Execution Copy

 
 
AMENDMENT NO. 2 TO CREDIT AGREEMENT
 
This Amendment (this “Second Amendment”) is entered into as of February 1, 2008
by and among Select Comfort Corporation, a Minnesota corporation (the
“Company”), the Subsidiary Borrowers party hereto, JPMorgan Chase Bank, National
Association, as Administrative Agent, the other financial institutions signatory
hereto (the "Lenders") and Bank of America, N.A., as Syndication Agent.
 
 
RECITALS
 
A.           The Company, the Subsidiary Borrowers, the Administrative Agent and
the Lenders are party to that certain Credit Agreement dated as of June 9, 2006,
as amended pursuant to Amendment No. 1 to Credit Agreement dated as of June 28,
2007 (the “Credit Agreement”).  Unless otherwise specified herein, capitalized
terms used in this Second Amendment shall have the meanings ascribed to them by
the Credit Agreement.
 
B.           The Company and the Subsidiary Borrowers (collectively, the
"Borrowers") have requested that the Administrative Agent and the Lenders amend
the Credit Agreement to reflect certain changes thereto and grant a limited
waiver with respect to the Credit Agreement.
 
C.           The Administrative Agent and the undersigned Lenders are willing to
amend the Credit Agreement and to grant a limited waiver on the terms and
conditions set forth below.
 
Now, therefore, in consideration of the mutual execution hereof and other good
and valuable consideration, the parties hereto agree as follows:
 
1.           Amendments to Credit Agreement.  Upon the Second Amendment
Effective Date (as defined below), the Credit Agreement is hereby amended as
follows:
 
(a)           The definition of "EBITDA" set forth in Section 1.01 of the Credit
Agreement is hereby amended by (i) deleting the "and" appearing before clause
(c) thereof and inserting a "," prior to clause (c) and (ii) inserting new
clauses (d) and (e) as follows:
 
",(d) non-cash impairment expenses relating to store closures and/or remodelings
during such period, and (e) non-cash charges or gains which are unusual,
non-recurring or extraordinary during such period."
 
(b)           Section 6.09 of the Credit Agreement is hereby amended by
restating such section as follows:
 
 
 
 
 
 

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“SECTION 6.09 Minimum Interest Coverage Ratio.  The Company will not permit the
Interest Coverage Ratio as of the end of any fiscal quarter of the Company to be
less than the applicable ratio set forth below:
 
Fiscal Quarter
Ending On or About
 
Interest
Coverage Ratio
March 31, 2008
 
1.75 to 1.00
June 30, 2008
 
1.75 to 1.00
September 30, 2008
 
1.75 to 1.00
December 31, 2008
 
1.75 to 1.00
March 31, 2009
 
1.75 to 1.00
June 30, 2009
 
1.75 to 1.00
September 30, 2009
 
2.00 to 1.00
December 31, 2009
 
2.00 to 1.00
March 31, 2010
 
2.25 to 1.00
June 30, 2010
 
2.25 to 1.00
September 30, 2010
 
2.50 to 1.00
December 31, 2010
 
2.50 to 1.00
March 31, 2011 and each fiscal quarter ending thereafter
2.75 to 1.00"

 
(c)           Schedule 1.01 of the Credit Agreement is hereby amended and
restated as set forth on Annex I hereto.
 
2.           Limited Waiver.  Subject to the terms and conditions herein, the
Administrative Agent and the Lenders signatory hereto hereby waive the
requirement that the Company comply with the financial covenant set forth in
Section 6.09 of the Credit Agreement for the fiscal quarter ending on December
29, 2007.
 
3.           Representations and Warranties of the Borrowers.  The Borrowers
represent and warrant that:
 
(a)           The execution, delivery and performance by the Borrowers of this
Second Amendment have been duly authorized by all necessary corporate action and
this Second Amendment is a legal, valid and binding obligation of the Borrowers
enforceable against the Borrowers in accordance with its terms, except as the
enforcement thereof may be subject to (i) the effect of any applicable
bankruptcy, insolvency, reorganization, moratorium or similar law affecting
creditors’ rights generally and (ii) general principles of equity, regardless of
whether considered in a proceeding in equity or at law;
 
 
 
 
 
 
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(b)           Each of the representations and warranties contained in the Credit
Agreement is true and correct in all material respects on and as of the date
hereof as if made on the date hereof (except any such representation or warranty
that expressly relates to or is made expressly as of a specific earlier date, in
which case such representation or warranty shall be true and correct with
respect to or as of such specific earlier date); and
 
(c)           After giving effect to this Second Amendment, no Default has
occurred and is continuing.
 
4.           Effective Date.  This Second Amendment shall become effective upon
satisfaction of the following conditions (the date of such satisfaction being
the "Second Amendment Effective Date"):
 
(a)           Executed Amendment.  Receipt by the Administrative Agent of duly
executed counterparts of this Second Amendment from the Company, the Subsidiary
Borrowers and the Required Lenders executing the same.
 
(b)           Amendment Fees.  The Company shall have paid to the Administrative
Agent the fees in the amounts set forth in the fee letter dated as of the Second
Amendment Effective Date by and between Company and Administrative Agent.
 
(c)           Reaffirmation of Guaranty.  The Reaffirmation of Guaranty dated as
of the date hereof in the form attached hereto as Exhibit A executed by each of
the Subsidiary Guarantors.
 
5.           Reference to and Effect Upon the Credit Agreement.
 
(a)           Except as specifically amended above, the Credit Agreement and the
other Credit Documents shall remain in full force and effect and are hereby
ratified and confirmed.
 
(b)           The execution, delivery and effectiveness of this Second Amendment
shall not operate as a waiver of any right, power or remedy of the
Administrative Agent or any Lender under the Credit Agreement or any Credit
Document, nor constitute a waiver of any provision of the Credit Agreement or
any Credit Document, except as specifically set forth herein.  Upon the
effectiveness of this Second Amendment, each reference in the Credit Agreement
to “this Agreement”, “hereunder”, “hereof”, “herein” or words of similar import
shall mean and be a reference to the Credit Agreement as amended hereby.
 
6.           Costs and Expenses.  The Borrowers hereby affirm their obligations
under Section 9.03 of the Credit Agreement to reimburse the Administrative Agent
for all reasonable costs and out-of-pocket expenses paid or incurred by the
Administrative Agent in connection with the preparation, negotiation, execution
and delivery of this Second Amendment, including but not limited to the
reasonable fees, charges and disbursements of attorneys for the Administrative
Agent with respect thereto.
 
 
 
 
 
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7.           Governing Law.  This Agreement shall be construed in accordance
with and governed by the law of the State of New York (without regard to
conflict of law provisions thereof).
 
8.           Headings.  Section headings in this Second Amendment are included
herein for convenience of reference only and shall not constitute a part of this
Second Amendment for any other purposes.
 
9.           Counterparts.  This Second Amendment may be executed in any number
of counterparts, each of which when so executed shall be deemed an original but
all such counterparts shall constitute one and the same instrument.
 
 
 
 
 
 

 
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IN WITNESS WHEREOF, the parties have executed this Second Amendment as of the
date and year first above written.
 
        SELECT COMFORT CORPORATION, as a Borrower
 
        By  /s/ James
Stoffel                                                                           
        Name:  James Stoffel
        Title:  VP - Finance - International & Treasurer

 
        SELECT COMFORT RETAIL CORPORATION, as a Borrower
 
        By  /s/ James
Stoffel                                                                           
        Name:  James Stoffel
        Title:  VP - Finance - International & Treasurer

 
 
 
 
 
 

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        JPMORGAN CHASE BANK, NATIONAL ASSOCIATION,
                       individually and as Administrative Agent
 
        By  /s/ James M.
Sumoski                                                                           
        Name:  James M. Sumoski
        Title:  Vice President
 
 
 
 
 

 

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        BANK OF AMERICA, N.A., individually and as Syndication Agent
 
        By  /s/ Steven K.
Kessler                                                                           
        Name:  Steven K. Kessler
        Title:  Senior Vice President
 
 
 
 
 

 

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        CITICORP USA, INC., as a Lender
 
        By  /s/ Joshua D. Weiner  
        Name:  Joshua D. Weiner
        Title:  Vice President

 
 
 
 
 
 

 

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        WELLS FARGO BANK, NATIONAL ASSOCIATION, as a Lender
 
                                        By  /s/ Sharlyn Rekenthaler  
        Name:  Sharlyn Rekenthaler
        Title:  Vice President

        
 
 
 
 
 

 

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        BRANCH BANKING AND TRUST CO., as a Lender
 
                                        By  /s/ Troy R. Weaver  
        Name:  Troy R. Weaver
        Title:  Senior Vice President

 
 
 
 
 
 

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ANNEX I

Schedule 1.01

PRICING SCHEDULE

Applicable Rate
Level I Status
Level II Status
Level III Status
Eurocurrency
Spread
 
0.60%
 
0.70%
 
0.80%
Facility Fee Rate
0.15%
0.175%
0.20%

For the purposes of this Schedule, the following terms have the following
meanings, subject to the final paragraph of this Schedule:

“Financials” means the annual or quarterly financial statements of the Company
delivered pursuant to Section 5.01 of this Agreement.

“Level I Status” exists at any date if, as of the last day of the fiscal quarter
of the Company referred to in the most recent Financials, the Leverage Ratio is
less than 2.00 to 1.00.

“Level II Status” exists at any date if, as of the last day of the fiscal
quarter of the Company referred to in the most recent Financials, (i) the
Company has not qualified for Level I Status and (ii) the Leverage Ratio is less
than 2.50 to 1.00.

“Level III Status” exists at any date if the Company has not qualified for Level
I Status or Level II Status.

“Status” means Level I Status, Level II Status, or Level III Status.

The Applicable Rate shall be determined in accordance with the foregoing table
based on the Company’s Status as reflected in the then most recent
Financials.  Adjustments, if any, to the Applicable Rate shall be effective five
Business Days after the Administrative Agent has received the applicable
Financials.  If the Company fails to deliver the Financials to the
Administrative Agent at the time required pursuant to the Credit Agreement, then
the Applicable Rate shall be the highest Applicable Rate set forth in the
foregoing table until five days after such Financials are so delivered.
 
 
 
 
 

 

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EXHIBIT A
 
 
REAFFIRMATION OF GUARANTY
 
Each of the undersigned hereby acknowledges receipt of a copy of Amendment No. 2
to the Credit Agreement (the “Second Amendment”) dated as of February 1, 2008,
and reaffirms its obligations under the Subsidiary Guaranty dated as of June 9,
2006 in favor of JPMorgan Chase Bank, National Association, as Administrative
Agent, and the Lenders (as defined in the Second Amendment).
 
Dated as of February 1, 2008
 

 
        SELECT COMFORT RETAIL CORPORATION
 
        By  /s/ James
Stoffel                                                                           
        Name:  James Stoffel
        Title:  VP - Finance - International & Treasurer