EXHIBIT 3
SECURITY AGREEMENT - PARENT
AGREEMENT made as of this 1st day of May, 2001, by Select Comfort
Corporation, a Minnesota corporation (hereinafter called "Debtor"), in favor
of St. Xxxx Venture Capital VI, LLC, a Delaware limited liability company
(the "Secured Party").
In order to secure the payment of that certain Demand Note of Debtor
dated the date hereof payable to the order of the Secured Party in the
original principal amount of $2,000,000, with interest thereon (together with
any note or notes issued in exchange or substitution therefor, the "Note"),
and to secure the payment and performance of each and every other debt,
liability and obligation of every type and description which Debtor may now
or at any time hereafter owe to the Secured Party under this Agreement,
whether such debt, liability or obligation now exists or is hereafter created
or incurred and whether such debt, liability or obligation is or may be
direct or indirect, due or to become due, absolute or contingent, primary or
secondary, liquidated or unliquidated, or sole, joint, several or joint and
several (the Note, together with all such other debts, liabilities and
obligations, being herein collectively called the "Obligations"), the parties
hereto hereby agree as follows:
1. SECURITY INTEREST AND COLLATERAL. In order to secure the
payment and performance of the Obligations, Debtor hereby grants Secured
Party a Security Interest (herein called the "Security Interest") in the
following property (herein called the "Collateral"):
(a) INVENTORY AND SUPPLIES:
All inventory and supplies of Debtor, whether now owned or
hereafter acquired and wherever located;
(b) EQUIPMENT:
All equipment of Debtor, whether now owned or hereafter
acquired and wherever located, including but not limited to
all present and future machinery, vehicles, furniture,
fixtures, manufacturing equipment, shop equipment, office and
record keeping equipment, parts and tools;
(c) ACCOUNTS, CONTRACT RIGHTS AND OTHER RIGHTS TO PAYMENT:
Each and every right of Debtor to the payment of money,
whether such right to payment now exists or hereafter arises,
whether such right to payment arises out of a sale, lease or
other disposition of goods or other property by Debtor, out of
a rendering of services by Debtor, out of a loan by Debtor,
out of an overpayment of taxes or other liabilities of Debtor,
or otherwise arises under any contract or agreement, whether
such right to payment is or is not already earned by
performance, and howsoever such right may be evidenced,
together with all other rights and interests (including all
liens and security interests) which
Debtor may at any time have by law or agreement against any
account debtor or other obligor obligated to make any of the
aforementioned payments or against any of the property of
such account debtor or other obligor; all including but not
limited to all present and future instruments, chattel
papers, accounts, contract rights, loans, obligations
receivable and tax refunds of Debtor;
(d) INVESTMENT PROPERTY:
All investment property of Debtor, whether now owned or
hereafter acquired, including but not limited to all
securities, security entitlements, securities accounts,
commodity contracts, commodity accounts, stocks, bonds, mutual
fund shares, money market shares and U.S. government
securities; and
(e) GENERAL INTANGIBLES:
All general intangibles of Debtor, whether now owned or
hereafter acquired, including but not limited to all
applications for patents, patents, copyrights, copyright
rights, trademarks, trade secrets, goodwill, trade names,
customers lists, permits and franchises, and the right to use
Debtor's name;
together with all substitutions and replacements for any of the foregoing
property and all products and proceeds of any and all of the foregoing
property and, in the case of all tangible Collateral, together with (i) all
accessories, attachments, parts, equipment, accessions and repairs now or
hereafter attached or affixed to or used in connection with any such
Collateral, and (ii) all warehouse receipts, bills of lading and other
documents of title now or hereafter covering any such Collateral.
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. Debtor
represents, warrants and agrees that:
(a) Debtor is a corporation duly organized, validly
existing and in good standing under the laws of its state of
incorporation, and each of the Note and this Agreement has
been duly and validly authorized by all necessary corporate
action on the part of Debtor.
(b) There is no provision in the Articles of
Incorporation or Bylaws of Debtor or in any contract or
agreement to which Debtor is a party or by which Debtor is
bound or in any law, rule, regulation, order or decree
applicable to Debtor which prohibits the execution, delivery
or performance by Debtor of the Note or this Agreement.
(c) The Collateral will be used primarily for business
purposes.
(d) Debtor's chief place of business is located at the
address shown on Appendix A. Debtor's records concerning its
accounts and contract rights are
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kept at such address. Debtor's federal employer
identification number is correctly set forth on Appendix A.
(e) Debtor will not change its name or its chief place of
business without at least 30 days' prior written notice to the
Secured Party.
3. ADDITIONAL REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
Debtor further represents, warrants and agrees that:
(a) Debtor has (or will have at the time Debtor acquires
rights in Collateral hereafter arising) and will maintain
absolute title to each item of Collateral free and clear of
all security interests, liens and encumbrances, except the
Security Interest and Permitted Liens (as hereinafter
defined). Debtor will defend the Collateral against all claims
or demands of all persons other than Secured Party and any
holders of Permitted Liens. From and after the date of this
Agreement, Debtor will not sell, encumber or otherwise dispose
of the Collateral or any interest therein. Notwithstanding
anything herein stated, until the revocation by Secured Party
of Debtor's right to do so, which may be effected upon the
occurrence of an Event of Default under Section 6 and during
the continuance thereof, Debtor may sell any inventory or
obsolete or worn-out equipment constituting Collateral in the
ordinary course of business. As used herein, the term
"Permitted Liens" shall mean (i) liens under conditional sales
contracts, title retention agreements or other purchase money
security agreements (including without limitation capitalized
leases) securing indebtedness incurred in connection with the
acquisition of machinery and equipment, provided that the
indebtedness secured by any such liens shall not exceed the
fair market value of the assets subject thereto and such liens
shall not encumber any property of Debtor other than the
assets acquired subject thereto, (ii) liens for taxes and
other governmental charges not yet due or which are being
contested in good faith by appropriate proceedings promptly
initiated and diligently conducted and for which adequate
reserves have been established in accordance with generally
accepted accounting principles, (iii) liens in respect of
pledges or deposits under worker's compensation laws or
similar legislation, (iv) carriers', warehousemen's,
mechanics', laborers', materialmen's, landlords' and similar
statutory liens securing obligations incurred by Debtor in the
ordinary course of business which are not yet due or which are
being contested in good faith by appropriate proceedings
promptly initiated and diligently conducted and for which
adequate reserves have been established in accordance with
generally accepted accounting principles, and (v) the senior
interest of Conseco Bank, Inc. in the Reserve Account, as
defined in the Revolving Credit Program Agreement dated
May 17, 1999, as amended as of February 20, 2001 and April 13,
2001, between Debtor and Conseco Bank, Inc. (a complete copy
of which has been furnished to the Secured Party), securing
certain obligations of Debtor to Conseco Bank, Inc. under such
agreement, provided that the value of the cash,
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funds and other deposits in such Reserve Account shall not
exceed $1,000,000 at any given time.
(b) Debtor will not permit any tangible Collateral to be
located in any state (and, if a county filing is required, in
any county) in which a financing statement covering such
Collateral is required to be, but has not in fact been, filed
without the consent of Secured Party.
(c) Debtor will not, except in the ordinary course of
business and so long as no Event of Default under Section 6
shall have occurred and be continuing, agree to any
modification, amendment or cancellation of any right to
payment or any instrument, document, chattel paper or other
agreement constituting or evidencing Collateral without the
prior written consent of the Secured Party, and will not
subordinate any such right of payment to claims of other
creditors of the account debtor or other obligor obligated
with respect thereto.
(d) Debtor will (i) keep all tangible Collateral in good
repair, working order and condition, normal depreciation
excepted, and will, from time to time, replace any worn,
broken or defective parts thereof; (ii) promptly pay all taxes
and other governmental charges levied or assessed upon or
against any Collateral (unless the amount, applicability or
validity thereof is being contested in good faith by
appropriate proceedings promptly initiated and diligently
conducted and adequate reserves have been established therefor
in accordance with generally accepted accounting principles)
or upon or against the creation, perfection or continuance
of the Security Interest; (iii) keep all Collateral free and
clear of all security interests, liens and encumbrances except
the Security Interest and Permitted Liens; (iv) at all
reasonable times and on reasonable notice permit Secured Party
or its representatives to examine or inspect any Collateral,
wherever located, and to examine, inspect and copy Debtor's
books and records pertaining to the Collateral and its
business and financial condition; (v) keep accurate and
complete records pertaining to the Collateral and pertaining
to Debtor's business and financial condition and submit to
Secured Party such periodic reports concerning the Collateral
and Debtor's business and financial condition as Secured
Party may from time to time reasonably request; (vi) promptly
notify Secured Party of any loss of or material damage to any
material Collateral or of any material adverse change, known
to Debtor, in the prospect of payment of any material sums due
on or under any instrument, chattel paper, account or contract
right constituting Collateral; (vii) if Secured Party at any
time so requests (whether the request is made before or after
the occurrence of any Event of Default under Section 6),
promptly deliver to Secured Party any instrument, document or
chattel paper constituting Collateral, duly endorsed or
assigned by Debtor to Secured Party; (viii) at all times keep
all tangible Collateral insured against risks of fire
(including so-called extended coverage), theft and such other
risks and in such amounts as Secured Party may reasonably
request, with any loss payable to Secured Party to the extent
of its
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interests; (ix) from time to time execute such financing
statements or other documents or instruments as Secured
Party may reasonably deem required to be filed in order
to perfect the Security Interest, and, if any Collateral
consists of motor vehicles, execute such documents as may be
required to have the Security Interest properly noted on the
certificate of title, and, if any Collateral consists of
investment property, execute such control agreements, and take
such commercially reasonable measures to cause any applicable
securities issuer or intermediary with respect to such
investment property to execute such control agreements, as
Secured Party may reasonably require to obtain control over
such investment property or, in the absence of such control
agreements, transfer such investment property to the Secured
Party; (x) pay when due or reimburse Secured Party on demand
for all costs of collection of any of the Obligations and all
other expenses (including in each case all reasonable
attorneys' fees and disbursements) incurred by Secured Party
in connection with the creation, perfection, satisfaction or
enforcement of the Security Interest or the execution,
creation, continuance or enforcement of this Agreement or any
or all of the Obligations; (xi) execute, deliver or endorse
any and all instruments, documents, assignments, security
agreements and other agreements and writings which Secured
Party may at any time reasonably request in order to secure,
protect, perfect or enforce the Security Interest and Secured
Party's rights under this Agreement; (xii) not use or keep any
Collateral, or permit it to be used or kept, for any unlawful
purpose or in violation in any material respect of any
federal, state or local law, statute or ordinance; (xiii) not
permit any tangible Collateral to become part of or to be
affixed to any real property, without first assuring to the
reasonable satisfaction of Secured Party that the Security
Interest will be prior and senior to any interest or lien then
held or thereafter acquired by any mortgagee of Debtor holding
a mortgage of such real property; and (xiv) protect, defend
and maintain all patents, copyrights, copyright rights,
trademarks, trade secrets, trade names and similar intangibles
constituting Collateral to the extent reasonably advisable for
Debtor's business. If Debtor at any time fails to perform or
observe any agreement contained in this Section 3(d), and if
such failure shall continue for a period of ten calendar days
after Secured Party gives Debtor written notice thereof (or,
in the case of the agreements contained in clauses (viii) and
(ix) of this Section 3(d), immediately upon the occurrence of
such failure, without notice or lapse of time), Secured Party
may (but need not) perform or observe such agreement on behalf
and in the name, place and stead of Debtor (or, at Secured
Party's option, in Secured Party's own name) and may (but need
not) take any and all other actions which Secured Party may
reasonably deem necessary to cure or correct such failure
(including, without limitation, the payment of taxes, the
satisfaction of security interests, liens or encumbrances, the
performance of obligations under contracts or agreements with
account debtors or other obligors, the procurement and
maintenance of insurance, the execution of financing
statements, the execution or endorsement of other instruments
and the procurement of repairs, transportation or insurance);
and, except to the extent that the effect of such
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payment would be to render any loan or forebearance of money
usurious or otherwise illegal under any applicable law,
Debtor shall thereupon pay to the Secured Party, on demand,
the amount of all moneys expended and all costs and expenses
(including reasonable attorney's fees and disbursements)
incurred by Secured Party in connection with or as a result
of its performing or observing such agreements or taking
such actions, together with interest thereon from the date
expended or incurred by Secured Party at the highest rate
then applicable to any of the Obligations or the highest
rate permitted by law, whichever is less. To facilitate the
performance or observance by Secured Party of such
agreements of Debtor, Debtor hereby irrevocably appoints
(which appointment is coupled with an interest) Secured
Party, or its delegate, as the attorney-in-fact of Debtor
with the right (but not the duty) from time to time to
create, prepare, complete, execute, deliver, endorse or
file, in the name and on behalf of Debtor, any and all
instruments, documents, financing statements, applications
for insurance and other agreements and writings required to
be obtained, executed, delivered or endorsed by Debtor under
this Section 3 to the extent Secured Party has the right to
perform or observe such agreements as provided in this
Section 3.
4. COLLECTION RIGHTS OF SECURED PARTY. Whether or not Secured
Party exercises its rights under Section 7 of this Agreement, Secured Party
may at any time after the occurrence and during the continuance of an Event
of Default under Section 6 notify any account debtor, or any other person
obligated to pay any amount due on or in respect of any Collateral, that such
right to payment has been assigned or transferred to Secured Party for
security and shall be paid directly to Secured Party, subject to the prior
rights, if any, of holders of Permitted Liens. If Secured Party so requests
at any time after the occurrence and during the continuance of an Event of
Default, Debtor will so notify such account debtors and other obligors in
writing and will indicate on all invoices to such account debtors or other
obligors that the amount due therefrom is payable directly to Secured Party,
if the obligations of such holders of Permitted Liens, if any, have been
satisfied. At any time after Secured Party or Debtor gives such notice to an
account debtor or other obligor, Secured Party may (but need not), in its own
name or in Debtor's name, demand, xxx for, collect or receive any money or
property at any time payable or receivable on account of, or securing, any
such right to payment of any such account debtor or other obligor.
5. ASSIGNMENT OF INSURANCE. Debtor hereby assigns to Secured
Party, as additional security for the payment of the Obligations, any and all
moneys (including but not limited to proceeds of insurance and refunds of
unearned premiums) due or to become due under, and all rights of Debtor under
or with respect to, any and all policies of insurance covering the
Collateral, and Debtor hereby directs the issuer of any such policy to pay
any such moneys directly to Secured Party. Both before (in the case of any
claim in excess of $50,000) and after (in the case of any claim, regardless
of amount) the occurrence of an Event of Default, Secured Party may (but need
not) in its own name or in Debtor's name, execute and deliver proofs of
claim, receive all such moneys, endorse checks and other instruments
representing payment of such moneys, and adjust, litigate, compromise or
release any claim against the issuer of any
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such policy. In the event that any tangible Collateral with an aggregate
replacement cost of not more than $100,000 is damaged by an insured casualty,
and no Event of Default under Section 6 shall have occurred and be
continuing, the insurance proceeds shall be applied to the repair and
restoration of such property in such manner and on such conditions as Secured
Party may reasonably require.
6. EVENT OF DEFAULT. Each of the following occurrences shall
constitute an Event of Default: (i) Debtor shall fail to pay any or all of
the Obligations when due or (if payable on demand) on demand; or (ii) Debtor
or any of the Guarantors (as defined in the Note) or any other significant
subsidiary of Debtor within the meaning of Rule 1-02(w) of Regulation S-X
promulgated by the Securities and Exchange Commission (a "Significant
Subsidiary") shall default in any payment of principal of or interest on any
other obligation for borrowed money beyond any period of grace provided with
respect thereto or in the performance of any other agreement, term or
condition contained in any agreement under which any such obligation is
created if the effect of such default is to cause, or permit the holder or
holders of such obligation (or a trustee on behalf of such holder or holders)
to cause, such obligation to become due prior to its stated maturity; or
(iii) an order for relief shall be entered in any Federal bankruptcy
proceeding in which Debtor or any of the Guarantors or any other Significant
Subsidiary is the debtor or bankruptcy, receivership, insolvency,
reorganization, relief, dissolution, liquidation or other similar proceedings
shall be instituted by or against Debtor or any of the Guarantors or any
other Significant Subsidiary or all or any part of the property of Debtor or
any of the Guarantors or any other Significant Subsidiary under the Federal
Bankruptcy Code or any other law of the United States or any bankruptcy or
insolvency law of any state of competent jurisdiction unless, if such
proceedings are instituted against Debtor or any of the Guarantors or any
Significant Subsidiary, such proceedings are dismissed and discharged within
60 days after they are instituted; or (iv) Debtor or any of the Guarantors or
any other Significant Subsidiary shall have become insolvent or unable to pay
its debts as they mature, cease doing business as a going concern, make an
assignment for the benefit of creditors, admit in writing its inability to
pay its debts as they become due, or if a trustee, receiver or liquidator
shall be appointed for Debtor or any of the Guarantors or any other
Significant Subsidiary or for any substantial portion of the assets of Debtor
or any of the Guarantors or any other Significant Subsidiary and such
appointment shall not be vacated within 60 days; or (v) Debtor shall default
in the performance or observance of any covenant contained in this Agreement
and such default shall continue for a period of 15 days after written notice
thereof shall have been given by Secured Party to Debtor; or (vi) any
representation or warranty contained in this Agreement or in any other
document supplied to Secured Party by Debtor in connection herewith proves to
be false in any material respect as of the time this Agreement was made; or
(vii) any holder of a Permitted Lien shall seek to enforce its lien against
any portion of the Collateral; or (viii) any other Event of Default under and
as defined in that certain Security Agreement - Subsidiaries dated as of the
date hereof by the Guarantors in favor of Secured Party, as amended, modified
or supplemented from time to time, shall have occurred. Nothing contained in
this Section 6, Section 7 hereof or in any other provision of this Agreement
shall preclude or limit Secured Party from demanding at any time or for any
reason, without notice, payment of all or any part of any Obligation which
is, pursuant to its terms, payable on demand.
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7. REMEDIES AFTER EVENT OF DEFAULT. Upon the occurrence of an
Event of Default under Section 6 and at any time during the continuance
thereof, Secured Party may exercise any one or more of the following rights
or remedies: (a) at its option, by notice in writing to Debtor, declare all
unmatured Obligations to be forthwith due and payable and thereupon all
Obligations shall be and become due and payable; (b) exercise and enforce any
or all rights and remedies available after default to a secured party under
the Uniform Commercial Code, including but not limited to the right to take
possession of any Collateral, proceeding without judicial process or by
judicial process (without a prior hearing or notice thereof, which Debtor
hereby expressly waives); the right to sell, lease or otherwise dispose of
any or all of the Collateral; and the right to require Debtor to assemble the
Collateral and make it available to Secured Party at a place to be designated
by Secured Party which is reasonably convenient to both parties; it being
expressly understood and agreed that if notice to Debtor of any intended
disposition of Collateral or any other intended action is required by law in
a particular instance, such notice shall be deemed commercially reasonable if
given (in the manner specified in Section 8) at least ten calendar days prior
to the date of intended disposition or other action; and (c) exercise or
enforce any or all other rights or remedies available to Secured Party by law
or agreement against the Collateral, against Debtor or against any other
person or property. Upon the occurrence of an Event of Default resulting from
the filing of a voluntary or involuntary petition in a bankruptcy proceeding
in which Debtor is the debtor, all Obligations shall be immediately due and
payable without demand or notice thereof. Debtor hereby grants Secured Party
a non-exclusive, worldwide and royalty free license to use or otherwise
exploit all patents, copyrights, copyright rights, trademarks, trade secrets,
trade names and similar intangibles that Secured Party deems necessary or
appropriate to the disposition of any Collateral.
8. MISCELLANEOUS. This Agreement does not contemplate a sale
of accounts, contract rights or chattel paper, and, as provided by law,
Debtor is entitled to any surplus and shall remain liable for any deficiency.
This Agreement can be waived, modified, amended, terminated or discharged,
and the Security Interest can be released, only explicitly in a writing
signed by the Secured Party. A waiver signed by Secured Party shall be
effective only in the specific instance and for the specific purpose given.
Mere delay or failure to act shall not preclude the exercise or enforcement
of any of Secured Party's rights or remedies. All rights and remedies of
Secured Party shall be cumulative and may be exercised singularly or
concurrently, at Secured Party's option, and the exercise or enforcement of
any one such right or remedy shall neither be a condition to nor bar the
exercise or enforcement of any other. All notices to be given to Debtor under
this Agreement shall be deemed sufficiently given if mailed by registered or
certified mail, postage prepaid, or hand delivered to Debtor at its chief
place of business, as shown on Appendix A hereto, or at the most recent
address shown on Secured Party's records. Secured Party's duty of care with
respect to Collateral in its possession (as imposed by law) shall be deemed
fulfilled if Secured Party exercises reasonable care in physically
safekeeping such Collateral or, in the case of Collateral in the custody or
possession of a bailee or other third person, exercises reasonable care in
the selection of the bailee or other third person, and Secured Party need not
otherwise preserve, protect, insure or care for any Collateral. Secured Party
shall not be obligated to preserve any rights Debtor may have against prior
parties, to realize on the Collateral at all or in any particular manner or
order,
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or to apply any cash proceeds of Collateral in any particular order of
application. This Agreement shall be binding upon and inure to the benefit of
Debtor and Secured Party and their respective successors and assigns
(including without limitation each holder from time to time of the Note), and
shall take effect when signed by Debtor and delivered to Secured Party, and
Debtor waives notice of Secured Party's acceptance thereof. Except to the
extent otherwise required by law, this Agreement shall be governed by the
internal laws of the State of Minnesota and, unless the context otherwise
requires, all terms used herein which are defined in any of Articles 1, 8 and
9 of the Uniform Commercial Code, as in effect in said state (including but
not limited to the terms "inventory", "equipment", "instrument", "document of
title", "chattel paper", "account", "contract right", "account debtor",
"general intangible", "investment property", "security", "security
entitlement", "securities account", "commodity contract" and "commodity
account"), shall have the meanings therein stated. If any provision or
application of this Agreement is held unlawful or unenforceable in any
respect, such illegality or unenforceability shall not affect other
provisions or applications which can be given effect, and this Agreement
shall be construed as if the unlawful or unenforceable provision or
application had never been contained herein or prescribed hereby. All
representations and warranties contained in this Agreement shall survive the
execution, delivery and performance of this Agreement and the creation and
payment of the Obligations.
9. OTHER PERSONAL PROPERTY. Unless at the time Secured Party
takes possession of any tangible Collateral, or within seven days thereafter,
Debtor gives written notice to Secured Party of the existence of any goods,
papers or other property of Debtor, not affixed to or constituting a part of
such Collateral, but which are located or found upon or within such
Collateral, describing such property, Secured Party shall not be responsible
or liable to Debtor for any action taken or omitted by or on behalf of
Secured Party with respect to such property without actual knowledge of the
existence of any such property or without actual knowledge that it was
located or to be found upon or within such Collateral.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
SELECT COMFORT CORPORATION
By: /s/ Xxxx X. Xxxxxxx
--------------------------
Name: Xxxx Xxxxxxx
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Title: Senior Vice President
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APPENDIX A
Appendix to Security Agreement
Debtor's Chief Place of Business:
0000 Xxxxxxx Xxxx Xxxxx
Xxxxx 000
Xxxxxxxxxxx, Xxxxxxxxx 00000
Debtor's Federal Employer Identification Number:
00-0000000
