EXHIBIT 4
SECURITY AGREEMENT - SUBSIDIARIES
AGREEMENT made as of this 1st day of May, 2001, by Select Comfort
Retail Corporation, a Minnesota corporation, and Select Comfort Direct
Corporation, a Minnesota corporation (hereinafter collectively called the
"Debtors" and individually called a "Debtor"), in favor of St. ▇▇▇▇ Venture
Capital VI, LLC, a Delaware limited liability company (the "Secured Party").
In order to secure the payment of (a) that certain Demand Note of
Select Comfort Corporation, a Minnesota corporation and the direct or
indirect parent corporation of the Debtors (the "Company"), 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 (b) that
certain Guaranty dated as of the date hereof by the Debtors for the benefit
of the Secured Party, pursuant to which the Debtors have guaranteed the full
and prompt payment of the Note (as amended, modified or supplemented from
time to time, the "Guaranty"), and to secure the payment and performance of
each and every other debt, liability and obligation of every type and
description which either of the Debtors 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 and
Guaranty, 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, each 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 such Debtor, whether now owned
or hereafter acquired and wherever located;
(b) EQUIPMENT:
All equipment of such 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 such 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 such Debtor,
out of a rendering of services by such Debtor, out of a loan
by such Debtor, out of an overpayment of taxes or other
liabilities of such 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 such 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 such Debtor;
(d) INVESTMENT PROPERTY:
All investment property of such 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 such 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
such 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. Each Debtor
represents, warrants and agrees that:
(a) Such Debtor is a corporation duly organized, validly
existing and in good standing under the laws of its state of
incorporation, and each of the Guaranty and this Agreement has
been duly and validly authorized by all necessary corporate
action on the part of such Debtor.
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(b) There is no provision in the Articles of Incorporation or
Bylaws of such Debtor or in any contract or agreement to which
such Debtor is a party or by which such Debtor is bound or in
any law, rule, regulation, order or decree applicable to such
Debtor which prohibits the execution, delivery or performance
by such Debtor of the Guaranty or this Agreement.
(c) The Collateral of such Debtor will be used primarily for
business purposes.
(d) Such Debtor's chief place of business is located at the
address shown on Appendix A. Such Debtor's records concerning
its accounts and contract rights are kept at such address.
Such Debtor's federal employer identification number is
correctly set forth on Appendix A.
(e) Such 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. Each
Debtor further represents, warrants and agrees that:
(a) Such Debtor has (or will have at the time such Debtor
acquires rights in Collateral hereafter arising) and will
maintain absolute title to each item of its Collateral free
and clear of all security interests, liens and encumbrances,
except the Security Interest and Permitted Liens (as
hereinafter defined). Such Debtor will defend its 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, such Debtor will not sell,
encumber or otherwise dispose of its Collateral or any
interest therein. Notwithstanding anything herein stated,
until the revocation by Secured Party of such 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, such Debtor may sell any inventory or obsolete or
worn-out equipment constituting its 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 such 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
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legislation, (iv) carriers', warehousemen's, mechanics',
laborers', materialmen's, landlords' and similar
statutory liens securing obligations incurred by such 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 the Company and Conseco Bank, Inc. (a
complete copy of which has been furnished to the Secured
Party), securing certain obligations of the Company to Conseco
Bank, Inc. under such agreement, provided that the value of
the cash, funds and other deposits in such Reserve Account
shall not exceed $1,000,000 at any given time.
(b) Such Debtor will not permit any of its 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) Such 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 its 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) Such Debtor will (i) keep all of its 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 of its 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 of its Collateral free and clear of all security
interests, liens and encumbrances except the Security Interest
and Permitted Liens; (iv) at all reasonable times and upon
reasonable notice permit Secured Party or its representatives
to examine or inspect any of its Collateral, wherever located,
and to examine, inspect and copy such Debtor's books and
records pertaining to its Collateral and its business and
financial condition; (v) keep accurate and complete records
pertaining to its Collateral and its business and financial
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condition and submit to Secured Party such periodic reports
concerning its Collateral and its 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 of its material Collateral or of any
material adverse change, known to such Debtor, in the prospect
of payment of any material sums due on or under any
instrument, chattel paper, account or contract right
constituting its 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 its Collateral, duly endorsed or
assigned by such Debtor to Secured Party; (viii) at all times
keep all of its 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 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 of its
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 of its
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 of its 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 of its 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 its Collateral to the extent
reasonably advisable for such Debtor's business. If such
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
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such 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 such 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 payment would be to render
any loan or forebearance of money usurious or otherwise
illegal under any applicable law, such 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 such Debtor, each Debtor hereby irrevocably
appoints (which appointment is coupled with an interest)
Secured Party, or its delegate, as the attorney-in-fact of
such 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 such 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
such 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, the appropriate Debtors 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 a Debtor gives
such notice to an account debtor or other obligor, Secured Party may (but
need not), in its own name or in either Debtor's name, demand, ▇▇▇ for,
collect or receive any
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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. Each 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 such Debtor
under or with respect to, any and all policies of insurance covering its
Collateral, and each 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 either 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 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) the Company or either Debtor shall fail
to pay any or all of the Obligations when due or (if payable on demand) on
demand; or (ii) either 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 such Debtor; or (iii) any representation or warranty
contained in this Agreement or the Guaranty or in any other document supplied
to Secured Party by either Debtor in connection herewith proves to be false
in any material respect as of the time this Agreement was made; or (iv) any
holder of a Permitted Lien shall seek to enforce its lien against any portion
of the Collateral; or (v) any other Event of Default under and as defined in
that certain Security Agreement - Parent dated as of the date hereof by the
Company 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.
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 the Company, 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 each
Debtor hereby expressly waives); the right to sell, lease or otherwise
dispose of any or all of the Collateral; and the right to require each Debtor
to assemble its
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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 either 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 either
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 the Company is the debtor, all
Obligations shall be immediately due and payable without demand or notice
thereof. Each 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, the
Debtors are 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 either
Debtor under this Agreement shall be deemed sufficiently given if mailed by
registered or certified mail, postage prepaid, or hand delivered to such
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 either Debtor may
have against prior parties, to realize on the Collateral at all or in any
particular manner or order, 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 the Debtors and the 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 the
Debtors and delivered to Secured Party, and each 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
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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, a
Debtor gives written notice to Secured Party of the existence of any goods,
papers or other property of such 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 such 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 RETAIL
CORPORATION
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
----------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇▇
--------------------------
Title: Senior Vice President
--------------------------
SELECT COMFORT DIRECT
CORPORATION
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
----------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇▇
--------------------------
Title: Senior Vice President
--------------------------
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APPENDIX A
Appendix to Security Agreement
SELECT COMFORT RETAIL CORPORATION
Debtor's Chief Place of Business:
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Debtor's Federal Employer Identification Number:
▇▇-▇▇▇▇▇▇▇
SELECT COMFORT DIRECT CORPORATION
Debtor's Chief Place of Business:
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Debtor's Federal Employer Identification Number:
▇▇-▇▇▇▇▇▇▇