EXHIBIT 5
SECURITY AGREEMENT - PARENT
AGREEMENT made as of this 6th day of June, 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, as
agent for the holders of the Notes referred to below (the "Secured Party").
In order to secure the payment of the principal of and interest on
the Senior Secured Convertible Notes of Debtor 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
Debtor and the Purchasers (as amended, modified or supplemented from time to
time, the "Note Purchase Agreement"), and to secure the payment and
performance of each and every other debt, liability and obligation of every
type and description which Debtor or any of its Subsidiaries (as defined in
the Note Purchase Agreement) 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,
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 this Agreement has been
duly and validly authorized by all necessary
corporate action on the part of Debtor.
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(b) The Collateral will be used primarily for
business purposes.
(c) 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 kept
at such address. Debtor's federal employer
identification number is correctly set forth on
Appendix A.
(d) 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 defined in the Note Purchase
Agreement). 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, except as
permitted under the Note Purchase Agreement.
(b) As of the date of this Agreement, the tangible
Collateral is located only in the states set forth on
Appendix A. Without the consent of Secured Party,
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.
(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,
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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) 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;
(v) 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; (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 Collateral, duly endorsed or
assigned by Debtor to Secured Party; (vii) 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 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 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; (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 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 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 (vii) and
(viii) of this Section 3(d), immediately upon the
occurrence of
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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
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 the 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.
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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
$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 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 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 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 (b) 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. 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.
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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
in writing and shall be given 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 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 Debtor 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 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. The Secured Party may execute this Agreement if appropriate
for the purpose 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 the Debtor 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,
Debtor gives written notice to Secured
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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
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Name: Xxxx X. 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
States in Which Tangible Collateral is Located:
Minnesota
Utah
