-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Eqy2n6YhbpNg4YYuJfWxw2qkyIb5nHXA+PVoOJdhtArGvid1riM1VsmcnpUmpYfc JMwFoBA98D6YVXkEU7Blaw== 0000912057-01-512924.txt : 20010507 0000912057-01-512924.hdr.sgml : 20010507 ACCESSION NUMBER: 0000912057-01-512924 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 20010504 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: SELECT COMFORT CORP CENTRAL INDEX KEY: 0000827187 STANDARD INDUSTRIAL CLASSIFICATION: HOUSEHOLD FURNITURE [2510] IRS NUMBER: 410157886 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: SEC FILE NUMBER: 005-55269 FILM NUMBER: 1622838 BUSINESS ADDRESS: STREET 1: 6105 TRENTON LANE NORTH CITY: MINNEAPOLIS STATE: MN ZIP: 55344 BUSINESS PHONE: 7635517000 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: ST PAUL COMPANIES INC /MN/ CENTRAL INDEX KEY: 0000086312 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 410518860 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 385 WASHINGTON ST CITY: SAINT PAUL STATE: MN ZIP: 55102 BUSINESS PHONE: 6123107911 FORMER COMPANY: FORMER CONFORMED NAME: ST PAUL COMPANIES INC /MN/ DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: SAINT PAUL COMPANIES INC DATE OF NAME CHANGE: 19900730 SC 13D/A 1 a2047910zsc13da.txt SCHEDULE 13D/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13D Under the Securities Exchange Act of 1934 (Amendment No. 4) Select Comfort Corporation -------------------------- (Name of Issuer) Common Stock, par value $.01 per share -------------------------- (Title of Class of Securities) 81616X 10 3 -------------------------- (CUSIP Number) Bruce A. Backberg Senior Vice President The St. Paul Companies, Inc. 385 Washington Street St. Paul, Minnesota 55102 (651) 310-7916 -------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) May 1, 2001 -------------------------- (Date of Event Which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box: / / Page 1 of 9 CUSIP NO. 81616X 10 3 SCHEDULE 13D Page 2 of 9 - ------------------------------------------------------------------------------- 1 NAMES OF REPORTING PERSONS I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS (entities only) The St. Paul Companies, Inc. - ------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP Not Applicable (a) / / (b) / / - ------------------------------------------------------------------------------- 3 SEC USE ONLY - ------------------------------------------------------------------------------- 4 SOURCE OF FUNDS WC - ------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) / / - ------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Minnesota corporation - ------------------------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER SHARES 0 BENEFICIALLY ------------------------------------------------------- OWNED BY 8 SHARED VOTING POWER EACH 7,020,376 (see Items 5 and 6)* REPORTING PERSON ------------------------------------------------------- WITH 9 SOLE DISPOSITIVE POWER 0 ------------------------------------------------------- 10 SHARED DISPOSITIVE POWER 7,020,376 (see Items 5 and 6)* - ------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 7,020,376 (see Items 5 and 6)* - ------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW 11 EXCLUDES CERTAIN SHARES / / Not Applicable - ------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11 37.0%* - ------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON HC, IC and CO - ------------------------------------------------------------------------------- * Does not include additional shares that may be deemed beneficially owned by the Reporting Person as a result of the voting agreement described in Item 6. Page 2 of 9 CUSIP NO. 81616X 10 3 SCHEDULE 13D Page 3 of 9 - ------------------------------------------------------------------------------- 1 NAMES OF REPORTING PERSONS I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS (entities only) St. Paul Fire and Marine Insurance Company - ------------------------------------------------------------------------------ 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP Not Applicable (a) / / (b) / / - ------------------------------------------------------------------------------- 3 SEC USE ONLY - ------------------------------------------------------------------------------- 4 SOURCE OF FUNDS - ------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) / / - ------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Minnesota corporation - ------------------------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER SHARES 0 BENEFICIALLY ------------------------------------------------------- OWNED BY 8 SHARED VOTING POWER EACH 7,020,101 (see Items 5 and 6)* REPORTING PERSON ------------------------------------------------------- WITH 9 SOLE DISPOSITIVE POWER 0 ------------------------------------------------------- 10 SHARED DISPOSITIVE POWER 7,020,101 (see Items 5 and 6)* - ------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 7,020,101 (see Items 5 and 6)* - ------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW 11 EXCLUDES CERTAIN SHARES / / Not Applicable - ------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11 37.0%* - ------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON IC and CO - ------------------------------------------------------------------------------- * Does not include additional shares that may be deemed beneficially owned by the Reporting Person as a result of the voting agreement described in Item 6. Page 3 of 9 This Amendment No. 4 to Schedule 13D hereby amends and supplements a Schedule 13D dated March 17, 2000 (the "Original Statement"), as amended by Amendment No. 1 dated May 19, 2000 ("Amendment No. 1"), Amendment No. 2 dated September 8, 2000 ("Amendment No. 2") and Amendment No. 3 dated November 15, 2000 ("Amendment No. 3"), filed by and on behalf of The St. Paul Companies, Inc. ("The St. Paul") and St. Paul Fire and Marine Insurance Company ("F&M") with respect to the common stock, par value $.01 per share (the "Common Stock") of Select Comfort Corporation, a Minnesota corporation ("Select Comfort"). The St. Paul and F&M are sometimes collectively referred to herein as the "Reporting Persons." Except as set forth below, there are no changes to the information in the Original Statement, as amended by Amendment No. 1, Amendment No. 2 and Amendment No. 3. All terms used, but not defined, in this Amendment No. 4 are as defined in the Original Statement. The summary descriptions contained herein of certain agreements and documents are qualified in their entirety by reference to the complete text of such agreements and documents filed as Exhibits hereto or incorporated herein by reference. ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. On May 1, 2001, St. Paul Venture Capital VI, LLC ("SPVC VI"), a subsidiary of each of the Reporting Persons, loaned Select Comfort $2,000,000 pursuant to a demand note, which is described in Item 6 (the "Note"). Corporate funds of SPVC VI were used to purchase the Note. No funds used to purchase the Note were borrowed. ITEM 4. PURPOSE OF TRANSACTION. See Item 3 entitled "Source and Amount of Funds or Other Consideration" above for a description of the transaction being reported on this Amendment to Schedule 13D. The Reporting Persons or their affiliates may from time to time purchase shares of Common Stock, either in brokerage transactions, in the over-the-counter market or in privately negotiated transactions. Any decision to increase their holdings in Select Comfort will depend, however, on numerous factors, including without limitation the price of the shares of Common Stock, the terms and conditions relating to their purchase and sale and the prospects and profitability of Select Comfort, and general economic conditions and stock and money market conditions. At any time, the Reporting Persons may also determine to dispose of some or all of the Common Stock, depending on various similar considerations. Except as otherwise provided in this Item 4 and other than as to matters that Patrick A. Hopf, as Chairman of the Board of Select Comfort, may consider and discuss with other Select Comfort officers and board members from time to time and other than an additional financing of Select Comfort of which the Reporting Persons intend to participate, none of the Reporting Persons or any of their affiliates has any present plans or proposals which relate to or would result in: o the acquisition by any person of additional securities of Select Comfort or the disposition of securities of Select Comfort; Page 4 of 9 o an extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving Select Comfort; o a sale or transfer of a material amount of assets of Select Comfort; o any change in the present board of directors or management of Select Comfort, including any plans or proposals to change the number or term of directors or to fill any existing vacancies on the board; o any material change in the present capitalization or dividend policy of Select Comfort; o any other material change in Select Comfort's business or corporate structure; o changes in Select Comfort's certificate of incorporation, bylaws or instruments corresponding thereto or other actions which may impede the acquisition of control of Select Comfort by any person; o causing a class of securities of Select Comfort to be delisted from a national securities exchange or to cease to be authorized to be quoted in an inter-dealer quotation system of a registered national securities association; o a class of equity securities of Select Comfort becoming eligible for termination of registration pursuant to Section 12(g)(4) of the Securities Exchange Act of 1934, or o any action similar to any of those listed above. ITEM 5. INTEREST IN SECURITIES OF THE ISSUER. (a) 1. Amount beneficially owned: As of May 1, 2000, The St. Paul and F&M may be deemed to have owned beneficially 7,020,376 shares of Common Stock of Select Comfort and 7,020,101 shares of Common Stock of Select Comfort respectively. F&M is a wholly owned subsidiary of The St. Paul. F&M is the 99% owner of St. Paul Venture Capital IV, LLC ("SPVC IV"), St. Paul Venture Capital V, LLC ("SPVC V") and SPVC VI. The St. Paul is the 77% owner of St. Paul Venture Capital, Inc. ("SPVC"), the manager of St. Paul Venture Capital Affiliates Fund I, LLC ("SPVC Affiliates"). F&M is the record owner of 4,806,022 shares of Common Stock and 59,769 shares of Common Stock issuable upon exercise of outstanding warrants which are exercisable within 60 days. F&M also beneficially owns, through its 99% ownership interest in SPVC IV, 321,017 shares of Common Stock and 11,760 shares of Common Stock issuable upon exercise of outstanding warrants and options which are exercisable within 60 days. In addition, F&M beneficially owns, through its 99% ownership interest in SPVC V, 955,900 shares of Common Stock, 138,361 shares of Common Stock issuable upon exercise of outstanding options, and 727,272 shares of Common Stock issuable upon conversion of a five-year convertible debenture, all of which are exercisable or convertible within 60 days. Furthermore, The St. Paul beneficially owns, through its 77% ownership interest in SPVC, the manager of SPVC Affiliates, 275 shares of Common Stock. By virtue of the affiliate relationships among The St. Paul, F&M, SPVC IV, SPVC V, and SPVC Affiliates, The St. Paul may be deemed to own beneficially 7,020,376 shares described in this Schedule 13D. By virtue of the affiliate relationships among The St. Paul, F&M, SPVC IV, and SPVC V, F&M may be deemed to own beneficially 7,020,101 Page 5 of 9 shares described in this Schedule 13D. Hence, each The St. Paul and F&M may be deemed to beneficially own 7,020,376 shares of the Common Stock of Select Comfort and 7,020,101 shares of Common Stock of Select Comfort respectively. The amount beneficially owned by the Reporting Persons in this Item does not include additional shares that may be deemed beneficially owned by the Reporting Persons as a result of the voting agreement described in Item 6. 2. Percent of class: The St. Paul: 37.0% and F&M: 37.0%. The foregoing percentages are calculated based on the 18,055,633 shares of Common Stock reported to be outstanding by Select Comfort on its most recently filed quarterly report on Form 10-Q for the quarter ended December 30, 2000. (b) Number of shares as to which The St. Paul has: (i) Sole power to vote or to direct the vote................... 0 (ii) Shared power to vote or to direct the vote................. 7,020,376 (iii) Sole power to dispose or to direct the disposition of...... 0 (iv) Shared power to dispose or to direct the disposition of.... 7,020,376 (b) Number of shares as to which F&M has: (i) Sole power to vote or to direct the vote................... 0 (ii) Shared power to vote or to direct the vote................. 7,020,101 (iii) Sole power to dispose or to direct the disposition of...... 0 (iv) Shared power to dispose or to direct the disposition of.... 7,020,101
(c) Not applicable. (d) Not applicable. (e) Not applicable. ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER. The Reporting Persons hereby add the following disclosure to this Item 6: On May 1, 2001, Select Comfort borrowed $2 million (the "Loan") from SPVC VI. The Note issued to SPVC VI evidencing the Loan bears interest at an interest rate of 8% per year, is payable within five days of demand therefor by SPVC VI, is guarantied by Select Comfort Retail Corporation and Select Comfort Direct Corporation, (the "Guarantee"), each of which is a direct Page 6 of 9 or indirect wholly owned subsidiary of Select Comfort (collectively, the "Subsidiaries"), is secured by substantially all of the personal property of Select Comfort and the Subsidiaries pursuant to written security agreements (collectively, the "Security Agreements") in favor of SPVC VI, and is convertible into the securities issued in Select Comfort's next financing at the same price per security paid by the other purchasers in such financing. It is anticipated that the issuance of securities by Select Comfort in its next financing may require approval by Select Comfort's shareholders under rules of the National Association of Securities Dealers, Inc. To ensure approval by Select Comfort's shareholders of the proposed issuance, SPVC VI has entered into a voting agreement with several of Select Comfort's shareholders pursuant to which these shareholders agreed to vote in favor of the proposed issuance (the "Voting Agreement"). A copy of the Note, the Guarantee, the Security Agreements and the Voting Agreement are attached as exhibits to this Amendment No. 4 to Schedule 13D and are incorporated herein by this reference ITEM 7. MATERIAL TO BE FILED AS EXHIBITS. The Reporting Persons hereby add the following exhibits to this Item 7: Exhibit 1 Demand Note dated May 1, 2001 in the Principal Amount of $2,000,000 issued by Select Comfort Corporation and made payable to St. Paul Venture Capital VI, LLC Exhibit 2 Guarantee dated May 1, 2001 by Select Comfort Retail Corporation and Select Comfort Direct Corporation Exhibit 3 Security Agreement dated May 1, 2001 in Favor of St. Paul Venture Capital VI, LLC by Select Comfort Corporation Exhibit 4 Security Agreement dated May 1, 2001 in Favor of St. Paul Venture Capital VI, LLC by Select Comfort Retail Corporation and Select Comfort Direct Corporation Exhibit 5 Letter Agreement dated May 1, 2001 Among St. Paul Venture Capital VI, LLC and Certain Shareholders of Select Comfort Page 7 of 9 SIGNATURES After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. May 4, 2001 THE ST. PAUL COMPANIES, INC. By: /s/ Bruce A. Backberg --------------------------------------- Bruce A. Backberg Its: Senior Vice President ST. PAUL FIRE AND MARINE INSURANCE COMPANY By: /s/ Bruce A. Backberg ---------------------------------------- Bruce A. Backberg Its: Senior Vice President Page 8 of 9 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION METHOD OF FILING - ---------- ----------- ---------------- 1 Demand Note dated May 1, 2001 in the Principal Amount of Filed Herewith $2,000,000 issued by Select Comfort Corporation and made payable to St. Paul Venture Capital VI, LLC 2 Guarantee dated May 1, 2001 by Select Comfort Retail Corporation Filed Herewith and Select Comfort Direct Corporation 3 Security Agreement dated May 1, 2001 in Favor of St. Paul Venture Filed Herewith Capital VI, LLC by Select Comfort Corporation 4 Security Agreement dated May 1, 2001 in Favor of St. Paul Venture Filed Herewith Capital VI, LLC by Select Comfort Retail Corporation and Select Comfort Direct Corporation 5 Letter Agreement dated May 1, 2001 Among St. Paul Venture Capital Filed Herewith VI, LLC and Certain Shareholders of Select Comfort
Page 9 of 9 EX-1 2 a2047910zex-1.txt EXHIBIT 1 EXHIBIT 1 SELECT COMFORT CORPORATION DEMAND NOTE $2,000,000 May 1, 2001 For Value Received the undersigned, Select Comfort Corporation, a Minnesota corporation (hereinafter called the "Company"), hereby promises to pay to the order of St. Paul Venture Capital VI, LLC, a Delaware limited liability company ("St. Paul"), at its principal office in Eden Prairie, Minnesota, the principal sum of Two Million Dollars ($2,000,000), together with interest on the unpaid principal balance of this Note (computed on the basis of a 360-day year, 30-day month) from the date hereof at the rate of 8% per annum (the "Normal Rate"). The principal of and interest on this Note shall be paid in lawful money of the United States within five days of demand therefor by the holder of this Note (provided, however, that the principal of and interest on this Note shall become automatically due and payable in full, without notice or demand, to the extent provided in Section 7 of the Parent Security Agreement referred to below). Notwithstanding the foregoing, if any principal of or interest on this Note is not paid when due, interest on such overdue principal and on overdue interest accrued as of the end of each calendar month shall accrue from the date the same is due until the date the same is paid at a rate per annum (computed on the basis of a 360-day year, 30-day month) equal to 3% over the Normal Rate, and shall be payable on demand therefor by the holder of this Note. This Note is guarantied by Select Comfort Retail Corporation and Select Comfort Direct Corporation, each of which is a direct or indirect wholly-owned subsidiary of the Company (collectively, the "Guarantors") pursuant to a Guaranty dated as of the date hereof by the Guarantors in favor of St. Paul, and is secured by substantially all of the personal property of the Company and the Guarantors pursuant to a Security Agreement - Parent dated as of the date hereof by the Company in favor of St. Paul (the "Parent Security Agreement") and a Security Agreement - Subsidiaries dated as of the date hereof by the Guarantors in favor of St. Paul. At the option of the holder of this Note, upon the closing of a Financing (as hereinafter defined), the outstanding principal of and accrued and unpaid interest on this Note, or any part thereof, shall be converted into the Securities (as hereinafter defined) issued in such Financing in accordance with the provisions hereof. The Company shall give the holder of this Note at least ten calendar days' prior written notice of the terms and conditions of each Financing and the proposed date of closing of each Financing, and to effect any such conversion the holder of this Note shall notify the Company of its intention to so convert and of the amount of principal and accrued interest to so convert at least five calendar days prior to the proposed date of closing of such Financing. For purposes hereof, the term "Financing" means the issuance by the Company of debt or equity securities of the Company, or rights to purchase debt or equity securities of the Company, or a combination thereof ("Securities"), other than to employees or directors of, or consultants to, the Company for incentive purposes as approved by the Board of Directors of the Company or a committee thereof. If the holder of this Note elects to convert all or any part of this Note into Securities in a Financing, (i) this Note shall be converted at the same price per Security paid by the other purchasers in such Financing, (ii) the holder of this Note shall be entitled to all rights granted to, and subject to all restrictions generally agreed to by, such other purchasers in such Financing, (iii) all collateral security and guaranties for the obligations hereunder so converted (but not for the obligations hereunder not so converted) shall be terminated and released, and (iv) the holder of this Note and the Company shall execute and deliver all such instruments and agreements, and take all such other actions, as shall be reasonably required to effect such conversion on the terms and conditions specified herein. The Company shall pay all expenses, court costs and reasonable attorneys' fees and disbursements which may be incurred in connection with the collection of or attempts to collect any amounts due under this Note. The Company hereby waives presentment of this Note, demand (other than the demand for payment provided for herein), protest, dishonor and notice of dishonor. This Note shall be governed by the laws of the State of Minnesota. Subject to any pending conversion described above, this Note may be prepaid in whole or in part at the option of the Company, without premium or penalty, upon at least five days' prior written notice to the holder of this Note, at any time and from time to time after the earlier of (i) the closing of a Financing resulting in gross proceeds to the Company of at least $10,000,000, or (ii) October 31, 2001. Any optional prepayment shall be applied first to accrued and unpaid interest and then to principal. This Note may not be assigned by the holder hereof without the prior written consent of the Company (which consent shall not be unreasonably withheld), except to any affiliate (as such term is defined in Rule 12b-2 promulgated under the Securities Exchange Act of 1934, as amended) of such holder. The Company shall not assign or transfer its obligations hereunder to any person or entity without the prior written consent of the holder of this Note. THE COMPANY AGREES THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS NOTE OR ANY OF THE OTHER AGREEMENTS ENTERED INTO BY THE COMPANY IN CONNECTION HEREWITH SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF HENNEPIN, STATE OF MINNESOTA OR, AT THE SOLE OPTION OF THE HOLDER OF THIS NOTE, IN ANY OTHER COURT IN WHICH SUCH HOLDER SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY AND PERSONAL JURISDICTION OVER THE COMPANY. THE COMPANY WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN -2- ACCORDANCE WITH THIS PARAGRAPH, AND THE COMPANY WAIVES ITS RIGHT TO TRIAL BY JURY. SELECT COMFORT CORPORATION By: /s/ Mark A. Kimball ----------------------------------- Name: Mark Kimball ----------------------------------- Title: Senior Vice President --------------------------- RESTRICTION ON TRANSFER The security evidenced hereby may not be transferred without (i) the opinion of counsel reasonably satisfactory to the Company that such transfer may lawfully be made without registration under the Federal Securities Act of 1933 and all applicable state securities laws, or (ii) such registration. -3- EX-2 3 a2047910zex-2.txt EXHIBIT 2 EXHIBIT 2 GUARANTY This Guaranty is made as of the 1st day of May, 2001, by Select Comfort Retail Corporation, a Minnesota corporation, and Select Comfort Direct Corporation, a Minnesota corporation (individually, a "Guarantor" and collectively, the "Guarantors"), for the benefit of St. Paul Venture Capital VI, LLC, a Delaware limited liability company (the "Lender"). WHEREAS, the Lender is prepared to loan funds to Select Comfort Corporation, a Minnesota corporation (the "Company"), which loan will be evidenced by a Demand Note of the Company dated the date hereof payable to the order of the Lender in the original principal amount of $2,000,000 (together with any note or notes issued in exchange or substitution therefor, the "Note"). WHEREAS, as a condition to the making of such loan, the Guarantors, each of which is a wholly-owned subsidiary of the Company, are required to guaranty the Note by executing and delivering to the Lender this Guaranty. WHEREAS, as wholly-owned subsidiaries of the Company, the Guarantors expect to receive substantial economic benefits from such loan. NOW, THEREFORE, the Guarantors, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, hereby agree as follows: 1. Each of the Guarantors hereby absolutely and unconditionally jointly and severally guarantees the full and prompt payment when due, whether at maturity or earlier by reason of acceleration or otherwise, of (i) the principal of and interest on the Note; and (ii) each and every other sum now or hereafter owing to the Lender under the Note or under any of the other agreements entered into by the Company or either Guarantor in connection therewith (collectively, the "Transaction Documents"), including any renewals, extensions or modifications thereof (all of said sums being hereinafter called the "Indebtedness"). 2. The Guarantors will jointly and severally pay all costs and expenses (including without limitation reasonable attorneys' fees and disbursements) paid or incurred by the Lender in endeavoring to collect the Indebtedness or in enforcing this Guaranty. 3. No act or thing need occur to establish the liability of the Guarantors hereunder, and, with the exception of full payment, no act or thing (including without limitation a discharge in bankruptcy of the Indebtedness and/or the running of the statute of limitations) relating to the Indebtedness which, but for this provision, could act as a release of the liabilities of the Guarantors hereunder, shall in any way exonerate the Guarantors or affect, impair, reduce or release this Guaranty and the liability of the Guarantors hereunder. 4. The liability of a Guarantor hereunder and under the other Transaction Documents to which such Guarantor is a party shall not be affected or impaired in any way by any of the following acts or things (which the Lender is hereby expressly authorized to do, omit or suffer from time to time without notice to or consent of the Guarantors): (i) any acceptance of collateral security or other guarantors, accommodation parties or sureties for any or all Indebtedness; (ii) any extensions or renewal of any Indebtedness (whether or not for longer than the original period) or any modification of the interest rate, maturity or other terms of any Indebtedness; (iii) any waiver or indulgence granted to the Company or any delay or lack of diligence in the enforcement of the Note or any other Indebtedness; (iv) any full or partial release of, compromise or settlement with, or agreement not to sue, the Company or any other guarantor or other person liable on any Indebtedness; (v) any release, surrender, cancellation or other discharge of any Indebtedness (other than discharge upon payment in full of the Indebtedness or conversion in full of the Note in accordance with its terms and payment in full of any other Indebtedness) or the acceptance of any instrument in renewal or substitution for any instrument evidencing Indebtedness; (vi) any failure to obtain collateral security (including rights of setoff) for any Indebtedness, or to see to the proper or sufficient creation and perfection thereof, or to establish the priority thereof, or to preserve, protect, insure, care for, exercise or enforce any collateral security for any of the Indebtedness; (vii) any modification, alteration, substitution, exchange, surrender, cancellation, termination, release or other change, impairment, limitation, loss or discharge of any collateral security for any of the Indebtedness; (viii) any assignment, sale, pledge or other transfer of any of the Indebtedness; or (ix) any manner, order or method of application of any payments or credits on any Indebtedness. Each of the Guarantors waives any and all defenses and discharges available to a surety, guarantor, or accommodation co-obligor, dependent on its character as such. 5. Each of the Guarantors waives any and all defenses, claims, setoffs and discharges of the Company, or any other obligor, pertaining to the Indebtedness, except the defense of discharge by payment in full. Without limiting the generality of the foregoing, the Guarantors will not assert against the Lender any defense of waiver, release, discharge in bankruptcy, statute of limitations, res judicata, statute of frauds, anti-deficiency statute, fraud, ultra vires acts, usury, illegality or unenforceability which may be available to the Company in respect of the Indebtedness, or any setoff available against the Lender to the Company, whether or not on account of a related transaction, and each of the Guarantors expressly agrees that it shall be and remain liable for any deficiency remaining after foreclosure of any security interest securing any Indebtedness, notwithstanding provisions of Minnesota or other law that may prevent the Lender from enforcing such deficiency against the Company or the other Guarantor. The liability of a Guarantor hereunder and under any of the other Transaction Documents to which such Guarantor is a party shall not be affected or impaired by any voluntary or involuntary liquidation, dissolution, sale or other disposition of all or substantially all the assets, marshaling of assets and liabilities, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment of, or other similar event or proceeding affecting, the Company or any of the Company's assets. The Guarantors will not assert against the Lender any claim, defense or setoff available to either of the Guarantors against the Company. -2- 6. The Guarantors also hereby waive: (i) presentment, demand for payment, notice of dishonor or nonpayment, and protest of the Indebtedness; (ii) notice of the acceptance hereof by the Lender and of the creation and existence of all Indebtedness; and (iii) notice of any amendment to or modification of any of the terms and provisions of the Note or any of the other Transaction Documents. The Lender shall not be required to first resort for payment of the Indebtedness to the Company or any other persons, or their properties or estates, or to any collateral, property, liens or other rights or remedies whatsoever. 7. Whenever, at any time or from time to time, either Guarantor shall make any payment hereunder to the Lender, such Guarantor shall notify the Lender in writing that such payment is made under this Guaranty for such purpose. If any payment applied by the Lender to the Indebtedness (whether from the Company, either of the Guarantors, or otherwise) is thereafter set aside, recovered, rescinded or required to be returned for any reason (including, without limitation, the bankruptcy, insolvency or reorganization of the Company or any other obligor), the Indebtedness to which such payment was applied shall for the purposes of this Guaranty be deemed to have continued in existence, notwithstanding such application, and this Guaranty shall be enforceable as to such Indebtedness as fully as if such application had never been made. 8. No payment by either Guarantor pursuant to any provision hereof or of any of the other Transaction Documents to which such Guarantor is a party shall entitle such Guarantor, by subrogation to the rights of the Lender or otherwise, to any payment by the Company or the other Guarantor, or out of the property of the Company or the other Guarantor, until all of the Indebtedness has been fully paid and discharged. Neither of the Guarantors will exercise or enforce any right of contribution, reimbursement, recourse or subrogation available to it as to any of the Indebtedness, or against any person liable therefor, or as to any collateral security therefor, unless and until all of the Indebtedness has been fully paid and discharged. 9. Each of the Guarantors represents and warrants to the Lender that it (i) is not insolvent as of the date hereof, and shall not become insolvent as a result of the execution and delivery of this Guaranty, (ii) is not engaged in business or a transaction, or about to engage in business or a transaction, for which its property is an unreasonably small capital, and (iii) does not intend to incur, or believe that it will incur, debts that would be beyond its ability to pay as such debts mature. 10. This Guaranty shall be a continuing, absolute, unconditional and irrevocable guaranty and shall be in force and be binding upon the Guarantors until all of the Indebtedness is fully paid and discharged. 11. This Guaranty shall be binding upon the Guarantors and their respective successors and assigns, and shall inure to the benefit of the Lender and its successors and assigns, including without limitation each holder from time to time of the Indebtedness. -3- 12. EACH OF THE GUARANTORS AGREES THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS GUARANTY OR ANY OF THE OTHER TRANSACTION DOCUMENTS TO WHICH SUCH GUARANTOR IS A PARTY SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF HENNEPIN, STATE OF MINNESOTA OR, AT THE SOLE OPTION OF THE LENDER, IN ANY OTHER COURT IN WHICH THE LENDER SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY AND PERSONAL JURISDICTION OVER SUCH GUARANTOR. EACH OF THE GUARANTORS WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 12, AND EACH OF THE GUARANTORS WAIVE ITS RIGHT TO TRIAL BY JURY. 13. This Guaranty contains the entire agreement among the Lender and the Guarantors with respect to the subject matter hereof. This Guaranty may not be amended or waived, except by a writing signed by the Guarantors and the Lender. This Guaranty shall be governed, construed and interpreted in accordance with the laws of the State of Minnesota, without giving effect to principles of conflicts of law. If any provision of this Guaranty is held to be invalid, illegal or unenforceable in any respect by a court of competent jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision hereof. All representations and warranties contained herein shall survive the execution and delivery of this Guaranty. This Guaranty may be executed in two or more counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same agreement. -4- IN WITNESS WHEREOF, the Guarantors have executed this Guaranty as of the day and year first above written. SELECT COMFORT RETAIL CORPORATION By: /s/ Mark A. Kimball ------------------------------ Name: Mark Kimball ----------------------- Title: Senior Vice President ----------------------- SELECT COMFORT DIRECT CORPORATION By: /s/ Mark A. Kimball ------------------------------ Name: Mark Kimball ----------------------- Title: Senior Vice President ----------------------- -5- EX-3 4 a2047910zex-3.txt EXHIBIT 3 EXHIBIT 3 SECURITY AGREEMENT - PARENT AGREEMENT made as of this 1st day of May, 2001, by Select Comfort Corporation, a Minnesota corporation (hereinafter called "Debtor"), in favor of St. Paul Venture Capital VI, LLC, a Delaware limited liability company (the "Secured Party"). In order to secure the payment of that certain Demand Note of Debtor dated the date hereof payable to the order of the Secured Party in the original principal amount of $2,000,000, with interest thereon (together with any note or notes issued in exchange or substitution therefor, the "Note"), and to secure the payment and performance of each and every other debt, liability and obligation of every type and description which Debtor may now or at any time hereafter owe to the Secured Party under this Agreement, whether such debt, liability or obligation now exists or is hereafter created or incurred and whether such debt, liability or obligation is or may be direct or indirect, due or to become due, absolute or contingent, primary or secondary, liquidated or unliquidated, or sole, joint, several or joint and several (the Note, together with all such other debts, liabilities and obligations, being herein collectively called the "Obligations"), the parties hereto hereby agree as follows: 1. SECURITY INTEREST AND COLLATERAL. In order to secure the payment and performance of the Obligations, Debtor hereby grants Secured Party a Security Interest (herein called the "Security Interest") in the following property (herein called the "Collateral"): (a) INVENTORY AND SUPPLIES: All inventory and supplies of Debtor, whether now owned or hereafter acquired and wherever located; (b) EQUIPMENT: All equipment of Debtor, whether now owned or hereafter acquired and wherever located, including but not limited to all present and future machinery, vehicles, furniture, fixtures, manufacturing equipment, shop equipment, office and record keeping equipment, parts and tools; (c) ACCOUNTS, CONTRACT RIGHTS AND OTHER RIGHTS TO PAYMENT: Each and every right of Debtor to the payment of money, whether such right to payment now exists or hereafter arises, whether such right to payment arises out of a sale, lease or other disposition of goods or other property by Debtor, out of a rendering of services by Debtor, out of a loan by Debtor, out of an overpayment of taxes or other liabilities of Debtor, or otherwise arises under any contract or agreement, whether such right to payment is or is not already earned by performance, and howsoever such right may be evidenced, together with all other rights and interests (including all liens and security interests) which Debtor may at any time have by law or agreement against any account debtor or other obligor obligated to make any of the aforementioned payments or against any of the property of such account debtor or other obligor; all including but not limited to all present and future instruments, chattel papers, accounts, contract rights, loans, obligations receivable and tax refunds of Debtor; (d) INVESTMENT PROPERTY: All investment property of Debtor, whether now owned or hereafter acquired, including but not limited to all securities, security entitlements, securities accounts, commodity contracts, commodity accounts, stocks, bonds, mutual fund shares, money market shares and U.S. government securities; and (e) GENERAL INTANGIBLES: All general intangibles of Debtor, whether now owned or hereafter acquired, including but not limited to all applications for patents, patents, copyrights, copyright rights, trademarks, trade secrets, goodwill, trade names, customers lists, permits and franchises, and the right to use Debtor's name; together with all substitutions and replacements for any of the foregoing property and all products and proceeds of any and all of the foregoing property and, in the case of all tangible Collateral, together with (i) all accessories, attachments, parts, equipment, accessions and repairs now or hereafter attached or affixed to or used in connection with any such Collateral, and (ii) all warehouse receipts, bills of lading and other documents of title now or hereafter covering any such Collateral. 2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. Debtor represents, warrants and agrees that: (a) Debtor is a corporation duly organized, validly existing and in good standing under the laws of its state of incorporation, and each of the Note and this Agreement has been duly and validly authorized by all necessary corporate action on the part of Debtor. (b) There is no provision in the Articles of Incorporation or Bylaws of Debtor or in any contract or agreement to which Debtor is a party or by which Debtor is bound or in any law, rule, regulation, order or decree applicable to Debtor which prohibits the execution, delivery or performance by Debtor of the Note or this Agreement. (c) The Collateral will be used primarily for business purposes. (d) Debtor's chief place of business is located at the address shown on Appendix A. Debtor's records concerning its accounts and contract rights are -2- kept at such address. Debtor's federal employer identification number is correctly set forth on Appendix A. (e) Debtor will not change its name or its chief place of business without at least 30 days' prior written notice to the Secured Party. 3. ADDITIONAL REPRESENTATIONS, WARRANTIES AND AGREEMENTS. Debtor further represents, warrants and agrees that: (a) Debtor has (or will have at the time Debtor acquires rights in Collateral hereafter arising) and will maintain absolute title to each item of Collateral free and clear of all security interests, liens and encumbrances, except the Security Interest and Permitted Liens (as hereinafter defined). Debtor will defend the Collateral against all claims or demands of all persons other than Secured Party and any holders of Permitted Liens. From and after the date of this Agreement, Debtor will not sell, encumber or otherwise dispose of the Collateral or any interest therein. Notwithstanding anything herein stated, until the revocation by Secured Party of Debtor's right to do so, which may be effected upon the occurrence of an Event of Default under Section 6 and during the continuance thereof, Debtor may sell any inventory or obsolete or worn-out equipment constituting Collateral in the ordinary course of business. As used herein, the term "Permitted Liens" shall mean (i) liens under conditional sales contracts, title retention agreements or other purchase money security agreements (including without limitation capitalized leases) securing indebtedness incurred in connection with the acquisition of machinery and equipment, provided that the indebtedness secured by any such liens shall not exceed the fair market value of the assets subject thereto and such liens shall not encumber any property of Debtor other than the assets acquired subject thereto, (ii) liens for taxes and other governmental charges not yet due or which are being contested in good faith by appropriate proceedings promptly initiated and diligently conducted and for which adequate reserves have been established in accordance with generally accepted accounting principles, (iii) liens in respect of pledges or deposits under worker's compensation laws or similar legislation, (iv) carriers', warehousemen's, mechanics', laborers', materialmen's, landlords' and similar statutory liens securing obligations incurred by Debtor in the ordinary course of business which are not yet due or which are being contested in good faith by appropriate proceedings promptly initiated and diligently conducted and for which adequate reserves have been established in accordance with generally accepted accounting principles, and (v) the senior interest of Conseco Bank, Inc. in the Reserve Account, as defined in the Revolving Credit Program Agreement dated May 17, 1999, as amended as of February 20, 2001 and April 13, 2001, between Debtor and Conseco Bank, Inc. (a complete copy of which has been furnished to the Secured Party), securing certain obligations of Debtor to Conseco Bank, Inc. under such agreement, provided that the value of the cash, -3- funds and other deposits in such Reserve Account shall not exceed $1,000,000 at any given time. (b) Debtor will not permit any tangible Collateral to be located in any state (and, if a county filing is required, in any county) in which a financing statement covering such Collateral is required to be, but has not in fact been, filed without the consent of Secured Party. (c) Debtor will not, except in the ordinary course of business and so long as no Event of Default under Section 6 shall have occurred and be continuing, agree to any modification, amendment or cancellation of any right to payment or any instrument, document, chattel paper or other agreement constituting or evidencing Collateral without the prior written consent of the Secured Party, and will not subordinate any such right of payment to claims of other creditors of the account debtor or other obligor obligated with respect thereto. (d) Debtor will (i) keep all tangible Collateral in good repair, working order and condition, normal depreciation excepted, and will, from time to time, replace any worn, broken or defective parts thereof; (ii) promptly pay all taxes and other governmental charges levied or assessed upon or against any Collateral (unless the amount, applicability or validity thereof is being contested in good faith by appropriate proceedings promptly initiated and diligently conducted and adequate reserves have been established therefor in accordance with generally accepted accounting principles) or upon or against the creation, perfection or continuance of the Security Interest; (iii) keep all Collateral free and clear of all security interests, liens and encumbrances except the Security Interest and Permitted Liens; (iv) at all reasonable times and on reasonable notice permit Secured Party or its representatives to examine or inspect any Collateral, wherever located, and to examine, inspect and copy Debtor's books and records pertaining to the Collateral and its business and financial condition; (v) keep accurate and complete records pertaining to the Collateral and pertaining to Debtor's business and financial condition and submit to Secured Party such periodic reports concerning the Collateral and Debtor's business and financial condition as Secured Party may from time to time reasonably request; (vi) promptly notify Secured Party of any loss of or material damage to any material Collateral or of any material adverse change, known to Debtor, in the prospect of payment of any material sums due on or under any instrument, chattel paper, account or contract right constituting Collateral; (vii) if Secured Party at any time so requests (whether the request is made before or after the occurrence of any Event of Default under Section 6), promptly deliver to Secured Party any instrument, document or chattel paper constituting Collateral, duly endorsed or assigned by Debtor to Secured Party; (viii) at all times keep all tangible Collateral insured against risks of fire (including so-called extended coverage), theft and such other risks and in such amounts as Secured Party may reasonably request, with any loss payable to Secured Party to the extent of its -4- interests; (ix) from time to time execute such financing statements or other documents or instruments as Secured Party may reasonably deem required to be filed in order to perfect the Security Interest, and, if any Collateral consists of motor vehicles, execute such documents as may be required to have the Security Interest properly noted on the certificate of title, and, if any Collateral consists of investment property, execute such control agreements, and take such commercially reasonable measures to cause any applicable securities issuer or intermediary with respect to such investment property to execute such control agreements, as Secured Party may reasonably require to obtain control over such investment property or, in the absence of such control agreements, transfer such investment property to the Secured Party; (x) pay when due or reimburse Secured Party on demand for all costs of collection of any of the Obligations and all other expenses (including in each case all reasonable attorneys' fees and disbursements) incurred by Secured Party in connection with the creation, perfection, satisfaction or enforcement of the Security Interest or the execution, creation, continuance or enforcement of this Agreement or any or all of the Obligations; (xi) execute, deliver or endorse any and all instruments, documents, assignments, security agreements and other agreements and writings which Secured Party may at any time reasonably request in order to secure, protect, perfect or enforce the Security Interest and Secured Party's rights under this Agreement; (xii) not use or keep any Collateral, or permit it to be used or kept, for any unlawful purpose or in violation in any material respect of any federal, state or local law, statute or ordinance; (xiii) not permit any tangible Collateral to become part of or to be affixed to any real property, without first assuring to the reasonable satisfaction of Secured Party that the Security Interest will be prior and senior to any interest or lien then held or thereafter acquired by any mortgagee of Debtor holding a mortgage of such real property; and (xiv) protect, defend and maintain all patents, copyrights, copyright rights, trademarks, trade secrets, trade names and similar intangibles constituting Collateral to the extent reasonably advisable for Debtor's business. If Debtor at any time fails to perform or observe any agreement contained in this Section 3(d), and if such failure shall continue for a period of ten calendar days after Secured Party gives Debtor written notice thereof (or, in the case of the agreements contained in clauses (viii) and (ix) of this Section 3(d), immediately upon the occurrence of such failure, without notice or lapse of time), Secured Party may (but need not) perform or observe such agreement on behalf and in the name, place and stead of Debtor (or, at Secured Party's option, in Secured Party's own name) and may (but need not) take any and all other actions which Secured Party may reasonably deem necessary to cure or correct such failure (including, without limitation, the payment of taxes, the satisfaction of security interests, liens or encumbrances, the performance of obligations under contracts or agreements with account debtors or other obligors, the procurement and maintenance of insurance, the execution of financing statements, the execution or endorsement of other instruments and the procurement of repairs, transportation or insurance); and, except to the extent that the effect of such -5- payment would be to render any loan or forebearance of money usurious or otherwise illegal under any applicable law, Debtor shall thereupon pay to the Secured Party, on demand, the amount of all moneys expended and all costs and expenses (including reasonable attorney's fees and disbursements) incurred by Secured Party in connection with or as a result of its performing or observing such agreements or taking such actions, together with interest thereon from the date expended or incurred by Secured Party at the highest rate then applicable to any of the Obligations or the highest rate permitted by law, whichever is less. To facilitate the performance or observance by Secured Party of such agreements of Debtor, Debtor hereby irrevocably appoints (which appointment is coupled with an interest) Secured Party, or its delegate, as the attorney-in-fact of Debtor with the right (but not the duty) from time to time to create, prepare, complete, execute, deliver, endorse or file, in the name and on behalf of Debtor, any and all instruments, documents, financing statements, applications for insurance and other agreements and writings required to be obtained, executed, delivered or endorsed by Debtor under this Section 3 to the extent Secured Party has the right to perform or observe such agreements as provided in this Section 3. 4. COLLECTION RIGHTS OF SECURED PARTY. Whether or not Secured Party exercises its rights under Section 7 of this Agreement, Secured Party may at any time after the occurrence and during the continuance of an Event of Default under Section 6 notify any account debtor, or any other person obligated to pay any amount due on or in respect of any Collateral, that such right to payment has been assigned or transferred to Secured Party for security and shall be paid directly to Secured Party, subject to the prior rights, if any, of holders of Permitted Liens. If Secured Party so requests at any time after the occurrence and during the continuance of an Event of Default, Debtor will so notify such account debtors and other obligors in writing and will indicate on all invoices to such account debtors or other obligors that the amount due therefrom is payable directly to Secured Party, if the obligations of such holders of Permitted Liens, if any, have been satisfied. At any time after Secured Party or Debtor gives such notice to an account debtor or other obligor, Secured Party may (but need not), in its own name or in Debtor's name, demand, sue for, collect or receive any money or property at any time payable or receivable on account of, or securing, any such right to payment of any such account debtor or other obligor. 5. ASSIGNMENT OF INSURANCE. Debtor hereby assigns to Secured Party, as additional security for the payment of the Obligations, any and all moneys (including but not limited to proceeds of insurance and refunds of unearned premiums) due or to become due under, and all rights of Debtor under or with respect to, any and all policies of insurance covering the Collateral, and Debtor hereby directs the issuer of any such policy to pay any such moneys directly to Secured Party. Both before (in the case of any claim in excess of $50,000) and after (in the case of any claim, regardless of amount) the occurrence of an Event of Default, Secured Party may (but need not) in its own name or in Debtor's name, execute and deliver proofs of claim, receive all such moneys, endorse checks and other instruments representing payment of such moneys, and adjust, litigate, compromise or release any claim against the issuer of any -6- such policy. In the event that any tangible Collateral with an aggregate replacement cost of not more than $100,000 is damaged by an insured casualty, and no Event of Default under Section 6 shall have occurred and be continuing, the insurance proceeds shall be applied to the repair and restoration of such property in such manner and on such conditions as Secured Party may reasonably require. 6. EVENT OF DEFAULT. Each of the following occurrences shall constitute an Event of Default: (i) Debtor shall fail to pay any or all of the Obligations when due or (if payable on demand) on demand; or (ii) Debtor or any of the Guarantors (as defined in the Note) or any other significant subsidiary of Debtor within the meaning of Rule 1-02(w) of Regulation S-X promulgated by the Securities and Exchange Commission (a "Significant Subsidiary") shall default in any payment of principal of or interest on any other obligation for borrowed money beyond any period of grace provided with respect thereto or in the performance of any other agreement, term or condition contained in any agreement under which any such obligation is created if the effect of such default is to cause, or permit the holder or holders of such obligation (or a trustee on behalf of such holder or holders) to cause, such obligation to become due prior to its stated maturity; or (iii) an order for relief shall be entered in any Federal bankruptcy proceeding in which Debtor or any of the Guarantors or any other Significant Subsidiary is the debtor or bankruptcy, receivership, insolvency, reorganization, relief, dissolution, liquidation or other similar proceedings shall be instituted by or against Debtor or any of the Guarantors or any other Significant Subsidiary or all or any part of the property of Debtor or any of the Guarantors or any other Significant Subsidiary under the Federal Bankruptcy Code or any other law of the United States or any bankruptcy or insolvency law of any state of competent jurisdiction unless, if such proceedings are instituted against Debtor or any of the Guarantors or any Significant Subsidiary, such proceedings are dismissed and discharged within 60 days after they are instituted; or (iv) Debtor or any of the Guarantors or any other Significant Subsidiary shall have become insolvent or unable to pay its debts as they mature, cease doing business as a going concern, make an assignment for the benefit of creditors, admit in writing its inability to pay its debts as they become due, or if a trustee, receiver or liquidator shall be appointed for Debtor or any of the Guarantors or any other Significant Subsidiary or for any substantial portion of the assets of Debtor or any of the Guarantors or any other Significant Subsidiary and such appointment shall not be vacated within 60 days; or (v) Debtor shall default in the performance or observance of any covenant contained in this Agreement and such default shall continue for a period of 15 days after written notice thereof shall have been given by Secured Party to Debtor; or (vi) any representation or warranty contained in this Agreement or in any other document supplied to Secured Party by Debtor in connection herewith proves to be false in any material respect as of the time this Agreement was made; or (vii) any holder of a Permitted Lien shall seek to enforce its lien against any portion of the Collateral; or (viii) any other Event of Default under and as defined in that certain Security Agreement - Subsidiaries dated as of the date hereof by the Guarantors in favor of Secured Party, as amended, modified or supplemented from time to time, shall have occurred. Nothing contained in this Section 6, Section 7 hereof or in any other provision of this Agreement shall preclude or limit Secured Party from demanding at any time or for any reason, without notice, payment of all or any part of any Obligation which is, pursuant to its terms, payable on demand. -7- 7. REMEDIES AFTER EVENT OF DEFAULT. Upon the occurrence of an Event of Default under Section 6 and at any time during the continuance thereof, Secured Party may exercise any one or more of the following rights or remedies: (a) at its option, by notice in writing to Debtor, declare all unmatured Obligations to be forthwith due and payable and thereupon all Obligations shall be and become due and payable; (b) exercise and enforce any or all rights and remedies available after default to a secured party under the Uniform Commercial Code, including but not limited to the right to take possession of any Collateral, proceeding without judicial process or by judicial process (without a prior hearing or notice thereof, which Debtor hereby expressly waives); the right to sell, lease or otherwise dispose of any or all of the Collateral; and the right to require Debtor to assemble the Collateral and make it available to Secured Party at a place to be designated by Secured Party which is reasonably convenient to both parties; it being expressly understood and agreed that if notice to Debtor of any intended disposition of Collateral or any other intended action is required by law in a particular instance, such notice shall be deemed commercially reasonable if given (in the manner specified in Section 8) at least ten calendar days prior to the date of intended disposition or other action; and (c) exercise or enforce any or all other rights or remedies available to Secured Party by law or agreement against the Collateral, against Debtor or against any other person or property. Upon the occurrence of an Event of Default resulting from the filing of a voluntary or involuntary petition in a bankruptcy proceeding in which Debtor is the debtor, all Obligations shall be immediately due and payable without demand or notice thereof. Debtor hereby grants Secured Party a non-exclusive, worldwide and royalty free license to use or otherwise exploit all patents, copyrights, copyright rights, trademarks, trade secrets, trade names and similar intangibles that Secured Party deems necessary or appropriate to the disposition of any Collateral. 8. MISCELLANEOUS. This Agreement does not contemplate a sale of accounts, contract rights or chattel paper, and, as provided by law, Debtor is entitled to any surplus and shall remain liable for any deficiency. This Agreement can be waived, modified, amended, terminated or discharged, and the Security Interest can be released, only explicitly in a writing signed by the Secured Party. A waiver signed by Secured Party shall be effective only in the specific instance and for the specific purpose given. Mere delay or failure to act shall not preclude the exercise or enforcement of any of Secured Party's rights or remedies. All rights and remedies of Secured Party shall be cumulative and may be exercised singularly or concurrently, at Secured Party's option, and the exercise or enforcement of any one such right or remedy shall neither be a condition to nor bar the exercise or enforcement of any other. All notices to be given to Debtor under this Agreement shall be deemed sufficiently given if mailed by registered or certified mail, postage prepaid, or hand delivered to Debtor at its chief place of business, as shown on Appendix A hereto, or at the most recent address shown on Secured Party's records. Secured Party's duty of care with respect to Collateral in its possession (as imposed by law) shall be deemed fulfilled if Secured Party exercises reasonable care in physically safekeeping such Collateral or, in the case of Collateral in the custody or possession of a bailee or other third person, exercises reasonable care in the selection of the bailee or other third person, and Secured Party need not otherwise preserve, protect, insure or care for any Collateral. Secured Party shall not be obligated to preserve any rights Debtor may have against prior parties, to realize on the Collateral at all or in any particular manner or order, -8- or to apply any cash proceeds of Collateral in any particular order of application. This Agreement shall be binding upon and inure to the benefit of Debtor and Secured Party and their respective successors and assigns (including without limitation each holder from time to time of the Note), and shall take effect when signed by Debtor and delivered to Secured Party, and Debtor waives notice of Secured Party's acceptance thereof. Except to the extent otherwise required by law, this Agreement shall be governed by the internal laws of the State of Minnesota and, unless the context otherwise requires, all terms used herein which are defined in any of Articles 1, 8 and 9 of the Uniform Commercial Code, as in effect in said state (including but not limited to the terms "inventory", "equipment", "instrument", "document of title", "chattel paper", "account", "contract right", "account debtor", "general intangible", "investment property", "security", "security entitlement", "securities account", "commodity contract" and "commodity account"), shall have the meanings therein stated. If any provision or application of this Agreement is held unlawful or unenforceable in any respect, such illegality or unenforceability shall not affect other provisions or applications which can be given effect, and this Agreement shall be construed as if the unlawful or unenforceable provision or application had never been contained herein or prescribed hereby. All representations and warranties contained in this Agreement shall survive the execution, delivery and performance of this Agreement and the creation and payment of the Obligations. 9. OTHER PERSONAL PROPERTY. Unless at the time Secured Party takes possession of any tangible Collateral, or within seven days thereafter, Debtor gives written notice to Secured Party of the existence of any goods, papers or other property of Debtor, not affixed to or constituting a part of such Collateral, but which are located or found upon or within such Collateral, describing such property, Secured Party shall not be responsible or liable to Debtor for any action taken or omitted by or on behalf of Secured Party with respect to such property without actual knowledge of the existence of any such property or without actual knowledge that it was located or to be found upon or within such Collateral. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. SELECT COMFORT CORPORATION By: /s/ Mark A. Kimball -------------------------- Name: Mark Kimball ----------------------- Title: Senior Vice President ----------------------- -9- APPENDIX A Appendix to Security Agreement Debtor's Chief Place of Business: 6105 Trenton Lane North Suite 100 Minneapolis, Minnesota 55442 Debtor's Federal Employer Identification Number: 41-1597886 EX-4 5 a2047910zex-4.txt EXHIBIT 4 EXHIBIT 4 SECURITY AGREEMENT - SUBSIDIARIES AGREEMENT made as of this 1st day of May, 2001, by Select Comfort Retail Corporation, a Minnesota corporation, and Select Comfort Direct Corporation, a Minnesota corporation (hereinafter collectively called the "Debtors" and individually called a "Debtor"), in favor of St. Paul Venture Capital VI, LLC, a Delaware limited liability company (the "Secured Party"). In order to secure the payment of (a) that certain Demand Note of Select Comfort Corporation, a Minnesota corporation and the direct or indirect parent corporation of the Debtors (the "Company"), dated the date hereof payable to the order of the Secured Party in the original principal amount of $2,000,000, with interest thereon (together with any note or notes issued in exchange or substitution therefor, the "Note"), and (b) that certain Guaranty dated as of the date hereof by the Debtors for the benefit of the Secured Party, pursuant to which the Debtors have guaranteed the full and prompt payment of the Note (as amended, modified or supplemented from time to time, the "Guaranty"), and to secure the payment and performance of each and every other debt, liability and obligation of every type and description which either of the Debtors may now or at any time hereafter owe to the Secured Party under this Agreement, whether such debt, liability or obligation now exists or is hereafter created or incurred and whether such debt, liability or obligation is or may be direct or indirect, due or to become due, absolute or contingent, primary or secondary, liquidated or unliquidated, or sole, joint, several or joint and several (the Note and Guaranty, together with all such other debts, liabilities and obligations, being herein collectively called the "Obligations"), the parties hereto hereby agree as follows: 1. SECURITY INTEREST AND COLLATERAL. In order to secure the payment and performance of the Obligations, each Debtor hereby grants Secured Party a Security Interest (herein called the "Security Interest") in the following property (herein called the "Collateral"): (a) INVENTORY AND SUPPLIES: All inventory and supplies of such Debtor, whether now owned or hereafter acquired and wherever located; (b) EQUIPMENT: All equipment of such Debtor, whether now owned or hereafter acquired and wherever located, including but not limited to all present and future machinery, vehicles, furniture, fixtures, manufacturing equipment, shop equipment, office and record keeping equipment, parts and tools; (c) ACCOUNTS, CONTRACT RIGHTS AND OTHER RIGHTS TO PAYMENT: Each and every right of such Debtor to the payment of money, whether such right to payment now exists or hereafter arises, whether such right to payment arises out of a sale, lease or other disposition of goods or other property by such Debtor, out of a rendering of services by such Debtor, out of a loan by such Debtor, out of an overpayment of taxes or other liabilities of such Debtor, or otherwise arises under any contract or agreement, whether such right to payment is or is not already earned by performance, and howsoever such right may be evidenced, together with all other rights and interests (including all liens and security interests) which such Debtor may at any time have by law or agreement against any account debtor or other obligor obligated to make any of the aforementioned payments or against any of the property of such account debtor or other obligor; all including but not limited to all present and future instruments, chattel papers, accounts, contract rights, loans, obligations receivable and tax refunds of such Debtor; (d) INVESTMENT PROPERTY: All investment property of such Debtor, whether now owned or hereafter acquired, including but not limited to all securities, security entitlements, securities accounts, commodity contracts, commodity accounts, stocks, bonds, mutual fund shares, money market shares and U.S. government securities; and (e) GENERAL INTANGIBLES: All general intangibles of such Debtor, whether now owned or hereafter acquired, including but not limited to all applications for patents, patents, copyrights, copyright rights, trademarks, trade secrets, goodwill, trade names, customers lists, permits and franchises, and the right to use such Debtor's name; together with all substitutions and replacements for any of the foregoing property and all products and proceeds of any and all of the foregoing property and, in the case of all tangible Collateral, together with (i) all accessories, attachments, parts, equipment, accessions and repairs now or hereafter attached or affixed to or used in connection with any such Collateral, and (ii) all warehouse receipts, bills of lading and other documents of title now or hereafter covering any such Collateral. 2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. Each Debtor represents, warrants and agrees that: (a) Such Debtor is a corporation duly organized, validly existing and in good standing under the laws of its state of incorporation, and each of the Guaranty and this Agreement has been duly and validly authorized by all necessary corporate action on the part of such Debtor. -2- (b) There is no provision in the Articles of Incorporation or Bylaws of such Debtor or in any contract or agreement to which such Debtor is a party or by which such Debtor is bound or in any law, rule, regulation, order or decree applicable to such Debtor which prohibits the execution, delivery or performance by such Debtor of the Guaranty or this Agreement. (c) The Collateral of such Debtor will be used primarily for business purposes. (d) Such Debtor's chief place of business is located at the address shown on Appendix A. Such Debtor's records concerning its accounts and contract rights are kept at such address. Such Debtor's federal employer identification number is correctly set forth on Appendix A. (e) Such Debtor will not change its name or its chief place of business without at least 30 days' prior written notice to the Secured Party. 3. ADDITIONAL REPRESENTATIONS, WARRANTIES AND AGREEMENTS. Each Debtor further represents, warrants and agrees that: (a) Such Debtor has (or will have at the time such Debtor acquires rights in Collateral hereafter arising) and will maintain absolute title to each item of its Collateral free and clear of all security interests, liens and encumbrances, except the Security Interest and Permitted Liens (as hereinafter defined). Such Debtor will defend its Collateral against all claims or demands of all persons other than Secured Party and any holders of Permitted Liens. From and after the date of this Agreement, such Debtor will not sell, encumber or otherwise dispose of its Collateral or any interest therein. Notwithstanding anything herein stated, until the revocation by Secured Party of such Debtor's right to do so, which may be effected upon the occurrence of an Event of Default under Section 6 and during the continuance thereof, such Debtor may sell any inventory or obsolete or worn-out equipment constituting its Collateral in the ordinary course of business. As used herein, the term "Permitted Liens" shall mean (i) liens under conditional sales contracts, title retention agreements or other purchase money security agreements (including without limitation capitalized leases) securing indebtedness incurred in connection with the acquisition of machinery and equipment, provided that the indebtedness secured by any such liens shall not exceed the fair market value of the assets subject thereto and such liens shall not encumber any property of such Debtor other than the assets acquired subject thereto, (ii) liens for taxes and other governmental charges not yet due or which are being contested in good faith by appropriate proceedings promptly initiated and diligently conducted and for which adequate reserves have been established in accordance with generally accepted accounting principles, (iii) liens in respect of pledges or deposits under worker's compensation laws or similar -3- legislation, (iv) carriers', warehousemen's, mechanics', laborers', materialmen's, landlords' and similar statutory liens securing obligations incurred by such Debtor in the ordinary course of business which are not yet due or which are being contested in good faith by appropriate proceedings promptly initiated and diligently conducted and for which adequate reserves have been established in accordance with generally accepted accounting principles, and (v) the senior interest of Conseco Bank, Inc. in the Reserve Account, as defined in the Revolving Credit Program Agreement dated May 17, 1999, as amended as of February 20, 2001 and April 13, 2001, between the Company and Conseco Bank, Inc. (a complete copy of which has been furnished to the Secured Party), securing certain obligations of the Company to Conseco Bank, Inc. under such agreement, provided that the value of the cash, funds and other deposits in such Reserve Account shall not exceed $1,000,000 at any given time. (b) Such Debtor will not permit any of its tangible Collateral to be located in any state (and, if a county filing is required, in any county) in which a financing statement covering such Collateral is required to be, but has not in fact been, filed without the consent of Secured Party. (c) Such Debtor will not, except in the ordinary course of business and so long as no Event of Default under Section 6 shall have occurred and be continuing, agree to any modification, amendment or cancellation of any right to payment or any instrument, document, chattel paper or other agreement constituting or evidencing its Collateral without the prior written consent of the Secured Party, and will not subordinate any such right of payment to claims of other creditors of the account debtor or other obligor obligated with respect thereto. (d) Such Debtor will (i) keep all of its tangible Collateral in good repair, working order and condition, normal depreciation excepted, and will, from time to time, replace any worn, broken or defective parts thereof; (ii) promptly pay all taxes and other governmental charges levied or assessed upon or against any of its Collateral (unless the amount, applicability or validity thereof is being contested in good faith by appropriate proceedings promptly initiated and diligently conducted and adequate reserves have been established therefor in accordance with generally accepted accounting principles) or upon or against the creation, perfection or continuance of the Security Interest; (iii) keep all of its Collateral free and clear of all security interests, liens and encumbrances except the Security Interest and Permitted Liens; (iv) at all reasonable times and upon reasonable notice permit Secured Party or its representatives to examine or inspect any of its Collateral, wherever located, and to examine, inspect and copy such Debtor's books and records pertaining to its Collateral and its business and financial condition; (v) keep accurate and complete records pertaining to its Collateral and its business and financial -4- condition and submit to Secured Party such periodic reports concerning its Collateral and its business and financial condition as Secured Party may from time to time reasonably request; (vi) promptly notify Secured Party of any loss of or material damage to any of its material Collateral or of any material adverse change, known to such Debtor, in the prospect of payment of any material sums due on or under any instrument, chattel paper, account or contract right constituting its Collateral; (vii) if Secured Party at any time so requests (whether the request is made before or after the occurrence of any Event of Default under Section 6), promptly deliver to Secured Party any instrument, document or chattel paper constituting its Collateral, duly endorsed or assigned by such Debtor to Secured Party; (viii) at all times keep all of its tangible Collateral insured against risks of fire (including so-called extended coverage), theft and such other risks and in such amounts as Secured Party may reasonably request, with any loss payable to Secured Party to the extent of its interests; (ix) from time to time execute such financing statements or other documents or instruments as Secured Party may reasonably deem required to be filed in order to perfect the Security Interest, and, if any of its Collateral consists of motor vehicles, execute such documents as may be required to have the Security Interest properly noted on the certificate of title, and, if any of its Collateral consists of investment property, execute such control agreements, and take such commercially reasonable measures to cause any applicable securities issuer or intermediary with respect to such investment property to execute such control agreements, as Secured Party may reasonably require to obtain control over such investment property or, in the absence of such control agreements, transfer such investment property to the Secured Party; (x) pay when due or reimburse Secured Party on demand for all costs of collection of any of the Obligations and all other expenses (including in each case all reasonable attorneys' fees and disbursements) incurred by Secured Party in connection with the creation, perfection, satisfaction or enforcement of the Security Interest or the execution, creation, continuance or enforcement of this Agreement or any or all of the Obligations; (xi) execute, deliver or endorse any and all instruments, documents, assignments, security agreements and other agreements and writings which Secured Party may at any time reasonably request in order to secure, protect, perfect or enforce the Security Interest and Secured Party's rights under this Agreement; (xii) not use or keep any of its Collateral, or permit it to be used or kept, for any unlawful purpose or in violation in any material respect of any federal, state or local law, statute or ordinance; (xiii) not permit any of its tangible Collateral to become part of or to be affixed to any real property, without first assuring to the reasonable satisfaction of Secured Party that the Security Interest will be prior and senior to any interest or lien then held or thereafter acquired by any mortgagee of Debtor holding a mortgage of such real property; and (xiv) protect, defend and maintain all patents, copyrights, copyright rights, trademarks, trade secrets, trade names and similar intangibles constituting its Collateral to the extent reasonably advisable for such Debtor's business. If such Debtor at any time fails to perform or observe any agreement contained in this Section 3(d), and if such failure shall continue for a period of ten calendar days after Secured Party gives -5- such Debtor written notice thereof (or, in the case of the agreements contained in clauses (viii) and (ix) of this Section 3(d), immediately upon the occurrence of such failure, without notice or lapse of time), Secured Party may (but need not) perform or observe such agreement on behalf and in the name, place and stead of such Debtor (or, at Secured Party's option, in Secured Party's own name) and may (but need not) take any and all other actions which Secured Party may reasonably deem necessary to cure or correct such failure (including, without limitation, the payment of taxes, the satisfaction of security interests, liens or encumbrances, the performance of obligations under contracts or agreements with account debtors or other obligors, the procurement and maintenance of insurance, the execution of financing statements, the execution or endorsement of other instruments and the procurement of repairs, transportation or insurance); and, except to the extent that the effect of such payment would be to render any loan or forebearance of money usurious or otherwise illegal under any applicable law, such Debtor shall thereupon pay to the Secured Party, on demand, the amount of all moneys expended and all costs and expenses (including reasonable attorney's fees and disbursements) incurred by Secured Party in connection with or as a result of its performing or observing such agreements or taking such actions, together with interest thereon from the date expended or incurred by Secured Party at the highest rate then applicable to any of the Obligations or the highest rate permitted by law, whichever is less. To facilitate the performance or observance by Secured Party of such agreements of such Debtor, each Debtor hereby irrevocably appoints (which appointment is coupled with an interest) Secured Party, or its delegate, as the attorney-in-fact of such Debtor with the right (but not the duty) from time to time to create, prepare, complete, execute, deliver, endorse or file, in the name and on behalf of such Debtor, any and all instruments, documents, financing statements, applications for insurance and other agreements and writings required to be obtained, executed, delivered or endorsed by such Debtor under this Section 3 to the extent Secured Party has the right to perform or observe such agreements as provided in this Section 3. 4. COLLECTION RIGHTS OF SECURED PARTY. Whether or not Secured Party exercises its rights under Section 7 of this Agreement, Secured Party may at any time after the occurrence and during the continuance of an Event of Default under Section 6 notify any account debtor, or any other person obligated to pay any amount due on or in respect of any Collateral, that such right to payment has been assigned or transferred to Secured Party for security and shall be paid directly to Secured Party, subject to the prior rights, if any, of holders of Permitted Liens. If Secured Party so requests at any time after the occurrence and during the continuance of an Event of Default, the appropriate Debtors will so notify such account debtors and other obligors in writing and will indicate on all invoices to such account debtors or other obligors that the amount due therefrom is payable directly to Secured Party, if the obligations of such holders of Permitted Liens, if any, have been satisfied. At any time after Secured Party or a Debtor gives such notice to an account debtor or other obligor, Secured Party may (but need not), in its own name or in either Debtor's name, demand, sue for, collect or receive any -6- money or property at any time payable or receivable on account of, or securing, any such right to payment of any such account debtor or other obligor. 5. ASSIGNMENT OF INSURANCE. Each Debtor hereby assigns to Secured Party, as additional security for the payment of the Obligations, any and all moneys (including but not limited to proceeds of insurance and refunds of unearned premiums) due or to become due under, and all rights of such Debtor under or with respect to, any and all policies of insurance covering its Collateral, and each Debtor hereby directs the issuer of any such policy to pay any such moneys directly to Secured Party. Both before (in the case of any claim in excess of $50,000) and after (in the case of any claim, regardless of amount) the occurrence of an Event of Default, Secured Party may (but need not) in its own name or in either Debtor's name, execute and deliver proofs of claim, receive all such moneys, endorse checks and other instruments representing payment of such moneys, and adjust, litigate, compromise or release any claim against the issuer of any such policy. In the event that any tangible Collateral with an aggregate replacement cost of not more than $100,000 is damaged by an insured casualty, and no Event of Default under Section 6 shall have occurred and be continuing, the insurance proceeds shall be applied to the repair and restoration of such property in such manner and on such conditions as Secured Party may reasonably require. 6. EVENT OF DEFAULT. Each of the following occurrences shall constitute an Event of Default: (i) the Company or either Debtor shall fail to pay any or all of the Obligations when due or (if payable on demand) on demand; or (ii) either Debtor shall default in the performance or observance of any covenant contained in this Agreement and such default shall continue for a period of 15 days after written notice thereof shall have been given by Secured Party to such Debtor; or (iii) any representation or warranty contained in this Agreement or the Guaranty or in any other document supplied to Secured Party by either Debtor in connection herewith proves to be false in any material respect as of the time this Agreement was made; or (iv) any holder of a Permitted Lien shall seek to enforce its lien against any portion of the Collateral; or (v) any other Event of Default under and as defined in that certain Security Agreement - Parent dated as of the date hereof by the Company in favor of Secured Party, as amended, modified or supplemented from time to time, shall have occurred. Nothing contained in this Section 6, Section 7 hereof or in any other provision of this Agreement shall preclude or limit Secured Party from demanding at any time or for any reason, without notice, payment of all or any part of any Obligation which is, pursuant to its terms, payable on demand. 7. REMEDIES AFTER EVENT OF DEFAULT. Upon the occurrence of an Event of Default under Section 6 and at any time during the continuance thereof, Secured Party may exercise any one or more of the following rights or remedies: (a) at its option, by notice in writing to the Company, declare all unmatured Obligations to be forthwith due and payable and thereupon all Obligations shall be and become due and payable; (b) exercise and enforce any or all rights and remedies available after default to a secured party under the Uniform Commercial Code, including but not limited to the right to take possession of any Collateral, proceeding without judicial process or by judicial process (without a prior hearing or notice thereof, which each Debtor hereby expressly waives); the right to sell, lease or otherwise dispose of any or all of the Collateral; and the right to require each Debtor to assemble its -7- Collateral and make it available to Secured Party at a place to be designated by Secured Party which is reasonably convenient to both parties; it being expressly understood and agreed that if notice to either Debtor of any intended disposition of Collateral or any other intended action is required by law in a particular instance, such notice shall be deemed commercially reasonable if given (in the manner specified in Section 8) at least ten calendar days prior to the date of intended disposition or other action; and (c) exercise or enforce any or all other rights or remedies available to Secured Party by law or agreement against the Collateral, against either Debtor or against any other person or property. Upon the occurrence of an Event of Default resulting from the filing of a voluntary or involuntary petition in a bankruptcy proceeding in which the Company is the debtor, all Obligations shall be immediately due and payable without demand or notice thereof. Each Debtor hereby grants Secured Party a non-exclusive, worldwide and royalty free license to use or otherwise exploit all patents, copyrights, copyright rights, trademarks, trade secrets, trade names and similar intangibles that Secured Party deems necessary or appropriate to the disposition of any Collateral. 8. MISCELLANEOUS. This Agreement does not contemplate a sale of accounts, contract rights or chattel paper, and, as provided by law, the Debtors are entitled to any surplus and shall remain liable for any deficiency. This Agreement can be waived, modified, amended, terminated or discharged, and the Security Interest can be released, only explicitly in a writing signed by the Secured Party. A waiver signed by Secured Party shall be effective only in the specific instance and for the specific purpose given. Mere delay or failure to act shall not preclude the exercise or enforcement of any of Secured Party's rights or remedies. All rights and remedies of Secured Party shall be cumulative and may be exercised singularly or concurrently, at Secured Party's option, and the exercise or enforcement of any one such right or remedy shall neither be a condition to nor bar the exercise or enforcement of any other. All notices to be given to either Debtor under this Agreement shall be deemed sufficiently given if mailed by registered or certified mail, postage prepaid, or hand delivered to such Debtor at its chief place of business, as shown on Appendix A hereto, or at the most recent address shown on Secured Party's records. Secured Party's duty of care with respect to Collateral in its possession (as imposed by law) shall be deemed fulfilled if Secured Party exercises reasonable care in physically safekeeping such Collateral or, in the case of Collateral in the custody or possession of a bailee or other third person, exercises reasonable care in the selection of the bailee or other third person, and Secured Party need not otherwise preserve, protect, insure or care for any Collateral. Secured Party shall not be obligated to preserve any rights either Debtor may have against prior parties, to realize on the Collateral at all or in any particular manner or order, or to apply any cash proceeds of Collateral in any particular order of application. This Agreement shall be binding upon and inure to the benefit of the Debtors and the Secured Party and their respective successors and assigns (including without limitation each holder from time to time of the Note), and shall take effect when signed by the Debtors and delivered to Secured Party, and each Debtor waives notice of Secured Party's acceptance thereof. Except to the extent otherwise required by law, this Agreement shall be governed by the internal laws of the State of Minnesota and, unless the context otherwise requires, all terms used herein which are defined in any of Articles 1, 8 and 9 of the Uniform Commercial Code, as in effect in said state (including but not limited to the terms "inventory", "equipment", "instrument", "document of title", "chattel paper", "account", "contract right", "account -8- debtor", "general intangible", "investment property", "security", "security entitlement", "securities account", "commodity contract" and "commodity account"), shall have the meanings therein stated. If any provision or application of this Agreement is held unlawful or unenforceable in any respect, such illegality or unenforceability shall not affect other provisions or applications which can be given effect, and this Agreement shall be construed as if the unlawful or unenforceable provision or application had never been contained herein or prescribed hereby. All representations and warranties contained in this Agreement shall survive the execution, delivery and performance of this Agreement and the creation and payment of the Obligations. 9. OTHER PERSONAL PROPERTY. Unless at the time Secured Party takes possession of any tangible Collateral, or within seven days thereafter, a Debtor gives written notice to Secured Party of the existence of any goods, papers or other property of such Debtor, not affixed to or constituting a part of such Collateral, but which are located or found upon or within such Collateral, describing such property, Secured Party shall not be responsible or liable to such Debtor for any action taken or omitted by or on behalf of Secured Party with respect to such property without actual knowledge of the existence of any such property or without actual knowledge that it was located or to be found upon or within such Collateral. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. SELECT COMFORT RETAIL CORPORATION By: /s/ Mark A. Kimball ---------------------------------- Name: Mark Kimball -------------------------- Title: Senior Vice President -------------------------- SELECT COMFORT DIRECT CORPORATION By: /s/ Mark A. Kimball ---------------------------------- Name: Mark Kimball -------------------------- Title: Senior Vice President -------------------------- -9- APPENDIX A Appendix to Security Agreement SELECT COMFORT RETAIL CORPORATION Debtor's Chief Place of Business: 6105 Trenton Lane North Suite 200 Minneapolis, Minnesota 55442 Debtor's Federal Employer Identification Number: 41-1749757 SELECT COMFORT DIRECT CORPORATION Debtor's Chief Place of Business: 6105 Trenton Lane North Suite 300 Minneapolis, Minnesota 55442 Debtor's Federal Employer Identification Number: 41-1824389 EX-5 6 a2047910zex-5.txt EXHIBIT 5 EXHIBIT 5 May 1, 2001 St. Paul Venture Capital VI, LLC 10400 Viking Drive, Suite 550 Eden Prairie, Minnesota 55344 Re: Select Comfort Corporation Ladies and Gentlemen: This letter will serve to confirm our agreement and understanding with you that each of the undersigned agrees on behalf of itself and its heirs, beneficiaries, successors or assigns, to vote, or to cause its respective Transferees (as defined below) to vote, at the next annual or special meeting of shareholders of Select Comfort Corporation (the "Company") all shares of the Company's common stock now owned or hereafter acquired of record or beneficially by the undersigned, or its Transferees, as the case may be (collectively, the "Shares"), in favor of the proposal to approve the issuance of up to $12 million principal amount of convertible debentures, convertible at any time at the option of the holders into shares of the Company's common stock, and warrants to purchase shares of the Company's common stock, for purposes of Rule 4350 of the National Association of Securities Dealers, Inc. (the "Nasdaq Proposal"). As used herein, "Transferee" shall mean any person or entity to whom any of the undersigned transfers or assigns any of its Shares; provided, however, that, if any of the undersigned sell Shares in the public market, in compliance with the manner of sale requirements set forth in the first sentence of paragraph (f) of Rule 144 adopted under the Securities Act of 1933, to a person or entity that is an unaffiliated third party, such person or entity shall not be deemed to be a "Transferee" and shall not be subject to the provisions of this letter agreement. Notwithstanding any of the foregoing, the undersigned shall retain at all times the right to vote their respective Shares in their sole discretion on all other matters which are, at any time and from time to time, presented for a vote to the Company's shareholders generally. To secure the undersigned's obligations to vote their respective Shares in accordance with the first paragraph of this letter agreement, each of the undersigned hereby appoints Patrick A. Hopf and James R. Simons, or either of them, from time to time, or his/her designees, as such person's true and lawful proxy and attorney, each with the power to act alone and with full power of substitution, to vote all of the Shares in the manner set forth in the first paragraph of this letter agreement if, and only if, such person fails to vote all of such person's Shares in accordance with the provisions of the first paragraph of this letter agreement for any reason whatsoever. The proxy and power granted by each of the undersigned pursuant to this letter agreement are coupled with an interest and are given to secure the performance of such person's duties under this letter agreement. Each such proxy will be irrevocable for the term hereof. The proxy, so long as any of the undersigned is an individual, will survive the death, incompetency and disability of such person or any other individual holder of Shares and, so long as any of the undersigned is an entity, will survive the merger or dissolution of such person or any other entity holding any Shares. Upon St. Paul's request, each of the undersigned agrees that each certificate evidencing the Shares subject to the provisions of this letter agreement shall, during the term of this letter agreement, be endorsed with a legend notifying the holder thereof of the existence of this letter agreement. No such Shares shall be transferred to a Transferee without the endorsement on each certificate issued upon such transfer of such legend, and a stop order shall be placed with the Company's transfer agent to such effect. The provisions of this letter agreement shall be binding as to each signatory hereto immediately upon the execution and delivery to the addressee of a counterpart of this letter agreement, regardless of whether it shall have been executed by any other party named hereon, and shall terminate upon the earlier of: (i) the approval by the Company's shareholders of the Nasdaq Proposal; or (ii) October 31, 2001. Each of the undersigned understands and agrees that a breach of the terms and conditions of this letter agreement will cause you irreparable harm which cannot be reasonably or adequately compensated by receipt of money damages at law, and that you may, in your sole discretion, apply to any court of law or equity or competent jurisdiction for specific enforcement, injunctive relief and/or other equitable remedies to prevent or remedy a breach of this letter agreement or any part hereof. All rights and remedies herein provided are cumulative and not exclusive of any remedy provided by law or by equity. The terms and conditions of this letter agreement shall inure to the benefit of and be binding upon and be enforceable by the respective heirs, successors and assigns of the undersigned (including without limitation each Transferee) and you. This letter agreement shall be governed by and construed in accordance with, the laws of the State of Minnesota. This letter agreement constitutes the entire understanding and agreement of the undersigned and you with respect to the subject matter hereof and supersedes all prior and contemporaneous agreements or understandings, inducements or conditions, express or implied, written or oral, among the undersigned and you with respect hereto. This letter agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement. If the foregoing correctly sets forth our agreement and understanding, please sign the enclosed copy of this letter in the space provided. Very truly yours, CONSUMER VENTURE PARTNERS II, L.P. By: Consumer Venture Associates II, L.P. Its: General Partner /s/ Christopher P. Kirchen ----------------------------------------- Christopher P. Kirchen General Partner [SIGNATURE PAGE TO VOTING AGREEMENT AMONG ST. PAUL VENTURE CAPITAL VI, LLC, SELECT COMFORT CORPORATION AND CERTAIN STOCKHOLDERS OF SELECT COMFORT] CHERRY TREE VENTURES IV LIMITED PARTNERSHIP By: /s/ Gordon F. Stofer -------------------------------------- Its: Managing General Partner ------------------------------------- [SIGNATURE PAGE TO VOTING AGREEMENT AMONG ST. PAUL VENTURE CAPITAL VI, LLC, SELECT COMFORT CORPORATION AND CERTAIN STOCKHOLDERS OF SELECT COMFORT] NORWEST EQUITY PARTNERS V By: Itasca Partners V /s/ John P. Whaley ---------------------------------------- Partner Number of shares: 329,277 ----------------------- [SIGNATURE PAGE TO VOTING AGREEMENT AMONG ST. PAUL VENTURE CAPITAL VI, LLC, SELECT COMFORT CORPORATION AND CERTAIN STOCKHOLDERS OF SELECT COMFORT] NORWEST EQUITY PARTNERS IV By: Itasca Partners /s/ John P. Whaley ---------------------------------------- Partner Number of shares: 597,053 ----------------------- [SIGNATURE PAGE TO VOTING AGREEMENT AMONG ST. PAUL VENTURE CAPITAL VI, LLC, SELECT COMFORT CORPORATION AND CERTAIN STOCKHOLDERS OF SELECT COMFORT] AGREED TO AND ACCEPTED: ST. PAUL VENTURE CAPITAL VI, LLC By: SPVC Management VI, LLC Its: Managing Member /s/ Patrick A. Hopf - -------------------------------- Patrick A. Hopf Managing Director SELECT COMFORT CORPORATION By: /s/ Mark A. Kimball -------------------------- Its: Senior Vice President -------------------------- [SIGNATURE PAGE TO VOTING AGREEMENT AMONG ST. PAUL VENTURE CAPITAL VI, LLC, SELECT COMFORT CORPORATION AND CERTAIN STOCKHOLDERS OF SELECT COMFORT] -----END PRIVACY-ENHANCED MESSAGE-----