Document:

Letter dated October 20, 2003 from TWI Holdings, Inc.

 Exhibit 10.16 
  
 TWI HOLDINGS, INC. 
 TEMPUR WORLD, INC.

 1713 Jaggie Fox Way 
 Lexington,
KY 40511 
  
 October 20, 2003 
  
 Mikael Magnusson 
 The Old Manor 
 Upper Lambourn 
 Nr Hungerford 
 Berks RG17 8RG 
 United Kingdom

  
 Dag Landvik 
 c/o Fagerdala World Foams AB 
 Odelbergs Vag 19 
 S-134 82 Gustavsberg, Sweden 
  
 Re:    Agreement and Plan of Merger/Additional Payment 
  
 Gentlemen: 
  
 We refer to the
Agreement and Plan of Merger dated as of October 4, 2002 (the “Merger Agreement”) among TWI Holdings, Inc. (“TWI”), Tempur World, Inc. (“Tempur”), TWI Acquisition Corp. and certain former stockholders of Tempur.
Capitalized terms used in this letter agreement without definition shall have the respective meanings set forth for such terms in the Merger Agreement. Pursuant to Section 10.12 of the Merger Agreement, each of you were appointed as a Payee
Representative with full power to act on behalf of the Payees in connection with the transactions contemplated by the Transaction Documents, including, without limitation, the Merger Agreement. 
  
 On or about August 19, 2003, Tempur prepaid the full maximum amount of the
Additional Payment under the Merger Agreement and the full maximum amount of the Special Additional Payment (as defined in the Contribution Agreement) under the Contribution Agreement. Former stockholders of Tempur who participated in the Merger
received the Additional Payment of $4.814 for each Common Share or Preferred Share of Tempur that was converted into the right to receive the merger consideration under the Merger Agreement. In addition, former stockholders of Tempur who elected to
contribute or “rollover” Common Shares of Tempur to TWI pursuant to the Contribution Agreement received the Special Additional Payment of $4.814 for each Common Share of Tempur contributed to TWI. 
  
 The aggregate amount of the Additional Payments and Special Additional
Payments paid by Tempur was $39,434,039.53, which corresponds to the total of the 

 maximum amount of the Additional Payments under the Merger Agreement and the maximum amount of the Special Additional
Payments under the Contribution Agreement. This amount is less than the $40,000,000 amount specified in the numerator of the formula for the Additional Payment in the Merger Agreement because (i) the denominator in such formula consists of
“Adjusted Diluted Shares”, (ii) the definition of “Adjusted Diluted Shares” includes the number of Common Shares subject to being issued pursuant to the Management Options outstanding immediately prior to the Effective Time and
(iii) holders of such Management Options (which were terminated effective upon the Effective Time) were not entitled to participate in the payment of the Additional Payment or the Special Additional Payment. 
  
 As Payee Representatives, you have recently questioned the aggregate amount
of the Additional Payment and the Special Additional Payment, which has led to discussions between you and representatives of Tempur that have now been resolved as set forth in this letter agreement. Accordingly, effective upon execution of this
letter agreement by each of the parties specified on the signature lines below, and in consideration of the parties’ mutual promises and covenants set forth herein, the undersigned parties hereby agree as follows: 
  
 1.    Payment of Additional Amounts by
Tempur.  Tempur shall pay the amount of $565,960.47 (representing the difference between $40,000,000 and $39,434,039.53) as follows: $155,331.72 to Fagerdala Holding BV; $2,687.14 to Fagerdala Industri A.B.; $19,675.60 to Chesterfield
Properties Ltd.; $31,597.55 to Viking Investments S.a.r.l.; $136,596.43 to Bob Trussell; $60,709.53 to Tom Bryant; $83,475.59 to David Fogg; and $75,886.91 to Jeff Heath. 
  
 2.    Release by Payee Parties.  Each of you, in your capacities as Payee
Representatives, on behalf of the Payees, and each of Fagerdala Holding, B.V., Fagerdela Industri A.B., Chesterfield Properties Limited and Viking Investments S.a.r.l., for itself and on behalf of their respective directors, officers, employees,
consultants, agents, representatives and stockholders, as applicable, and the successors and assigns of each of the foregoing (all of the foregoing being collectively referred to as the “Payee Parties”), hereby releases and forever
discharges TWI, Tempur and their respective directors, officers, employees, consultants, agents, representatives and stockholders, as applicable, and the successors and assigns of each of the foregoing, of and from any and all claims, actions,
causes of action, demands, obligations, liabilities, losses, damages, costs or expenses (including, without limitation, fees and disbursements of counsel and any interest accrued and owing with respect to any of the foregoing), whether liquidated or
unliquidated, known or unknown, foreseen or unforeseen, in law or in equity, which any of the Payee Parties may have had in the past, now have or hereafter may have arising directly or indirectly out of or in any way related to (a) the payment of
the Additional Payment or the Special Additional Payment, (b) the Merger Agreement (other than Section 6.06 thereof and Articles X and XI thereof and other than the Escrow Agreement) or (c) the Contribution Agreement; provided,
however, 

 that the foregoing release shall not apply with respect to any claims, actions or causes of action of the Payee Parties
to enforce the terms of this letter agreement. Each of Payee Parties further agrees not to file any lawsuit or initiate any arbitration proceeding with respect to any of the claims which are the subject of the foregoing release. 
  
 3.    Certain Continuing
Obligations.  The release set forth in Section 2 above shall apply only to the claims expressly released thereby, and not to any other claims of any of the Payee Parties now existing or arising from time to time hereafter. Without
limiting the generality of the foregoing, the parties hereto acknowledge and agree that the release set forth in Section 2 above shall have no effect on the obligations of TWI, Tempur and the Escrow Agent under the Escrow Agreement, and that all
such obligations shall continue in full force and effect from and after the date hereof. 
  
 4.    Representations and Warranties.  Each of the undersigned hereby represents and warrants that (a) he or it is duly authorized to enter into and execute this letter agreement
and (b) he or it has had the benefit of the advice of legal counsel in connection with the execution of this letter agreement. 
  
 5.    No Admission of Liability.  Each of the undersigned understands and agrees that this letter agreement is a
compromise of disputed claims and that the terms set forth herein are not to be construed as an admission of liability on the part of any party hereto. 
  
 6.    Governing Law.  The parties agree that this letter agreement and release shall be governed by, construed and
enforced in accordance with, and subject to, the internal laws (and not the choice-of-law rules) of the State of Delaware. 
  
 7.    Successors and Assigns.  This letter agreement shall be binding upon, and inure to the benefit of, the parties
hereto and their respective heirs, personal representatives, successors and assigns. 
  
 8.    Counterparts.  This letter agreement may be executed in several counterparts and by each party on a separate counterpart, each of which when executed and delivered shall be
an original, and all of which together shall constitute one instrument. 
  
 Please sign below to indicate your agreement to and acceptance of the foregoing terms, and return a fully executed original of this letter agreement to Tempur at its address first stated above, attention Robert B. Trussell, Jr., President,
by 5:00 p.m. New York time on November 12, 2003. The terms of this letter agreement shall only become effective upon execution by each of the parties specified on the signature lines below and delivery thereof to Tempur in accordance with the
preceding sentence. 

	 	 	 	 	 Yours sincerely,

			
	 TWI HOLDINGS, INC.
	 	 	 	 TEMPUR WORLD, INC.

					
	By:	 	/S/ R.B. TRUSSELL JR.	 	 	 	By:	 	/S/ R.B. TRUSSELL, JR.
	 	
	 	 	 	 	

	 Title: CEO
	 	 	 	 Title: CEO

			
	 Accepted and Agreed to as of this         
 day of October, 2003:
	 	 	 	 
			
	/S/    DAG LANDVIK	 	 	 	 /S/    MIKAEL MAGNUSSON

	
	 	 	

	 Dag Landvik, as Payee
 Representative
	 	 	 	 Mikael Magnusson, as Payee
 Representative

			
	 FAGERDALA HOLDINGS B.V.
	 	 	 	 FAGERDALA INDUSTRI A.B.

					
	By:	 	/S/    JAN VAN EDEREN	 	 	 	By:	 	/S/    DAG LANDVIK
	 	
	 	 	 	 	

	Title: /s/    Jan Van Ederen on behalf of Acht Beheer
                  en Aderen BV, director	 	 	 	Title: Director
			
	 CHESTERFIELD PROPERTIES LIMITED
	 	 	 	 VIKING INVESTMENTS S.A.R.L.

					
	By:	 	/S/    MARTIN TUPPER	 	 	 	By:	 	/S/    COLM SMITH
	 	
	 	 	 	 	

	Title: Director	 	 	 	Title: Director

  
  
 Rathbone Secretaries Jersey Limited 
 /S/    R.J. CLAREY 
         Duly AuthorizedStatement re: Restrictions on Transferability of Shares

 EXHIBIT 4.2 
  
 STATEMENT REGARDING RESTRICTIONS ON 
 TRANSFERABILITY OF SHARES OF COMMON STOCK 
  
 (To Appear On Stock Certificate Or To Be Sent Upon Request 
 And Without Charge To Stockholders
Issued Shares Without Certificates) 
  
 The shares represented by this
certificate are subject to restrictions on Beneficial Ownership, Constructive Ownership and Transfer for the purpose of the Corporation’s maintenance of its status as a Real Estate Investment Trust under the Internal Revenue Code of 1986, as
amended (the “Code”). Subject to certain further restrictions and except as expressly provided in the Corporation’s charter: (a) no Person may Beneficially Own or Constructively Own shares of the Corporation’s Common Stock in
excess of 9.8% (in value or number of shares) of the outstanding shares of Common Stock of the Corporation unless such Person is an Excepted Holder (in which case the Excepted Holder Limit for such Excepted Holder shall be applicable); (b) no Person
may Beneficially Own or Constructively Own shares of Capital Stock of the Corporation in excess of 9.8% of the value of the total outstanding shares of Capital Stock of the Corporation, unless such Person is an Excepted Holder (in which case the
Excepted Holder Limit for such Excepted Holder shall be applicable); (c) no Person may Beneficially Own or Constructively Own Capital Stock that would result in the Corporation being “closely held” under Section 856(h) of the Code or
otherwise cause the Corporation to fail to qualify as a REIT; and (d) other than as provided in the Corporation’s charter, no Person may Transfer shares of Capital Stock if such Transfer would result in the Capital Stock of the Corporation
being owned by fewer than 100 Persons. Any Person who Beneficially Owns or Constructively Owns or attempts to Beneficially Own or Constructively Own shares of Capital Stock which causes or will cause a Person to Beneficially Own or Constructively
Own shares of Capital Stock in excess or in violation of the above limitations must immediately notify the Corporation. If any of the restrictions on Transfer or ownership are violated, the shares of Capital Stock represented hereby will be
automatically transferred to a Trustee of a Trust for the benefit of one or more Charitable Beneficiaries. In addition, upon the occurrence of certain events, attempted Transfers in violation of the restrictions described above may be void ab
initio. 
  
 Until the Common Stock is Listed, to purchase Common Stock, the
purchaser must represent to the Corporation: (i) that such purchaser (or, in the case of sales to fiduciary accounts, that the beneficiary, fiduciary account or grantor or donor who directly or indirectly supplies the funds to purchase the shares if
the grantor or donor is the fiduciary) has a minimum annual gross income of $45,000 and a net worth (excluding home, furnishings and automobiles) of not less than $45,000; or (ii) that such purchaser (or, in the case of sales to fiduciary accounts,
that the beneficiary, fiduciary account or grantor or donor who directly or indirectly supplies the funds to purchase the shares if the 

  

 
grantor or donor is the fiduciary) has a net worth (excluding home, furnishings and automobiles) of not less than $150,000. Until the Common Stock is Listed,
each transfer of shares of Common Stock shall comply with the requirements regarding minimum initial and subsequent cash investment amounts set forth in the Corporation’s Registration Statement (No. 333-107066) on Form S-11 as such registration
statement has been amended or supplemented as of the date of such issuance or transfer or any lower applicable state requirements with respect to minimum initial and subsequent cash investment amounts in effect as of the date of the issuance or
transfer. 
  
 All capitalized terms in this legend have the meanings defined in
the charter of the Corporation, as the same may be amended from time to time, a copy of which, including the restrictions on Transfer and ownership, will be furnished to each holder of Capital Stock of the Corporation on request and without charge.

  

	Note:	 	Instead of the foregoing legend, the certificate may state that the Corporation will furnish to a stockholder on request and without charge a full statement about certain
restrictions on transferability. 

  

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