EXHIBIT 10.5
PLEDGE AGREEMENT
This Agreement is made as of the 6th day of June, 2001 by Select Comfort
Corporation, a Minnesota corporation (the "Debtor"), in favor of St. Paul
Venture Capital VI, LLC, a Delaware limited liability company, as agent for the
holders of the Notes referred to below (the "Secured Party").
WHEREAS, the Debtor and the Purchasers named in Schedule 1 to the Note
Purchase Agreement referred to below, as such Schedule 1 is amended or deemed
amended from time to time in accordance with the terms of the Note Purchase
Agreement (the "Purchasers"), have entered into a Note Purchase Agreement dated
the date hereof (as amended, modified or supplemented from time to time, the
"Note Purchase Agreement") pursuant to which the Purchasers have purchased or
will purchase from the Debtor those certain Senior Secured Convertible Notes of
the Debtor payable to the Purchasers, or their registered assigns, in the
aggregate original principal amount of up to $12,000,000 (together with any note
or notes issued in exchange or substitution therefor, collectively, the
"Notes").
WHEREAS, pursuant to the terms of the Note Purchase Agreement, the Debtor
is required to pledge to the Secured Party, as security for the Notes, all of
the capital stock of each Subsidiary (as defined in the Note Purchase Agreement)
by executing and delivering to the Secured Party this Agreement.
ACCORDINGLY, in consideration of the mutual covenants contained in the Note
Purchase Agreement and herein, the parties hereby agree as follows:
1. DEFINITIONS. All terms defined in the Note Purchase Agreement that are
not otherwise defined herein shall have the meanings given them in the Note
Purchase Agreement. In addition, the following terms have the meanings set forth
below:
"Collateral" means the Stock, all dividends and other rights to
payment on account of the Stock, whether such payments represent profits,
capital gains, returns of contributed capital, or otherwise, and all other
money and property distributed to the Debtor from a Subsidiary, however
characterized, together with all proceeds thereof.
"Event of Default" has the meaning specified in Section 5.
"Obligations" means (i) the principal of and interest on the Notes,
and (ii) each and every other debt, liability and obligation of every type
and description which the Debtor may now or at any time hereafter owe to
the holders of the Notes, or any of them, under this Agreement, the Note
Purchase Agreement or any of the other Transaction Documents, whether such
debt, liability or obligation now exists or is hereafter created or
incurred and whether it 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.
"Security Interest" has the meaning specified in Section 2.
"Specified Shares" means the shares of capital stock identified in
Exhibit A hereto, said shares being presently evidenced by the certificates
listed therein.
"Stock" means any share of capital stock of any Subsidiary now or
hereafter owned by the Debtor, including but not limited to the Specified
Shares, together with all stock or other securities issued in exchange or
substitution therefor or otherwise in respect thereof.
2. SECURITY INTEREST. The Debtor hereby grants the Secured Party a security
interest (the "Security Interest") in the Collateral to secure payment of the
Obligations.
3. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. The Debtor hereby
represents, warrants and agrees as follows:
(a) TITLE. The Debtor (i) has absolute title to each item of
Collateral in existence on the date hereof, including but not limited to
the Specified Shares, free and clear of all security interests, liens and
encumbrances, except the Security Interest and Permitted Liens, (ii) will
have, at the time the Debtor acquires any rights in Collateral hereafter
arising, absolute title to each such item of Collateral free and clear of
all security interests, liens and encumbrances, except the Security
Interest and Permitted Liens, (iii) will keep all Collateral free and clear
of all security interests, liens and encumbrances, except the Security
Interest and Permitted Liens, and (iv) will defend the Collateral against
all claims or demands of all persons other than the Secured Party and any
holders of Permitted Liens. The Debtor will not sell or otherwise dispose
of the Collateral or any interest therein, except as otherwise permitted by
the Note Purchase Agreement, without the prior written consent of the
Secured Party.
(b) CHIEF EXECUTIVE OFFICE; IDENTIFICATION NUMBER. The Debtor's chief
executive office is located at the address set forth on Exhibit A hereto.
The Debtor's federal employer identification number is correctly set forth
on Exhibit A hereto.
(c) CHANGES IN NAME OR LOCATION. The Debtor will not change its name
or the location of its chief place of business without at least 30 days'
prior written notice to the Secured Party.
(d) STOCK. The Specified Shares are duly authorized, validly issued
and outstanding, fully paid and nonassessable. The Specified Shares
constitute all of the issued and outstanding shares of capital stock of
each of the Subsidiaries. There are no outstanding options, warrants or
other rights to acquire capital stock of any
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Subsidiary or securities convertible into capital stock of any Subsidiary.
The Debtor agrees that it will not permit any Subsidiary to issue any of
its capital stock to any person other than the Debtor or to issue any
options, warrants or other rights to acquire its capital stock or
securities convertible into its capital stock.
(e) MISCELLANEOUS COVENANTS. The Debtor will:
(i) 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;
(ii) promptly deliver to the Secured Party any certificate or
instrument constituting or evidencing Collateral, duly endorsed
or assigned in blank by the Debtor;
(iii)from time to time execute such financing statements as the
Secured Party may reasonably require in order to perfect the
Security Interest and, if Collateral consists of investment
property not constituting certified securities, execute any
control agreements, and take such commercially reasonable
measures to cause any applicable securities issuer or
intermediary to execute such control agreements, as the 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);
(iv) pay when due or reimburse the 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 the Secured Party in connection
with the creation, perfection, satisfaction, protection, defense
or enforcement of the Security Interest or the creation,
continuance, protection, defense or enforcement of this Agreement
or any or all of the Obligations; and
(v) execute, deliver or endorse any and all instruments, documents,
assignments, security agreements, proxies and other agreements
and writings which the Secured Party may at any time reasonably
request in order to secure, protect, perfect or enforce the
Security Interest and the Secured Party's rights under this
Agreement (including without limitation all voting and other
rights with respect to the Collateral that the Secured Party may
be entitled to exercise under clause (b) of Section 6).
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(f) SECURED PARTY'S RIGHT TO TAKE ACTION. If the Debtor at any time
fails to perform or observe any agreement contained in Section 3(a) or
3(e), and if such failure continues for a period of ten calendar days after
Secured Party gives the Debtor written notice thereof (or, in the case of
the agreements contained in clause (iii) of Section 3(e), 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 the 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
execution of financing statements and the execution or endorsement of
instruments); and, except to the extent that the effect of such payment
would be to render any loan or forbearance of money usurious or otherwise
illegal under any applicable law, the Debtor shall thereupon pay the
Secured Party on demand the amount of all moneys expended and all costs and
expenses (including reasonable attorneys' 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 the Secured Party of the agreements of the Debtor contained
in this Section 3 or in Section 4, the Debtor hereby irrevocably appoints
(which appointment is coupled with an interest) Secured Party, or its
delegate, as the attorney-in-fact of the 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 the Debtor, any and all
instruments, documents, financing statements, and other agreements and
writings required to be obtained, executed, delivered or endorsed by the
Debtor under this Section 3 or under Section 4 to the extent Secured Party
has the right to perform or observe such agreements as provided in this
Section 3 or in Section 4.
4. RIGHTS OF SECURED PARTY. At any time after the occurrence and during the
continuance of an Event of Default, the Secured Party may (a) notify the issuer
of any Stock to make payments and other distributions thereon directly to the
Secured Party, (b) receive all proceeds of the Stock, and (c) hold any increase
or profits received from the Stock as additional security for the Obligations
(except that any money received from the Collateral may, at the option of the
Secured Party, be applied to reduction of the Obligations in such order of
application as the Secured Party may determine or be remitted to the Debtor).
The Debtor hereby irrevocably authorizes and directs each issuer of any Stock to
remit any and all money, distributions and other property described in this
Section 4 directly to the Secured Party in the Secured Party's name alone. Such
remittances shall continue to be made to the Secured Party until the Secured
Party otherwise notifies the applicable issuer in writing. To the extent that
such remittances are made directly to the Secured Party, the remitting issuer
shall have no further liability to the Debtor for the same.
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5. EVENTS OF DEFAULT. Each of the following occurrences shall constitute an
event of default under this Agreement (herein called an "Event of Default"): (a)
default shall be made in the performance or observance of any of the terms,
covenants or conditions of 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 the Debtor; or (b) any representation or warranty contained in this
Agreement proves to be false in any material respect as of the time this
Agreement was made; or (c) there shall occur any other Event of Default under
and as defined in the Note Purchase Agreement.
6. REMEDIES UPON EVENT OF DEFAULT. Upon the occurrence of an Event of
Default and at any time during the continuance thereof, the Secured Party may,
at its option, exercise any one or more of the following rights and remedies:
(a) exercise all voting and other rights with respect to the Collateral; (b)
exercise and enforce any or all rights and remedies available upon 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
the Debtor hereby expressly waives), and the right to sell, lease or otherwise
dispose of any or all of the Collateral, and if notice to the 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 the Secured Party by
law or agreement against the Collateral, against the Debtor or against any other
person or property.
7. WAIVER OF CERTAIN CLAIMS. The Debtor acknowledges that because of
present or future circumstances, a question may arise under the Securities Act
with respect to any disposition of the Collateral permitted hereunder. The
Debtor understands that compliance with the Securities Act may very strictly
limit the course of conduct of the Secured Party if the Secured Party was to
attempt to dispose of all or any portion of the Collateral and may also limit
the extent to which or the manner in which any subsequent transferee of the
Collateral or any portion thereof may dispose of the same. There may be other
legal restrictions or limitations affecting the Secured Party in any attempt to
dispose of all or any portion of the Collateral under applicable Blue Sky or
other securities laws or similar laws analogous in purpose or effect. The
Secured Party may be compelled to resort to one or more private sales to a
restricted group of purchasers who will be obliged to agree, among other things,
to acquire such Collateral for their own account for investment only and not to
engage in a distribution or resale thereof in violation of the Securities Act.
The Debtor agrees that the Secured Party shall not incur any liability, and any
liability of the Debtor for any deficiency shall not be impaired, as a result of
the sale of the Collateral or any portion thereof at any such private sale in a
manner that is commercially reasonable. The Debtor hereby waives any claims
against the Secured Party arising by reason of the fact that the price at which
the Collateral may have been sold at such sale was less than the price that
might have been obtained at a public sale or was less than the aggregate amount
of the Obligations, even if the Secured Party shall accept the first offer
received and does not offer any portion of the Collateral to more than one
possible purchaser. The Debtor further agrees
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that the Secured Party has no obligation to delay sale of any Collateral for the
period of time necessary to permit the issuer of such Collateral to qualify or
register such Collateral for public sale under the Securities Act and applicable
Blue Sky laws, even if said issuer would agree to do so. Without limiting the
generality of the foregoing, the provisions of this Section 7 would apply if,
for example, the Secured Party was to place all or any portion of the Collateral
for private placement by an investment banking firm, or if such investment
banking firm purchased all or any portion of the Collateral for its own account,
or if the Secured Party placed all or any portion of the Collateral privately
with a purchaser or purchasers.
8. NOTICE. All notices and other communications hereunder shall be in
writing and shall be given in the manner and with the effect provided in the
Note Purchase Agreement.
9. MISCELLANEOUS. This Agreement does not contemplate a sale of accounts,
contract rights or chattel paper, and, as provided by law, the 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 the 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 the Secured
Party's rights or remedies. All rights and remedies of the Secured Party shall
be cumulative and may be exercised singularly or concurrently, at the 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. The Secured Party's duty of care with respect to Collateral in its
possession (as imposed by law) shall be deemed fulfilled if the 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 the Secured Party need not otherwise preserve, protect, insure or
care for any Collateral. The Secured Party shall not be obligated to preserve
any rights the Debtor may have against prior parties, to exercise at all or in
any particular manner any voting or other rights which may be available with
respect to any Collateral, 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 Debtor and the Secured Party and their respective
successors and assigns (including without limitation any successor Collateral
Agent under and as defined in the Note Purchase Agreement) and shall take effect
when signed by the Debtor and delivered to the Secured Party, and the Debtor
waives notice of the Secured Party's acceptance hereof. Except to the extent
otherwise required by law, this Agreement shall be governed by the internal law
of the State of Minnesota and, unless the context otherwise requires, all terms
used herein which are defined in Articles 1, 8 or 9 of the Uniform Commercial
Code, as in effect in said state, shall have the meanings therein stated. The
Secured Party may execute this Agreement if appropriate for the purpose of
filing, but the failure of the Secured Party to execute this Agreement shall not
affect or impair the validity or effectiveness of this Agreement. A carbon,
photographic or other reproduction of
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this Agreement or of any financing statement signed by the Debtor shall have the
same force and effect as the original for all purposes of a financing statement.
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.
IN WITNESS WHEREOF, the Debtor has executed this Agreement as of the date
and year first above written.
SELECT COMFORT CORPORATION
By: /s/ MARK A. KIMBALL
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Name: Mark A. Kimball
Title: Senior Vice President
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EXHIBIT A
SPECIFIED SHARES:
CORPORATION NUMBER OF SHARES CERTIFICATE NUMBER
Select Comfort Retail Corporation 100,000 2
Select Comfort Direct Corporation 100,000 1
Select Comfort SC Corporation 1,000 1
Direct Call Centers, Inc. 1,000 1
selectcomfort.com corporation 1,000 1
DEBTOR'S CHIEF PLACE OF BUSINESS:
6105 Trenton Lane North
Suite 100
Minneapolis, Minnesota 55442
DEBTOR'S FEDERAL EMPLOYER IDENTIFICATION NUMBER:
41-1597886