SECOND AMENDMENT TO REVOLVING CREDIT PROGRAM AGREEMENT
This Second Amendment to Revolving Credit Program Agreement is made as of
the 13th day of April, 2001 (the "Amendment"), by and between Conseco Bank, Inc.
("Conseco Bank") and Select Comfort Corporation ("Select Comfort").
Whereas the Conseco Bank (as assignee of Green Tree Financial Corporation)
and Select Comfort entered into a Revolving Credit Program Agreement dated May
17, 1999, as amended on February 20, 2001, also referred to as Program
Agreement, (the "Agreement") governing the terms and conditions under which
Conseco Bank would provide a Program (as defined in the Agreement, provided
furthermore, that all capitalized terms used herein shall have the meaning
attributable to them in the Agreement, unless otherwise defined herein) to
Select Comfort's customers;
Whereas the Conseco Bank and Select Comfort believe that conditions exists
that could impair the viability of the Program and the parties hereto wish to
amend the Agreement such that these conditions do not impair the continued
viability of Program;
Now, therefore, in consideration of the above premises and the mutual
considerations contained herein the parties hereto agree to amend the Agreement
as follows:
1. The Agreement is hereby amended such that all references in the Agreement
to "Green Tree Financial Corporation" and/or "Green Tree" shall now refer
to Conseco Bank, Inc. (permitted assignee of Green Tree pursuant to
Section10.03) or as defined herein, "Conseco Bank"; and furthermore, that
aforementioned terms may be used interchangeably in the Agreement.
2. Section 4.05 of the Agreement is hereby amended by adding the new provision
4.05 (d) which reads as follows:
"Section 4.05 (d). Within one business day after receipt by Select Comfort
of any proceeds from debt or equity issuance in an amount totaling at least
$5,000,000 (a "Minimum Required Financing"), after the effective date of
this Second Amendment to the Agreement, Select Comfort shall deposit SEVEN
HUNDRED AND FIFTY THOUSAND DOLLARS ($750,000) into an interest bearing
account of Conseco Bank held in Conseco Bank's name, but for the benefit of
Select Comfort subject to the security interest of the Conseco Bank granted
in Section 4.05 (e), Chargeback, set off, and other creditor remedies of
Conseco Bank, (the "Reserve Account" ). Effective May 15, 2001 (or if
select Comfort has on such date a commitment for a Minimum Required
Financing, such later date as such Minimum Rquired Financing is funded, or
such commitment is terminated), Conseco Bank shall withhold from amounts
due Select Comfort under the Agreement an additional three percent (3%)
discount on the amount of each Purchase noted with respect to
the Accounts in the Daily Reports (the "Reserve Discount"). This Reserve
Discount will be deposited in the Reserve Account and withheld until the
total amount held in the Reserve Account accumulates to an aggregate sum of
ONE MILLION DOLLARS ($1,000,000); provided, that the maximum amount
deposited into the reserve Account whether from the Reserve Discount, the
Minimum Required Financing, or otherwise will be One Million Dollars
($1,000,000).
Unless Select Comfort is in default under the Agreement, it shall be paid
monthly the interest earned on the Reserve Account. Upon the earlier of (i)
ninety (90) days after termination of this Agreement or (ii) when Select
Comfort purchases the Accounts pursuant to Section 8.03, then in each case,
all funds in the Reserve Account, not used to pay Chargeback Liability (as
defined below), shall be released to Select Comfort with unpaid interest if
any."
3. Section 4.05 of the Agreement is hereby amended by adding the new provision
4.05(e), which reads as follows:
"4.05(e). To secure Select Comfort's outstanding liability to Conseco Bank
for Chargeback which now exists or is hereafter created or incurred and
whether due or to become due, absolute or contingent and for which conseco
Bank is not able to setoff pursuant to Section 4.05 (b) ("Charge Back
Liability") to Conseco Bank under the Agreement, Select Comfort hereby
grants Conseco Bank a security interest in and assigns to it all Select
Comfort's rights, title and interests to the cash, funds and/or deposits in
the Reserve Account. To perfect its security interest in such cash and
funds in the Reserve Account, Conseco Bank shall maintain possession of the
cash and funds by establishing the Reserve Account in its name and Select
Comfort shall have no right to the Reserve Account itself, except to the
accrued interest permitted under Section 4.05 (d) and when Conseco no
longer has a security interest therein.
4. Section 6.02 (b) of the Agreement is deleted in its entirety and replaced
with the following:
"Section 6.02(b). Except as provided in Section 6.02 (d), Select Comfort
shall maintain its current policy, as disclosed to Conseco Bank in writing
prior to the execution of this Amendment, for the exchange and return of
Products and adjustments made or not made for Products, and shall promptly
include credit for each return in the Daily Reports furnished pursuant to
Section 4.05 hereof and Conseco Bank shall correspondingly credit the
appropriate Accounthoulder. Select Comfort shall not materially change the
aforementioned policy except as provided in Section 6.02 (d) without the
written consent of Conseco Bank, which consent may
be conditioned on adjusting the provisions of Section 4.05(d) of the
Agreement to accommodate such change in policy. "
5. Section 6.02 of the Agreement is hereby amended by adding a new covenant
provision Section 6.02 (d) as follows:
"Section 6.02 (d). Effective May 29, 2001 Select Comfort shall change its
current 90 day return policy to one of 30 or less days on all products
subject to Purchases."
6. Section 8.02 of the Agreement is hereby deleted in its entirety and
replaced with the following:
"Section 8.02 Termination for Cause. If an Event of Default under Section
7.01 (a), (b), (c) or (d) shall occur, the non-defaulting party shall have
the right immediately to terminate this Agreement upon notice; provided,
however, no notice or other affirmative action on the part of Conseco Bank
shall be required for an Event of Default under Section 7.01 (e) to be
immediately effective. If an Event of Default under Section 7.01 (f) shall
occur, the non-defaulting party shall have the right to terminate this
Agreement with 120 days notice."
7. Section 8.03 of the Agreement is hereby amended by adding the following
after the second sentence of that provision:
"After termination of the Agreement and replacement of Conseco Bank by an
alternative third party provider of customer financing, upon the request of
Conseco Bank, Select Comfort shall purchase from Conseco Bank all Accounts
then outstanding for cash at a purchase price determined pursuant to the
formula attached as Exhibit A and incorporated herein."
8. Effective as of the date of this Amendment the provisions of the second
paragraph of Section 2.10 shall be suspended until such time that the
Reserve Account is established and completely funded, the effect of which
is to require Select Comfort to obtain the written approval of Conseco Bank
for any uses of the Fund.
9. Select Comfort shall cause any creditor, now existing or in the future, to
whom Select Comfort has granted or will grant a security interest in its
accounts to acknowledge and subordinate such security interest and the
proceeds thereof to the security interest of Conseco Bank in the funds
contributed to and deposited in the Reserve Account.
10. In consideration of entering into this Amendment, Select Comfort will grant
to Conseco Bank upon execution of this Amendment a warrant to purchase
25,000 shares of Select Comfort common stock at an exercise price equal to
the average closing price of Select Comfort common stock for the ten (10)
trading days immediately preceding the date of this Amendment and expiry
date on the scheduled termination of the Agreement.
11. Except as expressly amended herein, all terms and conditions of the
Agreement shall remain in full force and effect. Nothing herein shall
constitute a waiver of any of Conseco Bank's rights and remedies under the
Agreement or be construed as a course of conduct to grant any waiver of any
of Conseco Bank's rights and remedies under the Agreement in the future.
12. This Amendment may be executed in any number of counterparts and delivered
by facsimile, all of which shall constitute but one and the same original.
In witness hereof, the parties hereto have executed this Amendment as of the
first date written above.
CONSECO BANK, INC. SELECT COMFORT CORPORATION
By: /s/Shawn Gensch By: /s/James C. Raabe
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Its: Senior Vice President Its: Chief Financial Officer
and Chief Financial Officer ---------------------------
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Under circumstances where Select Comfort is required or chooses to purchase the
portfolio of accounts and receivables originated as a result of Conseco Bank's
financing relationship with Select Comfort, the following shall be used to
arrive at the final purchase price:
I. The price for all current and 1 to 29 day delinquent receivables shall be
100% (par) of the receivable amount. The price for all promotional
receivables shall be 98% of the receivable amount. The receivable amount in
all instances shall include all accrued unpaid and accrued unbilled finance
charges and fees.
II. The price for all receivables 30 or more days delinquent and less than 180
days delinquent shall be determined by the following process:
A.) Average the previous 6 months of roll-rates rolling into each stage of
delinquency. A delinquency roll rate shall be calculated by dividing
the current month's delinquency for a particular delinquency stage
(numerator) by the previous month's ending balance in the previous
stage of delinquency (denominator). Roll-rates to be calculated are:
Previous mth 30 - 59 Days DQ rolling to current mth 60 - 89 Days DQ (Roll to 60)
Previous mth 60 - 89 Days DQ rolling to current mth 90 - 119 Days DQ (Roll to 90)
Previous mth 90 - 119 Days DQ rolling to current mth 120 - 149 Days DQ (Roll to 120)
Previous mth 120 - 149 Days DQ rolling to current mth 150 - 179 Days DQ (Roll to 150)
Previous mth 150 - 179 Days DQ rolling to current mth Gross Charge-Off (Roll to Gross Chg-Off)
B.) Once a 6 month average for each of the above roll-rates has been
calculated, each average roll-rate will be multiplied by each
subsequent average roll-rate to determine a reserve rate for each
stage of delinquency. The reserve rate for each delinquency stage is
calculated as:
30 Day Reserve (Roll to 60 x Roll to 90 x Roll to 120 x Roll to 150 x Roll to Gross Chg-Off)
60 Day Reserve (Roll to 90 x Roll to 120 x Roll to 150 x Roll to Gross Chg-Off)
90 Day Reserve (Roll to 120 x Roll to 150 x Roll to Gross Chg-Off)
120 Day Reserve (Roll to 150 x Roll to Gross Chg-Off)
150 Day Reserve (Roll to Gross Chg-Off)
C.) After a reserve rate has been calculated for each stage of delinquency
each reserve rate will be subtracted from 100%. The resulting percent
will be the price applied to the amount in each corresponding stage of
delinquency to arrive at a final price. If for any reason a reserve
rate is calculated at greater than a 100% causing a negative price,
the price shall be set to 0%.
III. For purposes of calculating roll-rates, reserve rates, and an ultimate
price, all accounts regardless of status (bankrupt, fraud, dispute, etc.)
will be considered since all of these receivables are to be included in the
event of a sale. The only receivables to be excluded in the event of a sale
of the portfolio are those accounts which are greater than 180 days
delinquent and those accounts which have already been charged-off.