EXHIBIT 10.2
SELECT COMFORT CORPORATION
FORM OF SENIOR SECURED CONVERTIBLE NOTE
R-1
$_____________ June 6, 2001
For Value Received the undersigned Select Comfort Corporation, a Minnesota
corporation (hereinafter called the "Company"), hereby promises to pay to
_____________________________, or registered assigns (the "Holder"), at its
principal office in the City of Eden Prairie, Minnesota, the principal sum of
______________ Dollars ($_________) on the fifth anniversary of the date hereof,
and to pay interest at such place on the unpaid principal hereof from the date
hereof at the rate of 8% per annum (computed on the basis of a 360-day year,
30-day month) annually on each anniversary of the date hereof, commencing June
6, 2002, until the principal hereof shall have been paid in full. The principal
of and interest on this Note shall be paid in lawful money of the United States.
Notwithstanding the foregoing, upon the occurrence and during the continuance of
an Event of Default under and as defined in the Agreement referred to below, the
rate per annum at which interest shall accrue on the unpaid principal amount of
this Note shall increase by 3%.
This Note has been issued under the terms and provisions of a Note Purchase
Agreement (as amended, modified or supplemented from time to time, the
"Agreement"), dated June 1, 2001, among the Company and the Purchasers named in
Schedule 1 thereto and is entitled to the benefits thereof. All capitalized
terms which are used but not otherwise defined in this Note shall have the
respective means ascribed thereto in the Agreement.
As provided in the Agreement, this Note is guaranteed by each of the
Subsidiaries of the Company pursuant to the Guaranty and is secured by
substantially all of the personal property of the Company and its Subsidiaries
pursuant to the Security Agreements.
Upon the occurrence of any one or more of the Events of Default specified
in the Agreement, all amounts then remaining unpaid on this Note, including
accrued interest, may be declared to be or shall become immediately due and
payable as provided in the Agreement.
This Note is subject to the following additional provisions, terms and
conditions:
1. NO PREPAYMENT. This Note may be prepaid only with the prior written
consent of the holders of at least 67% of the aggregate principal amount of the
Notes outstanding immediately prior to such prepayment, as provided in Section
10 of the Agreement. Nothing herein or in said section shall affect in any way
the right of the Holder to convert any portion of the principal of this Note at
any time and from time to time prior to its prepayment in accordance with
paragraph 2 hereof.
2. CONVERSION RIGHTS.
(a) The principal of this Note is convertible in whole or in part at any
time prior to its payment at the option of the Holder into fully paid and
nonassessable shares of Common Stock (as hereinafter defined) at an initial
conversion price of $1.00 per share (subject to adjustment as hereinafter
provided).
(b) In order to exercise the conversion privilege, the Holder shall
surrender this Note to the Company at its principal office, accompanied by
written notice to the Company that the Holder elects to convert the principal of
this Note or a part thereof. The principal of this Note or the part thereof to
be converted shall be deemed to have been converted as of the close of business
on the day of surrender of this Note for conversion in accordance with the
foregoing provisions, and at such time the rights of the Holder, as such, in
respect of the part of the principal of this Note to be converted shall cease
and the Holder shall be treated for all purposes as the record holder of the
Common Stock issuable upon conversion. As promptly as practicable (but in no
event more than three business days) after such conversion, the Company (i)
shall issue a certificate or certificates for the number of full shares of
Common Stock issuable upon conversion, together with, in the event the principal
of this Note is being converted in part only, a new Note representing the
principal amount hereof which shall not have been converted bearing interest
from the date to which interest on such unconverted principal amount has been
paid under the Note surrendered, and (ii) shall pay to the Holder all unpaid
interest accrued to the conversion date on the principal amount of this Note or
part thereof which shall have been converted.
(c) The above provisions are, however, subject to the following:
(i) The conversion price shall, from and after the date of issuance of
this Note, be subject to adjustment from time to time as hereinafter
provided. Upon each adjustment of the conversion price, the Holder shall
thereafter be entitled to receive the number of shares obtained by
multiplying the conversion price in effect immediately prior to such
adjustment by the number of shares issuable pursuant to conversion
immediately prior to such adjustment, and dividing the product thereof by
the conversion price resulting from such adjustment.
(ii) Except for (A) the grant of options to purchase Common Stock to
employees or directors of the Company, consultants to the Company, or the
Company's employee stock purchase plan, as approved from time to time by
the Board of Directors of the Company or a committee thereof, and the
issuance of shares of Common Stock pursuant to the exercise of such
options, and (B) the issuance of shares of Common Stock pursuant to the
exercise of options or warrants outstanding prior to the original issuance
of this Note that were approved by the Board of Directors or a committee
thereof, if and whenever the Company shall issue or sell any shares of its
Common Stock for a consideration
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per share less than the conversion price in effect immediately prior to the
time of such issue or sale, then, forthwith upon such issue or sale, the
conversion price shall be reduced to such lesser price. No such adjustment
of the conversion price, however, shall be made in an amount less than 2%
of the conversion price in effect on the date of such adjustment, but any
such lesser adjustment shall be carried forward and shall be made at the
time and together with the next subsequent adjustment which, together with
any such adjustment so carried forward, shall be an amount equal to or
greater than 2% of the conversion price then in effect.
In addition, if the market price (determined in the manner provided
under clause (xi) of this paragraph 2(c)) as of the close of business on
October 31, 2001 is below the conversion price in effect immediately prior
to such time, then, at such time, the conversion price shall be reduced to
such market price.
Notwithstanding the foregoing provisions of this clause (ii), until
the receipt of approval by the shareholders of the Company, by the vote
required under Section 4350(i) of the National Association of Securities
Dealers Manual & Notice to Members, of such provisions, any adjustment of
the conversion price pursuant to such provisions shall be made only to the
extent such adjustment would not result in the reduction of the conversion
price to an amount less than $0.74. Any adjustment that would have
otherwise been made pursuant to the foregoing provisions of this clause
(ii) but for the provisions of the immediately preceding sentence, will be
made retroactively immediately upon the receipt of the shareholder approval
specified in the immediately preceding sentence.
(iii) For the purposes of paragraph (ii), the following provisions (A)
to (E), inclusive, shall also be applicable:
(A) In case at any time the Company shall grant (whether directly
or by assumption in a merger or otherwise) any rights to subscribe for
or to purchase, or any options for the purchase of, (1) Common Stock
or (2) any obligations or any shares of stock of the Company which are
convertible into or exchangeable for Common Stock (any of such
obligations or shares of stock being hereinafter called "Convertible
Securities") whether or not such rights or options or the right to
convert or exchange any such Convertible Securities are immediately
exercisable, and the price per share for which Common Stock is
issuable upon the exercise of such rights or options or upon
conversion or exchange of such Convertible Securities (determined by
dividing (aa) the total amount, if any, received or receivable by the
Company as consideration for the granting of such rights or options,
plus the minimum aggregate amount of
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additional consideration payable to the Company upon the exercise of
such rights or options, plus, in the case of such rights or options
which relate to Convertible Securities, the minimum aggregate amount
of additional consideration, if any, payable upon the issue or sale of
such Convertible Securities and upon the conversion or exchange
thereof, by (bb) the total maximum number of shares of Common Stock
issuable upon the exercise of such rights or options or upon the
conversion or exchange of all such Convertible Securities issuable
upon the exercise of such rights or options) shall be less than the
conversion price in effect immediately prior to the time of the
granting of such rights or options, then the total maximum number of
shares of Common Stock issuable upon the exercise of such rights or
options or upon conversion or exchange of the total maximum amount of
such Convertible Securities issuable upon the exercise of such rights
or options shall (as of the date of granting of such rights or
options) be deemed to have been issued for such price per share.
Except as provided in clause (vi) below, no further adjustments of the
conversion price shall be made upon the actual issue of such Common
Stock or of such Convertible Securities upon exercise of such rights
or options or upon the actual issue of such Common Stock upon
conversion or exchange of such Convertible Securities.
(B) In case the Company shall issue or sell (whether directly or
by assumption in a merger or otherwise) any Convertible Securities,
whether or not the rights to exchange or convert thereunder are
immediately exercisable, and the price per share for which Common
Stock is issuable upon such conversion or exchange (determined by
dividing (aa) the total amount received or receivable by the Company
as consideration for the issue or sale of such Convertible Securities,
plus the minimum aggregate amount of additional consideration, if any,
payable to the Company upon the conversion or exchange thereof, by
(bb) the total maximum number of shares of Common Stock issuable upon
the conversion or exchange of all such Convertible Securities) shall
be less than the conversion price in effect immediately prior to the
time of such issue or sale, then the total maximum number of shares of
Common Stock issuable upon conversion or exchange of all such
Convertible Securities shall (as of the date of the issue or sale of
such Convertible Securities) be deemed to be outstanding and to have
been issued for such price per share, provided that (1) except as
provided in clause (vi) below, no further adjustments of the
conversion price shall be made upon the actual issue of such Common
Stock upon
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conversion or exchange of such Convertible Securities, and (2) if any
such issue or sale of such Convertible Securities is made upon
exercise of any rights to subscribe for or to purchase or any option
to purchase any such Convertible Securities for which adjustments of
the conversion price have been or are to be made pursuant to other
provisions of this clause (iii), no further adjustment of the
conversion price shall be made by reason of such issue or sale.
(C) In case any shares of Common Stock or Convertible Securities
or any rights or options to purchase any such Common Stock or
Convertible Securities shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the amount
received by the Company therefor, without deduction therefrom of any
expenses incurred or any underwriting commissions, discounts or
concessions paid or allowed by the Company in connection therewith. In
case any shares of Common Stock or Convertible Securities or any
rights or options to purchase any such Common Stock or Convertible
Securities shall be issued or sold for a consideration other than
cash, the amount of the consideration other than cash received by the
Company shall be deemed to be the fair value of such consideration as
determined by the Board of Directors of the Company, without deducting
therefrom of any expenses incurred or any underwriting commissions,
discounts or concessions paid or allowed by the Company in connection
therewith. In case any shares of Common Stock or Convertible
Securities or any rights or options to purchase such Common Stock or
Convertible Securities shall be issued in connection with any merger
or consolidation in which the Company is the surviving corporation,
the amount of consideration therefor shall be deemed to be the fair
value as determined by the Board of Directors of the Company of such
portion of the assets and business of the non-surviving corporation or
corporations as such Board shall determine to be attributable to such
Common Stock, Convertible Securities, rights or options, as the case
may be. In the event of any consolidation or merger of the Company in
which the Company is not the surviving corporation or in the event of
any sale of all or substantially all of the assets of the Company for
stock or other securities of any other corporation, the Company shall
be deemed to have issued a number of shares of its Common Stock for
stock or securities of the other corporation computed on the basis of
the actual exchange ratio on which the transaction was predicated and
for a consideration equal to the fair market value on the date of such
transaction of such stock or
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securities of the other corporation, and if any such calculation
results in adjustment of the conversion price, the determination of
the number of shares of Common Stock issuable upon conversion
immediately prior to such merger, conversion or sale, for purposes of
clause (vii) below, shall be made after giving effect to such
adjustment of the conversion price.
(D) In case the Company shall take a record of the holders of its
Common Stock for the purpose of entitling them (1) to receive a
dividend or other distribution payable in Common Stock or in
Convertible Securities, or in any rights or options to purchase any
Common Stock or Convertible Securities, or (2) to subscribe for or
purchase Common Stock or Convertible Securities, then such record date
shall be deemed to be the date of the issue or sale of the shares of
Common Stock deemed to have been issued or sold upon the declaration
of such dividend or the making of such other distribution or the date
of the granting of such rights of subscription or purchase, as the
case may be.
(E) The number of shares of Common Stock outstanding at any given
time shall not include shares owned or held by or for the account of
the Company, and the disposition of any such shares shall be
considered an issue or sale of Common Stock for the purposes of this
clause (iii).
(iv) In case the Company shall (A) declare a dividend upon the Common
Stock payable in Common Stock (other than a dividend declared to effect a
subdivision of the outstanding shares of Common Stock, as described in
clause (v) below) or Convertible Securities, or in any rights or options to
purchase Common Stock or Convertible Securities, or (B) declare any other
dividend or make any other distribution upon the Common Stock payable
otherwise than out of earnings or earned surplus, then thereafter the
Holder upon the conversion hereof will be entitled to receive the number of
shares of Common Stock to which the Holder shall be entitled upon such
conversion, and, in addition and without further payment therefor, each
dividend described in subclause (A) above and each dividend or distribution
described in subclause (B) above which the Holder would have received by
way of dividends or distributions if, continuously since the Holder became
the record holder of this Note, the Holder (1) had been the record holder
of the number of shares of Common Stock then received, and (2) had retained
all dividends or distributions in stock or securities (including Common
Stock or Convertible Securities, and any rights or options to purchase any
Common Stock or Convertible Securities) payable in respect of such Common
Stock or in respect of any stock or securities paid as dividends or
distributions and originating directly or indirectly from such Common
Stock. For the purposes of the foregoing, a dividend or
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distribution other than in cash shall be considered payable out of earnings
or earned surplus only to the extent that such earnings or earned surplus
are charged an amount equal to the fair value of such dividend or
distribution as determined by the Board of Directors of the Company.
(v) In case the Company shall at any time subdivide its outstanding
shares of Common Stock into a greater number of shares, the conversion
price in effect immediately prior to such subdivision shall be
proportionately reduced, and conversely, in case the outstanding shares of
Common Stock of the Company shall be combined into a smaller number of
shares, the conversion price in effect immediately prior to such
combination shall be proportionately increased.
(vi) If (A) the purchase price provided for in any right or option
referred to in clause (iii)(A) above, or (B) the additional consideration,
if any, payable upon the conversion or exchange of Convertible Securities
referred to in clause (iii)(A) or (iii)(B) above, or (C) the rate at which
any Convertible Securities referred to in clause (iii)(A) or (iii)(B) above
are convertible into or exchangeable for Common Stock shall change at any
time (other than under or by reason of provisions designed to protect
against dilution), the conversion price then in effect shall forthwith be
increased or decreased to such conversion price which would have obtained
had the adjustments made upon the issuance of such rights, options or
Convertible Securities been made upon the basis of (1) the issuance of the
number of shares of Common Stock theretofore actually delivered upon the
exercise of such options or rights or upon the conversion or exchange of
such Convertible Securities, and the total consideration received therefor,
and (2) the issuance at the time of such change of any such options, rights
or Convertible Securities then still outstanding for the consideration, if
any, received by the Company therefor and to be received on the basis of
such changed price; and on the expiration of any such option or right or
the termination of any such right to convert or exchange such Convertible
Securities, the conversion price then in effect hereunder shall forthwith
be increased to such conversion price which would have obtained had the
adjustments made upon the issuance of such rights or options or Convertible
Securities been made upon the basis of the issuance of the shares of Common
Stock theretofore actually delivered (and the total consideration received
therefor) upon the exercise of such rights or options or upon the
conversion or exchange of such Convertible Securities. If the purchase
price provided for in any such right or option referred to in clause
(iii)(A) above or the rate at which any Convertible Securities referred to
in clause (iii)(A) or (iii)(B) above are convertible into or exchangeable
for Common Stock shall decrease at any time under or by reason of
provisions with respect thereto designed to protect against dilution, then
in case of the delivery of Common Stock upon the exercise of any such right
or option or upon conversion or exchange of any such Convertible Security,
the conversion price then in effect hereunder shall forthwith be
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decreased to such conversion price as would have obtained had the
adjustments made upon the issuance of such right, option or Convertible
Securities been made upon the basis of the issuance of (and the total
consideration received for) the shares of Common Stock delivered as
aforesaid.
(vii) If any capital reorganization or reclassification of the capital
stock of the Company, or consolidation or merger of the Company with
another corporation or entity, or the sale of all or substantially all of
its assets to another corporation or entity shall be effected in such a way
that holders of Common Stock shall be entitled to receive stock, securities
or assets with respect to or in exchange for Common Stock, then, as a
condition of such reorganization, reclassification, consolidation, merger
or sale, lawful and adequate provision shall be made whereby the Holder
shall thereafter have the right to purchase and receive, upon the basis and
upon the terms and conditions specified in this Note and in lieu of or in
addition to (as the case may be) the shares of the Common Stock of the
Company immediately theretofore receivable upon conversion hereof, such
shares of stock, securities or assets as may be issued or payable with
respect to or in exchange for a number of outstanding shares of such Common
Stock equal to the number of shares of such stock immediately theretofore
receivable upon conversion hereof, and in any such case appropriate
provision shall be made with respect to the rights and interests of the
Holder to the end that the provisions hereof (including without limitation
provisions for adjustments of the conversion price and of the number of
shares issuable upon the conversion of this Note) shall thereafter be
applicable, as nearly as may be, in relation to any shares of stock,
securities or assets thereafter deliverable upon the conversion hereof. The
Company shall not effect any such consolidation, merger or sale, unless
prior to the consummation thereof the successor corporation or entity (if
other than the Company) resulting from such consolidation or merger or the
corporation or entity purchasing such assets shall assume, by written
instrument executed and mailed (by certified mail, postage prepaid and
return receipt requested) to the Holder at its address for notices under
the Agreement, the obligation to deliver to the Holder such shares of
stock, securities or assets as, in accordance with the foregoing
provisions, the Holder may be entitled to receive.
(viii) Upon any adjustment of the conversion price, then and in each
such case the Company shall give written notice thereof to the Holder,
which notice shall state the conversion price resulting from such
adjustment and the increase or decrease, if any, in the number of shares
receivable at such price upon the conversion of this Note, setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based.
(ix) In case any time:
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(A) the Company shall declare any cash dividend on its Common
Stock at a rate in excess of the rate of the last cash dividend
theretofore paid;
(B) the Company shall pay any dividend payable in stock upon its
Common Stock or make any distribution (other than regular cash
dividends) to the holders of its Common Stock;
(C) the Company shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any
class or other rights;
(D) there shall be any capital reorganization, or
reclassification of the capital stock of the Company, or consolidation
or merger of the Company with, or sale of all or substantially all of
its assets to, another corporation or entity; or
(E) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall give written
notice to the Holder of the date on which (1) the books of the Company
shall close or a record shall be taken for such dividend, distribution or
subscription rights, or (2) such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up shall
take place, as the case may be. Such notice shall also specify the date as
of which the holders of Common Stock of record shall participate in such
dividend, distribution or subscription rights, or shall be entitled to
exchange their Common Stock for securities or other property deliverable
upon such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up, as the case may be. Such written
notice shall be given at least 20 days prior to the action in question and
not less than 20 days prior to the record date or the date on which the
Company's transfer books are closed in respect thereto.
(x) If any event occurs as to which in the opinion of the Board of
Directors of the Company the other provisions of this paragraph 2(c) are
not strictly applicable or if strictly applicable would not fairly protect
the rights of the Holder in accordance with the essential intent and
principles of such provisions, then the Board of Directors shall make an
adjustment in the application of such provisions, in accordance with such
essential intent and principles, so as to protect such rights as aforesaid.
(xi) No fractional shares of Common Stock shall be issued upon the
conversion of this Note, but, instead of any fraction of a share which
would otherwise be issuable, the Company shall pay a cash adjustment in
respect of
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such fraction in an amount equal to the same fraction of the market price
per share of Common Stock as of the close of business on the effective date
of such conversion. "Market price" for purposes of this clause (xi) (and
for purposes of clause (ii) of this paragraph 2(c)) shall mean, if the
Common Stock is traded on a securities exchange or on The NASDAQ Stock
Market, the closing sales price of the Common Stock on such exchange or
market, or, if the Common Stock is otherwise traded in the over-the-counter
market, the closing bid price, in each case averaged over a period of ten
consecutive trading days ending on the date as of which "market price" is
being determined. If at any time the Common Stock is not traded on an
exchange or The NASDAQ Stock Market, or otherwise traded in the
over-the-counter market, the "market price" shall be deemed to be the
higher of (i) the book value thereof as determined by any firm of
independent public accountants of recognized standing selected by the Board
of Directors of the Company as of the last day of any month ending within
60 days preceding the date as of which the determination is to be made, or
(ii) the fair value thereof determined in good faith by the Board of
Directors of the Company as of a date which is within 15 days of the date
as of which the determination is to be made.
(xii) As used in this paragraph 2 and paragraph 3 hereof, the term
"Common Stock" shall mean and include the Company's presently authorized
Common Stock and shall also include any capital stock of any class of the
Company hereafter authorized which shall not be limited to a fixed sum or
percentage in respect of the rights of the holders thereof to participate
in dividends or in the distribution of assets upon the voluntary or
involuntary liquidation, dissolution or winding up of the Company;
provided, however, that the shares issuable upon conversion of this Note
shall include shares designated as Common Stock of the Company on the date
of original issue of this Note or, in the case of any reclassification of
the outstanding shares thereof, the stock, securities or assets provided
for in clause (vii) above.
3. MANDATORY CONVERSION. In the event the holders of at least 67% of the
aggregate principal amount of the Notes then outstanding consent in writing to
the mandatory conversion of all of the Notes (which consent shall specify the
date, which shall be no more than 30 days after the date such consent is given,
as of which such conversion shall be effective), all of the principal of this
Note shall automatically be converted into shares of Common Stock, without any
act by the Company or the Holder, effective as of the close of business on the
date specified for such conversion in such consent. In addition, if, for a
period of at least ten out of 20 consecutive trading days occurring after the
first anniversary of this Note, the Common Stock is traded on a national
securities exchange or the NASDAQ National Market and the closing sales price of
the Common Stock on such exchange or market equals or exceeds four times the
initial conversion price of this Note (as adjusted for stock splits, stock
dividends, recapitalizations and the like occurring after the original issue of
this Note), then all of the principal of this Note shall automatically be
converted into shares of Common Stock, without any act by the Company or the
Holder, effective as of the close of business on the last of such
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ten trading days. Upon any such automatic conversion, the Holder shall be
entitled to receive the full number of shares of Common Stock into which this
Note could be converted if the Holder had exercised its conversion right at the
effective time of such automatic conversion. As promptly as practicable (but in
no event more than three business days) after any such automatic conversion, the
Company (i) shall notify the Holder in writing of such conversion, which notice
shall specify the effective time of such conversion and, in reasonable detail,
the circumstances triggering such conversion, and (ii) shall pay to the Holder
all unpaid interest accrued to the conversion date on this Note, whereupon the
Holder shall promptly surrender this Note in exchange for appropriate stock
certificates representing shares of Common Stock of the Company.
4. MISCELLANEOUS.
(a) This Note shall be governed by the laws of the State of Minnesota,
without giving effect to principles of conflicts of law thereof.
(b) The Company hereby waives demand, presentment, protest, notice of
non-payment, dishonor and notice of dishonor, except to the extent expressly
required by the Agreement.
(c) All notices hereunder shall be in writing and shall be given in the
manner and with the effect provided in the Agreement.
(d) The Company shall pay all reasonable costs of collection, including
without limitation reasonable attorneys' fees and disbursements, in the event
this Note is not paid when due.
SELECT COMFORT CORPORATION
By:
----------------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Senior Vice President
RESTRICTION ON TRANSFER
The security evidenced hereby may not be transferred without (i) the
opinion of counsel satisfactory to the Company that such transfer may lawfully
be made without registration under the Federal Securities Act of 1933 and all
applicable state securities laws or (ii) such registration.
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