EXHIBIT 8
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. Xxxx 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 zmeanings 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
-2-
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).
-3-
(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.
-4-
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
-5-
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
-6-
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/ XXXX X. XXXXXXX
-----------------------------------
Name: Xxxx X. Xxxxxxx
Title: Senior Vice President
-7-
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
xxxxxxxxxxxxx.xxx corporation 1,000 1
DEBTOR'S CHIEF PLACE OF BUSINESS:
0000 Xxxxxxx Xxxx Xxxxx
Xxxxx 000
Xxxxxxxxxxx, Xxxxxxxxx 00000
DEBTOR'S FEDERAL EMPLOYER IDENTIFICATION NUMBER:
00-0000000
