EXHIBIT 7
SECURITY AGREEMENT - SUBSIDIARIES
AGREEMENT made as of this 6th day of June, 2001, by Select Comfort
Retail Corporation, a Minnesota corporation, Select Comfort Direct
Corporation, a Minnesota corporation, Select Comfort SC Corporation, a
Minnesota corporation, Direct Call Centers, Inc., a Minnesota corporation,
and ▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇ corporation, a Minnesota corporation (collectively, the
"Debtors" and individually, a "Debtor"), in favor of St. ▇▇▇▇ Venture Capital
VI, LLC, a Delaware limited liability company, as agent for the holders of
the Notes referred to below (the "Secured Party").
In order to secure the payment of (a) the principal of and interest
on the Senior Secured Convertible Notes of Select Comfort Corporation, a
Minnesota corporation and the direct or indirect parent corporation of each
of the Debtors (the "Company"), payable to the Purchasers named in Schedule 1
of the Note Purchase Agreement referred to below, as such Schedule 1 is
amended or deemed amended from time to time in accordance with the terms of
the Note Purchase Agreement (the "Purchasers"), or registered assigns, in the
aggregate original principal amount of up to $12,000,000 (which notes,
together with any notes issued in substitution or exchange therefor, are
herein collectively called the "Notes"), issued pursuant to the terms of that
certain Note Purchase Agreement dated the date hereof among the Company and
the Purchasers (as amended, modified or supplemented from time to time, the
"Note Purchase Agreement"), and (b) the obligations of the Debtors, or any of
them, under that certain Guaranty dated as of the date hereof by the Debtors
in favor of the Secured Party as agent for the holders of the Notes, pursuant
to which the Debtors have guaranteed the full and prompt payment of the Notes
(the "Guaranty"), and to secure the payment and performance of each and every
other debt, liability and obligation of every type and description which the
Company or any of the Debtors may now or at any time hereafter owe to the
holders of the Notes, or any of them, under this Agreement, the Note Purchase
Agreement or any of the other Transaction Documents (as defined in the Note
Purchase 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 principal of and interest on the Notes and
the obligations of the Debtors, or any of them, under the 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 of the Debtors 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.
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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 this Agreement has been duly and
validly authorized by all necessary corporate action on the
part of such Debtor.
(b) The Collateral of such Debtor will be used primarily for
business purposes.
(c) 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.
(d) 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 defined in the Note Purchase Agreement). 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 the Collateral
or any interest therein, except as permitted by the Note
Purchase Agreement.
(b) As of the date of this Agreement, the tangible
Collateral of such Debtor is located only in the states set
forth on Appendix A. Without the consent of Secured Party,
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.
(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
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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) keep accurate and complete records
pertaining to its Collateral and its business and financial
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; (v) promptly notify Secured Party of any loss of or
material damage to any material Collateral of such Debtor 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; (vi) 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; (vii) 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 the Secured Party may reasonably
request, with any loss payable to Secured Party to the extent
of its interests; (viii) 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; (ix)
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
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the execution, creation, continuance or enforcement of this
Agreement or any or all of the Obligations; (x) 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; and (xi) 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 such Debtor written notice
thereof (or, in the case of the agreements contained in
clauses (vii) and (viii) 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
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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 the 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 any Debtor gives such notice to an account debtor or
other obligor, Secured Party may (but need not), in its own name or in any
Debtor's name, demand, ▇▇▇ 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. 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 the
Collateral of such Debtor, 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 $100,000) 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 any 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 $150,000 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 the Secured Party may reasonably require.
6. EVENTS OF DEFAULT. Each of the following occurrences shall
constitute an Event of Default: (a) default shall be made in the performance
or observance of any of the terms, covenants or conditions of 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 the defaulting Debtor; or
(b) any representation or warranty contained in this Agreement proves to be
false in any material respect as of the time this Agreement was made; or (c)
any holder of a Permitted Lien seeks to enforce its lien against any portion
of the Collateral; or (d) there shall occur any other Event of Default under
and as defined in the Note Purchase Agreement.
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, at its option, exercise any one or more of the following
rights or remedies: (a) 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
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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 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 a 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 (b) exercise or enforce any or all
other rights or remedies available to Secured Party by law or agreement
against the Collateral, against the Debtors, or any of them, or against any
other person or property. 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 any Debtor
under this Agreement shall be in writing and shall be given to such Debtor in
care of the Company in the manner and with the effect provided in the Note
Purchase Agreement. 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 any 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 Debtors and
Secured Party and their respective successors and assigns (including without
limitation any successor Collateral Agent under and as defined in the Note
Purchase Agreement), and shall take effect when signed by Debtors and
delivered to Secured Party, and Debtors waive 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
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entitlement", "securities account", "commodity contract" and "commodity
account"), shall have the meanings therein stated. The Secured Party may
execute this Agreement if appropriate for the purposes of filing, but the
failure of the Secured Party to execute this Agreement shall not affect or
impair the validity or effectiveness of this Agreement. A carbon,
photographic or other reproduction of this Agreement or of any financing
statement signed by any of the Debtors shall have the same force and effect
as the original for all purposes of a financing statement. 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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SELECT COMFORT SC
CORPORATION
By: /S/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------------------------
Title: Senior Vice President
-----------------------------------------------
DIRECT CALL CENTERS, INC.
By: /S/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------------------------
Title: Senior Vice President
-----------------------------------------------
▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
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:
▇▇-▇▇▇▇▇▇▇
States in Which Tangible Collateral is Located:
All states other than the States of Arkansas, Hawaii, Vermont and
Wyoming.
SELECT COMFORT DIRECT CORPORATION:
Debtor's Chief Place of Business:
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Debtor's Federal Employer Identification Number:
▇▇-▇▇▇▇▇▇▇
States in Which Tangible Collateral is Located:
Minnesota
SELECT COMFORT SC CORPORATION:
Debtor's Chief Place of Business:
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Debtor's Federal Employer Identification Number:
▇▇-▇▇▇▇▇▇▇
States in Which Tangible Collateral is Located:
Minnesota
South Carolina
DIRECT CALL CENTERS, INC.:
Debtor's Chief Place of Business:
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Debtor's Federal Employer Identification Number:
▇▇-▇▇▇▇▇▇▇
States in Which Tangible Collateral is Located:
Minnesota
▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇ CORPORATION:
Debtor's Chief Place of Business:
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Debtor's Federal Employer Identification Number:
▇▇-▇▇▇▇▇▇▇
States in Which Tangible Collateral is Located:
Minnesota