EXHIBIT 10.1
LOAN AGREEMENT
among
Select Comfort Corporation (the "Company"),
Select Comfort Retail Corporation
Select Comfort Direct Corporation
Select Comfort SC Corporation
Direct Call Centers, Inc.
xxxxxxxxxxxxx.xxx corporation (collectively, the "Subsidiaries")
(collectively, the "Loan Parties")
and
Medallion Capital, Inc. (the "Lender")
SEPTEMBER 28, 2001
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LOAN AGREEMENT
This Agreement is entered into September 28, 2001, among MEDALLION CAPITAL,
INC., a Minnesota corporation and a Licensee under the Small Business Investment
Act of 1958, whose address is 0000 Xxxxxxx Xxxx, Xxxxx 000, Xxxxxxxxxxx,
Xxxxxxxxx 00000-0000, (the "Lender"), SELECT COMFORT CORPORATION, a Minnesota
corporation (the "Company") and SELECT COMFORT RETAIL CORPORATION, SELECT
COMFORT DIRECT CORPORATION, SELECT COMFORT SC CORPORATION, DIRECT CALL CENTERS,
INC., AND XXXXXXXXXXXXX.XXX CORPORATION, all of which are Minnesota
corporations, (the "Subsidiaries") (the Company and the Subsidiaries being each
a "Loan Party" and collectively the "Loan Parties"), whose address is 0000
Xxxxxxx Xxxx Xxxxx, Xxxxxxxxxxx, Xxxxxxxxx 00000.
The Lender and the Loan Parties agree as follows:
ARTICLE ONE
THE LOAN
1.1 NOTE
Subject to the terms of this Agreement, the Lender agrees to loan the Company
$5,000,000.00 (the "Loan"). The Loan will be evidenced by and be repayable in
accordance with a Promissory Note issued by the Company to the Lender in the
amount of the Loan (the "Note") which is attached as Exhibit 1.1.
1.2 WARRANT
With the Note the Company will issue to the Lender a Warrant in the form
attached as Exhibit 1.2 (the "Warrant").
1.3 SECURITY
The Company's obligations under the Note, this Agreement, and the other
documents delivered to the Lender pursuant to this Agreement (all of the
foregoing being collectively the "Loan Documents") are subject to or secured by
the Security Agreement and Patent and Trademark Security Agreement attached as
Exhibit 1.3. (collectively, the "Security Agreements").
1.4 CLOSING
Subject to fulfillment of the terms of this Agreement, the Loan shall be made to
the Company (the "Closing") on September 28, 2001 (the "Closing Date").
1.5 FEES
At the Closing, the Company shall pay Lender a commitment and closing fee in the
total amount of $75,000.00, which is in addition to the application fee of
$25,000.00 previously paid to
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Lender. At the Closing, the Company shall also pay the Lender's out of pocket
expenses (including reasonable attorney's fees and costs advanced) incurred in
the analysis of the Loan, the preparation of the Loan Documents and the Closing,
and the other fees and expenses due hereunder.
1.6 SUBORDINATION
1.6.1 SUBORDINATION OF CONVERTIBLE NOTES At or prior to the Closing, the
Company shall deliver to Lender a Subordination Agreement in the form attached
as Exhibit 1.5 (the "Subordination Agreement") under which (a) the holders of
the Senior Secured Convertible Notes (the "Convertible Notes") issued by the
Company pursuant to the Note Purchase Agreement dated June 1, 2001 (the "Note
Purchase Agreement") subordinate their rights under the Notes, the Note Purchase
Agreement and the agreements securing the Notes to the rights of the Lender, and
(b) St. Xxxx Venture Capital VI, LLC subordinates its rights under the
Convertible Subordinated Debenture, dated November 10, 2000, to the rights of
the Lender.
1.6.2 FUTURE SUBORDINATION TO NEW BANK AGREEMENT In the event that after
the date of this Agreement the Company proposes to enter into an agreement (a
"New Bank Agreement") with a bank or other financial institution under which the
Company would incur, or has the right to incur, indebtedness for borrowed money
or obtain letters of credit or similar financial accommodations, and
(a) Profitability: the Company has reported in its quarterly or annual
filings with the Securities and Exchange Commission consolidated net income
(excluding any income from extraordinary items) of $1 or more in the two most
recently reported fiscal quarters;
(b) Leverage: the ratio, for the then four most recently reported fiscal
quarters, of the sum of (1) Debt as of the date the determination is being made
and (2) the maximum principal amount of indebtedness to be extended or available
under the New Bank Agreement, to Consolidated EBITDA would be less than 3.0 to
1.0; and
(c) Debt Service: the ratio of Consolidated EBITDA for the then four most
recently reported fiscal quarters to the sum of (1) Interest Expense, scheduled
principal payments of Debt and Capital Expenditures during the then four most
recently reported fiscal quarters, and (2) the estimated Interest Expense and
scheduled principal payments of Debt under the New Bank Agreement which will be
due in the next four fiscal quarters, would be greater than 1.2 to 1.0;
then Lender agrees that it will execute and deliver to such bank or financial
institution a subordination agreement reasonably satisfactory to such bank or
financial institution and to Lender providing for the subordination of (I) the
indebtedness of the Loan Parties under the Note, this Agreement and the Security
Agreements to the indebtedness of the Loan Parties under the New Bank Agreement,
and (II) the Lender's security interest in the Company and the
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Subsidiaries' accounts receivable, inventory, cash and cash equivalents (but not
Lender's security interest in their equipment or intellectual property or any
proceeds thereof) to the security interest granted or to be granted to secure
the New Bank Agreement. The terms of such subordination shall include a
standstill period of 180 days after which Lender shall be entitled to enforce
its rights in the event of a default under this Agreement or the Loan Documents,
and shall include a right on the part of Lender (but not any obligation) to cure
defaults by the obligors under the New Bank Agreement to the extent such
defaults are capable of being cured by Lender.
As used in this Section 1.5, the terms "Capitalized Lease," "Capital
Expenditures," "Consolidated EBITDA," "Debt," and "Interest Expense" have the
meanings provided in Section 3.14 below.
ARTICLE TWO
REPRESENTATIONS AND WARRANTIES
To induce the Lender to make the Loan, each of the Loan Parties jointly and
severally represents and warrants to the Lender that, except as expressly stated
to the contrary in the Disclosure Schedule which has been marked as such and
separately delivered by the Loan Parties (the "Disclosure Schedule"):
2.1 GOOD STANDING
Each of the Loan Parties is a corporation duly organized, validly existing and
in good standing under the laws of Minnesota, is authorized to engage in the
business now carried on by it, and is qualified as a foreign corporation to do
business in each state where the nature of the business done by it requires
qualification and the failure to be so qualified would have a material adverse
effect on the Loan Parties taken as a whole. Those states are listed on 2.1 of
the Disclosure Schedule.
2.2 CAPITAL STOCK
The authorized and outstanding capital stock of each Loan Party is as described
on 2.2 of the Disclosure Schedule.
2.3 SUBSIDIARIES; BENEFIT FROM THE LOAN
The Loan Parties have only the Subsidiaries listed in 2.3 of the Disclosure
Schedule. As used in this Agreement, "Subsidiary" means any corporation,
partnership, limited liability entity or other entity in which a Loan Party
owns, directly or indirectly, equity securities or other ownership interests
having ordinary voting power to elect a majority of the board of directors or
other persons performing similar functions. The Loan Parties and the
Subsidiaries are part of an integrated economic operation and each of the Loan
Parties will directly and indirectly benefit from the Loan being made by the
Lender.
2.4 FINANCIAL STATEMENTS
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The Company has delivered to the Lender the audited consolidated financial
statements of the Company and its consolidated subsidiaries as of December 31,
1998, 1999 and 2000, and for the fiscal years then ended, and the unaudited
consolidated and consolidating financial statements of the Company and
subsidiaries as of June 30, 2001, and for the six month period then ended. All
of the foregoing financial statements of the Company and subsidiaries are
referred to collectively as the "Financial Statements" and are attached hereto
as Exhibit 2.4. The Financial Statements were prepared in accordance with
generally accepted accounting principles, consistently applied (except, with
respect to interim financial statements, for the absence of footnotes and for
year-end adjustments), and fairly present the financial condition of the Company
and its subsidiaries as of the dates of the balance sheets included in the
Financial Statements and the results of their operations for the periods then
ended.
2.5 USE OF PROCEEDS
The proceeds from the Loan shall be used for working capital and general
corporate purposes.
2.6 ABSENCE OF MATERIAL CHANGES
Except as stated in Section 2.6 of the Disclosure Schedule, since the date of
the most recent of the Financial Statements, there have been no material adverse
changes in the condition, financial or otherwise, of any of the Loan Parties or
their respective businesses or properties, nor does any Loan Party know of any
which may occur; and since the date of the most recent of the Financial
Statements none of the Loan Parties have issued, sold or acquired any of the
outstanding shares of any class of its capital stock, nor are there any
contingent obligations, liability for taxes or commitments not disclosed or
subject to reserve in the Financial Statements, other than the Loan under this
Agreement, or which were incurred in the ordinary course of business.
2.7 SHAREHOLDERS, OFFICERS AND DIRECTORS
The information furnished by each of the Loan Parties relative to its
management, shareholders (including the number of shares of any class of stock
held by each), officers and directors of each Loan Party in Section 2.7 of the
Disclosure Schedule is true and correct.
2.8 PROPERTY OWNERSHIP; LEASES
Except as indicated on Section 2.8 of the Disclosure Schedule, each of the Loan
Parties has good title, free and clear of all liens and encumbrances (other than
liens for taxes not delinquent) to all of its real and personal property
reflected on the Financial Statements other than as disposed of in the ordinary
course of business since the date of the Financial Statements. All property or
assets not owned by one of the Loan Parties and used in the operation of its
business, if any, are subject to valid leases held by the Loan Party covering
their use or occupancy, which leases are not in default. A list of all real
estate owned or leased by any of the Loan Parties and all liens or encumbrances
on the real estate or assets are listed on Section 2.8 of the Disclosure
Schedule.
2.9 OWNERSHIP OF INTELLECTUAL PROPERTY RIGHTS
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Each of the Loan Parties possesses all patents, licenses, trademarks, trademark
rights, trade names, trade name rights, trade secrets, copyrights and the like
("Intellectual Property") necessary or appropriate to conduct its business as
now conducted without conflict with those of any other person. All of the
foregoing are listed in Section 2.9 of the Disclosure Schedule. Section 2.9 of
the Disclosure Schedule lists all patents, registered trademarks, registered
copyrights, licenses and/or royalty agreements relating to the Intellectual
Property of each Loan Party.
2.10 LITIGATION
All of the litigation or proceedings pending or, to the knowledge of any of the
Loan Parties or their respective officers, threatened against any of the Loan
Parties or any of their respective properties in any court or by or before any
governmental agency or arbitrator are listed in Section 2.10 of the Disclosure
Schedule.
2.11 TAXES
All Federal, State and other tax returns and reports of any Loan Party required
by law to be filed have been filed and all Federal, State and other material
taxes, assessments, fees and other governmental charges (other than those
presently payable without penalty) imposed upon any Loan Party or the
properties, assets or payroll of any Loan Party which are due and payable have
been paid except as disclosed in Section 2.11 of the Disclosure Schedule. The
Loan Parties have separately delivered to the Lender a copy of their
consolidated federal income tax returns for the two most recent fiscal years.
2.12 ABSENCE OF PROHIBITION OR LIENS
There is no provision in any Loan Party's current Articles or Certificate of
Incorporation or Bylaws, or in any indenture or agreement to which any Loan
Party is a party, nor any law, rule, regulations, contract, statute of any
governmental authority, which limits or prohibits, or which may in the future
limit or prohibit, the execution, delivery or fulfillment by any Loan Party of
this Agreement or its Exhibits or of any of the acts or agreements contemplated
by this Agreement or the other Loan Documents or which results or which may in
the future result in the creation of a lien or encumbrance on any asset of
either of the Loan Parties.
2.13 AUTHORIZATION
The execution and delivery of this Agreement and the other Loan Documents have
been duly authorized by the Board of Directors (and to the extent necessary, the
stockholders) of each Loan Party. The officers of each Loan Party are authorized
to execute and deliver this Agreement and the other Loan Documents to which it
is a party and perform the same in accordance with their respective terms.
Copies of the authorizing resolutions are attached to the Secretary's
Certificate referred to in Section 7.2.
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2.14 ENVIRONMENTAL MATTERS
Each Loan Party has obtained all material permits, licenses and other
authorizations which are required under federal, state and local laws relating
to emissions, discharges, releases or threatened releases of pollutants,
contaminants, hazardous or toxic materials, or wastes into ambient air, surface
water, ground water or land, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants or hazardous or toxic materials or wastes
("Environmental Laws"). Each Loan Party and all activities of the Loan Parties
comply in all material respects with all Environmental Laws and with all terms
and conditions of any required permits, licenses and authorizations applicable
to the Loan Parties. Each Loan Party is also in material compliance with all
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in the Environmental Laws or
contained in any plan, order, decree, judgment or notice. None of the Loan
Parties are aware of, nor have any of them received notice of, any events,
conditions, circumstances, activities, practices, incidents, actions or plans
which may interfere with or prevent continued compliance with, or which may give
rise to any material liability under, any Environmental Laws or the common law
concerning environmental matters except as disclosed in Section 2.14 of the
Disclosure Schedule.
2.15 FINDER'S OR BROKER'S FEES
None of the Loan Parties has entered into any agreement to pay or has any
obligation to pay any commission, finder's fee, brokerage fee or other such fees
to any person (other than Lender) as a result of the transactions in or
contemplated by this Agreement.
2.16 SMALL BUSINESS CONCERN
Each of the Loan Parties is a "Small Business Concern" as that term is defined
by the Small Business Administration. No officer or director of any of the Loan
Parties is, or has been within six months prior to the Closing Date, an officer,
director, agent or employee of Lender or an "Associate", as that term is defined
in Part 107 of Title 13 of the Code of Federal Regulations, of Lender. No
portion of the proceeds of the Loan will be used for any purpose in
contravention of any of the provisions of Part 107 of Title 13 of the Code of
Federal Regulations. None of the Loan Parties has ever been debarred from
contracts with any governmental unit and no debarment proceedings are currently
underway or threatened by any governmental unit.
2.17 CRIMINAL OFFENSES
None of the officers or directors of any Loan Party has been convicted of a
felony within the past 10 years, except as disclosed in 2.17 of the Disclosure
Schedule.
2.18 SOLVENCY
After giving effect to the execution and delivery of the Loan Documents and the
making of the Loan, none of the Loan Parties will be "insolvent" within the
meaning of that term as defined in (a) Xxxxxxx 000 xx xxx Xxxxxx Xxxxxx
Bankruptcy Code, (b) Section 2 of the Uniform Fraudulent Transfer Act, or (c)
any other applicable state law pertaining to fraudulent transfers valuing the
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assets of any of the Loan Parties on a "going concern" basis, as each may be
amended from time to time, or be unable to pay its debts generally as such debts
become due, or have an unreasonably small capital to engage in any business or
transaction, whether current or contemplated.
2.19 DISCLOSURE OF MATERIAL FACTS
No representation or warranty by any of the Loan Parties in this Agreement or
any of the other Loan Documents, nor any statement, document or certificate
furnished or to be furnished by any Loan Party or its representatives to the
Lender or its representatives in connection with this Agreement or any of the
other Loan Documents, contains or will contain any untrue statement of a
material fact or omits or will omit to state any material fact necessary to make
the facts stated therein not misleading.
ARTICLE THREE
AFFIRMATIVE COVENANTS OF THE LOAN PARTIES
The Loan Parties jointly and severally agree that, so long as the Note is
outstanding or any other amounts remain owing to the Lender under any of the
Loan Documents:
3.1 PROMPT PAYMENT OF TAXES AND CLAIMS
Each Loan Party will pay when due all taxes, lawful claims for labor, materials,
supplies, rents, lease payments and other debts and liabilities which if unpaid
would by law be a lien or charge upon the property of the Loan Party, except to
the extent being contested in good faith by appropriate proceedings and with
reserves established therefor in accordance with generally accepted accounting
principles.
3.2 INSURANCE
Each Loan Party shall maintain insurance policies in such types and amounts as
are appropriate for its business, including but not limited to comprehensive
property and liability insurance policies. Lender shall be listed on all
insurance policies as a mortgagee, loss payee and additional insured, as its
interest may appear. The policies shall require the insurer to provide Lender
with written notice at least 30 days prior to cancellation. The policies in
force on the Closing Date are listed in 3.2 of the Disclosure Schedule. In the
event a policy lapses, is modified or replaced, the affected Loan Party shall
immediately notify the Lender and send evidence of the new policies.
3.3 REPAIRS
Each Loan Party shall maintain in good repair and working order all assets used
in its business and will replace or repair any items of damaged or worn-out
property in accordance with good management practices.
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3.4 BOARD OF DIRECTORS
The Company's Board of Directors shall meet at least quarterly and consist of at
least three people. The Company shall furnish Lender at least 10 days prior to
each Board meeting written notice and an agenda of the meeting and shall provide
the Lender promptly a copy of the minutes of all meetings of the Board and all
other actions and other reports of or given to the Board or any committee
thereof. A representative of the Lender shall have the right to attend all Board
meetings and have the full rights of a Board member at the meeting except the
right to vote on Board resolutions. The Company shall reimburse the Lender and
such representatives for their actual, reasonable, documented out-of-pocket
expenses for attending meetings with the Company that occur outside the
Minneapolis / St. Xxxx metropolitan area. Lender and all such representatives,
and all other employees and agents of Lender, will keep confidential all
information received pursuant to this Section 3.4, except for information which
enters the public domain through no fault of Lender or such representative,
employee or agent, or information which Lender is required to disclose by law,
but only to the extent such disclosure is legally required.
3.5 DELIVERY OF FINANCIAL AND OTHER DOCUMENTS
The Company shall deliver to Lender:
3.5.1 As soon as available and in any event within 90 days after the
close of each fiscal year (a) an audited consolidated balance sheet
of the Company as of the close of the fiscal year and consolidated
statements of income and retained earnings and changes in financial
position for the year then ended, accompanied by an unqualified
opinion of the Company's independent certified public accountants
acceptable to the Lender, and (b) a letter from such accountants
stating whether the Company is in compliance with the provisions of
Section 3.14.
3.5.2 Within 10 days after the Loan Party's issuance or filing,
copies of all filings submitted by the Loan Party to the Securities
and Exchange Commission, any listing application filed with any stock
exchange, and each annual report and all other reports, including
proxy solicitations, which the Loan Party shall send to its
shareholders, in each case promptly after it is requested by Lender.
3.5.3 Within 25 days after the end of each month, consolidated
balance sheets of the Company and the Subsidiaries as of the end of
such month, and statements of income and retained earnings for the
portion of the fiscal year then ended, prepared in conformity with
Section 3.6. Upon request by the Lender, the Company shall also
provide to Lender a monthly aging report of the Loan Parties'
accounts receivable and accounts payable, a copy of the
reconciliation of the Financial Statements to the cash accounts, any
off balance sheet liabilities assumed by any Loan Party, and any
unbudgeted capital expenditures in excess of $10,000.
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3.6 FORM OF FINANCIAL DOCUMENTS
For purposes of this Agreement:
3.6.1 Except as provided in subsection 3.6.2, all financial
statements of a Loan Party provided under this Agreement shall be
prepared in conformity with generally accepted accounting principles
(except, with respect to interim financial statements, for the
absence of footnotes and for year-end adjustments) applied on a
consistent basis.
3.6.2 If any accounting principle, method of valuation or
governmental regulations followed in the preparation of financial
statements is required to be modified by the Financial Accounting
Standards Board, the Loan Parties shall so notify the Lender, and the
financial statements may be modified to such extent.
3.6.3 All fiscal year-end financial statements delivered to the
Lender shall be accompanied by a letter from the certified public
accountant who prepared them stating that such statements have been
prepared in compliance with the provisions of Section 3.6. All other
financial statements and reports delivered to the Lender pursuant to
this Agreement shall be accompanied by a certificate signed by the
Company's President, Treasurer or Chief Financial Officer, certifying
that they have been prepared in compliance with the provisions of
Section 3.6, that they fairly and accurately state the current
financial condition of the Company and its subsidiaries, that the
financial statements have been reconciled with the cash accounts, and
that all payroll withholding taxes were paid when due, and that no
Default existed during the accounting period covered by the financial
statements. A copy of the form of the certification is attached as
Exhibit 3.6.3. In the event the President, Treasurer or Chief
Financial Officer cannot certify the above, a detailed disclosure of
those items which cannot be certified together with a detailed
explanation for each item shall be given to Lender, together with the
financial statements. Disclosure of non-certified matters shall not
cure any Default.
3.7 BUDGET
At least 30 days prior to the close of each fiscal year, the Company's Board of
Directors shall review the budget and the Board shall adopt an operating and
capital expenditures budget for the next succeeding fiscal year. A copy of the
budget with underlying assumptions shall be delivered to the Lender not later
than 10 days after approval by the Board.
3.8 INFORMATION ON REQUEST; DISCLOSURE
Each Loan Party shall furnish promptly, at the Lender's request, such
information as may be reasonably necessary to determine whether the Loan Party
is in compliance with the terms of this Agreement or as may be needed by the
Lender to prepare any required reports to shareholders or appropriate federal
and state regulatory authorities. Lender shall keep such information
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confidential, except that the Loan Parties consent to reasonable disclosure by
the Lender of the Loan Parties' information, including financial information, to
the shareholders of the Lender on a confidential basis and appropriate federal
and state regulatory authorities.
3.9 CORPORATE EXISTENCE
Each Loan Party shall maintain its corporate existence and conduct its business
in an orderly and regular manner, except to the extent otherwise permitted under
Section 4.6 and the other provisions of the Loan Documents.
3.10 LITIGATION
Each Loan Party shall immediately notify the Lender of all actual or threatened
litigation asserting damages which may exceed $50,000 or more, and of all actual
of threatened proceedings before any governmental or regulatory body or
arbitrator to which it is a party and which may affect its business.
3.11 INSPECTIONS
Each Loan Party shall permit, at such times as will not unreasonably interfere
with the conduct of its business, the Lender's representatives to visit and
inspect any property of the Loan Party and shall make available to the
representatives for inspection or copying any of the Loan Party's books and
records. Each officer of the Loan Party and the Loan Party's independent
accountants will discuss with the Lender's representatives any of the Loan
Party's affairs, finances and accounts at such times and as often as the Lender
may reasonably request.
3.12 CORPORATE FUNDS
Cash funds of any Loan Party in excess of needs reasonably necessary for its
day-to-day operations shall be invested in accordance with the Company's
investment policy, a copy of which has been furnished to Lender.
3.13 CIVIL RIGHTS
Each Loan Party shall comply with the provisions of the Civil Rights Acts of
1964 and file with or make available to Lender such information as may be
necessary to enable Lender to meet their reporting requirements to the Small
Business Administration.
3.14 FINANCIAL COVENANTS
(a) The Company's Consolidated EBITDA less the sum of Interest Expense,
scheduled principal payments on Debt, and Capital Expenditures will be not less
than the amount indicated below for the respective periods indicated (i.e. since
the limitations below are expressed as negative numbers, if the result of the
computation above is a negative number it will not be a larger negative number
than the amount indicated below for the applicable period):
Three months ended September 29, 2001: $(1,000,000)
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Six months ended December 29, 2001 $(2,500,000)
Nine months ended March 30, 2002 $(4,000,000)
Twelve months ended June 29, 2002 $(4,000,000)
(b) As of the end of each fiscal quarter ending on or after September 28,
2002, the Company will:
(i) Maintain a ratio of Consolidated EBITDA to Interest Expense, in
each case during the twelve months ended on or immediately prior to the
date of determination, of not less than 1.2 to 1.0.
(ii) Maintain a ratio of Consolidated EBITDA to the sum of Interest
Expense, scheduled principal payments on Debt and Capital Expenditures, in
each case during the twelve months ended on or immediately prior to the
date of determination, of not less than 1.05 to 1.00.
(c) For purposes of this Agreement:
"Capitalized Lease" shall mean any lease with respect to which the
lessee is required concurrently to recognize the acquisition of an asset and the
incurrence of a liability in accordance with generally accepted accounting
principles.
"Capital Expenditures" means, for any period of determination, the
aggregate amount of all expenditures during such period by the Company or any
Subsidiary that would be classified as capital expenditures in accordance with
generally accepted accounting principles, or made in property that is subject to
a synthetic lease to which the Borrower becomes a lessee during such period,
including without limitation, any amount debited to the fixed asset account on
the balance sheet of the Company or any Subsidiary in respect of (i) the
acquisition, including, without limitation, acquisition by entry into a
Capitalized Lease, construction, improvement, replacement or betterment of land,
buildings, machinery, equipment or of any other fixed assets or leaseholds, and
(ii) to the extent related to and not included in clause (i), materials,
contract labor and direct labor (excluding expenditures properly chargeable to
repairs or maintenance in accordance with generally accepted accounting
principles).
"Consolidated EBITDA" means, for any period of determination, the
consolidated net income of the Company and the Subsidiaries before provision for
interest expense (including implicit interest expense on Capitalized Leases),
income taxes, depreciation and amortization of intangible assets, non-cash
losses or gains on assets existing as of the Closing Date, all as determined in
accordance with generally accepted accounting principles.
"Debt" as to any party shall mean, without duplication, (a) all obligations
for borrowed
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money or which are evidenced by promissory notes, bonds, debentures or similar
instruments; (b) any obligation secured by any mortgage, pledge, security
interest, lien, charge or other encumbrance existing on property owned or
acquired subject thereto, whether or not such obligation is the obligation of
the owner or another party; (c) any obligation on account of deposits or
advances received by such party; (d) any obligation for the deferred purchase
price of any property or services, except accounts payable arising in the
ordinary course of business not unpaid for a period of more than 90 days past
the due date; (e) any obligation as lessee under any Capitalized Lease; (f) any
guaranty, endorsement or other contingent obligation in respect to indebtedness
of others, except for endorsements for collection in the ordinary course of
business; (g) any undertaking or agreement to reimburse or indemnify issuers of
letters of credit; and (h) the Debt of any partnership or joint venture in which
the person or entity as to which the determination is being made is a general
partner or a joint venturer.
"Interest Expense" means, for any period of determination, the interest
expense (including implicit interest expense on Capitalized Leases) of the
Company and the Subsidiaries, determined in accordance with generally accepted
accounting principles, excluding prepaid interest and interest paid in kind.
ARTICLE FOUR
NEGATIVE COVENANTS OF THE LOAN PARTIES
The Loan Parties jointly and severally agree that, so long as the Note is
outstanding, or any other amounts remain owing to the Lender under any of the
Loan Documents, none of the Loan Parties shall:
4.1 CHANGE OF OPERATIONS
Permit a substantial change in the present nature of the business operations of
the Loan Parties, taken as a whole.
4.2 DIVIDENDS
Directly or indirectly purchase, acquire, redeem or retire any shares of its
capital stock outstanding nor pay any dividends, except dividends paid by a
Subsidiary to the Company or paid in the common stock of the Company or pursuant
to any employee benefit or compensation plan or agreement.
4.3 EXPENSE REIMBURSEMENT
Reimburse out-of-pocket expenses which do not meet the Internal Revenue Service
test as a business expense deduction and then only upon submission of an expense
report meeting the business expense documentation requirements of the Internal
Revenue Service.
4.4 TRANSACTIONS WITH INSIDERS
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Purchase or sell any asset or service to or from any director or officer, or any
person who owns or controls, directly or indirectly, 5% or more of the voting
capital stock of any Loan Party, or any relative of any of the foregoing, or any
organization in which any one or more of the foregoing, together, hold, directly
or indirectly, an ownership interest of 5% or more ("Affiliate"), or rent or
lease property to or from an Affiliate, except with the prior written approval
of the Lender or as set forth in 4.4 of the Disclosure Schedule.
4.5 APPLICATION OF FUNDS
Invest in or otherwise divert any of its funds to an individual, other
corporation or business entity other than the Loan Parties, it being the intent
of this Agreement that the Loan Parties will apply their full capital and
resources to their own corporate business and purposes.
4.6 MERGERS AND ACQUISITIONS
Consolidate or merge with, or purchase all or a substantial part of the assets
of, any other business or entity (except that any Loan Party may merge into or
consolidate with, and any Loan Party may purchase the assets of, any other Loan
Party), or sell, lease or otherwise transfer any assets other than in the normal
course of its present business, or enter into any franchising agreements, or
create any new Subsidiaries (other than new wholly-owned Subsidiaries the
investment by the Loan Parties in which does not exceed $50,000).
4.7 GUARANTIES
Guarantee or endorse any obligation of others, or assume any contingent
liability with respect to the obligations of others, except (a) obligations of
any Loan Party as may be appropriate for purposes of their obtaining usual and
normal open account and short-term credit of the type normally and necessarily
outstanding in the operation of the business, (b) guaranties of the Subsidiaries
in favor of the holders of the Convertible Notes, (c) any contingent obligation
owing under the Revolving Credit Program Agreement between Conseco Bank, Inc.
and the Company dated as of May 17, 1999, as amended to date (the "Program
Agreement") and (d) any obligation incurred under any New Bank Agreement to the
financial institution providing credit or financial accommodations under the New
Bank Agreement.
4.8 INDEBTEDNESS
Incur any indebtedness in addition to that existing at the Closing Date, except
(i) for usual and normal unsecured open account and short-term credit of the
type normally and necessarily outstanding in the operation of the business, (ii)
as provided in Section 4.9, (iii) the subordinated indebtedness under the
Subordination Agreement, (iv) purchase money indebtedness incurred to acquire
any machinery or equipment in a principal amount not in excess of the cost
thereof and as to which the lien does not extend beyond the machinery and
equipment so acquired, (v) unsecured indebtedness not in excess of a total of
$100,000 which is subordinated in writing to obligations to the Lender, and (vi)
guarantees not prohibited by Section 4.7 above.
4.9 ENCUMBRANCES; CONDITIONAL SALES
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Create, incur, assume or suffer to exist any mortgage, pledge, lien or other
encumbrance of any kind on any of its properties now owned or hereafter
acquired, nor acquire or agree to acquire property under any conditional sales
agreement or title retention contract, nor engage in any sale-and-leaseback
transaction, except for those encumbrances and liens which (i) are disclosed in
4.9 of the Disclosure Schedule, (ii) are subject to the terms and conditions of
the Subordination Agreement, or (iii) secure purchase money indebtedness
permitted under Section 4.8 of this Agreement. Lender acknowledges that its
security interest in the accounts of the Loan Parties is subordinate to the
security interest of Conseco Bank, Inc. granted under the Program Agreement in
the funds contributed to and deposited in the Reserve Account provided for in
the Program Agreement.
4.10 CAPITAL EXPENDITURES
Incur or make any Capital Expenditures in any fiscal year which would cause the
aggregate Capital Expenditures in any such year to exceed by more than $250,000
the budgeted amount in the budget delivered pursuant to Section 3.7 for such
fiscal year. A summary of all Capital Expenditures shall be presented to each
meeting of the Board of Directors relating to the period subsequent to the
preceding Board meeting.
4.11 AMEND ARTICLES OR BYLAWS
Amend or change its Articles or Certificate of Incorporation or By-Laws, or
violate or breach any provisions thereof.
ARTICLE FIVE
DEFAULTS
Any of the following acts or conditions shall constitute a default ("Default"):
5.1 FAILURE TO PAY INTEREST OR PRINCIPAL
If the Company fails to pay when due any installment of interest or principal
owed under the Note.
5.2 UNTRUE REPRESENTATION OR WARRANTY
If any representation or warranty made by any Loan Party to the Lender
subsequently proves to have been incomplete or untrue in any material respect as
of the Closing Date, or any statement, certificate or data furnished by any Loan
Party to the Lender under this Agreement or its Exhibits proves to have been
incomplete or untrue in any material respect or materially misleading under the
circumstances in which it was provided as of the date on which the information
is stated or certified.
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5.3 CONTRACTUAL DEFAULT
If any Loan Party breaches, or a default exists under, any provision of this
Agreement, the Note, or any of the other Loan Documents, and such breach or
default is not cured within 15 days of the date such breach or default occurs.
5.4 BANKRUPTCY OR INSOLVENCY
If any Loan Party is insolvent, or admits in writing its inability to pay its
debts as they mature, or makes an assignment for the benefit of creditors; or
applies for or consents to appointment of any receiver, trustee, or similar
officer for it or for all or any substantial part of its property; such
receiver, trustee or similar officer is appointed without the application or
consent of any Loan Party and such appointment shall continue undischarged for a
period of 60 days; or any Loan Party shall institute (by petition, application,
answer, consent or otherwise) any bankruptcy, insolvency, reorganization,
arrangement, readjustment of debt, dissolution, liquidation or similar
proceeding relating to it under the laws of any jurisdiction; or any such
proceeding shall be instituted (by petition, application or otherwise) against
any Loan Party and shall remain undismissed for a period of 60 days; or any
judgment, writ, warrant of attachment or execution or similar process shall be
issued or levied against a substantial part of the property of any Loan Party
and such judgment, writ, or similar process shall not be released, vacated or
fully bonded within 30 days after its issue or levy.
5.5 JUDGMENT
If there is rendered against any Loan Party a final judgment, decree or order
for the payment of money in excess of $250,000 and the continuance of such
judgment, decree or order unsatisfied and in effect for any period of 30
consecutive days without a stay of execution.
5.6 DEFAULT ON OTHER OBLIGATIONS
If there is a default or event of default under any material (as defined below)
bond, debenture, note or other evidence of indebtedness of any Loan Party (other
than the Note) or under any indenture or other instrument under which any such
evidence of indebtedness has been issued or by which it is governed and the
expiration of the applicable period of grace, if any, specified in such evidence
of indebtedness, indenture or other instrument entitling the holder of such
indebtedness to accelerate such indebtedness, provided, that if such default or
event of default under such bond, debenture, note or other evidence of
indebtedness shall be cured by the Loan Party or waived by the holder(s) of such
indebtedness, then the Default hereunder by reason of such default or event of
default shall be deemed likewise to have been thereupon cured or waived. For
purposes of this Section, "material" means involving $100,000 in indebtedness
under any single bond, debenture, note or other evidence or indebtedness, or
involving an aggregate of $100,000 under more than one bond, debenture, note or
other evidence of indebtedness of any amount.
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5.7 CHANGE IN CONTROL
If (a) any person or two or more persons acting in concert shall have acquired
beneficial ownership (within the meaning of Rule 13d-3 of the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended) of
20% or more of the outstanding shares of the voting stock of the Company, or (b)
a majority of the Board of Directors of the Company as of any date shall consist
of individuals who were not (A) directors of the Company as of the corresponding
date of the previous year, (B) selected or nominated to become directors by the
Board of Directors of the Company of which a majority consisted of individuals
described in clause (A), or (C) selected or nominated to become directors by the
Board of Directors of the Company of which a majority consisted of individuals
described in clause (A) or individuals described in clause (B).
ARTICLE SIX
REMEDIES
6.1 ACCELERATION
In the event of any Default, Lender may, by notice in writing to the Loan
Parties, declare the entire principal amount and accrued interest of any Loan
Party's debt held by Lender immediately due and payable without presentment,
demand, protest, notice of protest or other notice of dishonor of any kind, all
of which are waived by any Loan Party. This remedy shall not be exclusive of any
other remedy in law or equity.
6.2 OTHER REMEDIES
In the event of any Default, the Lender shall be entitled to exercise any or all
of its remedies under any of the Loan Documents or under applicable law. In the
event of any Default which continues for 90 consecutive days, the unpaid
principal balance shall bear interest at a rate equal to the lesser of 19% per
annum of the maximum amount permitted by law from the date of such Default until
the Default is waived by the Lender in writing or cured to the satisfaction of
Lender.
6.3 NO WAIVER; REMEDIES CUMULATIVE
No failure or delay on the part of the Lender in exercising any right, power or
remedy under this Agreement, or any of the other Loan Documents, shall operate
as a waiver thereof; nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy under this Agreement or any of the other
Loan Documents. The remedies herein and in the other Loan Documents are
cumulative and not exclusive of any remedies provided by law.
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ARTICLE SEVEN
ADDITIONAL ACTIONS TAKEN BY THE LOAN PARTIES
At or before the Closing, the Loan Parties shall take the actions described
below and execute and deliver, as appropriate, to the Lender the following
documents, in each case in form and substance satisfactory to the Lender:
7.1 OPINION OF COUNSEL TO THE LOAN PARTIES
An opinion of counsel for the Loan Parties, addressed to the Lender, dated the
Closing Date, including the statements of opinion referred to in Exhibit 7.1.
7.2 SECRETARY'S CERTIFICATE
A certificate executed by the Secretary of each Loan Party certifying as to an
attached true, correct and complete copy for each Loan Party of: its Articles of
Incorporation, Bylaws and the resolutions of its Board of Directors authorizing
its entry into this Agreement and the various Loan Documents. The form of this
Secretary's Certificate is attached as Exhibit 7.2.
7.3 GOOD STANDING CERTIFICATES
Certificates of Good Standing for each Loan Party issued by the Secretary of
State of Minnesota, and in the case of the Company by the Secretary of State of
Utah, and in the case of Select Comfort SC Corporation by the Secretary of State
of South Carolina.
7.4 SBA FORMS
An executed copy of SBA Form 000, XXX Xxxx 000, Xxxxxxxxx certification, and
Statement of Qualification.
7.5 FINANCING STATEMENTS
Financing Statements executed where required by each Loan Party for filing in
each jurisdiction where such filings are necessary to perfect the security
interests granted by the Security Agreements.
7.6 CONTRACTS
If requested by Lender, copies of all written employment contracts, contracts
with any officer, director or stockholder or their relatives, all plans pursuant
to which benefits are paid to any employee of the Company or its Subsidiaries,
and all material contracts with brokers or others for services relating to this
Agreement or the financing hereunder, and a brief written description of any
such agreements that are not in writing.
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ARTICLE EIGHT
GENERAL PROVISIONS
8.1 EXHIBITS
The attached exhibits are by reference made an integral part of this Agreement:
Exhibit Title
1.1 Promissory Note
1.2 Warrant
1.3 Security Agreements
1.5 Subordination Agreement
2 Disclosure Schedule
2.4 Financial Statements
3.6 Form of Certification
7.1 Opinion of Counsel
7.2 Secretary's Certificates
8.2 APPLICABLE LAW
This Agreement is to be interpreted in conformity with the Small Business
Investment Act of 1958, as amended, and is otherwise governed by the laws of the
State of Minnesota. The provisions of this Agreement shall be severable.
8.3 ASSIGNMENT
None of the rights of the Loan Parties under this Agreement or any of the other
Loan Documents shall be assigned by any of the Loan Parties except with the
written consent of the Lender. In the event that the Lender determines to assign
the Note or any interest therein or thereunder to any party not affiliated with
Lender, Lender agrees (a) to give the Company prior written notice of such
intended transfer, and (b) that if within 30 days after such notice is given the
Company delivers to the Lender written notice and payment of an amount equal to
the entire remaining principal balance of the Note, all accrued interest and any
unpaid expenses due under the Note, then the Lender will assign all its rights
under the Note to the Company or to a third party in accordance with the
Company's instructions. If notice and payment are not delivered to the Lender
within such period as aforesaid, then the Lender shall be entitled, for a period
120 days from the date of Lender's initial notice to the Company, to transfer or
assign the Note, free and clear of any rights of the Company under this Section
8.3. Subject to the preceding, the rights and obligations of this Agreement
shall be binding upon and inure to the benefit of the parties and their
respective successors and assigns.
8.4 JOINT AND SEVERAL LIABILITY
All of the obligations and agreements of the Loan Parties under this Agreement
and each of the other Loan Documents are joint and several and may be enforced
by the Lender against any or
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all of the Loan Parties, as determined by the Lender, without any need to join
all of the Loan Parties in any such action.
8.5 HEADINGS
The headings used in this Agreement are intended for informational purposes only
and shall not affect its interpretation.
8.5 AMENDMENTS, ETC.
No amendment, modification, termination or waiver of any provision of this
Agreement or any of the other Loan Documents or consent to any departure
therefrom shall be effective unless the same shall be in writing and signed by
the Lender and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given. No notice to or
demand given to any Loan Party in any case shall entitle any of the Loan Parties
to any other or further notice or demand in similar or other circumstances.
8.6 ADDRESSES FOR NOTICES, ETC.
Except as otherwise expressly provided herein, all notices, requests, demands
and other communications provided for hereunder and under any of the other Loan
Documents shall be in writing and mailed or personally delivered to the
applicable party at its address indicated below:
If to Lender:
Medallion Capital, Inc.
0000 Xxxxxxx Xxxx, Xxxxx 000
Xxxxxxxxxxx, Xxxxxxxxx 00000-0000
Attention: President
If to any or all of the Loan Parties:
Select Comfort Corporation
0000 Xxxxxxx Xxxx Xxxxx
Xxxxxxxxxxx, Xxxxxxxxx 00000
Attention: Chief Financial Officer
with a copy to:
Select Comfort Corporation
0000 Xxxxxxx Xxxx Xxxxx
Xxxxxxxxxxx, Xxxxxxxxx 00000
Attention: General Counsel
20
or, as to each party, at such other address as shall be designated by such party
in a written notice to the other party complying as to delivery with the terms
of this Section. All notices, requests, demands and other communications shall
be effective when personally delivered or two days after the date when mailed.
8.7 INDEMNIFICATION
The Loan Parties jointly and severally agree to indemnify the Lender, and any
other holders of the Note, and their respective officers, directors, employees,
agents and representatives from any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind and nature whatsoever, including but not limited to the fees and
expenses of the Lender's legal counsel, incurred by or asserted against the
Lender or any holder of the Note in any way relating to or arising out of this
Agreement, the Note or the other Loan Documents or the enforcement of any of the
terms hereof or thereof, except where there has been a final judicial
determination that the Lender was grossly negligent or engaged in willful
misconduct. The obligations of the Loan Parties under this Section shall survive
payment of the Note.
8.8 PUBLIC NOTICES
The Loan Parties agree that the Lender shall have the right after the Closing to
place advertisements or public notices in financial and other newspapers at
Lender's expense describing the financing provided by the Lender under this
Agreement. The Lender shall submit a copy of the form of such proposed
advertisements or notices to the Company for its prior approval, which approval
will not be unreasonably withheld or delayed.
8.9 ENFORCEMENT EXPENSES
The Loan Parties shall be jointly and severally obligated to pay or reimburse
the Lender for paying all out-of-pocket expenses incurred by the Lender in
connection with the enforcement of the Loan Documents and the other instruments
and documents to be delivered hereunder or thereunder, including the reasonable
fees and out-of-pocket expenses of legal counsel to the Lender with respect to
thereto.
8.10 CONSENT TO JURISDICTION
AT THE OPTION OF THE LENDER, THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
DELIVERED PURSUANT TO THIS AGREEMENT MAY BE ENFORCED IN ANY FEDERAL COURT OR
MINNESOTA STATE COURT SITTING IN MINNEAPOLIS OR ST. XXXX, MINNESOTA; AND EACH
LOAN PARTY AND THE LENDER CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH
COURT AND WAIVES ANY ARGUMENT THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT. IN
THE EVENT ANY LOAN PARTY COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR VENUE
UNDER ANY TORT OR CONTRACT THEORY ARISING DIRECTLY OR INDIRECTLY FROM THE
RELATIONSHIP CREATED BY THIS AGREEMENT, THE LENDER AT ITS OPTION SHALL BE
ENTITLED TO HAVE THE
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CASE TRANSFERRED TO ONE OF THE JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF
SUCH TRANSFER CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE
DISMISSED WITHOUT PREJUDICE.
8.11 WAIVER OF TRIAL BY JURY
EACH LOAN PARTY AND THE LENDER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE OTHER LOAN
DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREIN OR THEREIN, WHETHER SOUNDING
IN CONTRACT, TORT OR OTHERWISE.
In Witness Whereof, the parties have executed this Agreement as of the
date first written above.
SELECT COMFORT CORPORATION
By: /s/ Xxxx X. Xxxxxxx
------------------------------------------
Xxxx X. Xxxxxxx, Senior Vice President
SELECT COMFORT RETAIL CORPORATION
By: /s/ Xxxx X. Xxxxxxx
------------------------------------------
Xxxx X. Xxxxxxx, Senior Vice President
SELECT COMFORT DIRECT CORPORATION
By: /s/ Xxxx X. Xxxxxxx
------------------------------------------
Xxxx X. Xxxxxxx, Senior Vice President
SELECT COMFORT SC CORPORATION
By: /s/ Xxxx X. Xxxxxxx
------------------------------------------
Xxxx X. Xxxxxxx, Senior Vice President
DIRECT CALL CENTERS, INC.
By: /s/ Xxxx X. Xxxxxxx
------------------------------------------
Xxxx X. Xxxxxxx, Senior Vice President
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XXXXXXXXXXXXX.XXX CORPORATION
By: /s/ Xxxx X. Xxxxxxx
------------------------------------------
Xxxx X. Xxxxxxx, Senior Vice President
MEDALLION CAPITAL, INC.
By: /s/ Xxxx X. Xxxxxxxxx
------------------------------------------
Xxxx X. Xxxxxxxxx, Executive Vice President
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