Document:

Exhibit
10.3

 

Exhibit A

 

SETTLEMENT, MUTUAL TERMINATION AND GENERAL RELEASE

 

This Settlement, Mutual Termination and
General Release (the “Agreement”) is entered into as of October 2, 2009
between Select Comfort Corporation, a Minnesota corporation (“Select Comfort”),
on the one hand, and Sterling SC Investor, LLC, a Delaware limited liability
company (“Investor”), and Sterling Capital Partners III, L.P., a Delaware
limited partnership, on the other (together with Investor, “Sterling”); Select
Comfort and Sterling are referred to collectively as the “Parties” and each
individually as a “Party.”

 

RECITALS

 

WHEREAS, on May 22, 2009, Select Comfort
and Investor entered into a Securities Purchase Agreement (the “SPA”)
(capitalized terms used but not otherwise defined herein shall have the
respective meanings provided for such terms in the SPA), and Sterling Capital
Partners III, L.P. provided a Guarantee with respect to the SPA;

 

WHEREAS, the SPA conditions each Party’s
obligation to effectuate the transactions contemplated by the SPA upon the
approval of the affirmative vote of the holders of the greater of (1) a
majority of the voting power of the shares of Select Comfort common stock
present in person or represented by proxy and entitled to vote on the SPA at a
duly called meeting of the shareholders, and (2) a majority of the voting
power of the minimum number of the shares of Select Comfort common stock
entitled to vote that would constitute a quorum for the transaction of such
business at the meeting (“Shareholder Approval”);

 

WHEREAS, the SPA permits either Party to
terminate the SPA if the SPA has been submitted to the Select Comfort
shareholders and has failed to obtain Shareholder Approval;

 

WHEREAS, on August 27, 2009, Select
Comfort convened a special meeting of shareholders (the “Shareholder Meeting”)
for the purpose of voting on the SPA (the “Shareholder Meeting”);

 

WHEREAS, according to Select Comfort, the SPA
failed to obtain Shareholder Approval at the Shareholder Meeting;

 

WHEREAS, on September 1, 2009, Investor
commenced an action in the Court of Chancery of the State of Delaware (the “Delaware
Court”) against Select Comfort, styled Sterling SC Investor, LLC
v. Select Comfort Corp., C.A. No. 4855-CC (the “Litigation”),
for injunctive relief seeking, among other things, a recount of the shareholder
vote at the Shareholder Meeting and an injunction preventing Select Comfort
from terminating the SPA;

 

WHEREAS, Sterling SC Investor, LLC and Select
Comfort have negotiated a new Securities Purchase Agreement (the “New SPA”),
which is dated as of the same date as this Agreement;

 

 

WHEREAS, subsequent to the commencement of
the Litigation, counsel for the Parties engaged in arm’s length discussions and
negotiations regarding a potential resolution of the claims asserted and relief
sought in the Litigation;

 

WHEREAS, Select Comfort denies all
allegations of wrongdoing, fault, liability or damage to Sterling, denies that
it engaged in any wrongdoing, denies that it committed any violation of law or
contract, denies that it acted improperly in any way, believes that it acted
properly at all times, believes the Litigation has no merit, and maintains that
it has committed no breach of any obligation to Sterling, but wishes to settle
solely for the reasons set forth herein;

 

WHEREAS, Sterling denies all allegations of
wrongdoing, fault, liability or damage to Select Comfort, denies that it
engaged in any wrongdoing, denies that it committed any violation of law or
contract, denies that it acted improperly in any way, believes that it acted
properly at all times, believes the Litigation has merit, and maintains that it
has committed no breach of any obligation to Select Comfort, but wishes to
settle solely for the reasons set forth herein;

 

WHEREAS, each of the Parties recognizes the
inconvenience, time and expense that would be incurred by continued litigation;
and

 

WHEREAS, the Parties believe that an
out-of-court resolution is in their best interests and therefore wish to settle
and resolve the claims asserted in the Litigation on the terms set forth below.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the
mutual promises and obligations contained herein, the receipt and sufficiency
of which is hereby acknowledged, the Parties agree as follows:

 

A.                                    Dismissal Of
The Litigation

 

Immediately upon the execution and delivery
of this Agreement by all the Parties, Sterling shall file with the Delaware
Court a notice, in the form attached as Exhibit A, which voluntarily
dismisses the Litigation with prejudice, with each side to bear its own
attorneys’ fees, costs and expenses.

 

B.                                    Termination Of
The SPA

 

1.                                       Upon the
execution and delivery of this Agreement by all the Parties, Select Comfort and
Sterling hereby terminate the SPA pursuant to, and in accordance with the terms
of, Section 12(a) of the SPA.

 

2.                                       Contemporaneously
with the execution and delivery of the New SPA, Select Comfort is delivering a
payment to Sterling in the amount of $1,750,000, by wire transfer of
immediately available funds to an account designated by Sterling as
reimbursement for the out-of-pocket expenses incurred by Sterling and its
affiliates in connection with the SPA, the New SPA and the transactions
contemplated thereby (the “Expense Reimbursement”).  Sterling acknowledges and agrees that the
delivery of the Expense Reimbursement to Sterling and the 

 

2

 

execution
and delivery of the New SPA shall constitute the full and final satisfaction of
any and all obligations of Select Comfort owed to Sterling under the SPA.

 

C.                                    Effect Of
Termination; Mutual Release Of Claims

 

1.                                       Upon the
execution and delivery of this Agreement by all the Parties, the delivery of
the Expense Reimbursement to Sterling and with no further action by any Party,
Sterling on behalf of itself and each of its parents, affiliates, predecessors,
successors and assigns, and on behalf of each of their respective current and
former officers, directors, managers, members, partners, employees, agents and
other representatives in their capacity as such (collectively the “Sterling
Releasing Parties”), shall be deemed to have, and by operation of law shall
have, irrevocably waived, released and forever discharged Select Comfort and
any of its parent entities, controlling persons, associates, affiliates or
subsidiaries and each and all of their respective past, present or future
officers, directors, principals, representatives, employees, attorneys,
financial or investment advisors, insurers, co-insurers and re-insurers,
consultants, accountants, investment bankers, commercial bankers, underwriters,
brokers, dealers, advisors or agents, heirs, executors, trustees, general or
limited partners or partnerships, limited liability companies, members, joint
ventures, personal or legal representatives, estates, administrators,
predecessors, successors and assigns (collectively the “Select Comfort Released
Parties”) from any and all manner of claims, demands, rights, liabilities,
losses, obligations, duties, damages, costs, debts, expenses, interest, penalties,
sanctions, fees, attorneys’ fees, actions, potential actions, causes of action,
suits, agreements, judgments, decrees, matters, issues and controversies of any
kind, nature or description whatsoever, whether known or unknown, disclosed or
undisclosed, accrued or unaccrued, apparent or not apparent, foreseen or
unforeseen, matured or not matured, suspected or unsuspected, liquidated or not
liquidated, fixed or contingent, including Unknown Claims (defined below), that
any or all Sterling Releasing Parties ever had, now have, or may have, or
otherwise could, can, or might assert, whether direct, derivative, individual,
class, representative, legal, equitable or of any other type, or in any other
capacity, against any of the Select Comfort Released Parties, whether based on
state, local, foreign, federal, statutory, regulatory, common or other law or rule (including
but not limited to any claims under federal securities laws or state disclosure
law or any claims that could be asserted derivatively on behalf of Select
Comfort), which, now or hereafter, are based upon, arise out of, relate in any
way to, or involve, directly or indirectly, any of the actions, transactions,
occurrences, statements, representations, misrepresentations, omissions,
allegations, facts, practices, events, claims or any other matters, things or
causes whatsoever, or any series thereof, that were, could have been, or in the
future can or might be alleged, asserted, set forth, claimed, embraced,
involved, or referred to in, or related to, directly or indirectly, the SPA and
the transactions contemplated by the SPA, the Shareholder Meeting, the
Shareholder Approval, the Litigation or the subject matter of the Litigation in
any court, tribunal, forum or proceeding, including, without limitation, any
and all claims which are based upon, arise out of, relate in any way to, or
involve, directly or indirectly, (i) any actions, deliberations, or
negotiations in connection with the SPA, including communications by Select
Comfort and/or Sterling to the Select Comfort shareholders relating to the SPA,
(ii) any conduct of any Select Comfort Released Party in connection with
the Shareholder Meeting or the solicitation of the Shareholder Approval, (iii) the
fees, expenses or costs incurred in prosecuting, defending or settling the
Litigation, or (iv) any of the allegations in any of the complaints filed
in the Litigation (collectively, the “Sterling Released Claims”); provided,
however, that the Sterling Released 

 

3

 

Claims
shall not include the right to enforce this Agreement or any obligation under
or related to the New SPA or the Transaction.

 

2.                                       Upon the
execution and delivery of this Agreement by all the Parties, the delivery of
the Expense Reimbursement to Sterling, and with no further action by any Party,
Select Comfort on behalf of itself and each of its parents, affiliates,
predecessors, successors and assigns, and on behalf of each of its respective
current and former officers, directors, managers, members, employees, agents
and other representatives in their capacity as such (collectively the “Select
Comfort Releasing Parties”), shall be deemed to have, and by operation of law
shall have, irrevocably waived, released and forever discharged Sterling and
all of its respective parent entities, controlling persons, associates,
affiliates and subsidiaries and each and all of their respective past, present
or future officers, directors, principals, representatives, employees,
attorneys, financial or investment advisors, insurers, co-insurers and
re-insurers, consultants, accountants, investment bankers, commercial bankers,
underwriters, brokers, dealers, advisors and agents, heirs, executors,
trustees, general or limited partners or partnerships, limited liability
companies, members, managers, partners, joint ventures, personal and legal
representatives, estates, administrators, predecessors, successors and assigns
(collectively the “Sterling Released Parties”) from any and all manner of
claims, demands, rights, liabilities, losses, obligations, duties, damages,
costs, debts, expenses, interest, penalties, sanctions, fees, attorneys’ fees,
actions, potential actions, causes of action, suits, agreements, judgments,
decrees, matters, issues and controversies of any kind, nature or description
whatsoever, whether known or unknown, disclosed or undisclosed, accrued or
unaccrued, apparent or not apparent, foreseen or unforeseen, matured or not
matured, suspected or unsuspected, liquidated or not liquidated, fixed or
contingent, including Unknown Claims (defined below), that any or all Select
Comfort Releasing Parties ever had, now have, or may have, or otherwise could,
can, or might assert, whether direct, derivative, individual, class,
representative, legal, equitable or of any other type, or in any other
capacity, against any of the Sterling Released Parties, whether based on state,
local, foreign, federal, statutory, regulatory, common or other law or rule (including
but not limited to any claims under federal securities laws or state disclosure
law or any claims that could be asserted derivatively on behalf of Sterling),
which, now or hereafter, are based upon, arise out of, relate in any way to, or
involve, directly or indirectly, any of the actions, transactions, occurrences,
statements, representations, misrepresentations, omissions, allegations, facts,
practices, events, claims or any other matters, things or causes whatsoever, or
any series thereof, that were, could have been, or in the future can or might be
alleged, asserted, set forth, claimed, embraced, involved, or referred to in,
or related to, directly or indirectly, the SPA and the transactions
contemplated by the SPA, the Shareholder Meeting, the Shareholder Approval, the
Litigation or the subject matter of the Litigation in any court, tribunal,
forum or proceeding, including, without limitation, any and all claims which
are based upon, arise out of, relate in any way to, or involve, directly or
indirectly, (i) any actions, deliberations, or negotiations in connection
with the SPA, including communications by Select Comfort and/or Sterling to the
Select Comfort shareholders, (ii) any conduct of any Sterling Released
Party in connection with the Shareholder Meeting or the solicitation of the
Shareholder Approval, (iii) the fees, expenses or costs incurred in
prosecuting, defending or settling the Litigation, or (iv) any of the
allegations in any of the complaints filed in the Litigation (collectively, the
“Select Comfort Released Claims”); provided, however, that the Select Comfort
Released Claims shall not include the right to enforce this Agreement or any
obligation under or related to the New SPA or the Transaction.

 

4

 

3.                                       “Unknown Claims”
means any claim that a Party does not know or suspect exists in its favor at
the time of the release of claims pursuant to this Agreement, including without
limitation those which, if known, might have affected either Party’s decision
to enter into this Agreement.  With
respect to any of the Sterling Released Claims and Select Comfort Released
Claims, the Parties agree that, immediately upon the execution of this
Agreement, the delivery of the Expense Reimbursement to Sterling, and with no
further action by any Party, the Sterling Releasing Parties and the Select
Comfort Releasing Parties shall have expressly waived, relinquished and
released any and all provisions, rights and benefits conferred by or under CAL.
CIV. CODE § 1542 or any law of the United States or any state of the United
States or territory of the United States, or principle of common law, which is
similar, comparable or equivalent to CAL. CIV. CODE § 1542, which provides: “A
general release does not extend to claims which the creditor does not know or
suspect exist in his favor at the time of executing the release, which if known
by him must have materially affected his settlement with the debtor.”  Each of the Parties, on behalf of itself and
the other Sterling Releasing Parties and Select Comfort Releasing Parties,
respectively, expressly acknowledges that it or its attorneys may discover
claims, damages, facts or law in addition to or different from those now known
or believed to be true, but that it is each Party’s intention, upon execution
of this Agreement, the delivery of the Expense Reimbursement to Sterling and
with no further action by any Party, to completely, fully, finally and forever
settle and release each and every matter released in this Agreement, known or
unknown, suspected or unsuspected, which now exist, or heretofore existed, or
may hereafter exist, and without regard to the subsequent discovery of
additional or different facts.  Each of
the Parties expressly acknowledges that the inclusion of “Unknown Claims” was
separately bargained for by the other Party, is a key element of this
Agreement, and was relied upon by the other Party in entering into this
Agreement.

 

D.                                    Covenant Not to
Sue

 

1.                                       Sterling hereby
covenants to the Select Comfort Released Parties not to, with respect to any
Sterling Released Claim, directly or indirectly encourage or solicit or
voluntarily assist or participate in any way in the filing, reporting or
prosecution by any person, including Patrick A. Hopf, Clinton Group, Inc.
and Clinton Magnolia Master Fund, Ltd., of a suit, arbitration, mediation or
claim (including any third party or derivative claim) against any Select
Comfort Released Party relating to any Sterling Released Claim.  Notwithstanding the foregoing, Sterling may comply
with the requirements imposed on it through the issuance of a subpoena, court
order, or other compulsory process of law (each, a “Legal Order”) provided,
that (i) the Legal Order is a valid order of a court or governmental
agency of competent jurisdiction, (ii) Sterling promptly notifies Select
Comfort that it received a Legal Order, and (iii) Sterling takes all
actions that are reasonable and necessary for it to comply, to the maximum
extent possible, with its obligations under this Agreement.  Sterling may reimburse Mr. Hopf for
costs and expenses incurred by him but only to the extent that such costs and
expenses were incurred prior to the date of this Agreement and in connection
with litigation relating to the Shareholder Meeting and indemnify Mr. Hopf
with respect thereto.  The covenants
contained in this Section D(1) shall survive this Agreement
indefinitely regardless of any statute of limitations.

 

2.                                       Select Comfort
hereby covenants to the Sterling Released Parties not to, with respect to any
Select Comfort Released Claim, directly or indirectly encourage or solicit or 

 

5

 

voluntarily
assist or participate in any way in the filing, reporting or prosecution by any
person of a suit, arbitration, mediation or claim (including any third party or
derivative claim) against any Sterling Released Party relating to any Select
Comfort Released Claim.  The covenants
contained in this Section D(2) shall survive this Agreement
indefinitely regardless of any statute of limitations.

 

E.                                      Non-Disparagement
And Public Statements

 

1.                                       No Party shall
make or knowingly encourage any other person to make directly or indirectly any
public or private statement, whether written or oral, that disparages, defames,
is critical of, or misrepresents (a) the respective rights and obligations
of the Parties under the SPA, (b) the conduct of the Parties relating to
the SPA, the solicitation of the Shareholder Approval or the Shareholder
Meeting, or (c) the facts that are the subject of the allegations made in
the Litigation; provided, however, that nothing herein shall prohibit any
statement required to be made to respond to any legal or regulatory process or
proceeding, to give testimony under oath or to file any necessary documents in
any legal or administrative proceeding arising out of or relating to the SPA or
its termination.

 

2.                                       Each of the
Parties may issue a press release announcing the execution of this Agreement
shortly after its execution by all the Parties, which press releases shall be
subject to the prior review and approval of the other Party, which approval
shall not be unreasonably withheld. 
Other than as a Party may determine it necessary to respond to any legal
or regulatory process or proceeding, to give testimony under oath, or to file
any necessary documents in any legal or regulatory proceeding or as may be
required by law, each of the Parties will use its reasonable best efforts not
to make any public statements (including in any filing with the SEC or any
other regulatory or governmental agency, including any stock exchange) that are
inconsistent with, or otherwise contrary to, the jointly approved statements in
the press release(s) issued pursuant to this Section E.

 

F.                                      No Admission;
Evidentiary Effect Of Settlement

 

The Parties are entering into this Agreement
solely because the proposed settlement will eliminate the burden and risks
associated with continuing litigation. 
Neither this Agreement nor the fact or any terms of this Agreement, nor
the settlement proceedings, nor the settlement negotiations, nor statements in
connection therewith, nor any related documents shall:

 

1.                                       constitute or
constitute evidence of an admission or concession by any person regarding any
claims, damages, liability or wrongdoing or damages whatsoever;

 

2.                                       be used or construed
as an admission or other evidence of any fault, liability or wrongdoing by or
damage to any person, other than such proceedings as may be necessary to
consummate or enforce this Settlement Agreement; or

 

3.                                       be argued to
be, or offered or received in evidence as, an admission, concession,
presumption or inference against any person in any proceeding, other than such
proceedings as may be necessary to consummate or enforce this Settlement
Agreement.

 

6

 

G.                                    Validity And
Due Consideration

 

Each
Party represents and warrants to each other Party that: (i) it is duly
authorized to execute and deliver this Agreement and no further corporate or
other authorizations (including any director, shareholder or member approvals)
are required for such Party’s execution, delivery and performance of this
Agreement; and (ii) this Agreement constitutes a legal, valid and binding
obligation of it, enforceable in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, moratorium or other
similar laws affecting creditors’ rights generally and by general principles of
equity.

 

H.                                    Notice

 

Any notices or other communications required
or permitted under this Settlement Agreement (“Notices”) shall be in writing
and delivered by overnight courier or personal delivery to the intended
recipient (the “Notice Party”) at the addresses set forth below.  All Notices shall be deemed given when
delivered to the address designated below, addressed to the attention of the
person or persons designated below:

 

1.                                       If to Select
Comfort:

 

Select Comfort Corporation

9800 59th Avenue North

Minneapolis, Minnesota 55442

Attention: William McLaughlin, and Mark Kimball, Esq.

Facsimile: (763) 551-6888

 

With a copy to (which shall not constitute notice):

 

Oppenheimer Wolff Donnelly LLP

Plaza VII, Suite 3300

45 South Seventh Street

Minneapolis, MN 55402-1609

Attention: Thomas R. Marek, Esq.

Facsimile: (612) 607-7100

 

2.                                       If to Sterling:

 

Sterling SC Investor, LLC

1033 Skokie Boulevard

Suite 600

Northbrook, Illinois 60062

Attention: Office of

General Counsel

Facsimile: (847) 480-0199

 

With a copy to (which shall not constitute notice):

 

7

 

Katten Muchin Rosenman LLP

525 W. Monroe Street

Chicago, Illinois 60661-3693

Attention: Jeffrey R. Patt, Esq., and Mark D. Wood, Esq.

Facsimile: (312) 902-1061

 

The above designated names and addresses may
be changed by written notice delivered in the manner prescribed in this
section.

 

I.                                         Miscellaneous
Provisions

 

1.                                       This Agreement
may be amended, waived or modified only by a written instrument signed by all
Parties hereto or their successors.

 

2.                                       The Parties
represent and agree that the terms of the Agreement were negotiated at arm’s
length and in good faith by the Parties, and reflect a settlement that was
reached voluntarily based upon adequate information and sufficient discovery
and after consultation with experienced legal counsel.

 

3.                                       The waiver by
any Party of any breach of this Agreement by any other Party shall not be
deemed a waiver of that or any other prior or subsequent breach of any
provision of this Agreement by any other Party.

 

4.                                       This Agreement
constitutes the entire agreement among the Parties with respect to the subject
matter hereof, and no representations, warranties or inducements have been made
to or relied upon by any Party concerning this Agreement, other than the
representations, warranties and covenants expressly set forth in this Agreement
and the New SPA and any other Transaction agreement contemplated thereby.

 

5.                                       This Agreement
may be executed and delivered in one or more counterparts, each of which when
executed and delivered shall be deemed to be an original, but all of which
taken together shall constitute one and the same Agreement.  No Party shall be bound by this Agreement
unless and until it has been executed and delivered by all of the Parties.

 

6.                                       This Agreement
shall be binding upon and shall inure to the benefit of the successors and
assigns of the Parties hereto, including any and all of the Select Comfort
Released Parties and Sterling Released Parties, and any corporation,
partnership, or other entity into or with which any Party hereto may merge,
consolidate or reorganize.

 

7.                                       The Parties
agree that they have been represented by counsel during the negotiation,
drafting, preparation and execution of this Agreement and, therefore, waive the
application of any law or rule of construction providing that ambiguities in
an agreement or other document will be construed against the party drafting
such agreement or document.

 

8.                                       Each Party
hereto represents and warrants that he or it is the legal owner of all rights
and claims attributable to it that are the subject matter of this Agreement and
that there has 

 

8

 

been
no assignment, hypothecation or transfer by operation of law or otherwise of
any such rights or claims.

 

9.                                       The Parties
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. 
It is accordingly agreed that each of the Parties shall be entitled to
an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions of this Agreement, this being in
addition to any other remedy to which they are entitled at law or in equity,
without the necessity of posting bonds or other undertaking in connection
therewith.  The Parties acknowledge that
in the absence of a waiver, a bond or undertaking may be required by a court,
and the Parties hereby waive any such requirement of such a bond or
undertaking.

 

10.                                 Notwithstanding
the terms of Section B.1. of this Agreement, Select Comfort
and Sterling hereby acknowledge and agree that, for federal and state
income tax purposes only, the New SPA and the transactions contemplated
thereby, including this Agreement, originate with and relate back to the SPA, and each party
shall file all tax returns in a manner consistent with such
treatment. Select Comfort shall not file an IRS Form 1099 MISC (or
any other series 1099 form) as no income or gain shall be deemed realized
by Sterling, or expense or deduction realized by Select Comfort other than
the Expense Reimbursement,  in connection with the New SPA, and
the transactions contemplated thereby, including this Agreement.

 

11.                                 This Agreement
and the transactions contemplated by this Agreement, and all disputes between
the Parties under or related to this Agreement or the facts and circumstances
leading to its execution, whether in contract, tort or otherwise, shall be
governed by, construed and enforced in accordance with the internal laws of the
State of Delaware, without reference to conflict of laws principles.

 

12.                                 Each of the
Parties to this Agreement (a) irrevocably submits itself to the personal
jurisdiction of any state or federal court sitting in Wilmington, Delaware, as
well as to the jurisdiction of all courts to which an appeal may be taken from
such courts, in any suit, action or proceeding arising out of or relating to
this Agreement or any of the transactions contemplated by this Agreement, (b) agrees
that all claims in respect of such suit, action or proceeding shall be brought,
heard and determined exclusively in the Delaware Court of Chancery (provided
that, in the event that subject matter jurisdiction is unavailable in that
court, then all such claims shall be brought, heard and determined exclusively
in any other state or federal court sitting in Wilmington, Delaware), (c) agrees
that it shall not attempt to deny or defeat such personal jurisdiction by
motion or other request for leave from such court, (d) agrees not to bring
any action or proceeding arising out of or relating to this Agreement or any of
the transactions contemplated by this Agreement in any other court, and (e) expressly
waives, and agrees not to plead or to make any claim that any such action or
proceeding is subject (in whole or in part) to a jury trial.  Each of the Parties hereto waives any defense
of inconvenient forum to the maintenance of any action or proceeding brought in
accordance with this paragraph.  Each of
the Parties further agrees to waive any bond, surety or other security that
might be required of any other party with respect to any action or proceeding,
including an appeal thereof.

 

9

 

13.                                 All titles,
headings and captions herein are solely for the convenience of the Parties, and
the same shall not be used or construed to interpret or alter the substantive
provisions of the paragraphs and subparagraphs to which they pertain.

 

14.                                 If any
provision of this Agreement or the application thereof to any person or
circumstance is held invalid or unenforceable, the remainder of this Agreement,
and the application of such provision to other persons or circumstances, shall
not be affected thereby, and to such end, the provisions of this Agreement are
agreed to be severable.

 

*                                         *                                         *

 

10

 

IN WITNESS WHEREOF, the parties hereto have
caused this Settlement, Mutual Termination and General Release to be executed
on their behalf.

 

	
  SELECT
  COMFORT CORPORATION

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By: 

  	
  /s/ James Raabe

  	
   

  
	
  Name:

  	
  James Raabe

  	
   

  
	
  Title:

  	
  Chief Financial Officer

  	
   

  
	
   

  	
   

  	
   

  
	
  STERLING
  SC INVESTOR, LLC

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By: 

  	
  Sterling Capital Partners
  III, LP

  	
   

  
	
  Its: 

  	
  Sole Member

  	
   

  
	
   

  	
   

  	
   

  
	
  By: 

  	
  SC Partners III, LP

  	
   

  
	
  Its: 

  	
  General Partner

  	
   

  
	
   

  	
   

  	
   

  
	
  By: 

  	
  Sterling Capital Partners
  III, LLC

  	
   

  
	
  Its: 

  	
  General Partner

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By: 

  	
  /s/ R. Christopher
  Hoehn-Saric

  	
   

  
	
  Name:

  	
  R. Christopher Hoehn-Saric

  	
   

  
	
  Title:

  	
  Senior Managing Director

  	
   

  
	
   

  	
   

  	
   

  
	
  STERLING
  CAPITAL PARTNERS III, LP

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By: 

  	
  SC Partners III, L.P.

  	
   

  
	
  Its: 

  	
  General Partner

  	
   

  
	
   

  	
   

  	
   

  
	
  By: 

  	
  Sterling Capital Partners
  III, LLC

  	
   

  
	
  Its: 

  	
  General Partner

  	
   

  
	
   

  	
   

  	
   

  
	
  By: 

  	
  /s/ R. Christopher
  Hoehn-Saric

  	
   

  
	
  Name:

  	
  R. Christopher Hoehn-Saric

  	
   

  
	
  Title:

  	
  Senior Managing Director

  	
   

  

 

11

 

EXHIBIT
A

IN THE
COURT OF CHANCERY OF THE STATE OF DELAWARE

 

	
  STERLING
  SC INVESTOR, LLC, a Delaware 

  	
  )

  	
   

  
	
  limited
  liability company, 

  	
  )

  	
   

  
	
   

  	
  )

  	
   

  
	
   

  	
  )

  	
   

  
	
  Plaintiff,

  	
  )

  	
  Case
  No. 4855-CC

  
	
   

  	
  )

  	
   

  
	
  v.

  	
  )

  	
   

  
	
   

  	
  )

  	
   

  
	
  SELECT
  COMFORT CORPORATION, 

  	
  )

  	
   

  
	
  a
  Minnesota corporation, 

  	
  )

  	
   

  
	
   

  	
  )

  	
   

  
	
  Defendant.

  	
  )

  	
   

  

 

NOTICE OF DISMISSAL

 

Please
take notice that, pursuant to Court of Chancery Rule 41, the
above-captioned action is hereby dismissed with prejudice.

 

 

	
   

  	
  MORRIS,
  NICHOLS, ARSHT & TUNNELL LLP

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Martin
  P. Tully (#465)

  
	
   

  	
  Thomas
  W. Briggs (#4076)

  
	
   

  	
  1201
  N. Market Street

  
	
   

  	
  Wilmington,
  Delaware 19801

  
	
   

  	
  (302)
  658-9200

  
	
   

  	
  Attorneys for Plaintiff

  

 

Dated:  October     , 2009Exhibit
10.4

 

Exhibit C

 

REGISTRATION RIGHTS AGREEMENT

 

REGISTRATION RIGHTS AGREEMENT (this “Agreement”), dated as of October 2,
2009 (the “Effective Date”), by and among
Select Comfort Corporation, a Minnesota corporation (the “Company”), and the undersigned buyer (each,
a “Buyer” and, collectively, the “Buyers”).

 

WHEREAS:

 

A.                                   In connection
with the Securities Purchase Agreement, by and among the parties hereto and
dated as of October 2, 2009 (the “Securities
Purchase Agreement”), the Company has agreed, upon the terms and
subject to the conditions of the Securities Purchase Agreement, to issue at the
Closing (as defined in the Securities Purchase Agreement) to the Buyers (i) shares
(the “Common Shares”) of the Company’s common
stock, $0.01 par value ( “Common Stock”)
and (ii) a warrant to purchase shares of Common Stock (such warrant,
together with any warrants or other securities issued in exchange or
substitution therefor or replacement thereof, and as any of the same may be
amended, restated or modified and in effect from time to time, being referred
to as the “Warrant”; and the
shares of Common Stock issuable upon exercise of the Warrant being referred to
as the “Warrant Shares”); and

 

B.                                     Pursuant to the
Securities Purchase Agreement, the Company has agreed to provide to the Buyers
certain registration rights under the Securities Act of 1933, as amended, or
any similar successor statute, and the rules and regulations thereunder
(collectively, the “1933 Act”),
and applicable state securities laws.

 

NOW, THEREFORE, in consideration of the
foregoing and the mutual covenants and agreements contained herein, and other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Company and the Buyer, intending to be legally bound,
agree as follows:

 

1.                                       DEFINITIONS.

 

As used in this Agreement,
the following terms shall have the following meanings:

 

a.             “1934 Act” means, collectively, the
Securities Exchange Act of 1934, as amended, or any similar successor statute,
and the rules and regulations thereunder.

 

b.             “Average Daily Trading Volume” means the
average daily trading volume of the Common Stock on the Principal Market during
the period beginning at 9:30 a.m. New York City time (or such other time
as its Principal Market publicly announces is the official open of trading) and
ending at 4:00 p.m. New York City time (or such other time as its
Principal Market publicly announces is the official close of trading) as
reported by Bloomberg Financial Markets (or any successor thereto) (“Bloomberg”) during the ten (10) Trading
Days ending on the Trading Day immediately prior to the day on which a sale is
to be effected.

 

c.             “Block Trade” means any single trade for at
least 5,000 shares of Common Stock on the Company’s Principal Market.

 

 

d.             “Business Day”  means any day other than Saturday, Sunday or any other day on
which commercial banks in the City of New York are authorized or required by
law to remain closed.

 

e.             “Company Securities” means any security (as
defined in Section 2(a)(1) of the 1933 Act) issued by the Company
after the Effective Date.

 

f.              “FINRA” means the Financial Industry
Regulatory Authority, Inc., or any successor thereto.

 

g.             “Initial Effectiveness Deadline” means the
earlier of (i) the date that is seventy-five (75) days after the Closing
Date, and (ii) the fifth Business Day after the Company is notified by the
SEC that the Registration Statement will not be reviewed or is no longer
subject to further review and comment (i.e., all outstanding comments thereon have
been resolved to the satisfaction of the SEC staff).

 

h.             “Initial Filing Deadline” means the later
of (i) October 31, 2009, or (ii) the fifth Business Day after
the Closing Date.

 

i.              “Form S-3” means such form of
registration statement under the 1933 Act as in effect on the date hereof or
any successor form under the 1933 Act subsequently adopted by the SEC which
permits inclusion or incorporation of substantial information by reference to
other documents filed by the Company with the SEC after the effective date of
such registration statement.

 

j.              “Investor” means the Buyer, any transferee
or assignee thereof to whom a Buyer assigns its rights under this Agreement and
who agrees to become bound by the provisions of this Agreement in accordance
with Section 9 and any transferee or assignee thereof to whom a
transferee or assignee assigns its rights under this Agreement and who agrees
to become bound by the provisions of this Agreement in accordance with Section 9.

 

k.             “Person” means an individual, a limited
liability company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a governmental or any department or agency
thereof, or any other legal entity.

 

l.              “Principal Market” means, with respect to
the Common Stock, the Nasdaq Global Select Market; provided, however,
that, if at any time after the date of this Agreement the principal national
stock exchange or trading market for Common Stock is other than the Nasdaq
Global Select Market, “Principal Market” shall at such time mean, with
respect  to the Common Stock, such other
national stock exchange or trading market; and, with respect to any other
security, “Principal Market” means the principal national securities exchange
or trading market for such security.

 

m.            “Qualified Financing Transaction” means any
transaction: (i) involving the issuance of 5% or more of any class of
Company Securities, or (ii) the primary purpose of which is to satisfy,
extinguish or otherwise refinance the Company’s outstanding indebtedness under
the amended and restated credit agreement with the Company’s lenders.

 

 

n.             “Register,” “registered,” and “registration” refer to a registration
effected by preparing and filing one or more Registration Statements in
compliance with the 1933 Act and the declaration or ordering of effectiveness
of such Registration Statement(s) by the SEC.

 

o.             “Registrable Securities” means (i) the
Common Shares, (ii) the Warrant Shares issued or issuable upon exercise of
the Warrant and (iii) any shares of capital stock of the Company issued or
issuable with respect to the Common Shares, the Warrant Shares or the Warrant
as a result of any stock split, stock dividend, recapitalization, exchange or
similar event or otherwise; provided, however, that any such
Registrable Securities shall cease to be Registrable Securities when (A) a
Registration Statement with respect to the sale of such securities becomes
effective under the 1933 Act and such securities are disposed of in accordance
with such Registration Statement, or (B) such securities are sold in
accordance with Rule 144 (as defined in Section 8).

 

p.             “Registration Statement” means the
registration statement of the Company filed with the SEC under the 1933 Act
pursuant to Section 2(a) hereof covering the Registrable Securities.

 

q.             “Rule 415” means Rule 415 under
the 1933 Act or any successor rule providing for offering securities on a
continuous or delayed basis.

 

r.              “SEC” means the U.S. Securities and
Exchange Commission, or any successor thereto.

 

s.             “Trading Day” means any day on which the
Common Stock is traded on the Principal Market; provided that “Trading Day”
shall not include any day on which the Common Stock is scheduled to trade, or
actually trades, on the Principal Market for less than 4.5 hours.

 

Capitalized
terms used herein and not otherwise defined herein shall have the respective
meanings set forth in the Securities Purchase Agreement.

 

2.                                       MANDATORY REGISTRATION.

 

a.             Mandatory
Registration.  The Company shall
prepare and file with the SEC a Registration Statement on Form S-3
(subject to Section 2(c)), covering the resale of all of the Registrable
Securities no later than the Initial Filing Deadline.

 

b.             Form of
Registration. In the event that Form S-3 is not available for the
registration of the resale of the Registrable Securities hereunder, the Company
shall (i) register the Registrable Securities on Form S-1 or another
appropriate form reasonably acceptable to the Buyer and (ii) undertake to
register such Registrable Securities on Form S-3 (by post-effective
amendment to the existing Registration Statement or otherwise) as soon as such
form is available; provided that the Company shall maintain the effectiveness
of the Registration Statement then in effect until such time as a Form S-3
covering the Registrable Securities has been declared effective by the SEC.

 

 

c.             Effectiveness
Deadline.  The Company shall use all
commercially reasonable efforts to have the Registration Statement declared
effective by the SEC as soon as practicable, but in no event later than the
Initial Effectiveness Deadline. 
Notwithstanding the foregoing, the Initial Effectiveness Deadline shall
be extended, without liability, in the event that the Company’s failure to
obtain the effectiveness of the Registration Statement on a timely basis
results from the failure of a Investor to timely provide the Company with
information requested by the Company and necessary to complete the Registration
Statement in accordance with the requirements of the Securities Act.  In addition, in the event that the Company’s
failure to obtain the effectiveness of the Registration Statement on a timely
basis results from events or circumstances that are beyond the reasonable
control of the Company, the Initial Effectiveness Deadline shall be
automatically extended to the earlier of (i) the date that is ninety (90)
days after the Closing Date, and (ii) the tenth Business Day after the
Company is notified by the SEC that the Registration Statement will not be
reviewed or is no longer subject to further review and comment (i.e., all
outstanding comments thereon have been resolved to the satisfaction of the SEC
staff).

 

d.             Allocation
of Registrable Securities in the Initial Registration.  The Company will not include in the
Registration Statement any securities which are not Registrable
Securities.  In the event that an
Investor sells or otherwise transfers any of such Investor’s Registrable
Securities, each transferee shall be allocated a pro rata portion of the then
remaining number of Registrable Securities included in such Registration
Statement for such transferor.

 

3.                                       RELATED OBLIGATIONS.

 

Whenever
the Company is obligated to file a Registration Statement with the SEC pursuant
to Section 2, the holders of Registrable Securities have requested
that any Registrable Securities be registered pursuant to this Agreement, or
the Company is otherwise obligated to file a Registration Statement pursuant to
this Agreement, the Company shall use all commercially reasonable efforts to
effect the registration of the Registrable Securities in accordance with the
intended method of disposition thereof and, pursuant thereto, the Company shall
have the following obligations:

 

a.             No
later than the second Business Day after the Registration Statement becomes
effective, the Company shall file with the SEC the final prospectus included
therein pursuant to Rule 424 (or successor thereto) promulgated under the
1933 Act.  The Company shall use
commercially reasonable efforts to keep each Registration Statement
continuously effective at all times until the earlier of: (i) the first
date as of which the Investor may then sell all of the Registrable Securities
covered by such Registration Statement pursuant to Rule 144, and (ii) one
hundred and eighty (180) days after the Closing Date (the “Registration Period”).  If (i) the Company desires to undertake
and consummate a rights offering with respect to certain shares of the Common
Stock (the “Rights Offering”),
which determination shall be in the sole discretion of the Company’s board of directors,
(ii) the Investor beneficially owns more than ten (10%) of the Company’s
outstanding Common Stock (after giving effect to the Rights Offering) as a
result of the Investor’s participation in the Rights Offering, and (iii) the
Investor’s participation that resulted in the Investor acquiring beneficial
ownership of more than 10% of the Company’s outstanding Common Stock was
required in order for the Company to satisfy the minimum gross proceeds
condition to the closing of the Rights Offering, then the Company agrees that
the Registration Period will be extended such that the Registration Period will

 

 

continue
until one hundred and eighty (180) days after the date on which Investor
acquired those shares that caused the Investor to beneficially own more than
10% of the Common Stock (the “Extended
Registration Period”).  The
Registration Statement (including any amendments or supplements thereto and any
prospectuses (preliminary, final, summary or free writing) shall comply as to
form and content with the applicable requirements of the 1933 Act and not
contain or incorporate by reference any untrue statement of a material fact or
omit to state a material fact required to be stated therein, or necessary to
make the statements therein, in light of the circumstances in which they were
made, not misleading.  The Registration
Statement shall contain a “plan of distribution” approved by the Investor.  The term “commercially reasonable efforts”
shall mean, among other things, that the Company shall respond to any comments
of the staff of the SEC with respect to a Registration Statement as promptly as
reasonably practicable and shall submit to the SEC, as promptly as reasonably
practicable after the Company learns that no review of a Registration Statement
will be made by the staff of the SEC or that the staff of the SEC has no
further comments on the Registration Statement, as the case may be, a request
for acceleration of effectiveness of such Registration Statement to a time and
date not later than 48 hours after the submission of such request.

 

b.             The
Company shall prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to a Registration Statement and any
prospectus used in connection with such Registration Statement (which
prospectus supplements shall be filed pursuant to Rule 424 (or successor
thereto) promulgated under the 1933 Act) as may be necessary to keep such
Registration Statement effective at all times during the Registration Period,
and, during such period, comply with the provisions of the 1933 Act with
respect to the disposition of all Registrable Securities of the Company covered
by such Registration Statement until such time as all of such Registrable
Securities shall have been disposed of in accordance with the intended methods
of disposition by the seller or sellers thereof as set forth in such
Registration Statement.  In the case of
any amendment or supplement to a Registration Statement or prospectus that is
required to be filed pursuant to this Agreement (including pursuant to this Section 3(b))
by reason of the Company filing a report under the 1934 Act, the Company shall
have incorporated such report by reference into such Registration Statement, if
applicable and permitted by law, or shall file such amendments or supplements
with the SEC on the same day.  The
Company shall use all commercially reasonable efforts to cause any
post-effective amendment to a Registration Statement to become effective as
soon as practicable after such filing. 
No later than the second Business Day after a post-effective amendment
to a Registration Statement becomes effective, the Company shall file with the
SEC the final prospectus included therein pursuant to Rule 424 (or
successor thereto) promulgated under the 1933 Act.

 

c.             The
Investor shall have the right to select one legal counsel to review such
Registration Statements (“Legal Counsel”).  The Company shall reasonably cooperate with
Legal Counsel in performing the Company’s obligations under this
Agreement.  Without limiting the
foregoing, the Company shall (A) permit Legal Counsel to review and
comment upon any Registration Statement and any amendment or supplement to any
Registration Statement (or to any prospectus included therein) at least five (5) Business
Days prior to its filing with the SEC, and (B) not file any Registration
Statement, amendment or supplement described in the foregoing clause (A) in
a form to which Legal Counsel reasonably objects in writing on a timely basis,
unless in the good faith opinion of the Company, after consultation with its
outside counsel, such filing is necessary to comply with applicable law. The
Company shall not submit a 

 

 

request
for acceleration of the effectiveness of a Registration Statement or any
amendment or supplement thereto without providing prior notice thereof to Legal
Counsel and the Investor.  The Company
shall furnish (which may be by e-mail) to Legal Counsel, without charge, (i) promptly
after the same is prepared and filed with the SEC, one copy of any Registration
Statement and any amendment(s) thereto, including financial statements and
schedules, all documents incorporated therein by reference and all exhibits
that have not been filed via the SEC’s EDGAR filing system (or successor
thereto) and (ii) upon the effectiveness of any Registration Statement,
one copy of the prospectus included in such Registration Statement and all
amendments and supplements thereto.  The
Company shall reasonably cooperate with Legal Counsel in performing the Company’s
obligations pursuant to this Section 3.

 

d.             The
Company shall furnish to the Investor whose Registrable Securities are included
in any Registration Statement, without charge, (i) promptly after the same
is prepared and filed with the SEC, at least one copy of such Registration
Statement and any amendment(s) thereto, including financial statements and
schedules, all documents incorporated therein by reference that have not been
filed via the SEC’s EDGAR filing system (or successor thereto), all exhibits
and each preliminary prospectus, (ii) upon the effectiveness of any
Registration Statement, at least one copy of the prospectus included in such
Registration Statement and all amendments and supplements thereto (or such
other number of copies as such Investor may reasonably request) and (iii) such
other documents, including copies of any prospectus (preliminary, final,
summary or free writing), as such Investor may reasonably request from time to
time in order to facilitate the disposition of the Registrable Securities owned
by such Investor.

 

e.             The
Company shall use all commercially reasonable efforts to (i) register and
qualify, unless an exemption from registration and qualification applies, the
resale by the Investor of the Registrable Securities covered by a Registration
Statement under the securities or “blue sky” laws of such jurisdictions within
the United States reasonably requested by any Investor, (ii) prepare and
file in those jurisdictions, such amendments (including post-effective
amendments) and supplements to such registrations and qualifications as may be
necessary to maintain the effectiveness thereof during the Registration Period,
(iii) take such other actions as may be necessary to maintain such
registrations and qualifications in effect at all times during the Registration
Period, and (iv) take all other actions reasonably necessary or advisable
to qualify the Registrable Securities for sale in such jurisdictions; provided,
however, that the Company shall not be required in connection therewith
or as a condition thereto to (x) qualify to do business in any
jurisdiction where it would not otherwise be required to qualify but for this Section 3(e) or
(y) subject itself to general taxation in any such jurisdiction.  The Company shall promptly notify Legal Counsel
and the Investor that holds Registrable Securities of the receipt by the
Company of any notification with respect to the suspension of the registration
or qualification of any of the Registrable Securities for sale under the
securities or “blue sky” laws of any jurisdiction or its receipt of actual
notice of the initiation or threatening of any proceeding for such purpose.

 

f.              The
Company shall notify Legal Counsel and the Investor in writing of the happening
of any event, as promptly as practicable after becoming aware of such event, as
a result of which any prospectus included in, or relating to, a Registration
Statement, as then in effect, includes an untrue statement of a material fact
or omission to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances 

 

 

under
which they were made, not misleading (provided that in no event shall such
notice contain any material, nonpublic information), and promptly prepare and
file with the SEC a supplement or amendment to such Registration Statement to
correct such untrue statement or omission, and deliver at least one copy of
such supplement or amendment to Legal Counsel and the Investor.  The Company shall also promptly notify Legal
Counsel and the Investor in writing (i) when a prospectus or any
prospectus supplement or post-effective amendment has been filed, and when a
Registration Statement or any post-effective amendment has become effective
(notification of such effectiveness shall be delivered to Legal Counsel and the
Investor by facsimile on the same day of such effectiveness), (ii) of any
request by the SEC for amendments or supplements to a Registration Statement or
related prospectus or related information, and (iii) of the Company’s
reasonable determination that a post-effective amendment to a Registration
Statement would be appropriate.

 

g.             The
Company shall use all commercially reasonable efforts to prevent the issuance
of any stop order or other suspension of effectiveness of a Registration
Statement, or the suspension of the qualification of any of the Registrable
Securities for sale in any jurisdiction and, if such an order or suspension is
issued, to obtain the withdrawal of such order or suspension at the earliest
possible moment and to notify Legal Counsel and the Investor who holds
Registrable Securities being sold of the issuance of such order and the
resolution thereof or its receipt of actual notice of the initiation or threat
of any proceeding for such purpose.

 

h.             At
the reasonable request (in the context of the securities laws) of any Investor,
or in the case of an underwritten offering upon the request of any underwriter,
the Company shall furnish to such Investor or underwriter, as the case may be,
on the date of the effectiveness of the Registration Statement and on such
other dates as such Investor or underwriter may reasonably request (i) a “comfort
letter,” dated such date, from the Company’s independent registered public
accountants, in form and substance as is customarily given by independent
registered public accountants to underwriters in an underwritten public
offering, addressed to the Investor and any underwriters (or if such
accountants are prohibited by generally accepted auditing standards from issuing
such a “comfort letter” to an Investor, the Company shall furnish to such
Investor an “agreed upon procedures” letter covering the same matters to the
greatest extent possible, and otherwise in customary form and substance), and (ii) an
opinion, dated as of such date, of counsel representing the Company for
purposes of such Registration Statement, in form, scope and substance as is
customarily given to underwriters in an underwritten public offering, addressed
to such Investor or underwriter, as the case may be.  Notwithstanding anything to the contrary in
this Agreement, in no event shall Investor be permitted to request that the
Company, nor shall the Company in any way be obligated to, enter into any
written agreement, arrangement, or understanding to engage a third party to act
as an underwriter.

 

i.              At
the reasonable request (in the context of the securities laws) of any Investor
or, in the case of an underwritten offering, upon the request of any
underwriter, the Company shall make available for inspection during regular
business hours by (i) any Investor, (ii) Legal Counsel and (iii) one
firm of accountants or other agents retained by the Investor (collectively, the
“Inspectors”), and in the case of
an underwritten offering by any underwriter and its legal counsel and
representatives, all pertinent financial and other records, and pertinent
corporate documents and properties of the Company (collectively, the “Records”), as shall be reasonably deemed
necessary by such Inspector or underwriter, as the case may be, and cause the 

 

 

Company’s
officers, directors or employees, as the case may be, to supply such relevant
information that any Inspector or underwriter may reasonably request; provided,
however, that each Inspector shall agree to hold in strict confidence
and shall not make any disclosure (except to an Investor or underwriter) or use
of any Record or other information that the Company determines in good faith to
be confidential, and of which determination such Inspectors is so notified,
unless (a) the disclosure of such Records is necessary to avoid or correct
a misstatement or omission in any Registration Statement or is otherwise
required under the 1933 Act, (b) the release of such Records is ordered
pursuant to a subpoena or other order from a court or government body of
competent jurisdiction, or (c) the information in such Records has been
made generally available to the public other than by disclosure in violation of
this or any other agreement of which such Inspector has knowledge.  The Investor agrees that it shall, upon
learning that disclosure of such Records is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
notice to the Company and allow the Company, at its expense, to undertake appropriate
action to prevent disclosure of, or to obtain a protective order for, the
Records deemed confidential.  Nothing
herein (or any other confidentiality agreement between the Company and any
Investor) shall be deemed to limit any Investor’s ability to sell Registrable
Securities in a manner that is otherwise consistent with applicable laws and
regulations, provided that such Investor receiving information pursuant to this
Section 3(i) complies with its confidentiality obligations
pursuant to this Section 3(i).

 

j.              The
Company shall hold in confidence and not make any disclosure of information
concerning an Investor provided to the Company unless (i) disclosure of
such information is necessary to comply with federal or state securities laws, (ii) the
disclosure of such information is necessary to avoid or correct a misstatement
or omission in any Registration Statement, (iii) the release of such
information is ordered pursuant to a subpoena or other final, non-appealable
order from a court or governmental body of competent jurisdiction, or (iv) such
information has been made generally available to the public other than by
disclosure in violation of this Agreement or any other agreement.  The Company agrees that it shall, upon
learning that disclosure of such information concerning an Investor is sought
in or by a court or governmental body of competent jurisdiction or through
other means, give prompt written notice to such Investor and allow such
Investor, at such Investor’s expense, to undertake appropriate action to
prevent disclosure of, or to obtain a protective order for, such information.

 

k.             The
Company shall use all commercially reasonable efforts to cause all the
Registrable Securities covered by a Registration Statement to be listed on each
securities exchange or trading market on which securities of the same class or
series issued by the Company are listed. 
The Company shall pay all fees and expenses in connection with
satisfying its obligation under this Section 3(k).

 

l.              The
Company shall cooperate with the Investor who holds Registrable Securities
being offered and the underwriters, if any, and, to the extent applicable,
facilitate the timely preparation and delivery of certificates or
uncertificated shares (not bearing any restrictive legend) representing the
Registrable Securities to be offered pursuant to a Registration Statement and
enable such certificates or uncertificated shares to be in such denominations
or amounts, as the case may be, as the Investor may reasonably request and registered
in such names as the Investor may request.

 

m.            The
Company shall provide a transfer agent and registrar of all such Registrable
Securities not later than the effective date of the applicable Registration
Statement.

 

 

n.             If
requested by an Investor, the Company shall (i) as soon as reasonably
practicable incorporate in a prospectus supplement or post-effective amendment
such information as such Investor requests to be included therein relating to
the sale and distribution of Registrable Securities, including information with
respect to such Investor, the number of Registrable Securities being offered or
sold, the purchase price being paid therefor and any other terms of the
offering of the Registrable Securities to be sold in such offering; (ii) as
soon as practicable make all required filings of such prospectus supplement or
post-effective amendment after being notified of the matters to be incorporated
in such prospectus supplement or post-effective amendment; and (iii) as
soon as reasonably practicable, supplement or make amendments to any
Registration Statement or prospectus if reasonably requested by an Investor.

 

o.             The
Company shall use all commercially reasonable efforts to cause the Registrable
Securities covered by the applicable Registration Statement to be registered
with or approved by such other governmental agencies or authorities in the
United States as may be necessary to consummate the disposition of such
Registrable Securities.

 

p.             The
Company shall make generally available to its security holders as soon as
practical, but not later than ninety (90) days after the close of the period
covered thereby, an earnings statement (in form complying with the provisions
of Rule 158 under the 1933 Act) covering a 12-month period beginning not
later than the first day of the Company’s fiscal quarter next following the
effective date of a Registration Statement.

 

q.             The
Company shall otherwise use all commercially reasonable efforts to comply with
all applicable rules and regulations of the SEC in connection with any
registration hereunder.

 

r.              Within
two (2) Business Days after a Registration Statement that covers
applicable Registrable Securities is ordered effective by the SEC, the Company
shall deliver, and shall cause legal counsel for the Company to deliver, to the
transfer agent for such Registrable Securities (with copies to the Investor
whose Registrable Securities are included in such Registration Statement)
confirmation that such Registration Statement has been declared effective by
the SEC in substantially the form attached hereto as Exhibit A,
provided that if the Company changes its transfer agent, it shall immediately
deliver any previously delivered notices under this Section 3(r) and
any subsequent notices to such new transfer agent.

 

s.             To
the extent not made by the underwriters in the case of an underwritten
offering, the Company shall make such filings with FINRA, pursuant to NASD Rule 2710
or otherwise (including providing all required information and paying required
fees thereto), as and when requested by any Investor, or in the case of an
underwritten offering, by any underwriter, and make all other filings and take
all other actions reasonably necessary to expedite and facilitate the
disposition by the Investor of Registrable Securities pursuant to a
Registration Statement, including reasonably cooperating with any broker-dealer
through which any Investor proposes to resell Registrable Securities and
promptly responding to any comments received from FINRA.

 

t.              The
Company shall enter into such customary agreements (including, in the case of
underwritten offering, an underwriting agreement) and take such other actions
as the any of the Investor or underwriters, if any, may reasonably request in
order to expedite and facilitate the disposition of the Registrable Securities
and any other securities covered by a

 

 

Registration
Statement.  Without limiting the
foregoing, in connection with any underwritten offering and taking into account
the Company’s business needs, the Company shall make appropriate officers of
the Company available for meetings with prospective purchasers of the
Registrable Securities and prepare and present to potential investors customary
“road show” materials, in each case in accordance with the recommendations of
the underwriters and in all respects in a manner consistent with other
issuances of securities in an offering of a similar size to such offering of
the Registrable Securities.

 

u.             The
Company shall notify the Investor and the managing underwriters, if any, as
promptly as reasonably practicable, and (if requested by any such Person) confirm
such notice (which notice shall, pursuant to clauses (ii), (iii), (v) and (vi)
hereof, be accompanied by an instruction to suspend use of the Prospectus until
the requisite changes have been made) in writing, (i) when a prospectus or any
prospectus supplement or post-effective amendment has been filed, and, with
respect to a Registration Statement or any post-effective amendment, when the
same has become effective, (ii) of any request by the SEC or any other
federal or state governmental authority for amendments or supplements to a
Registration Statement or related prospectus or for additional information, (iii) of
the issuance by the SEC or any other federal or state governmental authority of
any stop order suspending the effectiveness of a Registration Statement or the
initiation of any proceedings for that purpose, (iv) if at any time the
representations and warranties of the Company contained in any agreement
contemplated by Section 4(t) (including any underwriting
agreement) cease to be true and correct in any material respect, if and only to
the extent that such representations and warranties are continuing under such
agreement or if there is a continuing prospectus delivery requirement, (v) of
the receipt by the Company of any notification with respect to the suspension
of the qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose, and (vi) of the occurrence of any event that
makes any statement made in such Registration Statement or related prospectus
or any document incorporated or deemed to be incorporated therein by reference
untrue in any material respect or that requires the making of any changes in a
Registration Statement, prospectus or any such document so that, in the case of
the Registration Statement, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading and, in the case of
the prospectus, it will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.

 

4.             OBLIGATIONS OF THE INVESTOR.

 

a.             At
least seven (7) Business Days prior to the first anticipated filing date
of a Registration Statement and at lease five (5) Business Days prior to
the filing of any amendment or supplement to a Registration Statement or
prospectus, the Company shall notify the Investor in writing of the
information, if any, the Company requires from each such Investor if such
Investor elects to have any of such Investor’s Registrable Securities included
in such Registration Statement or, with respect to an amendment or a
supplement, if such Investor’s Registrable Securities are included in such
Registration Statement (each an “Information
Request”). Provided that the Company shall have complied with its obligations
set forth in the preceding sentence, it shall be a condition precedent to the
obligations of the Company to complete the registration pursuant to this
Agreement with respect to the Registrable Securities of 

 

 

a
particular Investor that such Investor shall furnish to the Company, in
response to an Information Request, such information regarding itself, the
Registrable Securities held by it and the intended method of disposition of the
Registrable Securities held by it as shall be reasonably required to effect the
registration of such Registrable Securities and shall execute such documents in
connection with such registration as the Company may reasonably request.

 

b.             The
Investor agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of any Registration
Statement in which any Registrable Securities held by such Investor are being
included.  No Investor shall have any
right to obtain or seek an injunction restraining or otherwise delaying any
such registration as the result of any controversy that might arise with
respect to the interpretation or implementation of Sections 2, 3 or 10.

 

c.             The
Investor agrees that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 3(g) or
the first sentence of Section 3(f) or, in the case of an
offering pursuant to Rule 415, receipt of a Suspension Notice, such
Investor will promptly discontinue disposition of Registrable Securities
pursuant to any Registration Statement(s) covering such Registrable Securities
until such Investor’s receipt of the copies of the supplemented or amended
prospectus contemplated by Section 3(d) or the first sentence
of Section 3(f) or receipt of notice that no supplement or
amendment is required or that the Black Out has ended.  Notwithstanding anything to the contrary, the
Company shall cause its transfer agent to deliver unlegended shares of Common
Stock to a transferee of an Investor in accordance with the terms of the
Securities Purchase Agreement in connection with any sale of Registrable
Securities with respect to which an Investor provides reasonable evidence that
such Investor has entered into a contract for sale prior to the Investor’s
receipt of a notice from the Company of the happening of any event of the kind
described in Section 3(u).

 

d.             The
Investor agrees, in connection with any underwritten offering made pursuant to
a Registration Statement filed pursuant to this Agreement in which such
Investor has elected to include Registrable Securities, if requested (pursuant
to a written notice) by the managing underwriter(s) not to effect any
public sale or distribution of any common equity securities of the Company (or
securities convertible into or exchangeable or exercisable for such common
equity securities) (except as part of such underwritten offering) during the
period commencing not earlier than 7 days prior to and continuing for not
more than 90 days (or such shorter period as the managing underwriter(s) may
permit) after the effective date of the related Registration Statement (or date
of the prospectus supplement if the offering is made pursuant to a “shelf”
registration) pursuant to which such underwritten offering shall be made;
provided, that such Investor shall only be so bound so long as and to the
extent that each executive officer and director of the Company and other
shareholder having registration rights with respect to the securities of the
Company is similarly bound.

 

5.             EXPENSES OF REGISTRATION.

 

All
expenses, other than underwriting discounts and commissions, incurred in
connection with registrations, filings and qualifications pursuant to, or
otherwise in connection with the Company’s compliance with its obligations
under, Sections 2 and 3, including all registration, listing and
qualifications fees, printers and accounting fees, and fees and disbursements
of counsel for the Company, shall be paid by the Company.  The Company shall also reimburse the Investor
for the reasonable fees and disbursements of Legal Counsel in 

 

 

connection
with registrations, filings and qualifications pursuant to Sections 2 and 3
of this Agreement in an amount not to exceed $50,000 per Registration
Statement.  In no event, however, will
the Company be responsible for any underwriting discount or selling commission
with respect to any sale of Registrable Securities pursuant to this Agreement,
and Investor shall be responsible for any taxes of any kind (including, without
limitation, transfer taxes) with respect to any disposition, sale or transfer
of Registrable Securities and for any legal, accounting and other expenses
incurred by it, except as provided in the preceding sentence with respect to
Legal Counsel, in connection with any Registration Statement.

 

6.             INDEMNIFICATION.

 

In
the event any Registrable Securities are included in a Registration Statement
under this Agreement:

 

a.             To
the fullest extent permitted by law, the Company will, and hereby does,
indemnify, hold harmless and defend the Investor and any underwriter, and the
directors, officers, partners, members, managers, employees, agents,
representatives of, and each Person, if any, who controls any Investor or
underwriter within the meaning of the 1933 Act or the 1934 Act (each, an “Indemnified Person”), against any losses,
claims, damages, liabilities, judgments, fines, penalties, charges, costs,
reasonable attorneys’ fees, amounts paid in settlement or expenses, joint or
several, (collectively, “Claims”)
incurred in investigating, preparing or defending any action, claim, suit,
inquiry, proceeding, investigation or appeal taken from the foregoing by or
before any court or governmental, administrative or other regulatory agency
authority, or body (including the SEC or any state securities commission, authority
or self-regulatory organization, in the United States or anywhere else in the
world), whether pending or threatened, whether or not an indemnified party is
or may be a party thereto (“Indemnified
Damages”), to which any of them may become subject insofar as such
Claims (or actions or proceedings, whether commenced or threatened, in respect
thereof) arise out of or are based upon: (i) any untrue statement or
alleged untrue statement of a material fact in (including by way of
incorporation be reference) a Registration Statement or any post-effective
amendment thereto or in any filing made in connection with the qualification of
the offering under the securities or other “blue sky” laws of any jurisdiction
in which Registrable Securities are offered (“Blue
Sky Filings”), or the omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, (ii) any untrue statement or alleged untrue
statement of a material fact contained (including by way of incorporation by
reference) in any preliminary, final, summary or free writing prospectus (as
amended or supplemented, if the Company files any amendment thereof or
supplement thereto with the SEC) or the omission or alleged omission to state
therein (including by way of incorporation be reference) any material fact
necessary to make the statements made therein, in light of the circumstances
under which the statements therein (including by way of incorporation be
reference) were made, not misleading, or (iii) any violation or alleged
violation by the Company of the 1933 Act, the 1934 Act, any other law,
including any state securities law, or any rule or regulation thereunder
relating to the offer or sale of the Registrable Securities pursuant to a
Registration Statement (the matters in the foregoing clauses (i) through (iii) being,
collectively, “Violations”).  Subject to Section 6(c), the
Company shall reimburse the Indemnified Persons, promptly as such expenses are
incurred and are due and payable, for any legal fees or other reasonable
expenses incurred by them in connection with investigating or defending any
such Claim.  Notwithstanding anything to
the contrary contained herein, the indemnification agreement contained in this Section 6(a):
(i) shall 

 

 

not
apply to a Claim by an Indemnified Person arising out of or based upon a
Violation which occurs in reliance upon and in conformity with information
furnished in writing to the Company by such Indemnified Person for such
Indemnified Person expressly for use in connection with the preparation of the
Registration Statement or any such amendment thereof or supplement thereto if
such prospectus (or amendment or supplement thereto) was timely filed with the
SEC and furnished by the Company to such Investor pursuant to Section 3(d),
(ii) shall not apply to a Claim by an Indemnified Person arising out of or
based upon sales of Registrable Securities by such Indemnified Person pursuant
to a Registration Statement in violation of Section 4(c), and (iii) shall
not apply to amounts paid in settlement of any Claim if such settlement is
effected without the prior written consent of the Company, which consent shall
not be unreasonably withheld, conditioned or delayed.  Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of the Indemnified
Person and shall survive the transfer of the Registrable Securities by the
Investor pursuant to Section 9.

 

b.             In
connection with any Registration Statement in which an Investor is
participating, each such Investor agrees to severally and not jointly
indemnify, hold harmless and defend, to the same extent and in the same manner
as is set forth in Section 6(a), the Company, each of its
directors, each of its officers who signs the Registration Statement, and each
Person, if any, who controls the Company within the meaning of the 1933 Act or
the 1934 Act (each an “Indemnified Party”),
against any Claim or Indemnified Damages to which any of them may become
subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim
or Indemnified Damages arise out of or are based upon (i) any Violation,
in each case to the extent, and only to the extent, that such Violation occurs
in reliance upon and in conformity with written information furnished to the
Company by such Investor expressly for use in connection with such Registration
Statement or (ii) sales of Registrable Securities by such Indemnified
Person pursuant to a Registration Statement in violation of Section 4(c) and,
subject to Section 6(c), such Investor will reimburse any legal or
other expenses reasonably incurred by an Indemnified Party in connection with
investigating or defending any such Claim; provided, however,
that the indemnity agreement contained in this Section 6(b) and
the agreement with respect to contribution contained in Section 7
shall not apply to amounts paid in settlement of any Claim if such settlement
is effected without the prior written consent of such Investor, which consent
shall not be unreasonably withheld, conditioned or delayed; provided, further,
however, that the aggregate liability of the Investor in connection with
any Violation shall not exceed the net proceeds to such Investor as a result of
the sale of Registrable Securities pursuant to the Registration Statement
giving rise to such Claim.  Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such Indemnified Party and shall survive any transfer
of the Registrable Securities by an Investor pursuant to Section 9.

 

c.             Promptly
after receipt by an Indemnified Person or Indemnified Party under this Section 6
of notice of the commencement of any action or proceeding (including any
governmental action or proceeding) involving a Claim, such Indemnified Person
or Indemnified Party shall, if a Claim in respect thereof is to be made against
any indemnifying party under this Section 6, deliver to the
indemnifying party a written notice of the commencement thereof, and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Indemnified Person or
the Indemnified Party, as the case may be. In any such proceeding, any
Indemnified Person or Indemnified Party may retain its own counsel, but, except
as provided in 

 

 

the
following sentence, the fees and expenses of that counsel will be at the
expense of that Indemnified Person or Indemnified Party, as the case may be,
unless (i) the indemnifying party and the Indemnified Person or
Indemnified Party, as applicable, shall have mutually agreed to the retention
of that counsel, (ii) the indemnifying party does not assume the defense
of such proceeding in a timely manner or (iii) in the reasonable opinion
of counsel retained by the Indemnified Person or Indemnified Party, the
representation by such counsel for the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and
any other party represented by such counsel in such proceeding.  The Company shall pay reasonable fees for up
to one separate legal counsel (plus local counsel) for the Investor, and such
legal counsel shall be selected by the Investor holding at least two-thirds
(2/3) in interest of the Registrable Securities included in the Registration
Statement to which the Claim relates. 
The indemnifying party shall keep the Indemnified Person or Indemnified
Party fully apprised at all times as to the status of the defense or any
settlement negotiations with respect thereto. 
No indemnifying party shall be liable for any settlement of any action,
claim or proceeding effected without its prior written consent, provided,
however, that the indemnifying party shall not unreasonably withhold,
delay or condition its consent.  No
indemnifying party shall, without the prior written consent of the Indemnified
Person or Indemnified Party, consent to entry of any judgment or enter into any
settlement or other compromise with respect to any pending or threatened action
or claim in respect of which indemnification or contribution may be or has been
sought hereunder (whether or not the Indemnified Person or Indemnified Party is
an actual or potential party to such action or claim) which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Person or Indemnified Party of a release from all liability in
respect to such Claim or litigation, and such settlement shall not include any
admission as to fault on the part of the Indemnified Person or Indemnified
Party.  Following indemnification as
provided for hereunder, the indemnifying party shall be subrogated to all
rights of the Indemnified Person or Indemnified Party with respect to all third
parties, firms or corporations relating to the matter for which indemnification
has been made.  The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of
any liability to the Indemnified Person or Indemnified Party under this Section 6,
except to the extent that the indemnifying party is prejudiced in its ability
to defend such action.

 

d.             The
indemnification required by this Section 6 shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills are received or Indemnified Damages are incurred.

 

e.             The
indemnity agreements contained herein shall be in addition to (i) any
cause of action or similar right of the Indemnified Person or Indemnified Party
against the indemnifying party or others, and (ii) any liabilities the
indemnifying party may be subject to pursuant to the law.

 

7.             CONTRIBUTION.

 

To the extent any indemnification by an indemnifying
party is prohibited or limited by law, the indemnifying party agrees to make
the maximum contribution with respect to any amounts for which it would
otherwise be liable under Section 6 to the fullest extent permitted
by law; provided, however, that: 
(i) no Person involved in the sale of Registrable Securities who is
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of

 

 

the
1933 Act) in connection with such sale, shall be entitled to contribution from
any Person involved in such sale of Registrable Securities who was not guilty
of fraudulent misrepresentation; and (ii) contribution by any Investor
shall be limited to an amount equal to the net amount of proceeds received by
such Investor from the sale of such Registrable Securities pursuant to the
Registration Statement giving rise to such action or claim for indemnification,
less the amount of any damages that such Investor has otherwise been required
to pay in connection with such sale.

 

8.             REPORTS UNDER THE 1934 ACT.

 

With a view to making available to the Investor the
benefits of Rule 144 promulgated under the 1933 Act or any other similar rule or
regulation of the SEC that may at any time permit the Investor to sell
securities of the Company to the public without registration (“Rule 144”), the Company agrees to:

 

a.             make and keep public information available, as those terms
are understood and defined in Rule 144;

 

b.             maintain,
and not terminate, its status as an issuer required to file reports under the
1934 Act;

 

c.             file
with the SEC in a timely manner all reports and other documents required of the
Company under the 1934 Act so long as the Company remains subject to such
requirements and the filing of such reports and other documents is required for
the applicable provisions of Rule 144; and

 

d.             furnish to the Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by
the Company that it has complied with the reporting requirements of Rule 144
and the 1934 Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company (or information regarding the locations thereof on the SEC’s EDGAR
filing system or successor thereto), and (iii) such other information as
may be reasonably requested to permit the Investor to sell such securities
pursuant to Rule 144 without registration.

 

The
obligations of the Company under this Section 8 shall continue for a
period of twelve (12) months following the Closing Date; provided that if, as
of the Closing Date, such Investor is, or pursuant to the Rights Offering
becomes, an affiliate (as defined in Rule 144) of the Company, then such
period shall be extended to twenty-four (24) months.  In no event shall the Company be required to
comply with this Section 8 if it ceases to maintain the registration of
its Common Stock under the 1933 Act as a result of a “going private”
transaction approved by the Company’s shareholders.

 

9.             ASSIGNMENT
OF REGISTRATION RIGHTS.

 

The
rights and obligations under this Agreement shall not be assignable directly or
indirectly whether by operation of law, merger or sale of substantially all the
assets or stock of the Company or Investor.

 

 

10.           LIMITATIONS ON REGISTRATION RIGHTS.

 

a.             Suspension
of Trading.  At any time after the Registrable Securities
are covered by an effective Registration Statement, the Company may deliver to
the holders of such Registrable Securities a certificate (the “Suspension Certificate”) approved by the
Chief Executive Officer or Chief Financial Officer of the Company and signed by
an officer of the Company stating that the Board of Directors of the Company in
good faith reasonably believes that the effectiveness of and sales of
Registrable Securities under the Registration Statement would: (i) materially
interfere with any transaction that would require the Company to prepare
financial statements under the Securities Act that the Company would otherwise
not be required to prepare in order to comply with its obligations under the
Exchange Act, or (ii) require public disclosure of a material transaction
or event prior to the time such disclosure might otherwise be required.  Upon receipt of a Suspension Certificate by
the Investor, it shall refrain from selling or otherwise transferring or
disposing of any Registrable Securities then held for a specified period of
time (a “Suspension Period”) not
to exceed twenty (20) calendar days.  The
Registration Period or Extended Registration Period shall be automatically
extended by the number of days that elapse during any Suspension Period.

 

b.             Discontinued
Disposition.  By its acquisition of Registrable Securities,
the Investor agrees that, upon receipt of a notice from the Company of the
occurrence of any event of the kind described in Section 3(u)(ii)-(vi),
the Investor will forthwith discontinue disposition of such Registrable
Securities under the Registration Statement until it is advised in writing by
the Company, but in no event more than twenty (20) calendar days, that the use
of the applicable Prospectus (as it may have been supplemented or amended) may
be resumed (a “Black-Out” and
together with any Suspension Period, the “Covered
Periods”). The Company shall be permitted to cause the Investor to
refrain from selling or otherwise transferring or disposing of any Registrable
Securities for up to three (3) Covered Periods during the Registration
Period.  If the Extended Registration
Period is triggered, then the Company shall be permitted to cause the Investor
to refrain from selling or otherwise transferring or disposing of any
Registrable Securities for one (1) additional Covered Period during the
Extended Registration Period.  The
Registration Period or Extended Registration Period shall be automatically
extended by the number of days that elapse during any Black-Out.

 

c.             Qualified
Financing Disposition Restriction.  Notwithstanding anything to the contrary,
until the earlier to occur of: (i) six months after the Closing Date, or (ii) the
date the Company closes on a Qualified Financing Transaction, the Investor will
be deemed to have agreed, by virtue of its acquisition of Registrable
Securities, to the Company’s right to cause the Investor to refrain from
selling or otherwise transferring or disposing of any Registrable Securities,
at any time for up to thirty (30) days, upon receipt of a notice from the
Company that it is planning to enter into a definitive agreement in connection
with a Qualified Financing Transaction (“Financing
Black-Out”).  The Financing
Black-Out may only be exercised by the Company on one occasion.  The Registration Period or Extended
Registration Period shall be automatically extended by the number of days that
elapse during any Financing Black-Out.

 

d.             Trading
Volume Limitations.  The Investor covenants and agrees that until
the earlier to occur of: (i) six months after the Closing Date, or (ii) the
date the Company closes on a Qualified Financing Transaction, it shall be
prohibited, on any Trading Day, from selling (including short sales) or
otherwise disposing of, whether pursuant to a Registration Statement or
otherwise, Registrable Securities held by such Investor that would represent
greater than ten 

 

 

percent
(10%) of the Average Daily Trading Volume. 
The Investor also may submit a request to the Company that it be
permitted to execute a Block Trade not otherwise permitted under this Section 10(d),
which request shall be subject to the prior approval of the Company, which
approval shall not be unreasonably withheld, conditioned or delayed.

 

e.             Stop
Orders.  The Company may impose stop transfer
instructions to enforce the provisions of this Section 10.

 

11.           AMENDMENT OF REGISTRATION RIGHTS.

 

Provisions
of this Agreement may be amended and the observance thereof may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and Investor.  Any amendment or waiver effected in
accordance with this Section 10 shall be binding upon the Investor
and the Company.  No such amendment shall
be effective to the extent that it applies to less than all of the holders of
the Registrable Securities.  No
consideration shall be offered or paid to any Person to amend or consent to a
waiver or modification of any provision of any of this Agreement unless the
same consideration also is offered to all of the parties to this Agreement.

 

12.           TERMINATION.

 

a.             This
Agreement shall terminate and be of no further force and effect upon the
earlier to occur of: (i) the date on which the Company terminates the
registration of its Common Stock under Section 12 of the 1933 Act, or (ii) the
date on which the Registration Period ends. 
Notwithstanding the foregoing, the terms and conditions of Sections 5,
6, 7, 10, 11, 12 and 13 shall survive any termination of this Agreement until
the thirtieth (30th)
day following the expiration of the statute of limitations applicable to the
Violations in question.

 

b.             If
at any time the Securities Purchase Agreement
is terminated without a Closing (as defined in the Securities Purchase
Agreement) having occurred, this Agreement will automatically terminate
concurrent with the termination of the Securities Purchase Agreement.  For the avoidance of doubt, in the event of a
termination pursuant to this Section 12(b), none of the rights or
obligations of the Company or Investor will survive such termination.

 

13.           MISCELLANEOUS.

 

a.             A
Person is deemed to be a holder of Registrable Securities whenever such Person
owns or is deemed to own of record such Registrable Securities.  If the Company receives conflicting instructions,
notices or elections from two or more Persons with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.

 

b.             For
any Investor that is a partnership, limited liability company or corporation,
the partners, members, stockholders, subsidiaries, parents and affiliates of
such Investor, or the estates and family members of any such partners and
retired partners and any trusts for the benefit of any of the foregoing Persons
shall be deemed to be a single “Investor”, and any pro rata reduction under
this Agreement with respect to such “Investor” shall be based upon the
aggregate amount of shares carrying registration rights owned by all entities
and individuals included in such “Investor,” as defined in this sentence.

 

 

c.             Any
notice, consent, waiver, request, instruction or other communication required
or permitted to be given under the terms of this Agreement shall be in writing
and will be deemed to have been duly given: 
(i) upon receipt, when delivered personally; (ii) upon
receipt, when sent by facsimile (provided confirmation of transmission is
mechanically or electronically generated and kept on file by the sending
party); or (iii) one (1) Business Day after deposit with a nationally
recognized overnight delivery service, in each case properly addressed to the
party to receive the same.  The addresses
and facsimile numbers for such communications shall be:

 

If to the Company:

 

Select Comfort Corporation

9800 59th Avenue North

Minneapolis, Minnesota 55442

Attention: Mark Kimball

Facsimile: (763) 551-6888

 

With a copy to:

 

Oppenheimer Wolff Donnelly
LLP

Plaza VII, Suite 3300

45 South Seventh Street

Minneapolis,
MN 55402-1609

Attention:
Thomas R. Marek

Facsimile: (612) 607-7100

 

If to Legal Counsel, to its address and facsimile
number provided by the holders of Registrable Securities designating such Legal
Counsel pursuant to Section 3(c).

 

If to a Buyer, to its address and facsimile number
set forth on the Schedule of Buyers attached to the Securities Purchase
Agreement, with copies to such Buyer’s representatives as set forth on such Schedule
of Buyers, or, in the case of a Buyer or other party named above, to such
other address and/or facsimile number and/or to the attention of such other
person as the recipient party has specified by written notice given to each
other party at least 5 days prior to the effectiveness of such change.

 

If
to an Investor (other than the Buyer), to such Investor at the address and/or
facsimile number reflected in the records or the Company.

 

Written
confirmation of receipt (A) given by the recipient of such notice,
consent, waiver or other communication, (B) mechanically or electronically
generated by the sender’s facsimile machine containing the time, date,
recipient facsimile number and an image of the first page of such
transmission or (C) provided by a courier or overnight courier service
shall be rebuttable evidence of personal service, receipt by facsimile or
deposit with a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.  Notwithstanding the foregoing, the Company or
its counsel may transmit versions of any Registration Statement (or any
amendments or supplements thereto) to Legal Counsel in satisfaction of its obligations
under Section 3(c) to permit Legal Counsel to review such
Registration Statement prior to filing (and solely for such purpose) by email
to such e-mail

 

 

address
as has been provided for such purpose by Legal Counsel, provided that delivery
and receipt of such transmission shall be confirmed by electronic, telephonic
or other means.

 

d.             Failure
of any party to exercise any right or remedy under this Agreement or otherwise,
or delay by a party in exercising such right or remedy, shall not operate as a
waiver thereof.

 

e.             All
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be governed by the 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 jurisdictions) that would cause
the application of the laws of any jurisdictions other than the State of
Delaware. Each party hereby irrevocably submits to the exclusive jurisdiction
of the state and federal courts sitting the State of Delaware, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper.  Each party hereby irrevocably waives personal
service of process and consents to process being served in any such suit,
action or proceeding by mailing a copy thereof by registered or certified mail,
return receipt requested, or by deposit with a nationally recognized overnight
delivery service, to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to
limit in any way any right to serve process in any manner permitted by
law.  If any provision of this Agreement
shall be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other
jurisdiction.  EACH PARTY HEREBY
IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A
JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION
HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
HEREBY.

 

f.              This
Agreement and the other Transaction Documents constitute the entire agreement
among the parties hereto with respect to the subject matter hereof and
thereof.  There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein and therein.  This Agreement and
the other Transaction Documents supersede all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof and thereof.

 

g.             Subject
to the requirements of Section 9, this Agreement shall inure to the
benefit of and be binding upon the permitted successors and assigns of each of
the parties hereto.

 

h.             The
headings in this Agreement are for convenience of reference only and shall not
form part of, or affect the meaning or interpretation of, this Agreement.

 

i.              This
Agreement and any amendments hereto may be executed and delivered in two or more
identical counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original,
but all of which 

 

 

taken
together shall constitute one and the same agreement. This Agreement shall become
effective and binding upon each party hereto when counterparts have been signed
by each party hereto and delivered to the other parties hereto, it being
understood that all parties need not sign the same counterpart.  In the event that any signature to this
Agreement or any amendment hereto is delivered by facsimile transmission or by
e-mail delivery of a “.pdf” format data file, such signature shall create a
valid and binding obligation of the party executing (or on whose behalf such
signature is executed) with the same force and effect as if such facsimile or “.pdf”
signature page were an original thereof. 
No party hereto shall raise the use of a facsimile machine or e-mail
delivery of a “.pdf” format data file to deliver a signature to this Agreement
or any amendment hereto or the fact that such signature was transmitted or
communicated through the use of a facsimile machine or e-mail delivery of a “.pdf”
format data file as a defense to the formation or enforceability of a contract
and each party hereto forever waives any such defense.

 

j.              Each
party shall do and perform, or cause to be done and performed, all such further
acts and things, and shall execute and deliver all such other agreements,
certificates, instruments and documents, as the other party may reasonably
request in order to carry out the intent and accomplish the purposes of this
Agreement and the consummation of the transactions contemplated hereby.

 

k.             All
consents and other determinations to be made by the Investor pursuant to this
Agreement shall be made only by the Investor.

 

l.              The
language used in this Agreement will be deemed to be the language chosen by the
parties to express their mutual intent and no rules of strict construction
will be applied against any party.

 

m.            Each
Buyer and each holder of the Registrable Securities shall have all rights and
remedies set forth in the Transaction Documents and all rights and remedies
that such Buyers and holders have been granted at any time under any other
agreement or contract and all of the rights that such Buyers and holders have
under any law.  Any Person having any
rights under any provision of this Agreement shall be entitled to enforce such
rights specifically (without posting a bond or other security or proving actual
damages), to recover damages by reason of any breach of any provision of this
Agreement and to exercise all other rights granted by law or in equity.

 

n.             This
Agreement is intended for the benefit of the parties hereto and their
respective permitted successors and assigns and, to the extent provided in Sections
6(a) and 6(b) hereof, the Investor, any underwriter, and
the directors, officers, partners, members, managers, employees, agents,
representatives of, and each Person, if any, who controls any Investor or underwriter
within the meaning of the 1933 Act or the 1934 Act and each of the Company’s
directors, each of the Company’s officers who signs the Registration Statement,
and each Person, if any, who controls the Company within the meaning of the
1933 Act or the 1934 Act, and is not for the benefit of, nor may any provision
hereof be enforced by, any other Person.

 

o.             Unless
the context otherwise requires, (i) all references to Sections, Schedules
or Exhibits are to Sections, Schedules or Exhibits contained in or attached to
this Agreement, (ii) words in the singular or plural include the singular
and plural and pronouns stated in either the masculine, the feminine or neuter
gender shall include the masculine, 

 

 

feminine
and neuter and (iii) the use of the word “including” in this Agreement
shall be by way of example rather than limitation.

 

*   *  
*   *   *

 

 

IN WITNESS WHEREOF, each party hereto has
caused this Registration Rights Agreement to be duly executed as of the date
first written above.

 

 

	
   

  	
  COMPANY:

  
	
   

  	
   

  
	
   

  	
  Select Comfort Corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ James
  Raabe

  
	
   

  	
  Name:

  	
  James
  Raabe

  
	
   

  	
  Title:

  	
  Chief
  Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  BUYERS:

  
	
   

  	
   

  
	
   

  	
  Sterling
  SC Investor, LLC

  
	
   

  	
  By:
   Sterling Capital Partners III, L.P.

  
	
   

  	
  Its:
   Sole Member

  
	
   

  	
   

  
	
   

  	
  By:
  SC Partners III, L.P.

  
	
   

  	
  Its:
   General Partner

  
	
   

  	
   

  
	
   

  	
  By:
   Sterling Capital Partners III, LLC

  
	
   

  	
  Its:
    General Partner

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ R.
  Christopher Hoehn-Saric

  
	
   

  	
  Name:

  	
  R.
  Christopher Hoehn-Saric

  
	
   

  	
  Title:

  	
  Senior
  Managing Director

  

 

 

EXHIBIT A

 

FORM OF NOTICE OF EFFECTIVENESS

OF REGISTRATION STATEMENT

 

[TRANSFER AGENT]

Attn:

 

Re:          Select
Comfort Corporation

 

Ladies
and Gentlemen:

 

We
are counsel to Select Comfort Corporation, a Minnesota corporation (the “Company”), and have represented the Company
in connection with that certain Securities Purchase Agreement (the “Purchase Agreement”) entered into by and
among the Company and the buyers named therein (collectively, the “Holders”) pursuant to which the Company
issued to the Holders shares of Common Stock of the Company.  Pursuant to the Purchase Agreement, the
Company also has entered into a Registration Rights Agreement with the Holders
(the “Registration Rights Agreement”),
pursuant to which the Company agreed, among other things, to register the
Registrable Securities (as defined in the Registration Rights Agreement), under
the Securities Act of 1933, as amended (the “1933
Act”).  In connection with the
Company’s obligations under the Registration Rights Agreement, on
                        
      , 200 , the Company filed a Registration
Statement on Form [S-    ]
(File No. 333-                          )
(the “Registration Statement”)
with the Securities and Exchange Commission (the “SEC”) relating to the Registrable Securities, which names each
of the Holders as a selling stockholder thereunder.

 

In
connection with the foregoing, we advise you that a member of the SEC’s staff
has advised us by telephone that the SEC has entered an order declaring the
Registration Statement effective under the 1933 Act at [ENTER TIME OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have
no knowledge, after telephonic inquiry of a member of the SEC’s staff, that any
stop order suspending its effectiveness has been issued or that any proceedings
for that purpose are pending before, or threatened by, the SEC, and the
Registrable Securities are available for resale under the 1933 Act pursuant to
the Registration Statement.

 

	
   

  	
  Very
  truly yours,

  
	
   

  	
   

  
	
   

  	
  [ISSUER’S COUNSEL]

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  

cc:           [LIST NAMES
OF HOLDERS]

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