Exhibit 10.4


 


EXHIBIT G


 


MANAGEMENT
SERVICES AGREEMENT


 


THIS MANAGEMENT SERVICES AGREEMENT
(this “Agreement”) is made and entered into as of
                        ,
2009, by and between Select Comfort Corporation, a Minnesota corporation (the “Company”),
and Sterling Fund Management, LLC, a Delaware limited liability company (“SFM”).


 


WHEREAS, on
the terms and subject to the conditions contained in this Agreement, the
Company desires to receive certain management, consulting and financial
services from SFM, and SFM desires to perform such services for the Company.


 


NOW, THEREFORE, in
consideration of the foregoing premises and the respective mutual agreements,
covenants, representations and warranties contained in this Agreement, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:


 


1.                                      Appointment of SFM.  On the terms and conditions provided in this
Agreement, the Company appoints SFM, and SFM accepts appointment, as a
management consultant and financial advisor to the Company and its
subsidiaries, including the business of any corporations hereafter formed or
acquired by the Company or any such subsidiary.


 


2.                                      Services of SFM.  SFM will render management, consulting and
financial services to the Company and its subsidiaries, which services will
include advice and assistance concerning any and all aspects of the operations,
planning and financing of the Company and its subsidiaries (the “Services”),
as needed from time to time, including advising the Company and its subsidiaries
in their relationships with banks and other financial institutions and with
accountants, attorneys, financial advisors and other professionals.  SFM will cause its employees and agents to
provide the Company and its subsidiaries with the benefit of their special
knowledge, skill and business expertise to the extent relevant to the business
and affairs of the Company and its subsidiaries.  In addition, SFM will render advice and
assistance in connection with any acquisitions, dispositions or financing
transactions undertaken by the Company and its subsidiaries.


 


3.                                      Reimbursement of Expenses.  The Company will reimburse SFM for all
reasonable and documented out-of-pocket expenses incurred by SFM in the
performance of the Services; provided that SFM obtains prior written approval
of the Company for any such expenses. SFM will not be obligated to make any
advance to, or for the account of, the Company or to pay any sums, except out
of funds held in accounts maintained by the Company, nor will SFM be obligated
to incur any liability or obligation for the account of the Company without
assurance that the necessary funds for the discharge of the liability or
obligation will be provided.


 





















 


4.                                      Other Activities of SFM; Investment Opportunities.  The Company acknowledges and agrees that
neither SFM nor any of its employees, officers, directors, affiliates or
associates will devote its, his or her full time and business efforts to the
duties of SFM specified in this Agreement, but only so much of such time and efforts
as SFM reasonably deems necessary or appropriate.  The Company further acknowledges and agrees
that SFM and its affiliates and associates are or may be engaged in the
business of investing in, acquiring and/or managing businesses for their own
respective accounts and for the account of other unaffiliated parties and that,
subject to SFM’s obligations under Article 10 hereof, no aspect or element
of these activities will be deemed to be engaged in for the benefit of the
Company nor to constitute a conflict of interest or breach of any duty
hereunder.  SFM will be required to bring
only those investments and/or business opportunities to the attention of the
Company which SFM, in its sole discretion, deems appropriate.


 


5.                                      Compensation of SFM.


 


5.1                                 Management
Fee.  During the
term of this Agreement, in consideration for the Services to be rendered
hereunder, SFM will receive an annual fee of $500,000 (“Base Compensation”),
payable to SFM by the Company in arrears on a quarterly basis.  The Base Compensation shall be paid within  10 business  days of the
end of the preceding calendar quarter. 
The Base Compensation shall increase as of January 1 of each year
during the term of this Agreement by the positive percentage change, if any, in
the CPI from the month of January of the preceding year to the month of January of
such year.  For purposes hereof, “CPI,” for any month of January, means
the Consumer Price Index for All Urban Consumers, U.S. City Average, all items,
not seasonally adjusted, for such month and compiled upon data (with the base
1982-84 equals 100) for such month (the “Index”).  In the event that publication or issuance of
the Index is discontinued or suspended, the CPI shall be an index published or
issued by the United States Department of Labor or any bureau or agency thereof
that computes information from substantially the same statistical categories
and substantially the same geographic areas as those computed in the Index and
that weights such categories in a substantially similar way to the weighting of
the Index as of the date hereof.  In the
event that the Index is calculated upon a base year other than 1982-84, such
adjustments to the CPI for each calendar year shall be calculated as necessary
to ensure that the CPI for each such calendar year is based on the same Index.


 


5.2                                 Subordination.  Notwithstanding the foregoing, SFM agrees to
subordinate its right to payment of the Base Compensation if and to the extent
required by the primary secured lender and any other secured creditors of the
Company pursuant to the terms and conditions of those credit agreements then in
effect, provided that, if at any time all or any portion of the Base
Compensation is deferred pursuant to SFM’s obligation to subordinate under this
Section 5.2, or the Base Compensation or any other amount payable
hereunder (in the aggregate, the “Unpaid
Amounts”) is otherwise not paid in a timely manner, then any such
accrued Unpaid Amounts shall accrue interest from and after the date on which
they were otherwise payable at an annual rate equal to the Prime Rate plus five
percent (5%) calculated on the basis of a 360-day year and for the actual
number of calendar days elapsed prior to payment thereof.  The term “Prime Rate,” as used herein, shall
mean a fluctuating interest rate per annum equal to the rate of interest
announced publicly from time to time by Citibank, N.A. as its base rate,
provided that if, at any time, SFM is unable to determine such rate, SFM may
choose such 


 


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other published
version of the prevailing prime rate of interest as SFM shall deem appropriate
in its reasonable discretion.


 


6.                                      Term.  This Agreement will commence as of
                    ,
2009 and will remain in effect until the earlier of                     ,
2012 or such time as Sterling Capital Partners III, L.P., a Delaware limited
partnership, and any other affiliate or associate of SFM no longer beneficially
own, in the aggregate, greater than twenty percent (20%) of the then
outstanding voting securities of the Company or any entity or entities which,
directly or indirectly, beneficially own, in the aggregate, a majority of the
then outstanding voting securities of the Company.


 


7.                                      Standard of Care.  SFM (including any person or entity acting
for or on behalf of SFM) will perform the Services using such skill, care,
quality and efficiency as it exercises in performing the same or similar
services for itself and those entities in which SFM owns a majority of the
voting securities.  SFM (including any
person or entity acting for or on behalf of SFM) will not be liable for any
mistakes of fact, errors of judgment, for losses sustained by the Company or
any subsidiary or for any acts or omissions of any kind, unless a court of
competent jurisdiction finally determines that SFM (including any person or
entity acting for or on behalf of SFM)  did not
perform the Services with reasonable skill, care, and quality consistent with
prevailing industry standards and professional norms, and in accordance with
applicable law.  This Section 7
shall survive any termination or expiration of this Agreement.


 


8.                                      Indemnification of SFM.  The Company will indemnify and hold harmless
SFM and its present and future officers, directors, affiliates, employees,
controlling persons, agents and representatives (“Indemnified Parties”)
from and against all losses, claims, liabilities, suits, costs, damages and
expenses (including attorneys’ fees) arising from their performance of the
Services hereunder, except as a result of their willful misconduct engaged in
by them in bad faith or negligence.  The
Company will reimburse the Indemnified Parties on a monthly basis for any cost
of defending or investigating any actual or threatened action or proceeding, or
any cost of appearing as a witness in any such action or proceeding (including
attorneys’ fees and expenses) subject to an undertaking from any such
Indemnified Party to repay the Company if such party is determined not to be
entitled to indemnity.  This Section 8
shall survive any termination or expiration of this Agreement.


 


9.                                      Company Representations.  The Company hereby represents and warrants to
SFM that (i) the execution, delivery and performance of this Agreement by
the Company does not conflict with, breach, violate or cause a default under
any contract, agreement, instrument, order, judgment or decree to which the
Company is a party or by which it is bound and (ii) upon the execution and
delivery of this Agreement by SFM, this Agreement shall be the valid and
binding obligation of the Company, enforceable in accordance with its terms.


 


10.                               Confidentiality.


 


10.1                           Proprietary
Information. 
“Proprietary Information” means all information which is directly or
indirectly disclosed to any party hereunder, regardless of the form in which it
is disclosed, relating in any way to a party’s customers, distributors,
products, markets, procedures, processes, methods, designs, strategies,
know-how, plans, intellectual property, assets, liabilities, costs, expenses,
revenues, profits (except to the extent required to be disclosed 


 


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in accordance with applicable law), or other
information provided by or related to the officers, directors, and personnel of
either party or the party’s business in general.


 


10.2                           Non-Disclosure.  SFM and Company acknowledge and agree that
each other’s Proprietary Information is confidential and proprietary.  Without a party’s express prior written
consent, the parties agree not to use any of such party’s Proprietary
Information for any purpose other than as required for performance
hereunder.  Without a party’s express
prior written consent, the parties further agree not to disclose or provide any
of such party’s Proprietary Information to any third party and to take all
necessary measures to prevent any such disclosure by their respective officers,
directors, managers, or Personnel.  The
foregoing obligations of non-disclosure and confidentiality will survive
termination of this Agreement.  Following
termination of this Agreement, the parties will promptly return all Proprietary
Information (and reproductions thereof) obtained hereunder.


 


10.3                           Public
Information; Court Order.  “Proprietary Information” does not include
any information:  (i) that was
generally known to the public at the time of disclosure, or thereafter becomes
publicly known other than as the result of a breach by the receiving party of
its obligations under this Agreement or any other confidentiality obligation
between the parties; (ii) that was already known to the receiving party at
the time of disclosure other than as a result of any person’s breach (including
the receiving party’s) of any legal obligation to the disclosing party; (iii) that
becomes known to the receiving party through disclosure by sources other than
the disclosing party having a legal right to disclose such Proprietary
Information; or (iv) that is required to be disclosed by the receiving
party to comply with applicable law; provided, however, that in such case the
receiving party shall promptly notify the disclosing party so that the
disclosing party may seek an appropriate protective order or other remedy and
take reasonable and lawful action to avoid or minimize the extent of such
disclosure.


 


10.4                           Legal
Action.  At the request
of a party, the parties will cooperate fully with each other in any and all
legal actions taken by the other to protect the requesting party’s rights in
its Proprietary Information.  The party
seeking to protect such rights will bear all costs and expenses reasonably
incurred by any other party in the course of cooperating in such legal action.


 


10.5                           Right to Equitable Relief.   The parties
acknowledge that a breach of Article 10 of this Agreement may result in
immediate and irreparable injury to the non-breaching party for which an award
of money damages would be inadequate. 
The breaching party agrees, therefore, that the non-breaching party will
have the right to obtain equitable relief, including an injunction to
specifically enforce the terms of this Agreement, and to obtain any other legal
or equitable remedies that may be available to it.


 


11.                               Successors and Assigns.  This Agreement is intended to bind and inure
to the benefit of and be enforceable by SFM, the Company and their respective
successors and assigns, except that without the prior written consent of SFM,
the Company will not assign, transfer or convey any of its rights, duties or
interest under this Agreement, nor will it delegate any of the obligations or
duties required to be kept or performed by it hereunder.


 


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12.                               Notices.  Any notices, requests, demands and other
communications required or permitted to be given under this Agreement will be
in writing and, except as otherwise specified in writing, will be given by
personal delivery, facsimile transmission, express courier service or by
registered or certified mail, postage prepaid, return receipt requested:


 


If to the
Company:


 


Select
Comfort Corporation


9800
59th Avenue North


Minneapolis,
Minnesota 55442


Attention:  Mark Kimball


 


If to SFM:


 


Sterling
Fund Management, LLC

1033 Skokie Boulevard, Suite 600

Northbrook, Illinois 60062

Attention:  Office of General Counsel


 


or to such other addresses as either party hereto may from time to time
give notice of (complying as to delivery with the terms of this Section 11)
to the other. Notice by registered or certified mail will be effective three
days after deposit in the United States mail. 
Notice by any other permitted means will be effective upon receipt.


 


13.                               Severability.  If any term or provision of this Agreement or
the application thereof to any person or circumstance will, to any extent, be
invalid or unenforceable, the remainder of this Agreement, or the application
of such term or provision to persons or circumstances other than those which
are invalid or unenforceable, will not be affected thereby, and each term and
provision of this Agreement will be valid and be enforced to the fullest extent
permitted by law.


 


14.                               No Waiver.  The failure of the Company or SFM to seek
redress for any violation of, or to insist upon the strict performance of, any
term or condition of this Agreement will not prevent a subsequent act by the
Company or SFM, which would have originally constituted a violation of this
Agreement by the Company or SFM, from having all the force and effect of any
original violation.  The failure by the
Company or SFM to insist upon the strict performance of any one of the terms or
conditions of the Agreement or to exercise any right, remedy or elections
herein contained or permitted by law will not constitute or be construed as a
waiver or relinquishment for the future of such term, condition, right, remedy
or election, but the same will continue and remain in full force and
effect.  Except to the extent that the
Company’s rights of termination are limited herein, all rights and remedies
that the Company or SFM may have at law, in equity or otherwise upon breach of
any term or condition of this Agreement, will be distinct, separate and
cumulative rights and remedies and no one of them, whether exercised by the
Company or SFM or not, will be deemed to be in exclusion of any other right or
remedy of the Company or SFM.


 


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15.                               Entire Agreement; Amendment; Certain Terms.  This Agreement contains the entire agreement
among the parties hereto with respect to the matters herein contained and
supersedes and preempts any prior understandings, agreements or representations
by or among the parties, written or oral, which may have related to the subject
matter hereof in any way.  The provisions
of this Agreement may be amended only with the prior written consent of the
Company and SFM. The terms affiliate and associate will have the meaning attributed
to those terms by the rules and regulations of the Securities and Exchange
Commission.


 


16.                               SFM an Independent Contractor.  SFM and the Company agree that SFM shall
perform the Services hereunder as an independent contractor, retaining control
over and responsibility for its own operations and personnel.  Neither SFM nor its principals, members,
directors, officers or employees shall be considered employees or agents of the
Company as a result of this Agreement nor shall any of them have authority to
contract in the name of or bind the Company, except as expressly agreed to in
writing by the Company.


 


17.                               Counterparts.  This Agreement may be executed and delivered
by each party hereto in separate counterparts, each of which when so executed
and delivered shall be deemed an original and both of which taken together
shall constitute one and the same agreement.


 


18.                               Choice of Law.  This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Delaware,
without giving effect to any choice of law or conflict of law provision or rule (whether
of the State of Delaware or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of Delaware.


 


19.                               CONSENT TO JURISDICTION.  THE COMPANY AND SFM HEREBY IRREVOCABLY AGREE
THAT ANY SUIT, ACTION, PROCEEDING OR CLAIM AGAINST IT ARISING OUT OF OR IN ANY
WAY RELATING TO THIS AGREEMENT, OR ANY JUDGMENT ENTERED BY ANY COURT IN RESPECT
THEREOF, MAY BE BROUGHT OR ENFORCED IN THE STATE OR FEDERAL COURTS LOCATED
IN THE STATE OF DELAWARE AND THE COMPANY HEREBY IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE VENUE OF ANY PROCEEDING BROUGHT IN THE STATE OF DELAWARE
AND FURTHER IRREVOCABLY WAIVES ANY CLAIMS THAT ANY SUCH PROCEEDING HAS BEEN
BROUGHT IN ANY INCONVENIENT FORUM.


 


*         *          *          *


 


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IN WITNESS WHEREOF, this Management
Services Agreement has been duly executed as of the date first above written.


 


 


	
   

  	
  SELECT COMFORT CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  STERLING FUND MANAGEMENT, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name: R. Christopher Hoehn-Saric

  
	
   

  	
  Title: Senior Managing Director