doyle
|
66,600
|
96,000
|
(3)
|
226,379
|
||||||||
|
—
|
60,092
|
(4)
|
— | |||||||||
| — |
3,687
|
(5)
|
—
|
|||||||||
|
Peter
K. Hoffman
|
66,100
|
80,762
|
(3)
|
212,815
|
||||||||
| — |
65,953
|
(4)
|
— | |||||||||
|
Nancy
F. Koehn
|
66,267
|
74,231
|
(3)
|
207,176
|
||||||||
| — |
46,466
|
(4)
|
||||||||||
| — |
20,213
|
(6)
|
— | |||||||||
|
Sir
Paul Judge
|
47,933
|
74,231
|
(3)
|
188,843
|
||||||||
| — |
46,466
|
(4)
|
— | |||||||||
| — |
20,213
|
(6)
|
— | |||||||||
|
Christopher
A. Masto
|
51,333
|
57,469
|
(3)
|
144,777
|
||||||||
|
—
|
35,974
|
(4)
|
— | |||||||||
|
P.
Andrews McLane
|
57,167
|
64,000
|
(3)
|
161,229
|
||||||||
| — |
40,062
|
(4)
|
—
|
|||||||||
|
Robert
B. Trussell, Jr.
|
37,667
|
52,245
|
(3)
|
145,831
|
||||||||
| — |
32,704
|
(4)
|
— | |||||||||
| — |
23,215
|
(5) | — | |||||||||
|
(1)
|
Director
compensation is based on the Board year, which is the period from one
annual meeting to the next annual meeting. The amounts shown are pro-rated
for fiscal year 2007, and do not represent the amounts each director will
earn from the 2007 Annual Meeting until the 2008 Annual
Meeting.
|
|
|
(2)
|
Mr.
Barber was compensated for his service as a director of Tempur-Pedic
International for the 2006-2007 board during the 2007 fiscal
year. Mr. Barber did not stand for re-election for the 2007-2008 board
year.
|
|
|
(3)
|
Stock
option grants were made on June 18, 2007 at an exercise price of $26.85
and a FAS 123(R) value of $7.15 per share. For stock options granted, the
value shown represents the dollar amount recognized for financial
reporting purposes and appear in the Company’s financial statements in
accordance with FAS 123(R). See the Company’s Annual Report for the year
ended December 31, 2007 for a complete description of the FAS 123(R)
valuation.
|
|
|
(4)
|
Stock
option grants were made on October 23, 2006 at an exercise price of $19.03
and a FAS 123(R) value of $4.38 per share. For stock options granted, the
value shown represents the dollar amount recognized for financial
reporting purposes and appear in the Company’s financial statements in
accordance with FAS 123(R). See the Company’s Annual Report for the year
ended December 31, 2007 for a complete description of the FAS 123(R)
valuation.
|
| (5) | A stock option grant was made to Messrs. Doyle and Trussell on March 26, 2003 at an exercise price of $1.91 per share. These options were granted under the 2002 Option Plan prior to the Company’s initial public offering in 2003, and have an exercise price that is less than the deemed market value of the underlying common stock at the date of grant. For stock options granted, the value shown represents the dollar amount recognized for financial reporting purposes and appear in the Company’s financial statements in Compensation Expense. See the Company’s Annual Report for the year ended December 31, 2007 for a complete description of the issuance of FAS 123 (R) valuation. | |
|
(6)
|
Stock
option grants were made to Ms. Koehn and Sir Paul Judge on December 15,
2005 at an exercise price of $12.37 and a FAS 123(R) value of $5.39 per
share. For stock options granted, the value shown represents the dollar
amount recognized for financial reporting purposes and appear in the
Company’s financial statements in accordance with FAS 123(R). See the
Company’s Annual Report for the year ended December 31, 2007 for a
complete description of the FAS 123(R) valuation.
|
|
|
(7)
|
The
following table sets forth the aggregate number of stock option awards
outstanding for each director as of December 31, 2007 as well as the
grant date fair value of stock awards and option grants made during
2007:
|
|
Aggregate
Option
Awards
|
Grant
Date Fair Value
|
|||||||
|
Outstanding
|
of
Stock Option
|
|||||||
|
as
of
|
Awards
|
|||||||
|
Name
|
December
31, 2007
|
made
during 2007
|
||||||
|
Francis
A. Doyle
|
116,098
|
$
|
157,658
|
|||||
|
Peter
K. Hoffman
|
34,400
|
132,633
|
||||||
|
Nancy
F. Koehn
|
74,100
|
121,908
|
||||||
|
Sir
Paul Judge
|
74,100
|
121,908
|
||||||
|
Christopher
A. Masto
|
26,400
|
94,380
|
||||||
|
P.
Andrews McLane
|
29,400
|
105,105
|
||||||
|
Robert
B. Trussell, Jr.
|
50,285
|
85,800
|
||||||
Annual
Retainers
|
•
|
For
the 2007 Board year, each non-employee director receives an annual
retainer of $40,000, payable in equal installments on July 31, 2007,
October 31, 2007, January 31, 2008 and April 30, 2008 and an option grant
for 12,000 shares of common stock. The option awards vest in four equal
increments at the end of July 2007, October 2007, January 2008 and April
2008. Vesting of each option award is subject to the applicable grant
recipient being a member of the Board or applicable Committee as of the
applicable vesting date.
|
|
|
•
|
Each
Chair of one of the standing committees of the Board receives a
supplemental annual retainer as follows — Audit Committee Chair,
$16,000 and an option grant for 5,000 shares of common stock; Compensation
Committee Chair, $5,000 and an option grant for 1,500 shares of common
stock; and Nominating and Governance Committee Chair, $5,000 and an option
grant for 1,500 shares of common stock.
|
|
|
•
|
Each
member of one of the standing committees of the Board receives a
supplemental annual retainer as follows — Audit Committee Member,
$12,800 and an option grant for 3,850 shares of common stock; Compensation
Committee Member, $4,000 and an option grant of 1,500 shares of
common stock; and Nominating and Governance Committee Member, $4,000 and
an option grant of 1,500 shares of common
stock.
|
Section 16(a)
of the Exchange Act requires that Tempur-Pedic International’s executive
officers, directors, and persons who own more than 5% of our common stock to
file reports of ownership and changes in ownership with the SEC. Based solely on
a review of the copies of reports furnished to us, Tempur-Pedic International
believes that during the year ended December 31, 2007, its executive
officers, directors, and greater than 5% stockholders complied with all
Section 16(a) filing requirements, other than the following: Robert B.
Trussell, Jr., a director of the Company, filed a Form 4 reporting the sale of
shares on February 7, 2007, two days after the applicable deadline, and
Christopher Masto, a director of the Company, did not file a Form 5 reflecting a
charitable gift made on December 18, 2006. A Form 4 reflecting Mr. Masto’s gift
was filed on March 22, 2007.
Related
Party Transactions
In March
2007, our Board of Directors, upon the recommendation of the Nominating and
Corporate Governance Committee, adopted a written Related Party Transactions
Policy providing for the review and approval or ratification by the Nominating
and Corporate Governance Committee of certain transactions or relationships
involving Tempur-Pedic International and its directors, executive officers and
their affiliates. In reviewing a transaction or relationship, the Nominating and
Corporate Governance Committee will take into account, among other factors it
deems appropriate, whether it is on terms no more favorable than to an
unaffiliated third party under similar circumstances, as well as the extent of
the related party’s interest in the transaction.
Registration
Rights Agreement
On November 1, 2002, Tempur-Pedic
International and certain of our stockholders, including TA Associates Funds,
one of our largest stockholders, entered into a registration rights agreement.
Under this agreement, holders of 10% of Tempur-Pedic International’s registrable
securities, as defined in the registration rights agreement, and certain
stockholders who held notes with an aggregate unpaid principal balance of $15.0
million have the right, subject to certain conditions, to require Tempur-Pedic
International to register any or all of their shares under the Securities Act of
1933, as amended, at Tempur-Pedic International’s expense. In addition, all
holders of registrable securities are entitled to request the inclusion of any
of their shares in any registration statement at Tempur-Pedic International’s
expense whenever we propose to register any of our securities under the
Securities Act. In connection with all such registrations, Tempur-Pedic
International has agreed to indemnify all holders of registrable securities
against certain liabilities, including liabilities under the Securities Act. All
holders requesting or joining in a registration have agreed to indemnify
Tempur-Pedic International against certain liabilities.
APPROVAL
OF THE
We
are asking our stockholders to approve our Amended and Restated 2003 Equity
Incentive Plan (the “2003 Plan”). The 2003 Plan includes amendments
that provide for an increase in the maximum number of shares of our
common stock that may be issued under our current 2003 Equity
Incentive Plan by an additional 1,000,000 shares and for a limitation on
repricing of stock options and stock appreciation rights. As of
December 31, 2007, approximately 3,273,477 shares remained available for
the future grant of awards under our current 2003 Equity Incentive
Plan. After the approval of the 2003 Plan 4,273,477 shares
would then be available for issuance under the 2003 Plan, representing
approximately 6% of our total outstanding shares as of December 31,
2007. The Board of Directors approved the 2003 Plan on
March 6, 2008, subject to stockholder approval. A copy of the
2003 Plan, as proposed to be amended and restated by this proposal, is
attached as Appendix
A to this Proxy Statement.
The
2003 Plan is a performance-based plan that provides awards to selected executive
officers and key employees if pre-established performance goals are met. The
2003 Plan is intended to meet the requirements for performance-based
compensation under Section 162(m) of the Internal Revenue Code (the “Code”) so
that awards paid under the 2003 Plan may qualify for a federal income tax
deduction. We are required to periodically resubmit the 2003 Plan for
stockholder approval so that it can continue to qualify as performance-based
compensation.
Our
Board of Directors, upon recommendation of the Compensation Committee, has
unanimously adopted, subject to stockholder approval, the 2003 Plan which
includes amendments that provide for an increase of the maximum number of shares
of common stock issuable under the current 2003 Equity
Incentive Plan by 1,000,000 shares to a total of 9,000,000 shares and for a
limitation on the repricing of options and stock appreciation
rights. The Compensation Committee made these recommendations after
reviewing the number of shares available for issuance under the current 2003
Equity Incentive Plan. The adoption of the 2003 Plan would
ensure that we will continue to have available a reasonable number of shares for
our 2003 Plan and for our equity incentive programs and that the 2003 Plan is in
compliance with Section 162(m) of the Code. The Board of
Directors believes that in order to successfully attract and retain the best
possible candidates for positions of responsibility, we must continue to offer a
competitive equity incentive program.
We
are asking you to approve the proposed 2003 Plan so that we will have a
sufficient number of shares available for the issuance of stock option and other
equity awards and to ensure that the 2003 Plan will be in compliance
with Section 162(m) of the Code. Our Board of Directors believes that
the ability of the Company to grant stock options is important in enabling us to
offer competitive compensation packages and to make the most effective use of
the shares our stockholders authorize for incentive purposes. Therefore, the
Board of Directors urges you to vote to approve the proposed 2003
Plan.
VOTE
REQUIRED
Approval of
this proposal requires an affirmative “FOR” vote of a majority of the shares of
common stock present and entitle to vote at the Annual Meeting. An
abstention is counted as a vote against this Proposal TWO .
THEREFORE,
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE PROPOSAL TO APPROVE THE AMENDED AND
RESTATED 2003 EQUITY INCENTIVE PLAN.
Amended
and Restated 2003 Equity Incentive Plan
The
following summary of the 2003 Equity Incentive Plan, as proposed to be amended
and restated by Proposal Two, is qualified in its entirety by the specific
language of the 2003 Plan, a copy of which is attached as Appendix A to this
Proxy Statement.
For
purposes of this summary, we assumed that no award will be considered “deferred
compensation” as that term is defined for purposes of the federal tax rules
governing nonqualified deferred compensation arrangements (Section 409A of the
Code). We also assumed that if any award were considered to any extent to
constitute deferred compensation, its terms would comply with the requirements
of that legislation (in general, by limiting any flexibility in the time of
payment). For example, the award of a nonstatutory option with an exercise price
which is less than the market value of the stock covered by the option would
constitute deferred compensation. If an award includes deferred compensation,
and its terms do not comply with the requirements of the legislation, then any
deferred compensation component of the award will be taxable when it is earned
and vested (even if not then payable) and the recipient will be subject to a 20%
additional tax.
39
|
Summary
|
Upon
completion of Tempur-Pedic International’s initial public offering, our Board
and stockholders adopted a new incentive compensation plan, the 2003 Equity
Incentive Plan. Under the 2003 Plan as currently in effect, the number of shares
of our common stock issued pursuant to or subject to outstanding awards shall
not exceed 8,000,000, except in the event of a stock dividend, split,
reclassification or similar corporate action. Under the proposed 2003 Plan, the
maximum number of shares available for awards under the 2003 Plan would be
increased to 9,000,000 shares. The 2003 Plan is administered by the Compensation
Committee of our Board of Directors, which has the exclusive authority,
including the power to determine eligibility to receive awards, the types and
number of shares of stock subject to the awards, the price and timing of awards
and the acceleration or waiver of any vesting, performance, or forfeiture
restriction. The Compensation Committee, however, does not have the authority to
waive any performance restrictions for performance-based awards. As used in this
Proxy Statement, the term “administrator” means the Compensation
Committee.
|
Participants.
|
Any of
our employees, our non-employee directors, consultants, and advisors to us, as
determined by the Compensation Committee may be selected to participate in the
2003 Plan. Participants may receive one or more of the following types of
awards:
|
•
|
stock
options;
|
|
|
•
|
stock
appreciation rights;
|
|
|
•
|
restricted
stock and stock unit awards;
|
|
|
•
|
performance
units;
|
|
|
•
|
stock
grants; and
|
|
|
•
|
qualified
performance-based awards.
|
|
|
Stock
options.
|
Stock
options may be granted under the 2003 Plan, including incentive stock options,
as defined under Section 422 of the Internal Revenue Code of 1986, as
amended (the Code), and nonqualified stock options. The option exercise price of
all stock options granted under the 2003 Plan will be determined by the
administrator, except that any incentive stock option or any option intended to
qualify as performance-based compensation under Code Section 162(m) will
not be granted at a price that is less than 100% of the fair market value of the
stock on the date of grant or not less than 110% of the fair market value for a
holder of 10% of our stock. Stock options may be exercised as determined by the
administrator, but in no event after the tenth anniversary date of grant, or
after the fifth anniversary for a holder of 10% of our stock.
Upon
the exercise of a stock option, the purchase price must be paid in full in
either cash or its equivalent. The administrator may also allow payment by
tendering previously acquired shares of our common stock with a fair market
value at the time of exercise equal to the exercise price, provided such shares
have been held for at least six months prior to tender and broker-assisted
cashless exercises and may authorize loans for the purpose of exercise as
permitted under applicable law.
|
Stock
appreciation right (SAR).
|
A
SAR entitles a participant to receive a payment equal in value to the difference
between the fair market value of a share of stock on the date of exercise of the
SAR over the grant price of the SAR. The administrator may pay that amount in
cash, in shares of our common stock, or a combination. The terms, methods of
exercise, methods of settlement, form of consideration payable in settlement,
and any other terms and conditions of any SAR will be determined by the
administrator at the time of the grant of award and will be reflected in the
award agreement, except for when a SAR is awarded together with an option,
the exercise price shall equal the exercise price of the related
option.
|
Restricted
stock and stock units.
|
A
restricted stock award or restricted stock unit award is the grant of shares of
our common stock either currently (in the case of restricted stock) or at a
future date (in the case of restricted stock units) at a price determined by the
administrator (including zero), that is nontransferable and is subject to
substantial risk of forfeiture until specific conditions or goals are met.
Conditions may be based on continuing employment or achieving performance goals.
During the period of restriction, participants holding shares of restricted
stock shall, except as otherwise provided in an individual award agreement, have
full voting and may have dividend rights with respect to such shares. The
restrictions will lapse in accordance with a schedule or other conditions
determined by the administrator.
|
Performance
units.
|
A
performance share award is a contingent right to receive pre-determined shares
of our common stock if certain performance goals are met. The value of
performance units will depend on the degree to which the specified performance
goals are achieved but are generally based on the value of our common stock. The
administrator may, in its discretion, pay earned performance shares in cash, or
stock, or a combination of both.
|
Stock
Grants.
|
A stock grant
is an award of shares of common stock within restriction. Stock grants may only
be made in limited circumstances, such as in lieu of other earned compensation.
Stock grants are made without any forfeiture conditions.
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Qualified
Performance-based awards.
|
Grants of
performance-based awards enable us to treat other awards granted under the 2003
Plan as “performance-based compensation” under Section 162(m) of the Code
and preserve the deductibility of these awards for federal income tax purposes.
Because Section 162(m) of the Code only applies to those employees who are
“covered employees” as defined in Section 162(m) of the Code, only covered
employees, and those likely to become covered employees, are eligible to receive
performance-based awards.
Participants
are only entitled to receive payment for a performance-based award for any given
performance period to the extent that pre-established performance goals set by
the administrator for the period are satisfied. These pre-established
performance goals must be based on one or more of the following performance
criteria: pre- or after-tax net earnings, sales or revenue, operating earnings,
operating cash flow, return on net assets, return on stockholders’ equity,
return on assets, return on capital, stock price growth, stockholder returns,
gross or net profit margin, earnings per share, price per share, and market
share. These performance criteria may be measured in absolute terms or as
compared to any incremental increase or as compared to results of a peer group.
With regard to other awards, other than options, intended to qualify as
qualified performance-based awards, the administrator has the discretion to
select the length of the performance period, the type of performance-based
awards to be granted, and the goals that will be used to measure the performance
for the period. In determining the actual size of an individual
performance-based award for a performance period, the administrator may reduce
or eliminate (but not increase) the award. Generally, a participant must be
employed on the date the performance-based award is paid to be eligible for a
performance-based award for that period.
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Change
of Control.
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Except as
otherwise provided in an individual agreement, in the event of a change in
control, (1) all stock options and stock appreciation rights accelerate with
respect to 50% of the shares not already exercisable, (2) any risk of
forfeiture applicable to restricted stock and stock units, not based on
achievement of performance goals, shall lapse with respect to 50% of the
restricted stock and stock units subject to such risk of forfeiture immediately
prior to the change of control, and (iii) all outstanding restricted stock and
stock units conditioned upon performance goals shall be deemed satisfied as to a
pro rata number of shares based on the assumed achievement of all relevant
performance goals and the length of time which had elapsed prior to the change
in control.
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Amendment
and termination.
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The Board may
terminate, amend, or modify the 2003 Plan as it deems advisable at any time;
however, stockholder approval will be obtained for any amendment to the extent
necessary and desirable to comply with any applicable law, regulation, or stock
exchange rule. Unless the Board expressly provides, no amendment shall affect
the terms of any outstanding award and no termination or amendment may, without
the consent of any award recipient, adversely affect the rights of the award
recipient. The administrator may amend the terms of any award
granted, prospectively or retroactively, provided that the amendment is
consistent with the terms of the 2003 Plan.
Neither the
Board nor the administrator has the ability to reprice stock options or stock
appreciation rights (other than pro rata adjustments to reflect stock splits,
stock dividends or other corporate transactions, or repricings our stockholders
approve), including programs under which outstanding options are surrendered or
cancelled in exchange for options with a lower exercise price or greater
economic value.
We may not
make any grants under the 2003 Plan after December 1, 2013.
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Adoption
by stockholders.
|
The current 2003
Equity Incentive Plan was approved by the holders of a majority of outstanding
shares of our common stock in December 2003. Our Board approved the proposed
Amended and Restated 2003 Equity Incentive Plan on March 10, 2008, subject to
stockholder approval.
Summary
of U.S. Federal Income Tax Consequences
The following
summary is intended only as a general guide to the U.S. federal income tax
consequences under current law of participation in the 2003 Plan and does not
attempt to describe all possible federal or other tax consequences of such
participation or tax consequences based on particular
circumstances.
Incentive Stock
Options. An optionee recognizes no taxable income for regular income tax
purposes as a result of the grant or exercise of an incentive stock option
qualifying under Section 422 of the Code. Optionees who neither dispose of their
shares within two years following the date the option was granted nor within one
year following the exercise of the option will normally recognize a capital gain
or loss upon a sale of the shares equal to the difference, if any, between the
sale price and the purchase price of the shares. If an optionee satisfies such
holding periods upon a sale of the shares, the Company will not be entitled to
any deduction for federal income tax purposes. If an optionee disposes of shares
within two years after the date of grant or within one year after the date of
exercise (a “disqualifying disposition”), the difference between the fair market
value of the shares on the exercise date and the option exercise price (not to
exceed the gain realized on the sale if the disposition is a transaction with
respect to which a loss, if sustained, would be recognized) will be taxed as
ordinary income at the time of disposition. Any gain in excess of that amount
will be a capital gain. If a loss is recognized, there will be no ordinary
income, and such loss will be a capital loss. Any ordinary income recognized by
the optionee upon the disqualifying disposition of the shares generally should
be deductible by the Company for federal income tax purposes, except to the
extent such deduction is limited by applicable provisions of the
Code.
The
difference between the option exercise price and the fair market value of the
shares on the exercise date of an incentive stock option is treated as an
adjustment in computing the optionee’s alternative minimum taxable income and
may be subject to an alternative minimum tax which is paid if such tax exceeds
the regular tax for the year. Special rules may apply with respect to certain
subsequent sales of the shares in a disqualifying disposition, certain basis
adjustments for purposes of computing the alternative minimum taxable income on
a subsequent sale of the shares, and certain tax credits that may arise with
respect to optionees subject to the alternative minimum tax.
Nonstatutory Stock
Options. Options not designated or qualifying as incentive stock options
will be nonstatutory stock options having no special tax status. An optionee
generally recognizes no taxable income as the result of the grant of such an
option. Upon exercise of a nonstatutory stock option, the optionee normally
recognizes ordinary income in the amount of the difference between the option
exercise price and the fair market value of the shares on the exercise date. If
the optionee is an employee, such ordinary income generally is subject to
withholding of income and employment taxes. Upon the sale of stock acquired by
the exercise of a nonstatutory stock option, any gain or loss, based on the
difference between the sale price and the fair market value on the exercise
date, will be taxed as capital gain or loss. No tax deduction is available to
the Company with respect to the grant of a nonstatutory stock option or the sale
of the stock acquired pursuant to such grant. The Company generally should be
entitled to a deduction equal to the amount of ordinary income recognized by the
optionee as a result of the exercise of a nonstatutory stock option, except to
the extent such deduction is limited by applicable provisions of the
Code.
Restricted
Stock. A participant acquiring restricted stock generally will recognize
ordinary income equal to the fair market value of the shares on the
“determination date.” The “determination date” is the date on which the
restricted stock is acquired unless the shares are subject to a substantial risk
of forfeiture (for example, where the restricted stock award is subject to
vesting conditions, service requirements, or performance criteria prior to the
satisfaction of which the shares remain subject to forfeiture) and are not
transferable, in which case the determination date is the earlier of (i) the
date on which the shares become transferable or (ii) the date on which the
shares are no longer subject to a substantial risk of forfeiture. If the
participant is an employee, such ordinary income generally is subject to
withholding of income and employment taxes. If the determination date is after
the date on which the participant acquires the shares, the participant may
elect, pursuant to Section 83(b) of the Code, to have the date of acquisition be
the determination date by filing an election with the Internal Revenue Service
no later than 30 days after the date the shares are acquired. Upon the sale of
shares acquired pursuant to a restricted stock award, any gain or loss, based on
the difference between the sale price and the fair market value on the
determination date, will be taxed as capital gain or loss. The Company generally
should be entitled to a deduction equal to the amount of ordinary income
recognized by the participant on the determination date, except to the extent
such deduction is limited by applicable provisions of the Code.
Restricted Stock
Units. A
participant generally will recognize no income upon the grant of a restricted
stock unit award. Upon the settlement of such award, or on the grant of stock
without restriction i.e. a “stock grant”, a participant normally will recognize
ordinary income in the year of settlement in an amount equal to the fair market
value of any unrestricted shares received. If the participant is an employee,
such ordinary income generally is subject to withholding of income and
employment taxes. Upon the sale of any shares received, any gain or loss, based
on the difference between the sale price and the fair market value on the
settlement date, will be taxed as capital gain or loss. The Company generally
should be entitled to a deduction equal to the amount of ordinary income
recognized by the participant on the settlement date, except to the extent such
deduction is limited by applicable provisions of the Code.
Stock Appreciation
Rights. Stock appreciation rights are generally subject to the same tax
rules as nonstatutory stock options, i.e., no taxable income is generally
recognized as the result of the grant, and upon its exercise, the participant
normally recognizes ordinary income in the amount paid in settlement of such
right. If the participant is an employee, such ordinary income
generally is subject to withholding of income and employment taxes. Upon the
sale of any stock received on the exercise of a stock appreciation right, any
gain or loss, based on the difference between the sale price and the fair market
value of the shares received in settlement of the right, will be taxed as
capital gain or loss. No tax deduction is available to the Company with respect
to the grant of a stock appreciation right or the sale of any stock received in
settlement of such a right. The Company generally should be entitled to a
deduction equal to the amount of ordinary income recognized by the optionee as a
result of the exercise of a stock appreciation rights except to the extent such
deduction is limited by applicable provisions of the Code.
43
|
2002
Stock Option Plan
|
In November
2002, our Board of Directors and stockholders approved a stock option plan,
effective for a ten-year term, to encourage ownership of stock by our employees,
directors, and consultants and to provide them with additional financial
incentives to promote the success of the Company. Under the plan, the number of
outstanding shares of our common stock attributable to the exercise of options,
together with the number of shares issuable upon the exercise of outstanding
options, shall not exceed 9,907,349 shares except in the event of a stock
dividend, split, reclassification or other similar corporate transaction. No
individual may be granted options for more than 66 2/3% of this total
number of shares.
Employees,
directors, and consultants are eligible to receive options under the plan.
However, directors who are not also employees are not eligible to receive
incentive options. In the case of incentive options, the option price shall be
not less than 100% of the fair market value of our common stock on the date the
option is granted, or not less than 110% of that fair market value for a holder
of 10% of our voting stock. Incentive options expire ten years after the date on
which they are granted, or five years after the grant date for holders of 10% of
our voting stock. Other options under the plan are not subject to such
limitation.
In December
2003, the Board adopted a resolution that prohibited further grants being made
under the 2002 Plan.
The
following table sets forth equity compensation plan information as of December
31, 2007:
|
Plan
Category
|
Number
of Shares to be Issued Upon Exercise of Outstanding
Options
|
Weighted
Average Exercise Price of Outstanding Options
|
Number
of Shares Remaining Available for Future Issuance
|
|||||||||
|
Equity
compensation plans approved by security holders (a):
|
||||||||||||
|
2002
Stock Option Plan
|
352,865 | $ | 2.31 | — | (b) | |||||||
|
2003
Equity Incentive Plan
|
4,249,851 | $ | 18.47 | 3,273,477 | ||||||||
|
2003
Employee Stock Purchase Plan
|
— | — | 380,165 | (c) | ||||||||
|
Equity
compensation plans not approved by security holders
|
— | — | — | |||||||||
|
Total
|
4,602,716 | $ | 17.10 | 3,653,642 | ||||||||
|
(a)
|
See
“Proposal Two - Approval of the Amended and Restated 2003 Equity Incentive
Plan” in this Proxy Statement for information regarding the material
features of these plans.
|
|
(b)
|
In
December 2003, our Board of Directors adopted a resolution that prohibited
further grants under the 2002 Stock Option
Plan.
|
|
(c)
|
Shares
under the 2003 Employee Stock Purchase Plan allows eligible employees to
purchase our common stock annually over the course of two semi-annual
offering periods at a price of no less than 85% of the price per share of
our common stock. This plan is an open market purchase plan and does not
have a dilutive effect.
|
2003
Employee Stock Purchase Plan
Upon
completion of Tempur-Pedic International’s initial public offering, a new
employee stock purchase plan went into effect, which we refer to in this proxy
statement as the 2003 Employee Stock Purchase Plan. The 2003 Employee Stock
Purchase Plan permits eligible employees (as defined in the 2003 Employee Stock
Purchase Plan) to purchase up to $25,000 worth of our common stock annually over
the course of two semi-annual offering periods at a price of no less than 85% of
the price per share of our common stock either at the beginning or the end of
each six-month offering period, whichever is less. The Compensation Committee of
our Board of Directors administers the 2003 Employee Stock Purchase Plan. Our
Board may amend or terminate the plan. The 2003 Employee Stock Purchase Plan
complies with the requirements of Section 423 of the Code. We may issue a
maximum of 500,000 shares of our common stock under this plan. This plan
was approved by the holders of a majority of outstanding shares of our common
stock in December 2003. In March 2008, the Board amended this plan to extend its
term until December 2013.
RATIFICATION
OF INDEPENDENT AUDITORS
We
are asking stockholders to ratify the appointment of Ernst & Young LLP
as Tempur-Pedic International’s independent auditors for the year ending
December 31, 2008. Ernst & Young became the independent auditors
for Tempur-Pedic International after Tempur-Pedic International acquired Tempur
World, Inc. in 2002.
VOTE
REQUIRED
The
affirmative vote of a majority of the shares of common stock present or
represented and voting at the Annual Meeting is required to ratify such
appointment.
THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE RATIFICATION OF THE
APPOINTMENT OF ERNST & YOUNG LLP TO SERVE AS TEMPUR-PEDIC
INTERNATIONAL’S INDEPENDENT AUDITORS FOR THE YEAR ENDING DECEMBER 31,
2008.
Representatives
of Ernst & Young LLP are expected to be present at the Annual Meeting
and will have the opportunity to make a statement if they desire to do so. It is
also expected that they will be available to respond to appropriate
questions.
The aggregate fees for professional
services rendered by Ernst & Young LLP for the years ended December 31, 2006
and December 31, 2007 were approximately as follows:
|
2006
|
2007
|
|||||||
|
Audit
fees(1)
|
$ | 1,582,606 | $ | 1,603,376 | ||||
|
Audit-related
fees
|
— | — | ||||||
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Tax
fees(2)
|
14,150 | 36,473 | ||||||
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All
other fees(3)
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69,782 | — | ||||||
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(1)
|
Audit fees billed for 2006 and 2007 were related to services provided in connection with the audit of our financial statements and the effectiveness of our internal control over financial reporting as of and for the years ended December 31, 2006 and December 31, 2007, the statutory audits of certain international subsidiaries and the reviews of our quarterly financial statements. | |
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(2)
|
Tax fees include fees for tax compliance, tax advice, and tax planning. | |
|
(3)
|
Fees for other non-audit services for 2006 included fees for services associated with other permitted advisory services. |
The
Audit Committee is responsible for appointing, setting compensation, and
overseeing the work of the independent auditor. The Audit Committee has
established a policy regarding pre-approval of all audit and non-audit services
provided by the independent auditor.
On
an ongoing basis, management communicates specific projects and categories of
service for which the advance approval of the Audit Committee is requested. The
Audit Committee reviews these requests and advises management if the Committee
approves the engagement of the independent auditor. On a periodic basis,
management reports to the Audit Committee regarding the actual spending for such
projects and services compared to the approved amounts. The projects and
categories of service are as follows:
Audit —Annual
audit fees relate to services rendered in connection with the audit of
Tempur-Pedic International’s consolidated financial statements, and
the review of financial statements included in Tempur-Pedic International’s
quarterly reports on Form 10-Q, and registration statements filed with the
SEC.
Audit Related
Services —Audit related services include fees for services related
to consultation on accounting standards or transactions, statutory audits, and
business acquisitions.
Tax —Tax
services include fees for tax compliance, tax advice, and tax
planning.
Other
Services —Other services are pre-approved on an
engagement-by-engagement basis.
During the
last two years ended December 31, 2007 and 2006, the Audit Committee approved
100% of the Audit Related Services, 100% of the Tax services and 100% of the
Other Services.
The
information contained in this report shall not be deemed to be
“soliciting material” or “filed” or incorporated by reference in future filings
with the Securities and Exchange Commission, or subject to the liabilities of
Section 18 of the Exchange Act, except to the extent that Tempur-Pedic
International specifically incorporates it by reference into a document filed
under the Securities Act or the Exchange Act.
The Audit
Committee of the Board of Directors is responsible for providing independent,
objective oversight with respect to the Company’s accounting and financial
reporting functions, internal and external audit functions, and system of
internal controls regarding financial matters and legal, ethical and regulatory
compliance. The Audit Committee is composed of four directors, Francis A. Doyle,
Peter K. Hoffman, Sir Paul Judge and Nancy F. Koehn, each of whom the Board of
Directors has determined is “independent” as defined in the applicable rules of
the New York Stock Exchange and the SEC. The Board of Directors has also
determined that Mr. Doyle is an “audit committee financial expert” as defined
under the applicable rules of the Securities and Exchange
Commission. The charter of the Audit Committee is available on
Tempur-Pedic International’s website at http://investor.tempurpedic.com/
under the caption “Corporate Governance.”
Management
is responsible for the Company’s internal controls and financial reporting
processes. Ernst & Young LLP, the Company’s independent certified public
accountants, is responsible for performing an independent audit of the Company’s
consolidated financial statements in accordance with auditing standards
generally accepted in the United States of America and to issue a report
thereon. The Audit Committee’s responsibility is to monitor and oversee these
processes.
In
connection with its responsibilities, the Audit Committee met on eleven (11)
occasions during 2007, either in person or via teleconference. These meetings
involved representatives of management, internal auditors and the independent
accountants. Management represented to the Audit Committee that the Company’s
consolidated financial statements were prepared in accordance with accounting
principles generally accepted in the United States of America, and the Audit
Committee has reviewed and discussed with management, internal auditors and the
independent accountants the consolidated financial statements. The Audit
Committee has also discussed with internal auditors and the independent
accountants, with and without management present, the evaluations of the
Company’s internal controls and the overall quality of the Company’s financial
reporting. The Audit Committee has discussed with the independent accountants
the matters required by Statement on Auditing Standards No. 61, as amended
(Communication with Audit Committees). The Audit Committee received from the
Company’s independent accountants written disclosures required by Independence
Standards Board Standard No. 1 (Independence Discussions with Audit Committees),
and the Audit Committee has discussed with the independent accountants that
firm’s independence.
Based
upon the Audit Committee’s discussions with management, internal auditors and
the independent accountants, and the Audit Committee’s review of the audited
consolidated financial statements, evaluations of the Company’s internal
controls, and the representations of management, internal auditors and the
independent accountants, the Audit Committee recommended that the Board of
Directors include the audited consolidated financial statements in the Company’s
Annual Report on Form 10-K for the year ended December 31, 2007, filed with the
SEC.
|
|
Submitted
by,
|
|
|
AUDIT
COMMITTEE:
|
|
|
Francis
A. Doyle (Chair)
|
|
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Peter
K. Hoffman
|
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Sir
Paul Judge
|
|
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Nancy
F. Koehn
|
Stockholders
who wish to nominate a candidate for election as a director at an annual meeting
of stockholders or propose business for consideration at such meeting must
provide written notice to the Secretary of Tempur-Pedic International following
the procedures prescribed in Rule 14a-8 under the Exchange Act and
Tempur-Pedic International’s by-laws. To be eligible, such notice must be
received in writing at Tempur-Pedic International’s corporate headquarters in
Lexington, Kentucky by the Secretary of Tempur-Pedic International not later
than the close of business on the 120th day,
and not earlier than the close of business on the 150th day,
prior to the first anniversary of the mailing of the notice for the preceding
year’s Annual Meeting. Accordingly, a stockholder nomination or
proposal intended to be considered at the 2009 Annual Meeting must be received
by the Secretary not earlier than the close of business on October 26, 2008 and
prior to the close of business on November 25, 2008. Any proposal or nomination
submitted after November 25, 2008 will be considered untimely.
Our
Annual Report on Form 10-K for the year ended December 31, 2007 is
available without charge to each stockholder, upon written request to the
Secretary of Tempur-Pedic International at our principal executive offices at
1713 Jaggie Fox Way, Lexington, Kentucky 40511 and is also available at our
website at http://investor.tempurpedic.com/
under the caption “SEC Filings.”
Only one copy of our Annual Report on
Form 10-K, Proxy Statement or Notice of Internet Availability of Proxy Materials
is being delivered to multiple security holders sharing an address unless we
have received instructions to the contrary from one or more of the
stockholders.
We will deliver promptly upon written
or oral request a separate copy of our Annual Report on Form 10-K, the Proxy
Statement or Notice of Internet Availability of Proxy Materials to
any stockholder at a shared address to which a single copy of any of those
documents was delivered. To receive a separate copy of our Annual Report on Form
10-K, Proxy Statement or Notice of Internet Availability of Proxy Materials, or
if two stockholders sharing an address have received two copies of any of these
documents and desire to only receive one, you may write the Secretary of
Tempur-Pedic International at our principal executive officers at 1713 Jaggie
Fox Way, Lexington, Kentucky 40511, or call the Secretary of Tempur-Pedic
International at (800) 878-8889.
You may vote in person at the meeting
or by proxy. We recommend you vote by proxy even if you plan to attend the
meeting. You can always change your vote at the meeting. Giving us your proxy
means you authorize us to vote your shares at the meeting in the manner you
direct.
If your shares are held in your name,
you can vote by proxy in three convenient ways:
|
|
Via Internet: Go to
http://www.proxyvote.com
and follow the instructions. You will need to enter the control
number printed on your proxy card.
|
|
|
By Telephone: Call
toll-free 1-800-690-6903 and follow the instructions. You will need to
enter the control number printed on your proxy
card.
|
|
|
In Writing: Complete,
sign, date and return your proxy card in the enclosed
envelope.
|
If your shares are held in street name,
you may vote by submitting instructions to your stockbroker or nominee. In most
cases, you will be able to do this by mail. Please refer to the summary
instructions included on your proxy card. For shares held in street name, the
voting instruction card will be included by your stockbroker or
nominee.
You may submit your proxy by signing
your proxy card or, for shares held in street name, by following the voting
instruction card included by your stockbroker or nominee and mailing it in the
enclosed, postage-paid envelope. If you provide specific voting instructions,
your shares will be voted as you have instructed.
The Board
of Directors knows of no other matters to be submitted at the meeting. If any
other matters properly come before the meeting, it is the intention of the
persons named in the enclosed form of proxy to vote the shares they represent as
the Board of Directors may recommend.
Tempur-Pedic
International will pay the costs of soliciting proxies from stockholders.
Directors, executive officers, and regular employees may solicit proxies, either
personally or by telephone, on behalf of Tempur-Pedic International, without
additional compensation, other than the time expended and telephone charges in
making such solicitations.
By Order of the Board
of Directors,
DALE E.
WILLIAMS
Executive Vice
President, Chief Financial Officer, and Secretary
Lexington,
Kentucky
March 24,
2008
TEMPUR-PEDIC
INTERNATIONAL INC.
AMENDED
AND RESTATED
2003
EQUITY INCENTIVE PLAN
TABLE OF CONTENTS
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1.
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1
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2.
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3.
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4
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5
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5
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10
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11
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11
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11.
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13
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12.
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14.
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14
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14
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AMENDED
AND RESTATED
TEMPUR-PEDIC INTERNATIONAL INC.
2003
EQUITY INCENTIVE PLAN
This Plan
is intended to encourage ownership of Stock by employees, consultants and
directors of the Company and its Affiliates and to provide additional incentive
for them to promote the success of the Company’s business through the grant of
Awards of or pertaining to shares of the Company’s Stock. The Plan is intended
to be an incentive stock option plan within the meaning of Section 422 of the
Code, but not all Awards are required to be Incentive Options.
As used
in this Plan, the following terms shall have the following
meanings:
2.1.
Accelerate,
Accelerated,
and Acceleration, means:
(a) when used with respect to an Option or Stock Appreciation Right, that as of
the time of reference the Option or Stock Appreciation Right will become
exercisable with respect to some or all of the shares of Stock for which it was
not then otherwise exercisable by its terms; (b) when used with respect to
Restricted Stock or Restricted Stock Units, that the Risk of Forfeiture
otherwise applicable to the Stock or Units shall expire with respect to some or
all of the shares of Restricted Stock or Units then still otherwise subject to
the Risk of Forfeiture; and (c) when used with respect to Performance Units,
that the applicable Performance Goals shall be deemed to have been met as to
some or all of the Units.
2.2.
Acquisition
means a merger or consolidation of the Company with or into another person or
the sale, transfer, or other disposition of all or substantially all of the
Company’s assets to one or more other persons in a single transaction or series
of related transactions.
2.3.
Affiliate means
any corporation, partnership, limited liability company, business trust, or
other entity controlling, controlled by or under common control with the
Company.
2.4.
Award means any
grant or sale pursuant to the Plan of Options, Stock Appreciation Rights,
Performance Units, Restricted Stock, Restricted Stock Units or Stock
Grants.
2.5.
Award Agreement means an
agreement between the Company and the recipient of an Award, setting forth the
terms and conditions of the Award.
2.6.
Board means the
Company’s Board of Directors.
2.7.
Change of
Control means the occurrence of any of the following after the date of
the approval of the Plan by the Board:
(a) an
Acquisition, unless securities possessing more than 50% of the total combined
voting power of the survivor’s or acquiror’s outstanding securities (or the
securities of any parent thereof) are held by a person or persons who held
securities possessing more than 50% of the total combined voting power of the
Company’s outstanding securities immediately prior to that transaction,
or
(b) any
person or group of persons (within the meaning of Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended and in effect from time to time)
directly or indirectly acquires beneficial ownership (determined pursuant to
Securities and Exchange Commission Rule 13d-3 promulgated under the said
Exchange Act) of securities possessing more than 50% of the total combined
voting power of the Company’s outstanding securities pursuant to a tender or
exchange offer made directly to the Company’s stockholders that the Board does
not recommend such stockholders accept, other than (i) the Company or an
Affiliate, (ii) an employee benefit plan of the Company or any of its
Affiliates, (iii) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any of its Affiliates, or (iv) an
underwriter temporarily holding securities pursuant to an offering of such
securities, or
(c) over
a period of 36 consecutive months or less, there is a change in the composition
of the Board such that a majority of the Board members (rounded up to the next
whole number, if a fraction) ceases, by reason of one or more proxy contests for
the election of Board members, to be composed of individuals who either (i) have
been Board members continuously since the beginning of that period, or (ii) have
been elected or nominated for election as Board members during such period by at
least a majority of the Board members described in the preceding clause (i) who
were still in office at the time that election or nomination was approved by the
Board; or
(d) a
majority of the Board votes in favor of a decision that a Change in Control has
occurred.
2.8.
Code means the
Internal Revenue Code of 1986, as amended from time to time, or any successor
statute thereto, and any regulations issued from time to time
thereunder.
2.9.
Committee means
the Compensation Committee of the Board, which in general is responsible for the
administration of the Plan, as provided in Section 5 of the Plan. For any period
during which no such committee is in existence “Committee” shall mean the Board
and all authority and responsibility assigned to the Committee under the Plan
shall be exercised, if at all, by the Board.
2.10.
Company means
Tempur-Pedic International Inc., a corporation organized under the laws of the
State of Delaware.
2.11.
Covered Employee
means an employee who is a “covered employee” within the meaning of
Section 162(m) of the Code.
2.12.
Grant Date
means the date as of which an Option is granted, as determined under Section
7.1(a).
2.13.
Incentive
Option means an Option which by its terms is to be treated as an
“incentive stock option” within the meaning of Section 422 of the
Code.
2.14.
Market Value
means the value of a share of Stock on a particular date determined by such
methods or procedures as may be established by the Committee. Unless otherwise
determined by the Committee, the Market Value of Stock as of any date is the
closing price for the Stock as reported on the New York Stock Exchange (or on
any other national securities exchange on which the Stock is then listed) for
that date or, if no closing price is reported for that date, the closing price
on the next preceding date for which a closing price was reported. For purposes
of Awards effective as of the effective date of the Company’s initial public
offering, Market Value of Stock shall be the price at which the Company’s Stock
is offered to the public in its initial public offering.
2.15.
Nonstatutory
Option means any Option that is not an Incentive Option.
2.16.
Option means an
option to purchase shares of Stock.
2.17.
Optionee means
a Participant to whom an Option shall have been granted under the
Plan.
2.18.
Participant
means any holder of an outstanding Award under the Plan.
2.19.
Performance Criteria
means the criteria that the Committee selects for purposes of
establishing the Performance Goal or Performance Goals for a Participant for a
Performance Period. The Performance Criteria used to establish Performance Goals
are limited to: pre- or after-tax net earnings, sales growth, operating
earnings, operating cash flow, return on net assets, return on stockholders’
equity, return on assets, return on capital, Stock price growth, stockholder
returns, gross or net profit margin, earnings per share, price per share of
Stock, and market share, any of which may be measured either in absolute terms
or as compared to any incremental increase or as compared to results of a peer
group. The Committee will, but within the time prescribed by Section 162(m) of
the Code in the case of Qualified Performance-Based Awards, objectively define
the manner of calculating the Performance Criteria it selects to use for such
Performance Period for such Participant.
2.20.
Performance
Goals means, for a Performance Period, the written goals established by
the Committee for the Performance Period based upon the Performance Criteria.
Depending on the Performance Criteria used to establish such Performance Goals,
the Performance Goals may be expressed in terms of overall Company performance
or the performance of a division, business unit, subsidiary, or an
individual.
2.21.
Performance Period
means the one or more periods of time, which may be of varying and
overlapping durations, selected by the Committee, over which the attainment of
one or more Performance Goals will be measured for purposes of determining a
Participant’s right to, and the payment of, a Performance Unit.
2.22. Performance Unit
means a right granted to a Participant under Section 7.5, to receive
cash, Stock or other Awards, the payment of which is contingent on achieving
Performance Goals established by the Committee.
2.23.
Plan means this
Amended and Restated 2003 Equity Incentive Plan of the Company, as amended from
time to time, and including any attachments or addenda hereto.
2.24.
Qualified
Performance-Based Awards means Awards intended to qualify as
“performance-based compensation” under Section 162(m) of the Code.
2.25.
Restricted
Stock means a grant or sale of shares of Stock to a Participant subject
to a Risk of Forfeiture.
2.26.
Restriction Period
means the period of time, established by the Committee in connection with
an Award of Restricted Stock, during which the shares of Restricted Stock are
subject to a Risk of Forfeiture described in the applicable Award
Agreement.
2.27.
Risk of
Forfeiture means a limitation on the right of the Participant to retain
Restricted Stock or Restricted Stock Units, including a right in the Company to
reacquire shares of Restricted Stock at less than their then Market Value,
arising because of the occurrence or non-occurrence of specified events or
conditions.
2.28.
Restricted Stock
Units means rights to receive shares of Stock at the close of a
Restriction Period, subject to a Risk of Forfeiture.
2.29.
Stock means
common stock, par value $0.01 per share, of the Company, and such other
securities as may be substituted for Stock pursuant to Section 8.
2.30.
Stock Appreciation
Right means a right to receive any excess in the Market Value of shares
of Stock (except as otherwise provided in Section 7.2(c)) over a specified
exercise price.
2.31.
Stock Grant
means the grant of shares of Stock not subject to restrictions or other
forfeiture conditions.
2.32.
Stockholders’
Agreement means any agreement by and among the holders of at least a
majority of the outstanding voting securities of the Company and setting forth,
among other provisions, restrictions upon the transfer of shares of Stock or on
the exercise of rights appurtenant thereto (including but not limited to voting
rights).
2.33.
Ten Percent
Owner means a person who owns, or is deemed within the meaning of Section
422(b)(6) of the Code to own, stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company (or any parent or
subsidiary corporations of the Company, as defined in Sections 424(e) and (f),
respectively, of the Code). Whether a person is a Ten Percent Owner shall be
determined with respect to an Option based on the facts existing immediately
prior to the Grant Date of the Option.
Unless
the Plan shall have been earlier terminated by the Board, Awards may be granted
under this Plan at any time in the period commencing on the date of approval of
the Plan by the Board and ending immediately prior to the tenth anniversary of
the earlier of the adoption of the Plan by the Board or approval of the Plan by
the Company’s stockholders. Awards granted pursuant to the Plan within that
period shall not expire solely by reason of the termination of the Plan. Awards
of Incentive Options granted prior to stockholder approval of the Plan are
expressly conditioned upon such approval, but in the event of the failure of the
stockholders to approve the Plan shall thereafter and for all purposes be deemed
to constitute Nonstatutory Options.
At no
time shall the number of shares of Stock issued pursuant to or subject to
outstanding Awards granted under the Plan exceed 9,000,000 shares of Stock;
subject, however, to
the provisions of Section 8 of the Plan. For purposes of applying the foregoing
limitation, if any Option or Stock Appreciation Right expires, terminates, or is
cancelled for any reason without having been exercised in full, or if any other
Award is forfeited by the recipient, the shares not purchased by the Optionee or
which are forfeited by the recipient shall again be available for Awards to be
granted under the Plan. In addition, settlement of any Award shall not count
against the foregoing limitations except to the extent settled in the form of
Stock. Shares of Stock issued pursuant to the Plan may be either authorized but
unissued shares or shares held by the Company in its treasury.
The Plan
shall be administered by the Committee; provided, however, that at
any time and on any one or more occasions the Board may itself exercise any of
the powers and responsibilities assigned the Committee under the Plan and when
so acting shall have the benefit of all of the provisions of the Plan pertaining
to the Committee’s exercise of its authorities hereunder; and provided further, however,
that the Committee may delegate to an executive officer or officers the
authority to grant Awards hereunder to employees who are not officers, and to
consultants, in accordance with such guidelines as the Committee shall set forth
at any time or from time to time. Subject to the provisions of the Plan, the
Committee shall have complete authority, in its discretion, to make or to select
the manner of making all determinations with respect to each Award to be granted
by the Company under the Plan including the employee, consultant or director to
receive the Award and the form of Award. In making such determinations, the
Committee may take into account the nature of the services rendered by the
respective employees, consultants, and directors, their present and potential
contributions to the success of the Company and its Affiliates, and such other
factors as the Committee in its discretion shall deem relevant. Subject to the
provisions of the Plan, the Committee shall also have complete authority to
interpret the Plan, to prescribe, amend and rescind rules and regulations
relating to it, to determine the terms and provisions of the respective Award
Agreements (which need not be identical), and to make all other determinations
necessary or advisable for the administration of the Plan. The Committee’s
determinations made in good faith on matters referred to in the Plan shall be
final, binding and conclusive on all persons having or claiming any interest
under the Plan or an Award made pursuant to hereto.
6.1. Eligibility. The
Committee may grant from time to time and at any time prior to the termination
of the Plan one or more Awards, either alone or in combination with any other
Awards, to any employee of or consultant to one or more of the Company and its
Affiliates or to non-employee member of the Board or of any board of directors
(or similar governing authority) of any Affiliate. However, only employees of
the Company, and of any parent or subsidiary corporations of the Company, as
defined in Sections 424(e) and (f), respectively, of the Code, shall be eligible
for the grant of an Incentive Option. Further, in no event shall the number of
shares of Stock covered by Options or other Awards granted to any one person in
any one calendar year exceed 25% of the aggregate number of shares of Stock
subject to the Plan.
6.2. General Terms of
Awards. Each grant of an Award shall be subject to all
applicable terms and conditions of the Plan (including but not limited to any
specific terms and conditions applicable to that type of Award set out in the
following Section), and such other terms and conditions, not inconsistent with
the terms of the Plan, as the Committee may prescribe. No prospective
Participant shall have any rights with respect to an Award, unless and until
such Participant has executed an agreement evidencing the Award, delivered a
fully executed copy thereof to the Company, and otherwise complied with the
applicable terms and conditions of such Award.
6.3. Effect of Termination of
Employment, Etc. Unless the Committee shall provide otherwise
with respect to any Award, if the Participant’s employment or other association
with the Company and its Affiliates ends for any reason, including because of
the Participant’s employer ceasing to be an Affiliate, (a) any outstanding
Option or Stock Appreciation Right of the Participant shall cease to be
exercisable in any respect not later than 90 days following that event and, for
the period it remains exercisable following that event, shall be exercisable
only to the extent exercisable at the date of that event, and (b) any other
outstanding Award of the Participant shall be forfeited or otherwise subject to
return to or repurchase by the Company on the terms specified in the applicable
Award Agreement. Military or sick leave or other bona fide leave shall not be
deemed a termination of employment or other association, provided that it does not
exceed the longer of
ninety (90) days or the period during which the absent Participant’s
reemployment rights, if any, are guaranteed by statute or by
contract.
6.4.
Transferability of
Awards. Except as otherwise provided in this Section 6.4, Awards shall
not be transferable, and no Award or interest therein may be sold, transferred,
pledged, assigned, or otherwise alienated or hypothecated, other than by will or
by the laws of descent and distribution. All of a Participant’s rights in any
Award may be exercised during the life of the Participant only by the
Participant or the Participant’s legal representative. However, the Committee
may, at or after the grant of an Award of a Nonstatutory Option, or shares of
Restricted Stock, provide that such Award may be transferred by the recipient to
a family member; provided,
however, that any such transfer is without payment of any consideration
whatsoever and that no transfer shall be valid unless first approved by the
Committee, acting in its sole discretion. For this purpose, “family member”
means any child, stepchild, grandchild, parent, stepparent, spouse, former
spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law, or sister-in-law, including adoptive
relationships, any person sharing the employee’s household (other than a tenant
or employee), a trust in which the foregoing persons have more than fifty (50)
percent of the beneficial interests, a foundation in which the foregoing persons
(or the Participant) control the management of assets, and any other entity in
which these persons (or the Participant) own more than fifty (50) percent of the
voting interests.
7.1 Options
(a) Date of Grant. The
granting of an Option shall take place at the time specified in the Award
Agreement. Only if expressly so provided in the applicable Award Agreement shall
the Grant Date be the date on which the Award Agreement shall have been duly
executed and delivered by the Company and the Optionee.
(b) Exercise Price. The
price at which shares of Stock may be acquired under each Incentive Option shall
be not less than 100% of the Market Value of Stock on the Grant Date, or not
less than 110% of the Market Value of Stock on the Grant Date if the Optionee is
a Ten Percent Owner. The price at which shares may be acquired under each
Nonstatutory Option shall not be so limited solely by reason of this
Section.
(c) Option Period. No
Incentive Option may be exercised on or after the tenth anniversary of the Grant
Date, or on or after the fifth anniversary of the Grant Date if the Optionee is
a Ten Percent Owner. The Option period under each Nonstatutory Option shall not
be so limited solely by reason of this Section.
(d) Exercisability. An
Option may be immediately exercisable or become exercisable in such
installments, cumulative or non-cumulative, as the Committee may determine. In
the case of an Option not otherwise immediately exercisable in full, the
Committee may Accelerate such Option in whole or in part at any time;
provided, however, that
in the case of an Incentive Option, any such Acceleration of the Option would
not cause the Option to fail to comply with the provisions of Section 422 of the
Code or the Optionee consents to the Acceleration.
(e) Method of Exercise.
An Option may be exercised by the Optionee giving written notice, in the manner
provided in Section 16, specifying the number of shares with respect to which
the Option is then being exercised. The notice shall be accompanied by payment
in the form of cash or check payable to the order of the Company in an
amount equal to the exercise price of the shares to be purchased or, if the
Committee had so authorized on the grant of an Incentive Option or on or after
grant of an Nonstatutory Option (and subject to such conditions, if any, as the
Committee may deem necessary to avoid adverse accounting effects to the Company)
by delivery to the Company of
(i)
shares of Stock having a Market Value equal to the exercise price of the shares
to be purchased, or
(ii)
unless prohibited by applicable law, the Optionee’s executed promissory note in
the principal amount equal to the exercise price of the shares to be purchased
and otherwise in such form as the Committee shall have approved.
If the
Stock is traded on an established market, payment of any exercise price may also
be made through and under the terms and conditions of any formal cashless
exercise program authorized by the Company entailing the sale of the Stock
subject to an Option in a brokered transaction (other than to the Company).
Receipt by the Company of such notice and payment in any authorized or
combination of authorized means shall constitute the exercise of the Option.
Within thirty (30) days thereafter but subject to the remaining provisions of
the Plan, the Company shall deliver or cause to be delivered to the Optionee or
his agent a certificate or certificates for the number of shares then being
purchased. Such shares shall be fully paid and nonassessable.
(f) Limit on Incentive Option
Characterization. An Incentive Option shall be considered to be an
Incentive Option only to the extent that the number of shares of Stock for which
the Option first becomes exercisable in a calendar year do not have an aggregate
Market Value (as of the date of the grant of the Option) in excess of the
“current limit”. The current limit for any Optionee for any calendar year shall
be $100,000 minus the
aggregate Market Value at the date of grant of the number of shares of Stock
available for purchase for the first time in the same year under each other
Incentive Option previously granted to the Optionee under the Plan, and under
each other incentive stock option previously granted to the Optionee under any
other incentive stock option plan of the Company and its Affiliates, after
December 31, 1986. Any shares of Stock which would cause the foregoing limit to
be violated shall be deemed to have been granted under a separate Nonstatutory
Option, otherwise identical in its terms to those of the Incentive
Option.
(g) Notification of
Disposition. Each person exercising any Incentive Option granted under
the Plan shall be deemed to have covenanted with the Company to report to the
Company any disposition of such shares prior to the expiration of the holding
periods specified by Section 422(a)(1) of the Code and, if and to the extent
that the realization of income in such a disposition imposes upon the Company
federal, state, local or other withholding tax requirements, or any such
withholding is required to secure for the Company an otherwise available tax
deduction, to remit to the Company an amount in cash sufficient to satisfy those
requirements.
7.2.
Stock Appreciation
Rights.
(a) Tandem or
Stand-Alone. Stock Appreciation Rights may be granted in tandem with an
Option (at or, in the case of a Nonstatutory Option, after, the award of the
Option), or alone and unrelated to an Option. Stock Appreciation Rights in
tandem with an Option shall terminate to the extent that the related Option is
exercised, and the related Option shall terminate to the extent that the tandem
Stock Appreciation Rights are exercised.
(b) Exercise Price. Stock
Appreciation Rights shall have such exercise price as the Committee may
determine, except that in the case of Stock Appreciation Rights in tandem with
Options, the exercise price of the Stock Appreciation Rights shall equal the
exercise price of the related Option.
(c) Other Terms. Except
as the Committee may deem inappropriate or inapplicable in the circumstances,
Stock Appreciation Rights shall be subject to terms and conditions substantially
similar to those applicable to a Nonstatutory Option. In addition, an Stock
Appreciation Right related to an Option which can only be exercised during
limited periods following a Change in Control may entitle the Participant to
receive an amount based upon the highest price paid or offered for Stock in any
transaction relating to the Change in Control or paid during the thirty (30) day
period immediately preceding the occurrence of the change in control in any
transaction reported in the stock market in which the Stock is normally
traded.
7.3.
Restricted
Stock.
(a) Purchase Price.
Shares of Restricted Stock shall be issued under the Plan for such
consideration, in cash, other property or services, or any combination thereof,
as is determined by the Committee.
(b) Issuance of
Certificates. Each Participant receiving a Restricted Stock Award,
subject to subsection (c) below, shall be issued a stock certificate in respect
of such shares of Restricted Stock Such certificate shall be registered in
the name of such Participant, and, if applicable, shall bear an appropriate
legend referring to the terms, conditions, and restrictions applicable to such
Award substantially in the following form:
The
transferability of this certificate and the shares represented by this
certificate are subject to the terms and conditions of the Tempur-Pedic
International Inc. 2003 Equity Incentive Plan and an Award Agreement entered
into by the registered owner and Tempur-Pedic International Inc. Copies of such
Plan and Agreement are on file in the offices of Tempur-Pedic International
Inc.
(c) Escrow of Shares. The
Committee may require that the stock certificates evidencing shares of
Restricted Stock be held in custody by a designated escrow agent (which may but
need not be the Company) until the restrictions thereon shall have lapsed, and
that the Participant deliver a stock power, endorsed in blank, relating to the
Stock covered by such Award.
(d) Restrictions and Restriction
Period. During the Restriction Period applicable to shares of Restricted
Stock, such shares shall be subject to limitations on transferability and a Risk
of Forfeiture arising on the basis of such conditions related to the performance
of services, Company or Affiliate performance or otherwise as the Committee may
determine and provide for in the applicable Award Agreement. Any such Risk of
Forfeiture may be waived or terminated, or the Restriction Period shortened, at
any time by the Committee on such basis as it deems appropriate.
(e) Rights Pending Lapse of Risk
of Forfeiture or Forfeiture of Award. Except as otherwise provided in the
Plan or the applicable Award Agreement, at all times prior to lapse of any Risk
of Forfeiture applicable to, or forfeiture of, an Award of Restricted Stock, the
Participant shall have all of the rights of a stockholder of the Company,
including the right to vote, and the right to receive any dividends with respect
to, the shares of Restricted Stock. The Committee, as determined at the time of
Award, may permit or require the payment of cash dividends to be deferred and,
if the Committee so determines, reinvested in additional Restricted Stock to the
extent shares are available under Section 4.
(f) Lapse of
Restrictions. If and when the Restriction Period expires without a prior
forfeiture of the Restricted Stock, the certificates for such shares shall be
delivered to the Participant promptly if not theretofore so
delivered.
7.4.
Restricted Stock
Units.
(a) Character. Each
Restricted Stock Unit shall entitle the recipient to a share of Stock at a close
of such Restriction Period as the Committee may establish and subject to a Risk
of Forfeiture arising on the basis of such conditions relating to the
performance of services, Company or Affiliate performance or otherwise as the
Committee may determine and provide for in the applicable Award Agreement. Any
such Risk of Forfeiture may be waived or terminated, or the Restriction Period
shortened, at any time by the Committee on such basis as it deems
appropriate.
(b) Form and Timing of
Payment. Payment of earned Restricted Stock Units shall be made in a
single lump sum following the close of the applicable
Restriction Period. At the discretion of the Committee, Participants
may be entitled to receive payments equivalent to any dividends declared with
respect to Stock referenced in grants of Restricted Stock Units but only
following the close of the applicable Restriction Period and then only if the
underlying Stock shall have been earned. Unless the Committee shall provide
otherwise, any such dividend equivalents shall be paid, if at all, without
interest or other earnings.
7.5.
Performance
Units.
(a) Character. Each
Performance Unit shall entitle the recipient to the value of a specified number
of shares of Stock, over the initial value for such number of shares, if any,
established by the Committee at the time of grant, at the close of a specified
Performance Period to the extent specified Performance Goals shall have been
achieved.
(b) Earning of Performance
Units. The Committee shall set Performance Goals in its discretion which,
depending on the extent to which they are met within the applicable Performance
Period, will determine the number and value of Performance Units that will be
paid out to the Participant. After the applicable Performance Period has ended,
the holder of Performance Units shall be entitled to receive payout on the
number and value of Performance Units earned by the Participant over the
Performance Period, to be determined as a function of the extent to which the
corresponding Performance Goals have been achieved.
(c) Form and Timing of
Payment. Payment of earned Performance Units shall be made in a single
lump sum following the close of the applicable Performance Period. At the
discretion of the Committee, Participants may be entitled to receive any
dividends declared with respect to Stock which have been earned in connection
with grants of Performance Units which have been earned, but not yet distributed
to Participants. The Committee may permit or, if it so provides at grant
require, a Participant to defer such Participant’s receipt of the payment of
cash or the delivery of Stock that would otherwise be due to such Participant by
virtue of the satisfaction of any requirements or goals with respect to
Performance Units. If any such deferral election is required or permitted, the
Committee shall establish rules and procedures for such payment
deferrals.
7.6.
Stock Grants.
Stock Grants shall be awarded solely in recognition of significant contributions
to the success of the Company or its Affiliates, in lieu of compensation
otherwise already due and in such other limited circumstances as the Committee
deems appropriate. Stock Grants shall be made without forfeiture conditions of
any kind.
7.7.
Qualified
Performance-Based Awards.
(a) Purpose. The purpose
of this Section 7.7 is to provide the Committee the ability to qualify Awards as
“performance-based compensation” under Section 162(m) of the Code. If the
Committee, in its discretion, decides to grant an Award as a
Qualified Performance-Based Award, the provisions of this Section 7.7 will
control over any contrary provision contained in the Plan. In the course of
granting any Award, the Committee may specifically designate the Award as
intended to qualify as a Qualified Performance-Based Award. However, no Award
shall be considered to have failed to qualify as a Qualified Performance-Based
Award solely because the Award is not expressly designated as a Qualified
Performance-Based Award, if the Award otherwise satisfies the provisions of this
Section 7.7 and the requirements of Section 162(m) of the Code and the
regulations thereunder applicable to “performance-based
compensation.”
(b) Authority. All grants
of Awards intended to qualify as Qualified Performance-Based Awards and
determination of terms applicable thereto shall be made by the Committee or, if
not all of the members thereof qualify as “outside directors” within the meaning
of applicable IRS regulations under Section 162 of the Code, a subcommittee of
the Committee consisting of such of the members of the Committee as do so
qualify. Any action by such a subcommittee shall be considered the action of the
Committee for purposes of the Plan.
(b) Applicability. This
Section 7.7 will apply only to those Covered Employees, or to those persons who
the Committee determines are reasonably likely to become Covered Employees in
the period covered by an Award, selected by the Committee to receive Qualified
Performance-Based Awards. The Committee may, in its discretion, grant Awards to
Covered Employees that do not satisfy the requirements of this Section
7.7.
(c) Discretion of Committee with
Respect to Qualified Performance-Based Awards. Options may be granted as
Qualified Performance-Based Awards in accordance with Section 7.1, except that
the exercise price of any Option intended to qualify as a Qualified
Performance-Based Award shall in no event be less that the Market Value of the
Stock on the date of grant. With regard to other Awards intended to qualify as
Qualified Performance-Based Awards, such as Restricted Stock, Restricted Stock
Units, or Performance Units, the Committee will have full discretion to select
the length of any applicable Restriction Period or Performance Period, the kind
and/or level of the applicable Performance Goal, and whether the Performance
Goal is to apply to the Company, a Subsidiary or any division or business unit
or to the individual. Any Performance Goal or Goals applicable to Qualified
Performance-Based Awards shall be objective, shall be established not later than
ninety (90) days after the beginning of any applicable Performance Period (or at
such other date as may be required or permitted for “performance-based
compensation” under Section 162(m) of the Code) and shall otherwise meet the
requirements of Section 162(m) of the Code, including the requirement that the
outcome of the Performance Goal or Goals be substantially uncertain (as defined
in the regulations under Section 162(m) of the Code) at the time
established.
(d) Payment of Qualified
Performance-Based Awards. A Participant will be eligible to receive
payment under a Qualified Performance-Based Award which is subject to
achievement of a Performance Goal or Goals only if the applicable Performance
Goal or Goals period are achieved within the applicable Performance Period, as
determined by the Committee. In determining the actual size of an individual
Qualified Performance-Based Award, the Committee may reduce or eliminate the
amount of the Qualified Performance-Based Award earned for the Performance
Period, if in its sole and absolute discretion, such reduction or elimination is
appropriate.
(e) Maximum Award
Payable. The maximum Qualified Performance-Based Award payment to any one
Participant under the Plan for a Performance Period is the number of shares of
Stock set forth in Section 4 above, or if the Qualified Performance-Based Award
is paid in cash, that number of shares multiplied by the Market Value of the
Stock as of the date the Qualified Performance-Based Award is
granted.
(f) Limitation on Adjustments
for Certain Events. No adjustment of any Qualified Performance-Based
Award pursuant to Section 8 shall be made except on such basis, if any, as will
not cause such Award to provide other than “performance-based compensation”
within the meaning of Section 162(m) of the Code.
7.8.
Awards to Participants
Outside the United States. The Committee may modify the terms of any
Award under the Plan, granted to a Participant who is, at the time of grant or
during the term of the Award, resident or primarily employed outside of the
United States in any manner deemed by the Committee to be necessary or
appropriate in order that the Award shall conform to laws, regulations, and
customs of the country in which the Participant is then resident or primarily
employed, or so that the value and other benefits of the Award to the
Participant, as affected by foreign tax laws and other restrictions applicable
as a result of the Participant’s residence or employment abroad, shall be
comparable to the value of such an Award to a Participant who is resident or
primarily employed in the United States. The Committee may establish supplements
to, or amendments, restatements, or alternative versions of, the Plan for the
purpose of granting and administrating any such modified Award. No such
modification, supplement, amendment, restatement or alternative version may
increase the share limit of Section 4.
8.1.
Adjustment for
Corporate Actions. All of the share numbers set forth in the Plan reflect
the capital structure of the Company as of December 23, 2003. Subject to Section
8.2, if subsequent to that date the outstanding shares of Stock (or any other
securities covered by the Plan by reason of the prior application of this
Section) are increased, decreased, or exchanged for a different number or kind
of shares or other securities, or if additional shares or new or different
shares or other securities are distributed with respect to shares of Stock,
through merger, consolidation, sale of all or substantially all the property of
the Company, reorganization, recapitalization, reclassification, stock dividend,
stock split, reverse stock split, or other similar distribution with respect to
such shares of Stock, an appropriate and proportionate adjustment will be made
in (i) the maximum numbers and kinds of shares provided in Section 4, (ii) the
numbers and kinds of shares or other securities subject to the then outstanding
Awards, (iii) the exercise price for each share or other unit of any other
securities subject to then outstanding Options and Stock Appreciation Rights
(without change in the aggregate purchase price as to which such Options or
Rights remain exercisable), and (iv) the repurchase price of each share of
Restricted Stock then subject to a Risk of Forfeiture in the form of a Company
repurchase right.
8.2.
Treatment in Certain
Acquisitions. Subject to any provisions of then outstanding Awards
granting greater rights to the holders thereof, in the event of an Acquisition
in which outstanding Awards are not Accelerated in full pursuant to Section 9,
any then outstanding Awards shall nevertheless Accelerate in full if not assumed
or replaced by comparable Awards referencing shares of the capital stock of the
successor or acquiring entity or parent thereof, and thereafter (or after a
reasonable period following the Acquisition, as determined by the Committee)
terminate. As to any one or more outstanding Awards which are not otherwise
Accelerated in full by reason of such Acquisition, the Committee may also,
either in advance of an Acquisition or at the time thereof and upon such terms
as it may deem appropriate, provide for the Acceleration of such outstanding
Awards in the event that the employment of the Participants should subsequently
terminate following the Acquisition. Each outstanding Award that is assumed in
connection with an Acquisition, or is otherwise to continue in effect subsequent
to the Acquisition, will be appropriately adjusted, immediately after the
Acquisition, as to the number and class of securities and other relevant terms
in accordance with Section 8.1. 1
8.3.
Dissolution or
Liquidation. Upon dissolution or liquidation of the Company, other than
as part of an Acquisition or similar transaction, each outstanding Option and
Stock Appreciation Right shall terminate, but the Optionee or Stock Appreciation
Right holder shall have the right, immediately prior to the dissolution or
liquidation, to exercise the Option or Stock Appreciation Right to the extent
exercisable on the date of dissolution or liquidation.
8.4.
Adjustment of Awards
Upon the Occurrence of Certain Unusual or Nonrecurring Events. In the
event of any corporate action not specifically covered by the preceding
Sections, including but not limited to an extraordinary cash distribution on
Stock, a corporate separation or other reorganization or liquidation, the
Committee may make such adjustment of outstanding Awards and their terms, if
any, as it, in its sole discretion, may deem equitable and appropriate in the
circumstances. The Committee may make adjustments in the terms and conditions
of, and the criteria included in, Awards in recognition of unusual or
nonrecurring events (including, without limitation, the events described in this
Section) affecting the Company or the financial statements of the Company or of
changes in applicable laws, regulations, or accounting principles, whenever the
Committee determines that such adjustments are appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits intended to be
made available under the Plan.
8.5.
Related Matters. Any
adjustment in Awards made pursuant to this Section 8 shall be determined and
made, if at all, by the Committee and shall include any correlative modification
of terms, including of Option exercise prices, rates of vesting or
exercisability, Risks of Forfeiture, applicable repurchase prices for Restricted
Stock, and Performance Goals and other financial objectives which the Committee
may deem necessary or appropriate so as to ensure the rights of the Participants
in their respective Awards are not substantially diminished nor enlarged as a
result of the adjustment and corporate action other than as expressly
contemplated in this Section 8. No fraction of a share shall be purchasable or
deliverable upon exercise, but in the event any adjustment hereunder of the
number of shares covered by an Award shall cause such number to include a
fraction of a share, such number of shares shall be adjusted to the nearest
smaller whole number of shares. No adjustment of an Option exercise price per
share pursuant to this Section 8 shall result in an exercise price which is less
than the par value of the Stock.
Except as
otherwise provided below, upon the occurrence of a Change in
Control:
(a) any
and all Options and Stock Appreciation Rights not already exercisable in full
shall Accelerate with respect to 50% of the shares for which such Options or
Stock Appreciation Rights are not then exercisable;
(b) any
Risk of Forfeiture applicable to Restricted Stock and Restricted Stock Units
which is not based on achievement of Performance Goals shall lapse with respect
to 50% of the Restricted Stock and Restricted Stock Units still subject to such
Risk of Forfeiture immediately prior to the Change of Control; and
(c) All
outstanding Awards of Restricted Stock and Restricted Stock Units conditioned on
the achievement of Performance Goals and the target payout opportunities
attainable under outstanding Performance Units shall be deemed to have been
satisfied as of the effective date of the Change in Control as to a pro rata
number of shares based on the assumed achievement of all relevant Performance
Goals and the length of time within the Performance Period which has elapsed
prior to the Change in Control. All such Awards of Performance Units and
Restricted Stock Units shall be paid to the extent earned to Participants in
accordance with their terms within thirty (30) days following the effective date
of the Change in Control.
1 1/Note that Change of Control, as
defined, includes certain transactions which are also “Acquisitions.” Therefore,
both Section 8.2 and Article 9 may apply to the same event prevent dilution or enlargement of the
benefits or potential benefits intended to be made available under the
Plan.
None of the
foregoing shall apply, however, (i) in the case of an Qualified
Performance-Based Award specifically designated as such by the Committee at the
time of grant (except to the extent allowed by Section 162(m) of the Code), (ii)
in the case of any Award pursuant to an Award Agreement requiring other or
additional terms upon a Change in Control (or similar event), or (iii) if
specifically prohibited under applicable
laws, or
by the rules and regulations of any governing governmental agencies or national
securities exchanges.
10.1.
In General.
Options and Restricted Stock shall be settled in accordance with their terms.
All other Awards may be settled in cash, Stock, or other Awards, or a
combination thereof, as determined by the Committee at or after grant and
subject to any contrary Award Agreement. The Committee may not require
settlement of any Award in Stock pursuant to the immediately preceding sentence
to the extent issuance of such Stock would be prohibited or unreasonably delayed
by reason of any other provision of the Plan.
10.2.
Violation of
Law. Notwithstanding any other provision of the Plan or the relevant
Award Agreement, if, at any time, in the reasonable opinion of the Company, the
issuance of shares of Stock covered by an Award may constitute a violation of
law, then the Company may delay such issuance and the delivery of a certificate
for such shares until (i) approval shall have been obtained from such
governmental agencies, other than the Securities and Exchange Commission, as may
be required under any applicable law, rule, or regulation and (ii) in the case
where such issuance would constitute a violation of a law administered by or a
regulation of the Securities and Exchange Commission, one of the following
conditions shall have been satisfied:
(a) the
shares are at the time of the issue of such shares effectively registered under
the Securities Act of 1933; or
(b) the
Company shall have determined, on such basis as it deems appropriate (including
an opinion of counsel in form and substance satisfactory to the Company) that
the sale, transfer, assignment, pledge, encumbrance or other disposition of such
shares or such beneficial interest, as the case may be, does not require
registration under the Securities Act of 1933, as amended or any applicable
State securities laws.
The
Company shall make all reasonable efforts to bring about the occurrence of said
events.
10.3.
Corporate Restrictions
on Rights in Stock. Any Stock to be issued pursuant to Awards granted
under the Plan shall be subject to all restrictions upon the transfer thereof
which may be now or hereafter imposed by the charter, certificate or articles,
and by-laws, of the Company. Whenever Stock is to be issued pursuant to an
Award, if the Committee so directs at or after grant, the Company shall be under
no obligation to issue such shares until such time, if ever, as the recipient of
the Award (and any person who exercises any Option, in whole or in part), shall
have become a party to and bound by the Stockholders’ Agreement, if any. In the
event of any conflict between the provisions of this Plan and the provisions of
the Stockholders’ Agreement, the provisions of the Stockholders’ Agreement shall
control except as required to fulfill the intention that this Plan constitute an
incentive stock option plan within the meaning of Section 422 of the
Code, but insofar as possible the provisions of the Plan and such Agreement
shall be construed so as to give full force and effect to all such
provisions.
10.4.
Investment
Representations. The Company shall be under no obligation to issue any
shares covered by any Award unless the shares to be issued pursuant to Awards
granted under the Plan have been effectively registered under the Securities Act
of 1933, as amended, or the Participant shall have made such written
representations to the Company (upon which the Company believes it may
reasonably rely) as the Company may deem necessary or appropriate for purposes
of confirming that the issuance of such shares will be exempt from the
registration requirements of that Act and any applicable state securities laws
and otherwise in compliance with all applicable laws, rules and regulations,
including but not limited to that the Participant is acquiring the shares for
his or her own account for the purpose of investment and not with a view to, or
for sale in connection with, the
10.5.
Registration.
If the Company shall deem it necessary or desirable to register under the
Securities Act of 1933, as amended or other applicable statutes any shares of
Stock issued or to be issued pursuant to Awards granted under the Plan, or to
qualify any such shares of Stock for exemption from the Securities Act of 1933,
as amended or other applicable statutes, then the Company shall take such action
at its own expense. The Company may require from each recipient of an Award, or
each holder of shares of Stock acquired pursuant to the Plan, such information
in writing for use in any registration statement, prospectus, preliminary
prospectus or offering circular as is reasonably necessary for that purpose and
may require reasonable indemnity to the Company and its officers and directors
from that holder against all losses, claims, damage and liabilities arising from
use of the information so furnished and caused by any untrue statement of any
material fact therein or caused by the omission to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made. In
addition, the Company may require of any such person that he or she agree that,
without the prior written consent of the Company or the managing underwriter in
any public offering of shares of Stock, he or she will not sell, make any short
sale of, loan, grant any option for the purchase of, pledge or otherwise
encumber, or otherwise dispose of, any shares of Stock during the 180 day period
commencing on the effective date of the registration statement relating to the
underwritten public offering of securities. Without limiting the generality of
the foregoing provisions of this Section 10.5, if in connection with any
underwritten public offering of securities of the Company the managing
underwriter of such offering requires that the Company’s directors and officers
enter into a lock-up agreement containing provisions that are more restrictive
than the provisions set forth in the preceding sentence, then (a) each holder of
shares of Stock acquired pursuant to the Plan (regardless of whether such person
has complied or complies with the provisions of clause (b) below) shall be bound
by, and shall be deemed to have agreed to, the same lock-up terms as those to
which the Company’s directors and officers are required to adhere; and (b) at
the request of the Company or such managing underwriter, each such person shall
execute and deliver a lock-up agreement in form and substance equivalent to that
which is required to be executed by the Company’s directors and
officers.
10.6.
Placement of Legends; Stop
Orders; etc. Each share of Stock to be issued pursuant to
Awards granted under the Plan may bear a reference to the investment
representation made in accordance with Section 10.4 in addition to any other
applicable restriction under the Plan, the terms of the Award and if applicable
under the Stockholders’ Agreement and to the fact that no registration statement
has been filed with the Securities and Exchange Commission in respect to such
shares of Stock. All certificates for shares of Stock or other securities
delivered under the Plan shall be subject to such stock transfer orders and
other restrictions as the Committee may deem advisable under the rules,
regulations, and other requirements of any stock exchange upon which the Stock
is then listed, and any applicable federal or state securities law, and the
Committee may cause a legend or legends to be put on any such certificates to
make appropriate reference to such restrictions.
10.7. Tax
Withholding. Whenever shares of Stock are issued or to be
issued pursuant to Awards granted under the Plan, the Company shall have the
right to require the recipient to remit to the Company an amount sufficient to
satisfy federal, state, local or other withholding tax requirements if, when,
and to the extent required by law (whether so required to secure for the Company
an otherwise available tax deduction or otherwise) prior to the delivery of any
certificate or certificates for such shares. The obligations of the Company
under the Plan shall be conditional on satisfaction of all such withholding
obligations and the Company shall, to the extent permitted by law, have the
right to deduct any such taxes from any payment of any kind otherwise due to the
recipient of an Award. However, in such cases Participants may elect, subject to
the approval of the Committee, to satisfy an applicable withholding requirement,
in whole or in part, by having the Company withhold shares to satisfy their tax
obligations. Participants may only elect to have Shares withheld having a Market
Value on the date the tax is to be determined equal to the minimum statutory
total tax which could be imposed on the transaction. All elections shall be
irrevocable, made in writing, signed by the Participant, and shall be subject to
any restrictions or limitations that the Committee deems
appropriate.
The
Company shall at all times during the term of the Plan and any outstanding
Awards granted hereunder reserve or otherwise keep available such number of
shares of Stock as will be sufficient to satisfy the requirements of the Plan
(if then in effect) and the Awards and shall pay all fees and expenses
necessarily incurred by the Company in connection therewith.
A
Participant shall not be deemed for any purpose to be a stockholder of the
Company with respect to any of the shares of Stock subject to an Award, unless
and until a certificate shall have been issued therefor and delivered to the
Participant or his agent. Any Stock to be issued pursuant to Awards granted
under the Plan shall be subject to all restrictions upon the transfer thereof
which may be now or hereafter imposed by the Certificate of
Incorporation and the By-laws of the Company. Nothing contained in the Plan or
in any Award Agreement shall confer upon any recipient of an Award any right
with respect to the continuation of his or her employment or other association
with the Company (or any Affiliate), or interfere in any way with the right of
the Company (or any Affiliate), subject to the terms of any separate employment
or consulting agreement or provision of law or corporate articles or by-laws to
the contrary, at any time to terminate such employment or consulting agreement
or to increase or decrease, or otherwise adjust, the other terms and conditions
of the recipient’s employment or other association with the Company and its
Affiliates.
The Plan
is intended to constitute an “unfunded” plan for incentive compensation, and the
Plan is not intended to constitute a plan subject to the provisions of the
Employee Retirement Income Security Act of 1974, as amended. With respect to any
payments not yet made to a Participant by the Company, nothing contained herein
shall give any such Participant any rights that are greater than those of a
general creditor of the Company. In its sole discretion, the Committee may
authorize the creation of trusts or other arrangements to meet the obligations
created under the Plan to deliver Stock or payments with respect to Options,
Stock Appreciation Rights and other Awards hereunder, provided, however, that the
existence of such trusts or other arrangements is consistent with the unfunded
status of the Plan.
Neither
the adoption of the Plan by the Board nor the submission of the Plan to the
stockholders of the Company shall be construed as creating any limitations on
the power of the Board to adopt such other incentive arrangements as it may deem
desirable, including without limitation, the granting of stock options and
restricted stock other than under the Plan, and such arrangements may be either
applicable generally or only in specific cases.
The Board
may at any time terminate the Plan or make such modifications of the Plan as it
shall deem advisable. Unless the Board otherwise expressly provides, no
amendment of the Plan shall affect the terms of any Award outstanding on the
date of such amendment. In any case, no termination or amendment of the Plan
may, without the consent of any recipient of an Award granted hereunder,
adversely affect the rights of the recipient under such Award.
Subject to
the last sentence of this paragraph, the Committee may amend the terms of any
Award theretofore granted, prospectively or retroactively, provided that the
Award as amended is consistent with the terms of the Plan, but no such amendment
shall impair the rights of the recipient of such Award without his or her
consent. Except in connection with corporate transactions involving
the Company (including, without limitation, any stock dividend, stock split,
extraordinary cash dividend, recapitalization, reorganization, merger,
consolidation, split-up, spin-off, combination, or exchange of shares), no
amendment, alteration or modification to any Option or Stock Appreciation Right
that has the effect of a repricing thereof or the cancellation or regrant
of such Option or Stock Appreciation Rights is allowable without the prior
approval of the stockholders of the Company, and the Committee may not establish
or maintain any program under which outstanding Options are surrendered or
canceled in exchange for Options with a lower exercise price or greater economic
value; provided however, that appropriate adjustments may be made to outstanding
Options and Stock Appreciation Rights to achieve compliance with applicable law,
including Section 409A of the Code.
Any
notice, demand, request or other communication hereunder to any party shall be
deemed to be sufficient if contained in a written instrument delivered in person
or duly sent by first class registered, certified or overnight mail, postage
prepaid, or telecopied with a confirmation copy by regular, certified or
overnight mail, addressed or telecopied, as the case may be, (i) if to the
recipient of an Award, at his or her residence address last filed with the
Company and (ii) if to the Company, at its principal place of business,
addressed to the attention of its Treasurer, or to such other address or
telecopier number, as the case may be, as the addressee may have designated by
notice to the addressor. All such notices, requests, demands and other
communications shall be deemed to have been received: (i) in the case of
personal delivery, on the date of such delivery; (ii) in the case of mailing,
when received by the addressee; and (iii) in the case of facsimile transmission,
when confirmed by facsimile machine report.
The Plan
and all Award Agreements and actions taken thereunder shall be governed,
interpreted and enforced in accordance with the laws of the State of Delaware,
without regard to the conflict of laws principles thereof.
-------------------------------------------------------------------------------------------
This
Plan was last updated effective May 8, 2008.
PROXY
CARD
TEMPUR-PEDIC
INTERNATIONAL INC.
PROXY
FOR 2008 ANNUAL MEETING OF STOCKHOLDERS
THIS
PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
VOTE
BY INTERNET - www.proxyvote.com
Use the
Internet to transmit your voting instructions and for electronic delivery of
information up until 11:59 P.M. Eastern Time the day before the cut-off date or
meeting date. Have your proxy card in hand when you access the web
site and follow the instructions to obtain your records and to create an
electronic voting instruction form.
ELECTRONIC
DELIVERY OF FUTURE STOCKHOLDER COMMUNICATIONS
If you
would like to reduce the costs incurred by Tempur-Pedic International Inc. in
mailing proxy materials, you can consent to receiving all future proxy
statements, proxy cards and annual reports electronically via e-mail or
the
Internet.
To sign up for electronic delivery, please follow the instructions above to vote
using the Internet and, when prompted, indicate that you
agree to receive or access stockholder communications electronically in
future years.
VOTE
BY PHONE - 1-800-690-6903
Use any
touch-tone telephone to transmit your voting instructions up until 11:59 P.M.
Eastern Time the day before the cut-off date or meeting date. Have your proxy
card in hand when you call and then follow the instructions.
VOTE
BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid
envelope we have provided or return it to Tempur-Pedic International Inc., c/o
Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
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VOTE
ON DIRECTORS
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1.
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ELECTION OF
DIRECTORS
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Nominees:
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(01)
H. Thomas Bryant
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(02)
Francis A. Doyle
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(03)
John Heil
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(04)
Peter K. Hoffman
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(05)
Sir Paul Judge
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(06)
Nancy F. Koehn
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(07)
Christopher A. Masto
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(08)
P. Andrews McLane
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(09)
Robert B. Trussell, Jr.
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FOR
ALL
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WITHOLD
ALL
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FOR
ALL EXCEPT
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o
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To
withhold authority to vote for any individual nominee(s), mark "For
All Except" and write the number(s) of the nominee(s) on the line to the
right.
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| VOTE ON PROPOSALS | ||||
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2. AMENDMENT TO THE 2003 EQUITY
INCENTIVE PLAN
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FOR
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AGAINST
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ABSTAIN
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o
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o
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3. RATIFICATION OF ERNST &
YOUNG LLP AS INDEPENDENT AUDITORS
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FOR
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AGAINST
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ABSTAIN
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o
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Please
sign exactly as name appears on the proxy. When shares are held by
joint tenants, both should sign. When signing as attorney executor,
administrator, trustee, or guardian, please give your full title. If
a corporation, please sign in full corporate name by authorized
officer. If a partnership or LLC, please sign in firm name by
authorized member.
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Yes
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No
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Please
indicate if you plan to attend this meeting.
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o
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o
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Materials Election
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As
of July 1, 2007, SEC rules permit companies to send you a notice that
proxy information is available on the Internet, instead of mailing you a
complete set of materials. Check the box to the right if you
want to receive a complete set of future proxy materials by mail, at no
cost to you. If you do not take action you may receive only a
Notice.
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o
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Signature
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Date
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Signature
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Date
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(if
held jointly)
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