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
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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
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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
