8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported):  October 2, 2009

SELECT COMFORT CORPORATION

(Exact name of registrant as specified in its charter)

Minnesota
(State or other jurisdiction of incorporation or organization)

0-25121	41-1597886
(Commission File No.)	(IRS Employer Identification No.)

9800 59th Avenue North, Minneapolis, Minnesota 55442

(Address of principal executive offices)(Zip Code)

(763) 551-7000

(Registrant’s telephone number, including area code)

Not applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

ITEM 1.01.  ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.

New Securities Purchase Agreement

On October 2, 2009 Select Comfort Corporation (the “Company”) entered into a Securities Purchase Agreement (the “New Securities Purchase Agreement”) with Sterling SC Investor, LLC, a Delaware limited liability company (“Sterling”) and an affiliate of Sterling Capital Partners III, L.P. (“Sterling Partners”).  Pursuant to the terms of the New Securities Purchase Agreement, either Sterling or the Company may cause the Company to issue Sterling 2,500,000 shares of the Company’s common stock at a purchase price of $4.00 per share together with 2,000,000 warrants to purchase shares of the Company’s common stock.  The warrants have an exercise price of $0.01 per share of common stock and have a term of five years. The issuance of the shares of the Company’s common stock and the other actions contemplated by the Securities Purchase Agreement are collectively referred to herein as the “Transaction.”  Sterling’s right to close on the Transaction is effective upon signing and continues through June 30, 2010.  The Company’s right to close on the Transaction is effective upon securing an amendment to the Company’s current credit agreement with its lenders that is reasonably acceptable to Sterling and such right expires on March 31, 2010.  In connection with the signing of the New Securities Purchase Agreement, the Company paid $1,750,000 to Sterling to reimburse Sterling for its out-of-pocket expenses under the prior Securities Purchase Agreement between the parties dated May 22, 2009 (the “Old Securities Purchase Agreement”) and the New Securities Purchase Agreement.

In connection with the Transaction, Sterling has certain preemptive rights with respect to future issuances of capital stock by the Company through June 30, 2010 and only so long as Sterling continues to own not less than 5% of the Company’s outstanding common stock.  In addition, Sterling agreed to certain standstill provisions that, among other things, prohibit Sterling from acquiring more than twenty percent (20%) of the Company’s common stock for two years from the date of the New Securities Purchase Agreement.

The foregoing summary of the terms of the Securities Purchase Agreement is subject to, and qualified in its entirety by, the New Securities Purchase Agreement, which is attached to this Current Report on Form 8-K as Exhibit 10.1 and incorporated herein by reference.

Guarantee

Sterling Partners has executed a guarantee in favor of the Company pursuant to which it has unconditionally and irrevocably guaranteed to the Company the performance of all obligations of Sterling under the Securities Purchase Agreement.

The foregoing summary of the guarantee is qualified in its entirety by reference to the complete terms of the guarantee, a copy of which is included as Exhibit 10.2 to this Current Report on Form 8-K and incorporated herein by reference.

Settlement, Mutual Termination and General Release Agreement

In connection with the signing of the New Securities Purchase Agreement, the Company and Sterling have mutually agreed to terminate the Old Securities Purchase Agreement and to enter into a Settlement, Mutual Termination and General Release Agreement (the “Mutual Release”).  Under the Mutual Release, Sterling agreed to dismiss, with prejudice, the action it filed in the Court of Chancery of the State of Delaware on September 1, 2009 (the “Litigation”) and each party has released the other with respect to all pending and future claims that may arise out of the special meeting of shareholders held on August 27, 2009 (“Special Meeting”) or under the Old Securities Purchase Agreement.

Since the Special Meeting, at which the Old Securities Purchase Agreement was not approved by the Company’s shareholders, the Company and Sterling have been involved in negotiations regarding the termination of the Old Securities Purchase Agreement and settlement of the Litigation and related claims. 

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Both parties believed that it was in their best interests to terminate the Old Securities Purchase Agreement and promptly resolve the Litigation and related claims by entering into the Mutual Release and the New Securities Purchase Agreement.

The foregoing summary of the terms of the Mutual Release is subject to, and qualified in its entirety by, the Mutual Release, which is attached to this Current Report on Form 8-K as Exhibit 10.3 and incorporated herein by reference.

Registration Rights Agreement

The Company also entered into a Registration Rights Agreement with Sterling pursuant to which the Company will be required to file with the Securities and Exchange Commission a registration statement for the resale of the shares of common stock being sold in the Transaction upon the later of October 31, 2009 or the fifth business day following the closing of the Transaction.  The Registration Rights Agreement will terminate automatically if there is no closing under the New Securities Purchase Agreement.  The Company and Sterling have each granted the other customary indemnification rights with respect to certain matters relating to the registration statement.

The aforementioned description of the Registration Rights Agreement is qualified in its entirety by reference to the complete terms of the Registration Rights Agreement, a copy of which is included as Exhibit 10.4 to this Current Report on Form 8-K and incorporated herein by reference.

Backstop of Possible Rights Offering

Sterling also agreed that if the Company, in it sole discretion, decides to undertake a registered offering of rights to subscribe for shares of the Company’s common stock, the Company and Sterling will use commercially reasonable efforts to enter into a backstop agreement with respect to such offering.  The registered rights offering, if undertaken, must be completed within six months of the date hereof for Sterling to be obligated under the backstop agreement and Sterling’s total investment in any rights offering will in no event exceed $5,000,000 without Sterling’s consent.

ITEM 3.02.  UNREGISTERED SALES OF EQUITY SECURITIES.

The information required by this Item 3.02 is set forth in Item 1.01, which is incorporated herein by reference.

The shares to be issued pursuant to the New Securities Purchase Agreement have not been registered under the Securities Act of 1933, as amended (the “Securities Act”).  The securities will be issued to accredited investors in reliance upon exemptions from registration under Section 4(2) of the Securities Act and/or Regulation D promulgated thereunder.  As a result, the securities may not be offered or sold in the United States absent registration under or exemption from the Securities Act and any applicable state securities laws.  Sterling has represented to the Company that it is an “accredited investor” as defined in Regulation D and that the shares of the Company’s common stock are being acquired for investment.  The Company has not engaged in a general solicitation or advertising with regard to the Transaction and has not offered securities to the public in connection with the Transaction.

ITEM 7.01.  REGULATION FD DISCLOSURE

Press Release

On October 5, 2009 the Company issued a news release announcing that it has terminated the Old Securities Purchase Agreement and entered into the New Securities Purchase Agreement described in

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Item 1.01 of this Report.  A copy of the press release is attached as Exhibit 99.1 and incorporated herein by reference.

In accordance with General Instruction B.2 of Form 8-K, the information in Item 7.01 of this Report, including the exhibits attached hereto which are incorporated herein by reference, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), nor shall such information be deemed incorporated by reference in any filing under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

ITEM 8.01.  OTHER EVENTS.

On October 5, 2009, Mr. Hopf filed a voluntary dismissal, without prejudice, of the litigation in Hennepin County District Court that he had commenced against the Company on September 3, 2009.

ITEM 9.01.  FINANCIAL STATEMENTS AND EXHIBITS.

(d) Exhibits.

10.1Securities Purchase Agreement by and between Select Comfort Corporation and Sterling SC Investor, LLC.

10.2Guarantee by Sterling Capital Partners III, LP in favor of Select Comfort Corporation.

10.3Settlement, Mutual Termination and General Release Agreement by and between Select Comfort Corporation and Sterling SC Investor, LLC.

10.4Registration Rights Agreement by and between Select Comfort Corporation and Sterling SC Investor, LLC.

99.1Press Release, dated October 5, 2009.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	SELECT COMFORT CORPORATION
	(Registrant)
Dated: October 5, 2009	By:
	Title:	Senior Vice President

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EXHIBIT INDEX

Exhibit No.	Description
10.1	Securities Purchase Agreement by and between Select Comfort Corporation and Sterling SC Investor, LLC. *
10.2	Guarantee by Sterling Capital Partners III, LP in favor of Select Comfort Corporation.
10.3	Settlement, Mutual Termination and General Release Agreement by and between Select Comfort Corporation and Sterling SC Investor, LLC.
10.4	Registration Rights Agreement by and between Select Comfort Corporation and Sterling SC Investor, LLC.
99.1	Press Release, dated October 5, 2009.

* Certain exhibits and schedules to the Securities Purchase Agreement have been omitted. Select Comfort will furnish omitted exhibits and schedules to the Securities and Exchange Commission upon request by the Commission.

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EX-10.1

Exhibit 10.1

SECURITIES PURCHASE AGREEMENT

DATED AS OF OCTOBER 2, 2009

BY AND BETWEEN

SELECT COMFORT CORPORATION

AND

STERLING SC INVESTOR, LLC

Table of Contents

			Page
1.	PURCHASE AND SALE OF COMMON SHARES AND THE WARRANT		2
	a.	Purchase and Sale of Common Shares and the Warrant	2
	b.	Company Closing Deliveries	3
	c.	Investor Closing Deliveries	3
	d.	Adjustment of Purchase Price and Number of Common Shares; Distributions; Purchase Rights	3
2.	INVESTOR’S REPRESENTATIONS AND WARRANTIES		6
	a.	Investment Purpose	6
	b.	Accredited Investor Status	6
	c.	Reliance on Exemptions	6
	d.	Information	6
	e.	No Governmental Review	7
	f.	Restrictions on Transfer or Resale	7
	g.	Legends	7
	h.	Authorization; Enforcement; Validity	9
	i.	Residency	9
	j.	No Other Agreements	9
	k.	Prior Transactions	9
	l.	Available Funds	9
	m.	No General Solicitation	9
	n.	Brokers and Finders	10
3.	REPRESENTATIONS AND WARRANTIES OF THE COMPANY		10
	a.	Organization and Qualification; Subsidiaries	10
	b.	Authority; Authorization; Enforcement; Validity	10
	c.	Capitalization	11
	d.	Issuance of Securities	12
	e.	No Conflicts	13
	f.	Required Filings and Consents	13
	g.	SEC Documents; Financial Statements	13
	h.	Principal Market	15
	i.	Rights Agreement	15
	j.	Absence of Certain Changes	15
	k.	Acknowledgment Regarding the Investor’s Purchase of Common Shares and the Warrant	15
	l.	No General Solicitation	16
	m.	No Integrated Offering	16
4.	AFFIRMATIVE COVENANTS		16

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	a.	Form D and Blue Sky; Other Filings	16
	b.	Material Nonpublic Information	16
	c.	Listing	17
	d.	Preemptive Rights	17
	e.	Backstop of Rights Offering	18
	f.	Confidentiality Of Evaluation Material Produced to the Investor; Standstill	18
5.	TRANSFER AGENT		20
6.	TERMINATION		21
	a.	Termination	21
	b.	Effect of Termination	21
7.	MISCELLANEOUS		21
	a.	Governing Law; Jurisdiction; Jury Trial	21
	b.	Counterparts	22
	c.	Headings	23
	d.	Severability	23
	e.	Entire Agreement	23
	f.	Notices	23
	g.	Successors and Assigns	25
	h.	No Third Party Beneficiaries	25
	i.	Survival	25
	j.	Further Assurances	25
	k.	Placement Agent	25
	l.	No Strict Construction	25
	m.	Specific Performance	25
	n.	Confidentiality	26
	o.	Interpretative Matters	26

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EXHIBITS

Exhibit A	-	Mutual Release
Exhibit B	-	Form of Warrant
Exhibit C	-	Form of Registration Rights Agreement
Exhibit D		Form of Guarantee
Exhibit E	-	Closing Notice
Exhibit F	-	Backstop Term Sheet

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SECURITIES PURCHASE AGREEMENT

SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated as of October 2, 2009, by and between Select Comfort Corporation, a Minnesota corporation, with principal offices located at 9800 59th Avenue North, Minneapolis, MN 55442 (the “Company”), and Sterling SC Investor, LLC, a Delaware limited liability company (the “Investor”).  Capitalized terms used and not defined elsewhere in this Agreement have the respective meanings assigned to such terms in the Appendix hereto.

WHEREAS:

A.            On May 22, 2009, the Company and the Investor entered into a Securities Purchase Agreement (the “SPA”).

B.            Contemporaneously with the execution and delivery of this Agreement, the parties hereto are executing and delivering a Settlement, Mutual Termination and General Release, substantially in the form attached hereto as Exhibit A (the “Mutual Release”), pursuant to which each of the Company and the Investor has agreed to terminate the SPA and release the other from certain claims, upon terms and conditions set forth in the Mutual Release.

C.            The Company and the Investor are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by Rule 506 of Regulation D (“Regulation D”) as promulgated by the United States Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the “1933 Act”).

D.            The Investor desires to purchase from the Company, and the Company wishes to sell to the Investor, upon the terms and conditions stated in this Agreement, (i) 2,500,000 shares of the common stock, par value $.01 per share, of the Company (the “Common Stock”) (the shares of Common Stock purchased by the Investor hereunder being collectively referred to herein as the “Common Shares,” with the certificates representing the Common Shares being referred to as the “Share Certificates”), and (ii) a warrant, substantially in the form attached as Exhibit B, to acquire 2,000,000 shares of Common Stock (such warrant, together with any warrants or other securities issued in exchange or substitution therefor or replacement thereof, and as any of the same may be amended, restated or modified and in effect from time to time, being referred to as the “Warrant”; the shares of Common Stock issuable upon exercise of the Warrant being referred to as the “Warrant Shares”; the Common Shares, the Warrant and the Warrant Shares being collectively referred to herein as the “Securities”).

E.             Each of the Board of Directors of the Company (the “Company Board”) and a committee of the Company Board composed solely of “disinterested directors” (as defined in Section 673 Subd. 1(d)(3) of the Minnesota Business Corporation Act (as amended, the “MBCA”)) (the “Committee”) has, by the vote of a requisite majority of the directors serving thereon, (i) determined that it is in the best interests of the Company and its shareholders, and declared it advisable, to enter into this Agreement with the Investor, and (ii) approved the execution, delivery and performance of this Agreement and the consummation of the Transactions, including the issuance of the Common Shares and the Warrant to the Investor.

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F.             Contemporaneously with the execution and delivery of this Agreement, the Company is delivering to the Investor $1,750,000, by wire transfer of immediately available funds in accordance with the Investor’s wire transfer instructions, as reimbursement for the out-of-pocket expenses incurred by the Investor and its Affiliates in connection with this Agreement, the SPA and the transactions contemplated hereby.

G.            Contemporaneously with the execution and delivery of this Agreement, the parties hereto are executing and delivering a Registration Rights Agreement, substantially in the form attached hereto as Exhibit C (the “Registration Rights Agreement”), pursuant to which the Company has agreed to provide certain registration rights under the 1933 Act and the rules and regulations promulgated thereunder, and applicable state securities laws.

H.            Contemporaneously with the execution and delivery of this Agreement, and as a condition and inducement to the Company’s willingness to enter into this Agreement, Sterling Capital Partners III, L.P. is executing and delivering a guarantee, substantially in the form attached hereto as Exhibit D, in favor of the Company.

NOW THEREFORE, the Company and the Investor hereby agree as follows:

1.             PURCHASE AND SALE OF COMMON SHARES AND THE WARRANT.

a.             Purchase and Sale of Common Shares and the Warrant.

(i)            Investor Option.  At any time on or after the date of this Agreement but at or prior to 5:00 p.m., Chicago time, on June 30, 2010 (the “Investor Termination Date”), the Investor may elect (in the Investor’s sole discretion) to purchase from the Company the Common Shares and the Warrant, upon delivery of a written notice to the Company (an “Investor Closing Notice”), in the form attached hereto as Exhibit E, on such date as shall be set forth in the Closing Notice (the “Closing Date”), provided that the Closing Date shall be no less than five Business Days after the date of the Closing Notice. On the Closing Date, the Company shall issue and sell to the Investor, and the Investor shall purchase from the Company (the “Closing”), (i) 2,500,000 Common Shares (subject to adjustment as set forth in Section 1(d) below) at a purchase price of $4.00 per share, and (ii) the Warrant to purchase 2,000,000 Warrant Shares (subject to adjustment as set forth in Section 1(d) below and as set forth in the Warrant).  The aggregate purchase price (the “Purchase Price”) for the Common Shares and the Warrant at the Closing purchased by the Investor shall be Ten Million Dollars ($10,000,000).  The Closing shall occur at the offices of Oppenheimer Wolff & Donnelly LLP, 45 South Seventh Street, Minneapolis, Minnesota 55402, or at such other place as the Company and the Investor may collectively designate in writing.  The Investor’s right to deliver an Investor Closing Notice, and the Investor’s right to elect to purchase from the Company the Common Shares and the Warrant in accordance with this Section 1(a)(i), is not, and shall not be, subject to any condition, other than the delivery of the Investor Closing Notice and the payment of the Purchase Price as set forth in this Section 1(a)(i), and the Company shall be obligated to issue and deliver the Common Shares and the Warrant, and to close the Transactions, on the Closing Date regardless of any claim or

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allegation that the Investor has breached, or is in breach of any of its representations, covenants, or obligations under any of the Transaction Documents.

(ii)           Company Option.  In the event that at any time on or after the date of this Agreement but at or prior to 5:00 p.m., Chicago time, on March 31, 2010 (the “Company Termination Date”) the Company delivers to the Investor a certificate (a “Company Closing Certificate”) certifying that the Company and the Lenders have entered into a forbearance agreement under the Existing Credit Facility, and have agreed to an amendment to the Existing Credit Facility, upon terms and conditions approved in writing by the Investor (and the Investor hereby agrees that such approval shall not be unreasonably withheld, conditioned, or delayed), then a Closing shall occur at 10:00 a.m., Chicago time, on the fifth Business Day following the Company’s delivery of a Company Closing Certificate or such other date as the parties hereto collectively designate in writing (any such Closing, a “Company Triggered Closing”).  The Company’s right to deliver a Company Closing Certificate, and the Company’s right to cause a Company Triggered Closing to occur in accordance with this Section 1(a)(ii), is not, and shall not be, subject to any condition, other than the delivery of the Company Closing Certificate and the Company and the Lenders having entered into a forbearance agreement under the Existing Credit Facility, and having agreed to an amendment to the Existing Credit Facility, as described in this Section 1(a)(ii), in which case a Company Triggered Closing shall occur on the Closing Date regardless of any claim or allegation that the Company has breached, or is in breach of any of its representations, covenants, or obligations under any of the Transaction Documents.

b.             Company Closing Deliveries.  At the Closing, the Company shall deliver, or cause to be delivered, to the Investor each of the following:

(i)            One or more Share Certificates representing in the aggregate the number of Common Shares that the Investor is purchasing hereunder on the Closing Date, in each case duly executed on behalf of the Company and the transfer agent and registrar for the Common Stock and registered in the name of the Investor or its designee.

(ii)           The Warrant (in such denominations as the Investor shall request), duly executed on behalf of the Company.

c.             Investor Closing Deliveries.  At the Closing, the Investor shall deliver, or cause to be delivered, to the Company, the Purchase Price, by wire transfer of immediately available funds in accordance with the Company’s wire transfer instructions.

d.             Adjustment of Purchase Price and Number of Common Shares; Distributions; Purchase Rights.

(i)            Adjustment upon Subdivision or Combination of Common Stock.  If the Company at any time after the date of this Agreement but prior to, or on, the Closing Date, subdivides (by any stock split, stock dividend, recapitalization or otherwise) its outstanding shares of Common Stock into a greater number of shares, the Purchase Price per Common Share immediately prior to such subdivision and the number

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of Common Shares issuable to the Investor at the Closing will be proportionately decreased and increased, respectively, and the number of Warrant Shares and the Warrant Exercise Price (as defined in the Warrant) immediately prior to such subdivision will be proportionately increased and decreased, respectively.  If the Company at any time after the date of this Agreement combines (by combination, reverse stock split or otherwise) its outstanding shares of Common Stock into a smaller number of shares, the Purchase Price per Common Share immediately prior to such subdivision and the number of Common Shares issuable to the Investor at the Closing will be proportionately increased and decreased, respectively, and the number of Warrant Shares and the Warrant Exercise Price immediately prior to such subdivision will be proportionately decreased and increased, respectively.

(ii)           Distributions.  If the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of Common Stock, by way of return of capital or otherwise (including any dividend or other distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement or other similar transaction), other than any Rights Offering with respect to which the Company has complied with Section 1(d)(vi)(B) of this Agreement (a “Distribution”), at any time after the date of this Agreement but prior to, or on, the Closing Date, then, in each such case, the Investor shall be entitled to receive such Distribution, and the Company shall make such Distribution to the Investor, exactly as if the Company had (A) issued to the Investor, and the Investor had purchased from the Company, the Common Shares (and, as a result, had held all of the Common Shares and the Warrant), and (B) exercised the Warrant in full (and, as a result, had held all of the Warrant Shares that the Investor would have received upon such exercise), immediately prior to the record date for such Distribution, or if there is no record therefor, immediately prior to the effective date of such Distribution (but without the Investor’s actually having to consummate the Closing and purchase the Common Shares and the Warrant, or exercise the Warrant).

(iii)          Purchase Rights.  If at any time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of its capital stock, other than any Rights Offering with respect to which the Company has complied with Section 1(d)(vi)(B) of this Agreement (the “Purchase Rights”), at any time after the date of this Agreement but prior to, or on, the Closing Date, then the Investor will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights that the Investor could have acquired if the Investor had (A) held the Common Shares upon consummation of the Closing, and (B) held the number of Warrant Shares acquirable upon complete exercise of the Warrant, immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights; provided, however, that the Investor will not be entitled to acquire Purchase Rights pursuant to this Section 1(d)(iii) for grants of equity or rights to acquire equity pursuant to Company Stock Award Plans.

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(iv)          Organic Change.  At any time after the date of this Agreement but prior to, or on, the Closing Date, and prior to the consummation of any (i) sale of all or substantially all of the Company’s assets to an acquiring Person or (ii) other Organic Change following which the Company is not a surviving entity, the Company will secure from the Person purchasing such assets or the successor resulting from such Organic Change (in each case, the “Acquiring Entity”) a written agreement (in form and substance satisfactory to the Investor) to deliver to the Investor shares of common stock and a warrant of the Acquiring Entity (in the case of the warrant, evidenced by a written instrument substantially similar in form and substance to the Warrant and satisfactory to the Investor), and reflecting the terms of such consolidation, merger or sale. At any time after the date of this Agreement but prior to, or on, the Closing Date, and prior to the consummation of any other Organic Change, the Company shall make appropriate provision (in form and substance satisfactory to the Investor) to ensure that the Investor will thereafter have the right to acquire and receive in lieu of or in addition to (as the case may be) the Common Shares and the Warrant, such shares of stock, securities or assets that would have been issued or payable in such Organic Change with respect to or in exchange for the number of shares of Common Stock that would have been acquirable and receivable pursuant to the Agreement and upon the exercise of the Warrant as of the date of such Organic Change.

(v)           Certain Events.  If any event occurs of the type contemplated by the provisions of this Section 1(d) but not expressly provided for by such provisions, other than the grant, sale or issuance of rights to purchase or subscription rights in any Rights Offering with respect to which the Company has complied with Section 1(d)(vi)(B) of this Agreement, then the Company Board will make an appropriate adjustment in the Purchase Price per Common Share and the number of Common Shares issuable to the Investor at the Closing, and the number of Warrant Shares and the Warrant Exercise Price; provided that no such adjustment will decrease the number of Common Shares issuable to the Investor at the Closing or the number of Warrant Shares issuable upon exercise of the Warrant, or increase the Purchase Price per Common Share or Warrant Exercise Price, as otherwise determined pursuant to this Section 1(d).

(vi)          Notices.

(A)          As soon as reasonably practicable, but in no event later than ten (10) Business Days prior to any adjustment of the Purchase Price per Common Share or the number of Common Shares issuable to the Investor pursuant to this Agreement, or any adjustment of the Warrant Exercise Price or the number of Warrant Shares issuable to the Investor upon exercise of the Warrant, the Company will give written notice thereof to the Investor, setting forth in reasonable detail, and certifying, the calculation of such adjustment; provided, however, that neither the timing of giving any such notice nor any failure by the Company to give such a notice shall effect any such adjustment or the effective date thereof.

(B)           The Company will give written notice to the Investor at least ten (10) Business Days prior to the date on which the Company closes its

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books or takes a record (A) with respect to any dividend or distribution upon the Common Stock, (B) with respect to any pro rata subscription offer to holders of Common Stock, including any Rights Offering, or (C) for determining rights to vote with respect to any Organic Change, dissolution or liquidation, provided that such information shall be made known to the public prior to or in conjunction with such notice being provided to the Investor.

(C)           The Company will also give written notice to the Investor at least ten (10) Business Days prior to the date on which any Organic Change, dissolution or liquidation will take place, provided that such information shall be made known to the public prior to or in conjunction with such notice being provided to the Investor.

2.             INVESTOR’S REPRESENTATIONS AND WARRANTIES.

The Investor represents and warrants as of the date of this Agreement to the Company that:

a.             Investment Purpose.  The Investor (i) is acquiring the Common Shares and the Warrant purchased by the Investor hereunder, and (ii) upon exercise of the Warrant issued to the Investor, will acquire the Warrant Shares issuable upon such exercise thereof, for the Investor’s own account and not with a view towards, or for resale in connection with, the public sale or distribution thereof, except pursuant to sales registered under, or exempted from the registration requirements of, the 1933 Act; provided, however, that by making the representations herein, the Investor does not agree to hold any of the Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time in accordance with or pursuant to a registration statement or an exemption under the 1933 Act.

b.             Accredited Investor Status.  The Investor is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D.

c.             Reliance on Exemptions.  The Investor understands that the Securities are being offered and sold to it in reliance on specific exemptions from the registration requirements of the Securities Laws and that the Company is relying in part upon the truth and accuracy of, and the Investor’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Investor set forth herein in order to determine the availability of such exemptions and the eligibility of the Investor to acquire the Securities.

d.             Information.  The Investor and its advisors, if any, have been furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities that have been requested by the Investor.  The Investor and its advisors, if any, have been afforded the opportunity to ask questions of the Company.  Neither such inquiries nor any other due diligence investigations conducted by the Investor or its advisors, if any, or its representatives shall modify, amend or affect the Investor’s right to rely on the Company’s representations and warranties contained in Sections 3 and 7(k) below or contained in any of the other Transaction Documents.  The Investor understands that its

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investment in the Securities involves a high degree of risk.  The Investor has sought such accounting, legal and tax advice as it has considered necessary to make an informed investment decision with respect to its acquisition of the Securities.

e.             No Governmental Review.  The Investor understands that no Governmental Entity has passed on or made any recommendation or endorsement of the Securities or the fairness or suitability of an investment in the Securities nor have such authorities passed upon or endorsed the merits of the offering of the Securities.

f.              Restrictions on Transfer or Resale.  Subject to the terms and conditions of the Registration Rights Agreement, the Investor understands and agrees that: (i) the Securities have not been and are not being registered under the 1933 Act or any other Securities Laws, and may not be offered for sale, sold, assigned or transferred unless (A) subsequently registered thereunder only pursuant to an effective registration statement under, and in compliance with the requirements of, the 1933 Act, (B) the Investor shall have delivered to the Company an opinion of counsel, in form and substance reasonably satisfactory to the Company’s transfer agent, to the effect that such Securities to be sold, assigned or transferred may be sold, assigned or transferred pursuant to an exemption from such registration, or (C) the Investor provides the Company with reasonable written assurance (in the form of seller and broker representation letters) that such Securities have been or are being sold, assigned or transferred pursuant to Rule 144 promulgated under the 1933 Act, as amended (or a successor rule thereto) (“Rule 144”), or can be sold without limitation pursuant to Rule 144 (whether or not subject to any current public information requirement thereunder); (ii) any sale of the Securities made in reliance on Rule 144 may be made only in accordance with the terms of Rule 144, and further, if Rule 144 is not applicable, any resale of the Securities under circumstances in which the seller (or the Person through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the 1933 Act) may require compliance with some other exemption under the 1933 Act or any other securities laws; (iii) other than pursuant to the Registration Rights Agreement, neither the Company nor any other Person is under any obligation to register the Securities under the 1933 Act or any other Securities Laws.  Notwithstanding the foregoing, the Company acknowledges and agrees that the Securities held by the Investor may be pledged by the Investor or its transferees (each, including the Investor, a “Covered Investor”) in connection with a bona fide margin account or bona fide financing agreement secured by the Securities.  The pledge of Securities shall not be deemed to be a transfer, sale or assignment of the Securities hereunder, and no Covered Investor effecting any such pledge of Securities shall be required to provide the Company with any notice thereof or otherwise make any delivery to the Company pursuant to this Agreement or any other Transaction Document.  The Company hereby agrees to execute and deliver such documentation as a pledgee of the Securities may reasonably request in connection with a pledge of the Securities to such pledgee by a Covered Investor.

g.             Legends.  The Investor understands that, except as set forth below, the Share Certificates and the stock certificates representing the Warrant Shares shall bear a restrictive legend in the following form (the “1933 Act Legend”) (and a stop-transfer order may be placed against transfer of such certificates):

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR

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APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR (B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR BONA FIDE FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

The legend set forth above shall be removed and the Company shall issue a certificate or instrument, as applicable, without the 1933 Act Legend to the holder of the Securities upon which it is stamped, (or, in the case of any Warrant Shares being acquired upon exercise of a Warrant, the Company shall issue the certificate representing such Warrant Shares without the 1933 Act Legend), if (i) such Securities are registered for resale under the 1933 Act, (ii) in connection with a sale transaction, such holder provides the Company with an opinion of counsel, in form and substance reasonably satisfactory to the Company’s transfer agent, to the effect that a public sale, assignment or transfer of the Securities may be made without registration under the 1933 Act, (iii) such holder provides the Company reasonable written assurances (in the form of seller and broker representation letters) that the Securities have been or are being sold pursuant to Rule 144 or can be sold without limitation pursuant to Rule 144 (whether or not subject to a current public information requirement thereunder), (iv) with respect to any of the Common Shares or Warrant Shares acquired pursuant to a Cashless Exercise (as defined in the Warrant) of the Warrant, such holder certifies, on or after the date that is six (6) months after the Closing Date, that such holder is not an “affiliate” of the Company (as defined in Rule 144), or (v) with respect to any Warrant Shares acquired other than pursuant to a cashless exercise of the Warrant, such holder certifies, on or after the date that is six (6) months after the Deemed Delivery Date (as defined in the Warrant) of such Warrant Shares, that such holder is not an “affiliate” of the Company.  The Company shall be responsible for the fees of its transfer agent and all of The Depository Trust Company (the “DTC”) fees associated with the issuance of the Securities to the Investor and any legend removal in accordance herewith.  At such time as a legend is no longer required for certain Common Shares or Warrant Shares, the Company will no later than three (3) trading days following the delivery by the Investor to the Company or its transfer agent (with notice to the Company) of a legended certificate representing such Common Shares or Warrant Shares (endorsed or with stock powers attached, signatures guaranteed, and otherwise in form necessary to affect the reissuance and/or transfer), deliver or cause to be delivered to the Investor or the transferee of the Investor, as applicable, a certificate representing such Common Shares or Warrant Shares that is free from all restrictive and other legends. Certificates for Common Shares or Warrant Shares subject to legend removal hereunder may be transmitted by the Company’s transfer agent to the Investor by crediting the account of the Investor’s prime broker with DTC.  The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the holders of the Securities.  Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Section 2(g) will be inadequate and agrees that, in the event of a breach or threatened breach of this Section 2(g), such holder shall be entitled, in addition to all other available remedies, to an

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injunctive order and/or injunction restraining any breach and requiring immediate issuance and transfer, without the necessity of showing economic loss and without any bond or other security being required.

h.             Authorization; Enforcement; Validity.  There is no agreement to which either the Investor or Sterling Capital Partners III, L.P. is a party with an existing shareholder of the Company regarding any equity interest in the Investor other than as has been publicly disclosed prior to the date of this Agreement.  The Investor is a validly existing corporation, partnership, limited liability company or other entity and has the requisite corporate, partnership, limited liability or other organizational power and authority to purchase the Securities pursuant to this Agreement.  Each of this Agreement and the other Transaction Documents to which the Investor is a party has been duly and validly authorized, executed and delivered on behalf of the Investor and is a valid and binding agreement of the Investor enforceable against the Investor in accordance with its terms.  Each of the Registration Rights Agreement and the other Transaction Documents to be entered into and executed by the Investor in connection with the Transactions as of the Closing will have been duly and validly authorized, executed and delivered on behalf of the Investor as of the Closing and will constitute a valid and binding agreement of the Investor, enforceable against the Investor in accordance with its terms.

i.              Residency.  The Investor is a limited liability company organized under the laws of the State of Delaware.

j.              No Other Agreements.  From August 27, 2009 through and including the date of this Agreement, neither Investor nor any of its Affiliates has entered into any agreement with any Person that, as of the date of this Agreement, is a shareholder of the Company with respect to any right to any interest in any of the Securities.  If, at any time after the date of this Agreement but on or prior to the Closing Date, Investor or any of its Affiliates enters into any such agreement with any Person that, as of the date of this Agreement, is a shareholder of the Company, Investor will promptly notify the Company thereof.

k.             Prior Transactions.  During the period commencing on February 9, 2009 and ending on the Business Day immediately prior to the date of this Agreement (the “Pre-Signing Period”), the Investor did not purchase or sell any shares of Common Stock.  Without limiting the foregoing, during the Pre-Signing Period, the Investor did not engage in any transaction constituting a “short sale” (as defined in Rule 200 of Regulation SHO under the Securities Exchange Act of 1934, as amended and the rules and regulations promulgated thereunder (the “1934 Act”)) of shares of Common Stock or establish an open “put equivalent position” (within the meaning of Rule 16a-1(h) under the 1934 Act) with respect to the Common Stock.

l.              Available Funds.  The Investor has, or will have sufficient funds in its possession to permit the Investor to acquire and pay for the Securities being purchased by the Investor and to perform it obligations under the Transaction Documents.

m.            No General Solicitation.  The Investor did not learn of the investment in the Common Shares and the Warrant as a result of any public advertising or general solicitation.

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n.             Brokers and Finders.  Other than as contemplated in this Agreement, no Person will have, as a result of the transaction contemplated by the Transaction Documents, any valid right, interest or claim against or upon the Company or any Subsidiary for any commission, fee or other compensation pursuant to any agreement, arrangement or understanding entered into by or on behalf of the Investor.

3.             REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

The Company represents and warrants as of the date of this Agreement and, as of the Closing Date solely with respect to Sections 3(a), 3(b), 3(d), 3(e)(i), 3(e)(ii), and 3(f), to the Investor that:

a.             Organization and Qualification; Subsidiaries.  Each of the Company and the Subsidiaries is a corporation, limited liability company, partnership or other entity and is duly organized or formed and validly existing in good standing under the laws of the jurisdiction in which it is incorporated or organized and has the requisite corporate, partnership, limited liability company or other organizational power and authority to own its properties and to carry on its business as now being conducted and as proposed to be conducted by the Company and the Subsidiaries.

b.             Authority; Authorization; Enforcement; Validity.

(i)            The Company and each of the Subsidiaries has the requisite corporate, partnership or limited liability company power and authority to enter into and perform its obligations under this Agreement, including the issuance of the Securities, and under each of the other Transaction Documents and to consummate the Transactions.

(ii)           The execution and delivery of the Transaction Documents by the Company and the applicable Subsidiaries and the consummation by the Company and the Subsidiaries of the Transactions, including the reservation for issuance and the issuance of the Common Shares, the Warrant and the Warrant Shares issuable upon exercise of the Warrant, have been duly authorized by each of the Company Board, the Committee and each of the Subsidiaries’ respective boards of directors, and no further consent or authorization is required by or of the Company, any of the Subsidiaries or any of the Company Board (or any committee thereof, including the Committee) or the shareholders, any of the Subsidiaries’ boards of directors, other equityholders or holders of beneficial interests of the Company.  Without limiting the foregoing, each of the Company Board and the Committee has, by the vote of a requisite majority of the directors serving thereon, (A) determined that it is in the best interests of the Company and its shareholders, and declared it advisable, to enter into this Agreement with the Investor, (B) approved the execution, delivery and performance of this Agreement and the consummation of the Transactions, including the issuance of the Common Shares and the Warrant to the Investor, and (C) approved the Transactions for purposes of Section 673 of the MBCA, including the Investor potentially becoming an “interested shareholder,” as defined in Section 011 Subd. 49 of the MBCA, pursuant to the Rights Offering or otherwise, subject to the limitations set forth in Section 4(f)(iii) of this Agreement.

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(iii)This Agreement and the other Transaction Documents dated on or prior to the date of this Agreement, have been duly executed and delivered by the Company and, to the extent applicable, by the Subsidiaries, and constitute the valid and binding obligations of the Company and the Subsidiaries that are party thereto, enforceable against the Company and the Subsidiaries, as applicable, in accordance with their respective terms.  As of the Closing, the Warrant and any other Transaction Documents dated after the date of this Agreement and on or prior to the date of the Closing shall have been duly executed and delivered by the Company and shall constitute the valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms.

c.Capitalization.  The authorized Capital Stock of the Company consists of:

(i)5,000,000 shares of Preferred Stock, of which no shares are issued or outstanding; and

(ii)142,500,000 shares of Common Stock, of which:

(A)45,583,724 shares are issued and outstanding as of the date of this Agreement; and

(B)6,488,575 shares are reserved for issuance pursuant to the Company’s stock option, restricted stock and employee stock purchase plans described on Schedule 3(c)(ii)(B) (the “Company Stock Award Plans”), including no more than 5,546,821 shares issuable pursuant to outstanding awards under the Company Stock Award Plans as of the date of this Agreement.

No shares of Common Stock or Preferred Stock are reserved for issuance under any plan, agreement or arrangement, other than shares of Common Stock reserved for issuance under the Company Stock Award Plans; and except as described in the foregoing provisions of this Section 3(c) or as described in Section 3(d), there are no shares of Capital Stock, Options, Convertible Securities or other equity securities of the Company authorized, issued or outstanding.  All of the outstanding or issuable shares of Capital Stock of the Company have been duly authorized and have been, or upon issuance will be, validly issued and are, or upon issuance will be, fully paid and nonassessable.

Except as set forth on Schedule 3(c):

(1)no shares of the Capital Stock of the Company or any of the Subsidiaries are subject to preemptive rights or any other similar rights or any Liens suffered or permitted by the Company or any of the Subsidiaries;

(2)there are no outstanding Options, calls or commitments of any character whatsoever relating to, or securities or rights convertible into or exercisable for, any shares of Capital Stock of the Company or any of the Subsidiaries, or Contracts by which the Company or any of the Subsidiaries is or may become bound to issue additional shares of Capital Stock of the Company or any of the Subsidiaries or Options,

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calls or commitments of any character whatsoever relating to, or securities or rights convertible into or exercisable for, any shares of Capital Stock of the Company or any of the Subsidiaries;

(3)there are no agreements or arrangements under which the Company or any of the Subsidiaries is obligated to register the sale of any of its securities under the 1933 Act;

(4)there are no outstanding securities or instruments of the Company or any of the Subsidiaries that contain any redemption or similar provisions, and there are no Contracts by which the Company or any of the Subsidiaries is or may become bound to redeem a security of the Company or any of the Subsidiaries, and there are no other shareholder agreements or similar agreements to which the Company, any of the Subsidiaries or, to the Company’s Knowledge, any holder of the Company’s Capital Stock is a party;

(5)there are no securities or instruments containing anti-dilution or similar provisions that will or may be triggered by the issuance of the Securities;

(6)the Company does not have any stock appreciation rights or “phantom stock” plans or agreements or any similar plan or agreement; and

The Company has furnished to the Investor true and correct copies of:

(W)the Third Restated Articles of Incorporation of the Company, as amended and in effect as of the date of this Agreement;

(X)the Restated Bylaws of the Company, as amended and in effect as of the date of this Agreement;

(Y)the organizational documents of each of the Subsidiaries, as amended and in effect; and

(Z)all documents and instruments containing the terms of all securities, if any, that, directly or indirectly, are convertible into, or exercisable or exchangeable for, Common Stock, and the material rights of the holders thereof in respect thereto.

d.Issuance of Securities.  The Securities are duly authorized and, upon issuance in accordance with the terms of this Agreement, will be validly issued, fully paid and nonassessable and free from Taxes and Liens with respect to the issuance thereof, with the holders being entitled to all rights accorded to a holder of Common Stock.  At least 2,500,000 shares of Common Stock have been duly authorized and reserved for issuance of the Common Shares upon consummation of the Closing, and at least 2,000,000 additional shares of Common Stock have been duly authorized and reserved for issuance upon exercise of the Warrant.  At Closing, the Common Shares and, upon exercise in accordance with the Warrant, the Warrant Shares will be validly issued, fully paid and nonassessable and free from all Taxes and Liens with respect to the issue thereof, with the holders being entitled to all rights accorded to a holder of Common

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Stock.  Assuming the accuracy of the representations and warranties of the Investor set forth in Sections 2(a), 2(b), 2(c), 2(d), 2(e), 2(g), 2(i) and 2(m), the issuance by the Company of the Securities is exempt from registration under the 1933 Act and any other applicable Securities Laws.

e.No Conflicts.  The execution and delivery of this Agreement and the other Transaction Documents by the Company and each of the Subsidiaries that is a party thereto, the performance by the Company and each of such Subsidiaries of its respective obligations hereunder and thereunder and the consummation by the Company of the Transactions (including the reservation for issuance and issuance of the Common Shares and the Warrant and the reservation for issuance and issuance of the Warrant Shares) will not:

(i)result in a violation of the certificate or articles of incorporation, certificate or articles of organization, bylaws, operating agreement, partnership agreement or any other governing documents, as applicable, of the Company or any of the Subsidiaries;

(ii)conflict with, or constitute a breach or default (or an event which, with the giving of notice or passage of time or both, constitutes or would constitute a breach or default) under, or give to others any right of termination, amendment, acceleration or cancellation of, or other remedy with respect to, any material agreement, indenture or instrument to which the Company or any Subsidiary is a party; or

(iii)result in a violation of any Law, rule, regulation, order, judgment or decree (including Securities Laws and the rules and regulations of the NASDAQ Global Select Market (the “Principal Market;” provided however, that, if at any time after the date of this Agreement the principal national stock exchange or trading market for Common Stock is other than the NASDAQ Global Select Market, the term “Principal Market” shall at such time mean such other national stock exchange or trading market) applicable to the Company or any Subsidiary or by which any property or asset of the Company or any Subsidiary is bound or affected.

f.Required Filings and Consents.  The execution, delivery and performance of this Agreement by the Company and the Subsidiaries, as applicable, and the consummation by the Company and the Subsidiaries, as applicable, of the Transactions, including the reservation for issuance and the issuance of the Common Shares, the Warrant and the Warrant Shares issuable upon exercise of the Warrant, do not and will not require any consent, approval, authorization or permit of, or filing with or notification to, any Governmental Entity or any other Person, which if not obtained would reasonably be expected, individually or in the aggregate, to have a Company Material Adverse Effect, except as specifically contemplated by Section 4(a) hereof.

g.SEC Documents; Financial Statements.

(i)Since December 31, 2006, the Company has filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the 1934 Act.  All of the foregoing items filed with the SEC (but not those items that merely were furnished to the SEC) prior to the

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date this representation is made but after December 30, 2007, together with any filings made by the Company with the SEC pursuant to the 1933 Act since December 30, 2007, are referred to herein as the “SEC Documents.”  The Company’s consolidated balance sheet as of July 4, 2009, as included in the Company’s quarterly report on Form 10-Q for the period then ended, as filed with the SEC on August 7, 2009 (the “Most Recent 10-Q”), is referred to herein as the “Most Recent Balance Sheet.” Each of the SEC Documents was filed with the SEC via the SEC’s EDGAR system within the time frames prescribed by the SEC for the filing of such SEC Documents such that each filing was timely filed with the SEC.  As of their respective dates, the SEC Documents complied in all material respects with the Securities Laws.  None of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.  Since the filing of each of the SEC Documents, no event has occurred that would require an amendment or supplement to any such SEC Document and as to which such an amendment or supplement has not been filed and made publicly available on the SEC’s EDGAR system no less than five Business Days prior to the date this representation is made.  The Company has not received any written comments from the SEC staff that have not been resolved to the satisfaction of the SEC staff.

(ii)As of their respective filing dates, the consolidated financial statements of the Company and the Subsidiaries included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the Securities Laws with respect thereto.  Such financial statements have been prepared in accordance with GAAP, consistently applied, during the periods involved (except (A) as may be otherwise indicated in such financial statements or the notes thereto, or (B) in the case of unaudited interim statements, to the extent they may exclude footnotes as permitted under SEC rules) and fairly present in all material respects the financial position of the Company and the Subsidiaries as of the dates thereof and the results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments that are not material individually or in the aggregate).

(iii)The Company is not required to file any agreement, note, lease, mortgage, deed or other instrument entered into prior to, and in effect on, the date of this Agreement and to which the Company or any Subsidiary is a party or by which the Company or any Subsidiary is bound that has not been previously filed as an exhibit (including by way of incorporation by reference) to its reports filed or made with the SEC under the 1934 Act.

(iv)There is no material transaction, arrangement or other relationship between the Company and an unconsolidated or other off-balance-sheet entity that is required to be disclosed by the Company in its reports pursuant to the 1934 Act that has not been so disclosed in the SEC Documents at least five Business Days prior to the date of this Agreement.

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(v)Since December 31, 2006, there have been no internal or SEC inquiries or investigations (formal or informal) regarding accounting or revenue recognition discussed with, reviewed by or initiated at the direction of any executive officer, board of directors or any committee thereof of the Company or any of the Subsidiaries.

(vi)The Company has never been a “shell company” (as defined in Rule 12b-2 under the 1934 Act).

h.Principal Market.  The Company is not in violation of any of the rules, regulations or requirements of the Principal Market and has no Knowledge of any facts or circumstances which would reasonably lead to delisting or suspension, or termination of the trading of, the Common Stock by the Principal Market in the foreseeable future.

i.Rights Agreement.  The Company has not adopted a shareholder rights plan or similar arrangement relating to accumulations of beneficial ownership of Common Stock or a change in control of the Company.

j.Absence of Certain Changes.  Since July 4, 2009, neither the Company nor any of the Subsidiaries has declared or paid any dividends or sold any assets outside of the ordinary course of business.  Since July 4, 2009, neither the Company nor any of the Subsidiaries has had any capital expenditures outside the ordinary course of its business.  Since July 4, 2009, other than the grant of options or restricted stock awards under existing Company Stock Award Plans in the aggregate of not more than 10,000 shares of Common Stock, neither the Company nor any of the Subsidiaries has had or made, as applicable, any (i) grant or provision of severance or termination payments or benefits to any director or officer of the Company or any Subsidiary or employee, independent contractor or consultant of the Company or any of the Subsidiaries, (ii) material increase in the compensation, perquisites or benefits payable to any director, officer, employee, independent contractor or consultant of the Company or any of the Subsidiaries, (iii) grant of equity or equity-based awards that may be settled in shares of Common Stock, Preferred Stock or any other securities of the Company or any Subsidiary or the value of which is linked directly or indirectly, in whole or in part, to the price or value of any shares of Common Stock, Preferred Stock or other securities of the Company or any Subsidiary, (iv) acceleration in the vesting or payment of compensation payable or benefits provided or to become payable or provided to any current or former director, officer, employee, independent contractor or consultant, (v) change in the terms of any outstanding Option with respect to any shares of the Company’s Common Stock or any other securities of the Company or (vi) establishment or adoption of any new arrangement that would be a Company Benefit Plan or termination or material amendment of any existing Company Benefit Plan (other than changes made in the ordinary course of business consistent with past practice or as may be necessary to comply with applicable Laws, in either case that do not materially increase the costs of any such Company Benefit Plans).

k.Acknowledgment Regarding the Investor’s Purchase of Common Shares and the Warrant.  The Company acknowledges and agrees that the Investor is acting solely in the capacity of an arm’s length purchaser with respect to the Company in connection with this Agreement and the other Transaction Documents and the Transactions.  The Company further

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acknowledges that the Investor is not acting as a financial advisor or fiduciary of any party to this Agreement or any of the other Transaction Documents (or in any similar capacity) with respect to this Agreement and the other Transaction Documents and the Transactions, and any advice given by the Investor or any of its representatives or agents in connection with the Transaction Documents and the Transactions is merely incidental to the Investor’s purchase of the Securities. The Company further represents to the Investor that the decision of the Company to enter into the Transaction Documents has been based solely on the independent evaluation by such Person and its representatives.

l.No General Solicitation.  Neither the Company nor any of its Affiliates, nor any Person acting on the behalf of any of the foregoing, has engaged or will engage in any form of general solicitation or general advertising (within the meaning of Regulation D under the 1933 Act), including advertisements, articles, notices, or other communications published in any newspaper, magazine or similar media or broadcast over radio, television or internet or any seminar or meeting whose attendees have been invited by general solicitation or general advertising, in connection with the offer or sale of the Securities.

m.No Integrated Offering.  Neither the Company nor any of its Affiliates, nor any Person acting on the behalf of any of the foregoing, has, directly or indirectly, made any offers or sales of any security or solicited any offers to purchase any security, under circumstances that would require registration of any of the Securities under the 1933 Act or cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of the 1933 Act, or the shareholder approval requirements of the Principal Market, or any other regulatory or self-regulatory authority.

4.AFFIRMATIVE COVENANTS.  Unless otherwise waived and consented to by the Investor:

a.Form D and Blue Sky; Other Filings.  The Company agrees to timely file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof to the Investor promptly after such filing.  The Company shall make all filings and reports relating to the offer and sale of the Securities required under applicable Securities Laws of the states of the United States following the Closing Date.  The Company further agrees to timely file a notification of Listing of Additional Shares with NASDAQ with respect to the Securities, and timely file a current report on Form 8-K with the SEC describing the terms of the Transactions, including the sale and issuance of the Securities to the Investor.

b.Material Nonpublic Information.  Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, and except with the express written consent of the Investor and unless prior thereto the Investor shall have executed a written agreement regarding the confidentiality and use of such information, the Company and each Subsidiary shall instruct each of their respective officers, directors, employees and agents, not to, and the Investor shall not directly solicit the Company, any of its Subsidiaries or any of their respective officers, directors, employees or agents to provide the Investor with any material, non-public information regarding the Company or any of its Subsidiaries.

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c.Listing.  During the period commencing on the date of this Agreement and ending on the first date after the Closing on which the Investor and its Affiliates, in the aggregate, beneficially own less than 5% of the Common Stock (determined in accordance with Rule 13d-3 (as defined below)) (the period ending on such latest date, the “Reporting Period”), the Company shall use commercially reasonable efforts to promptly secure the listing of all of the Common Shares, and upon exercise of the Warrant, all of the Warrant Shares, upon each national securities exchange and automated quotation system, upon which shares of Common Stock are then listed (subject to official notice of issuance) and, shall maintain, so long as any other shares of Common Stock shall be so listed, such listing of all of the Common Shares and the Warrant Shares.  The Company shall pay all fees and expenses in connection with satisfying its obligations under this Section 4(c).

d.Preemptive Rights.  In case at any time on or before June 30, 2010, the Company shall sell or otherwise issue to any Person any Equity Securities (as defined below), other than any Exempted Issuances (as defined below), and so long as the Investor and its Affiliates, in the aggregate, beneficially own a number of shares of Common Stock representing greater than 5% of the Common Stock Deemed Outstanding (as defined below) as of such date, the Company shall offer to the Investor the right, at the same price as that paid, or to be paid by the other Person who participated or will participate in such sale or other issuance, to purchase the amount of such Equity Securities equal to the product of (x) the total amount of such Equity Securities sold or otherwise issued and (y) a fraction, the numerator of which is the number of Investor Shares (as defined below) immediately prior to such sale of Equity Securities and the denominator of which is the number of shares of Common Stock Deemed Outstanding immediately prior to the sale of Equity Securities.  Such offer shall be made by written notice (the “Preemptive Rights Notice”) of the Company to the Investor, which Preemptive Rights Notice may be delivered prior to, but in any event shall not be delivered any later than, five days after the date of the closing of such sale or other issuance of Equity Securities and shall set forth the Equity Securities sold or otherwise issued or to be sold or otherwise issued, the price per Equity Security at which such Equity Securities were sold or otherwise issued or will be sold or otherwise issued, and the number of Equity Securities which the Investor shall have the opportunity to purchase pursuant hereto.  The Investor shall be entitled for a period of 10 days after the date of the Preemptive Rights Notice to exercise its rights hereunder.  Such rights may only be exercised for all of the Equity Securities the Investor is entitled to purchase hereunder and shall be exercised by wire transfer of immediately available funds to an account designated by the Company (as set forth in the Preemptive Rights Notice) and the delivery to the Company of duly and properly executed originals of any documents reasonably required by the Company, all by the later of the expiration of such 10 day period and the closing date of such sale or other issuance of Equity Securities.  Any purchase of Equity Securities by the Investor pursuant hereto shall be made only of a whole number of Equity Securities, not of any fraction of Equity Securities, and any fraction shall be rounded up or down, as appropriate, to the nearest whole number.  For purposes hereof, “Common Stock Deemed Outstanding” as of any date shall mean the number of shares of Common Stock then actually issued and outstanding; “Equity Securities” means any equity securities of the Company, whether now or hereafter authorized, and any Options or Convertible Securities of the Company; “Exempted Issuances” means (A) issuances of Options of the Company, restricted stock grants or any other similar equity compensation arrangements pursuant to a Company Stock Award Plan approved by the Company Board for officers, employees or consultants of the Company or any Subsidiary (B) 

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issuances of any Equity Securities to any seller in connection with the acquisition by the Company or any of the Subsidiaries of a business, by purchase or other acquisition of stock or other equity interests, or by merger, consolidation or other business combination, or any sale of all or substantially all of the assets of such business, (C) issuances in connection with the subdivision of the Common Stock (including any split), any combination of the Common Stock (including any reverse split) or any other recapitalization, reorganization, reclassification or conversion of the Company, in each case in which the Investor Shares are treated in the same manner as all other outstanding shares of Common Stock, (D) issuances of any Equity Securities to any purchaser that requires complete acceptance of such purchaser’s terms and conditions, including the amount of Equity Securities to be purchased, within a period of time equal to or less than two (2) Business Days, and (E) issuances in connection with any Rights Offering (as defined below); and “Investor Shares” means, as of any time, the shares of Common Stock then beneficially held by the Investor and its Affiliates, and excluding any Warrant Shares.

e.Backstop of Rights Offering.  The Company and the Investor acknowledge and agree that in the event that the Company desires to undertake and consummate a rights offering with respect to certain shares of the Common Stock (the “Rights Offering”), which determination shall be in the sole discretion of the Company’s Board, then the Company and Investor agree in good faith to use their commercially reasonable efforts to execute and deliver a Standby Purchase Agreement (the “Backstop Agreement”), (A) in substantial compliance with the terms and conditions set forth in that certain Term Sheet attached hereto as Exhibit F (the “Backstop Term Sheet”), and (B) otherwise in form and substance mutually satisfactory to the Investor and the Company, which Backstop Agreement shall set forth the terms and conditions upon which an Affiliate of the Investor shall provide a Backstop Commitment (as defined in the Backstop Term Sheet) in connection with the Rights Offering.

f.Confidentiality Of Evaluation Material Produced to the Investor; Standstill.

(i)Notwithstanding anything contained in this Agreement to the contrary, the Investor shall treat all “Confidential Information” (as defined in the Confidentiality, Non-disclosure and Standstill Agreement between the Parties dated February 9, 2009 (the “Confidentiality Agreement”)) provided by the Company to Investor under the Confidentiality Agreement, and all information provided by the Company to the Investor pursuant to the SPA, as Confidential Information in accordance with the terms below and the terms of Sections 2 and 3 of the Confidentiality Agreement, which terms are expressly incorporated herein.

(ii)Within five (5) Business Days of the date hereof, Investor will return or destroy all information provided to it that, to its knowledge, constitutes Confidential Information, and will certify to the Company in writing that it has complied with the foregoing covenant; provided that the Investor may retain one copy of the Confidential Information for contingency purposes provided that such copy shall be segregated from the Investor’s normal business records and may only be accessed for the purpose of establishing compliance with this Agreement or in circumstances where this Agreement or the Transactions are the subject of litigation or otherwise with the prior written consent of the Company.  Furthermore, the Investor and its professional advisors may retain data or electronic records containing Confidential Information for the

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purposes of backup and data recovery so long as such data or records, to the extent not permanently deleted or overwritten in the ordinary course of business, are not accessible in the ordinary course of business and are not accessed or used except as required for backup or data recovery purposes.  Any Confidential Information retained by the Investor or its professional advisors in accordance with the provisions of this Section 4(f)(ii) shall remain subject to the confidentiality terms set forth in Section 4(f)(i) of this Agreement for so long as such Confidential Information is retained.

(iii)The Investor agrees that, unless specifically invited in writing to do so by the Company, for a period of two (2) years from the date of this Agreement, neither the Investor nor any person or entity directly or indirectly controlling the Investor or controlled by the Investor or under common control with the Investor (all such Persons and entities, together with the Investor, collectively, the “Sterling Group”) acting alone or as part of any group, will, or will encourage or assist others to, directly or indirectly: (i) acquire, offer or propose to acquire, or agree or seek to acquire by purchase or otherwise, directly or indirectly, ownership (including beneficial ownership (as defined in Rule 13d-3 under the 1934 Act (“Rule 13d-3”)) of any securities of, any direct or indirect rights with respect to or options to acquire any securities of, or instruments representing any bank or other debt of, Company or any Subsidiary or of any successor to, or person in control of, the Company or any Subsidiary, or any substantial part of the assets of the Company or any Subsidiary or divisions thereof or of any such successor or controlling person; provided, however, that the foregoing shall not limit or preclude the Investor or any other member of the Investor from acquiring, individually or in the aggregate, shares of Common Stock, or direct or indirect rights or options with respect thereto, so long as, upon such acquisition, the members of the Sterling Group own, beneficially or of record, less than 20% of the Common Stock (determined in accordance with Rule 13d-3); (ii) enter into any agreement or make any public announcement with respect to, or offer, propose or seek to enter into, or otherwise be involved in or part of, directly or indirectly, any acquisition transaction, recapitalization, restructuring, liquidation, dissolution, business combination or other similar transaction relating to all or part of the Company or any Subsidiary or all or any part of the assets of the Company or any Subsidiary or any of their respective businesses; (iii) make, or in any way participate in, directly or indirectly, any “solicitation” of “proxies” (as such terms are used in the rules of the SEC) or consents to vote, or seek to advise or influence any person or entity with respect to the voting or consent of, any voting securities of the Company or any Subsidiary (other than in support of a proposal approved by the Company Board); (iv) form, join or in any way participate in a “group” (within the meaning of Section 13(d)(3) of the 1934 Act), other than the Sterling Group, with respect to any voting securities of Company or any Subsidiary; (v) seek or propose, alone or in concert with others that are not members of the Sterling Group, to influence or control Company’s management or policies; (vi) initiate, directly or indirectly, any discussions, negotiations, arrangements or understandings with any other person with respect to any of the foregoing activities or propose any of such activities to any other person; (vii) advise, assist, knowingly encourage, act as a financing source for, or otherwise invest in, any other person in connection with any of the foregoing activities; or (viii) publicly disclose any intention, plan or arrangement inconsistent with any of the foregoing.  The Investor also agrees that for a period of two (2) years from the date of this Agreement, neither the Investor nor any

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of its Affiliates will (x) request the Company or its advisors, directly or indirectly, to (A) amend or waive any provision of this section (including this sentence) or (B) otherwise consent to any action inconsistent with any provision of this section (including this sentence), or (y) take any initiative with respect to the Company or any Subsidiary which could require the Company to make a public announcement regarding: (A) such initiative, (B) any of the activities referred to in this section, or (C) the possibility of the Investor or any other person acquiring control of the Company, whether by means of a business combination or otherwise, or make any public announcement with respect thereto; provided, however, that nothing contained in this Section 4(f)(iii) shall (I) limit the ability of any member of the Sterling Group to vote its voting securities on any matter submitted to a vote of the shareholders of Company or announce its opposition to any proposals approved by the Company Board, (II) limit the ability of any person, including any designee, representative or affiliate of the Investor, to exercise its rights as a member of the Company Board or any committee thereof while serving as a member of the Company Board or any committee thereof, (III) limit the ability of the Sterling Group or any member thereof to issue any communication contemplated by Rule 14a-1(l)(2)(iv) stating how it intends to vote and the reasons therefore with respect to any extraordinary transaction of any kind or nature between the Company and any third party unaffiliated with the Sterling Group, (IV) limit the ability of the Sterling Group to file a Schedule 13D, 13G or any amendment thereto as required by law or to make other securities or tax filings as required by law so long as no member of the Sterling Group enters into any contract, arrangement, understanding or relationship (legal or otherwise) with respect to the Company’s securities, or otherwise take any action, in violation of this Section 4(f)(iii), or (V) limit the ability of any member of the Sterling Group to transfer any shares of Common Stock of the Company or direct or indirect rights or options to acquire any shares of Common Stock to any other member of the Sterling Group.

5.TRANSFER AGENT.  The Company shall issue irrevocable instructions to its transfer agent, and any subsequent transfer agent, to issue certificates or, provided that such transfer agent is a participant in the DTC Fast Automated Securities Transfer Program, credit shares to the applicable balance accounts at DTC, registered in the name of the Investor or its respective nominee(s), for any Warrant Shares issued upon exercise of the Warrant, as provided in the Warrant.  The Company warrants that no other instruction other than the foregoing and any legal opinion, written assurances or certification pursuant to Section 2(g) hereof, as the case may be, as by such transfer agent, will be given by the Company to its transfer agent, and that the Securities shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement.  If the Investor effects a sale, assignment or transfer of the Securities in accordance with Sections 2(f) and 2(g), the Company shall permit the transfer and shall promptly instruct its transfer agent to issue one or more Share Certificates or other certificates or, provided that such transfer agent is a participant in the DTC Fast Automated Securities Transfer Program, credit shares to the applicable balance accounts at DTC in such name and in such denominations as specified by the Investor to effect such sale, transfer or assignment.  In the event that such sale, assignment or transfer involves Common Shares or Warrant Shares sold, assigned or transferred pursuant to an effective registration statement or pursuant to Rule 144, the transfer agent shall issue such Securities to the Investor, assignee or transferee, as the case may be, without any restrictive legend.  The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Investor.

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Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Section 5 will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Section 5, that the Investor shall be entitled, in addition to all other available remedies, to an order and/or injunction restraining any breach and requiring immediate issuance and transfer, without the necessity of showing economic loss and without any bond or other security being required.  Neither the Company, nor any Person acting for the Company’s benefit, shall deliver any instructions to the Company’s transfer agent that are inconsistent with the foregoing.

6.TERMINATION.

a.Termination.  In the event that as of 5:00 p.m., Chicago time, on June 30, 2010 (the “Outside Date”), (i) the Company has not delivered a Company Closing Certificate on or prior to the Company Termination Date, and (ii) the Investor has not delivered an Investor Closing Notice on or prior to the Investor Termination Date, then this Agreement shall terminate as of 5:00 p.m., Chicago time, on the Outside Date, and the sale and purchase of the Securities shall be abandoned automatically and without any further action or notice.

b.Effect of Termination.  If this Agreement terminates pursuant to this Section 6, it will become void and of no further force and effect, with no liability on the part of any party to this Agreement (or any of their respective former, current, or future general or limited partners, shareholders, managers, members, directors, officers, Affiliates or agents), except that the provisions of this Section 6(b) and Section 7 will survive any termination of this Agreement; provided, however, that nothing herein shall relieve either party from any liabilities for damages incurred or suffered by the other party as a result of any breach by a party of any of its representations, warranties, covenants or other agreements set forth in this Agreement that has caused, or would reasonably be expected to cause, any of the conditions set for in Sections (1)(b) or 1(c) not to be satisfied in a timely manner.

7.MISCELLANEOUS.

a.Governing Law; Jurisdiction; Jury Trial.

(i)All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by the Laws of the State of Delaware, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of the Laws of any jurisdiction other than the State of Delaware.

(ii)Each of the parties hereto irrevocably agrees that any litigation or proceeding with respect to this Agreement and the rights and obligations arising hereunder, or for recognition and enforcement of any judgment in respect of this Agreement and the rights and obligations arising hereunder brought by any other party hereto or its successors or assigns, shall be brought and determined exclusively in the state or federal courts for the State of Delaware.  Each of the parties hereto hereby irrevocably submits with regard to any such action or proceeding for itself and in respect of its property, generally and unconditionally, to the personal jurisdiction of the aforesaid

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courts and agrees that it will not bring any action relating to this Agreement or any of the Transactions in any court or tribunal other than the aforesaid courts.  Each of the parties hereto hereby irrevocably waives, and agrees not to assert, by way of motion, as a defense, counterclaim or otherwise, in any action or proceeding with respect to this Agreement and the rights and obligations arising hereunder or for recognition and enforcement of any judgment in respect of this Agreement and the rights and obligations arising hereunder, (A) any claim that it is not personally subject to the jurisdiction of the above named courts for any reason other than the failure to serve process in accordance with this Section 7(a)(ii), (B) any claim that it or its property is exempt or immune from jurisdiction of any such court or from any legal process commenced in such courts (whether through service of notice, attachment prior to judgment, attachment in aid of execution of judgment, execution of judgment or otherwise) and (C) to the fullest extent permitted by the applicable Law, any claim that (I) the suit, action or proceeding in such court is brought in an inconvenient forum, (II) the venue of such suit, action or proceeding is improper or (III) this Agreement, or the subject matter hereof, may not be enforced in or by such courts.  Each of the parties hereto agrees that mailing of process or other papers in connection with any such action or proceeding in the manner provided in Section 7(f) or in such other manner as may be permitted by applicable Laws, will be valid and sufficient service thereof.

(iii)EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY THAT MAY ARISE UNDER THIS AGREEMENT OR ANY OF THE OTHER TRANSACTION DOCUMENTS IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES AND, THEREFORE, EACH SUCH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION, CONTROVERSY OR OTHER LEGAL ACTION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE ACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY TO THIS AGREEMENT CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT SEEK TO ENFORCE THE FOREGOING WAIVER IN THE EVENT OF A LEGAL ACTION, (B) SUCH PARTY HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) SUCH PARTY MAKES THIS WAIVER VOLUNTARILY AND (D) SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 7(a)(iii).

b.Counterparts.  This Agreement and any amendments hereto may be executed and delivered in two or more identical counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement.  This Agreement shall become effective and binding upon each party hereto when counterparts have been signed by each party hereto and delivered to the other parties hereto, it being understood that all parties need not sign the same counterpart.  In the event that any signature to this Agreement or any amendment hereto is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose

22

behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.  At the request of any party each other party shall promptly re-execute an original form of this Agreement or any amendment hereto and deliver the same to the other party.  No party hereto shall raise the use of a facsimile machine or e-mail delivery of a “.pdf” format data file to deliver a signature to this Agreement or any amendment hereto or the fact that such signature was transmitted or communicated through the use of a facsimile machine or e-mail delivery of a “.pdf” format data file as a defense to the formation or enforceability of a contract, and each party hereto forever waives any such defense.

c.Headings.  The headings of this Agreement are for convenience of reference only and shall not form part of, or affect the meaning or interpretation of, this Agreement.

d.Severability.  If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction.

e.Entire Agreement.  This Agreement supersedes all prior oral or written agreements between the Investor, the Company, the Subsidiaries, their Affiliates and Persons acting on their behalf with respect to the matters discussed herein, and this Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor the Company makes any representation, warranty, covenant or undertaking with respect to such matters.

f.Notices.  Any notice, consent, waiver, request, instruction or other communication required or permitted to be given under the terms of this Agreement shall be in writing and will be deemed to have been duly given:  (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one Business Day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same.  The addresses and facsimile numbers for such communications shall be:

If to the Company:

Select Comfort Corporation

9800 59th Avenue North

Minneapolis, Minnesota 55442

Attention:   William McLaughlin

Facsimile:   (763) 551-6888

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and

Select Comfort Corporation

9800 59th Avenue North

Minneapolis, Minnesota 55442

Attention:   Mark Kimball

Facsimile:   (763) 551-6888

With a copy to (which shall not constitute notice):

Oppenheimer Wolff Donnelly LLP

Plaza VII, Suite 3300

45 South Seventh Street

Minneapolis, Minnesota 55402-1609

Attention:   Thomas R. Marek

Facsimile:   (612) 607-7100

If to the Investor:

Sterling SC Investor, LLC

1033 Skokie Boulevard

Suite 600

Northbrook, Illinois 60062

Attention:   Office of General Counsel

Facsimile:   (847) 480-0199

With a copy to (which shall not constitute notice):

Katten Muchin Rosenman LLP

525 West Monroe Street

Chicago, Illinois 60661-3693

Attention:   Saul E. Rudo

Facsimile:   (312) 902-1061

or, in the case of any party named above, at such other address and/or facsimile number and/or to the attention of such other person as the recipient party has specified by written notice given to each other party five days prior to the effectiveness of such change.  Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender’s facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (C) provided by a nationally recognized overnight delivery service shall be rebuttable evidence of personal service, receipt by facsimile or deposit with a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively.

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g.Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties and their respective successors and assigns, including any purchasers of the Securities.  The Investor shall not directly or indirectly assign, sell, delegate or otherwise transfer (by operation of law or otherwise, including by merger, reorganization, reclassification, consolidation or similar transaction) this Agreement or any rights or obligations hereunder without the prior written consent of the Company.  Any assignment or transfer in violation of this section shall be void.

h.No Third Party Beneficiaries.  This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other Person.

i.Survival.  The representations and warranties of the Investor and the Company shall survive the Closing for a period of 12 months; provided, however, that the representations and warranties of the Company set forth in Sections 3(a), 3(b), 3(c) and 3(d) shall survive indefinitely.  Neither the period of survival nor the liability of the Company with respect to the Company’s representations and warranties shall be reduced by any investigation made at any time by or on behalf of the Investor.  If written notice of a claim has been given prior to the expiration of the applicable representation and warranty of the Company, then the relevant representation or warranty shall survive as to such claim, until such claim has been finally resolved.  The agreements and covenants set forth in Sections 4 and 7 shall survive the Closing.

j.Further Assurances.  Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the Transactions.

k.Placement Agent.  The Company represents and warrants to the Investor that it has not engaged any placement agent, broker or financial advisor in connection with the sale of the Common Shares, except for Piper Jaffray & Co. (“Piper”).  The Company shall be responsible for the payment of any placement agent’s fees or broker’s commissions, including any fees or commissions of Piper.  The Company shall pay, and hold the Investor harmless against, any liability, loss or expense (including attorneys’ fees and out-of-pocket expenses) arising in connection with any claim for any such payment.

l.No Strict Construction.  The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.

m.Specific Performance.  The parties to this Agreement agree that irreparable damage would occur and that the parties to this Agreement would not have any adequate remedy at Law in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached.  It is accordingly agreed that the Company, on the one hand, and the Investor, on the other hand, shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in any state or federal court located in the State of

25

Delaware, in each case without the necessity of posting bond or other security or showing actual damages, and this being in addition to any other remedy to which they are entitled at law or in equity.

n.Confidentiality.  Each of the parties acknowledges, agrees and covenants to keep strictly confidential, and shall not disclose, or allow or permit any other Person to disclose, any information provided by any other party hereto pursuant to this Agreement or any of the other Transaction Documents, including any notices provided hereunder; provided that a party may disclose such information to its officers, directors, employees, partners, members, managers, equityholders, advisors and agents who agree to be bound by the confidentiality obligation set forth in this Section 7(n).  Each party hereto shall take all actions reasonably necessary to ensure that such information remains confidential in accordance with the terms of this Agreement and the other Transaction Documents.

o.Interpretative Matters.  Unless the context otherwise requires, (i) all references to Sections, Schedules, Appendices or Exhibits are to Sections, Schedules, Appendices or Exhibits contained in or attached to this Agreement, (ii) each accounting term not otherwise defined in this Agreement has the meaning assigned to it in accordance with GAAP, (iii) words in the singular or plural include the singular and plural and pronouns stated in either the masculine, the feminine or neuter gender shall include the masculine, feminine and neuter, (iv) the words “hereof,” “herein” and words of similar effect shall reference this Agreement in its entirety, and (v) the use of the word “including” in this Agreement shall be by way of example rather than limitation.

*  *  *  *  *  *

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IN WITNESS WHEREOF, each party hereto has caused this Securities Purchase Agreement to be duly executed as of the date first written above.

COMPANY:
SELECT COMFORT CORPORATION
By:	/s/ James Raabe
Name:	James Raabe
Title:	Chief Financial Officer
INVESTOR:
STERLING SC INVESTOR, LLC
By: Sterling Capital Partners III, L.P.
Its: Sole Member
By: SC Partners III, L.P.
Its: General Partner
By: Sterling Capital Partners III, LLC
Its: General Partner
By:	/s/ R. Christopher Hoehn-Saric
Name:	R. Christopher Hoehn-Saric
Title:	Senior Managing Director

APPENDIX

CERTAIN DEFINED TERMS

For purposes of this Agreement, the following terms shall have the following meanings:

“Affiliate” means, with respect to any Person, another Person that, directly or indirectly, (i) has a five percent (5%) equity interest in that Person, (ii) has a common ownership with that Person, (iii) controls that Person, (iv) is controlled by that Person or (v) shares common control with that Person; and “control” or “controls” means that a Person has the power, direct or indirect, to conduct or govern the policies of another Person.

“Business Day” means any day other than Saturday, Sunday or other day on which commercial banks in the New York City are authorized or required by law to remain closed.

“Capital Lease Obligation” means, as to any Person, any obligation that is required to be classified and accounted for as a capital lease on a balance sheet of such Person prepared in accordance with GAAP, and the amount of such obligation shall be the capitalized amount thereof, determined in accordance with GAAP.

“Capital Stock” means any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, and any and all equivalent ownership interests in a Person (other than a corporation).

“Company Benefit Plan” means each “employee benefit plan” within the meaning of Section 3(3) of ERISA, including each multiemployer plan within the meaning of Section 3(37) of ERISA, and each other stock purchase, stock option, restricted stock, severance, retention, employment, consulting, change-of-control, collective bargaining, bonus, incentive, deferred compensation, employee loan, fringe benefit and other benefit plan, agreement, program, policy, commitment or other arrangement (including any related funding mechanism now in effect or required in the future) whether or not subject to ERISA, whether formal or informal, oral or written, in each case under which any past or present director, officer, employee, consultant or independent contractor of the Company or any of the Subsidiaries has any present or future right to benefits or with respect to which the Company or any of the Subsidiaries has any liability.

“Company Material Adverse Effect” means any event, state of facts, circumstance, development, change or effect that, individually or in the aggregate with all other events, states of fact, circumstances, developments, changes and effects, (i) would materially adversely affect the ability of the Company to consummate the Transactions, or to perform its obligations under any of the Transaction Documents, in a timely manner or (ii) is materially adverse to the business, assets, liabilities, condition (financial or otherwise) or results of operations of the Company and the Subsidiaries, taken as a whole; provided, however, that a “Company Material Adverse Effect” shall not include any event, state of facts, circumstance, development, change or effect resulting from:  (A) (1) changes in general economic conditions, general securities and financial market conditions, or global or national political relations or conditions, (2) a material worsening of current conditions caused by an act of terrorism or war (whether declared or not declared) occurring after the date of this Agreement or any natural disasters or any national or international calamity affecting the United States, (3) changes in GAAP, (4) changes in laws of

1

general applicability or interpretations thereof by any Governmental Entity, except, (x) in the case of any of the foregoing clauses (1), (2), (3) or (4), if such changes or developments have a disproportionate or unique impact on the business, assets, liabilities, condition or results of operations of the Company and the Subsidiaries, taken as a whole, relative to other participants in the industries in which the Company conducts its businesses or (y) in the case of the foregoing clause (2), directly affect the physical properties of the Company and the Subsidiaries; (B) any change in the Company’s stock price or trading volume, in and of itself, or any failure, in and of itself, by the Company to meet revenue or earnings guidance published or otherwise provided to the Investor; (C) actions or omissions of either party hereto taken as expressly required by this Agreement or with the prior written consent of the other party hereto in contemplation of the Transactions; or (D) the public announcement of this Agreement and the Transactions.

“Contract” means any agreement, arrangement, commitment or understanding that would constitute an enforceable contract under, in each case, the Law governing such agreement, arrangement or understanding.

“Convertible Securities” means any stock or securities (other than Options) directly or indirectly convertible into or exchangeable or exercisable for shares of common stock.

“Existing Credit Facility” means that certain Credit Agreement, dated as of June 9, 2006, by and among the Company and the Lenders, together with all pledge and security agreements, guarantees and other definitive documents and instruments entered into in connection therewith or related thereto, as each of the same have been amended, restated, supplemented or otherwise modified from time to time prior to the date of this Agreement.

“GAAP” means U.S. generally accepted accounting principles.

“Knowledge,” “Knowledge of the Company,” “to the Company’s Knowledge” and similar language means the actual knowledge of any “officer” (as such term is defined in Rule 16a-1 under the 1934 Act) of the Company or of any Subsidiary and the knowledge any such Person would be expected to have after reasonable due diligence and inquiry, or, with respect to the Investor, any similarly situated Person of the Investor or its Affiliates.

“Laws” means all present or future federal, state local or foreign laws, statutes, common law duties, rules, regulations, ordinances and codes, together with all administrative or judicial orders, consent agreements, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Entity.

“Lenders” means JPMorgan Chase Bank, National Association, as administrative agent, Bank of America, N.A., as syndication agent, and certain financial institutions signatory to the Existing Credit Facility, including the administrative agent and the syndication agent.

“Lien” means with respect to any asset or property, any mortgage, lien, pledge, hypothecation, charge, security interest, encumbrance or adverse claim of any kind and any restrictive covenant, condition, restriction or exception of any kind that has the practical effect of creating a mortgage, lien, pledge, hypothecation, charge, security interest, encumbrance or adverse claim of any kind (including any of the foregoing created by, arising under or evidenced by any conditional sale or other title retention agreement, the interest of a lessor with respect to a

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Capital Lease Obligation, or any financing lease having substantially the same economic effect as any of the foregoing).

“Options” means any rights, warrants or options to subscribe for or purchase shares of common stock or Convertible Securities.

“Organic Change” means any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Company’s assets to another Person or other transaction that is effected in such a way that holders of Common Stock are entitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock.

“Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, a Governmental Entity or any other legal entity.

“Preferred Stock” means the Company’s undesignated preferred stock.

“Securities Laws” means the securities laws (including “Blue Sky” laws), legislation and regulations of, and the instruments, policies, rules, orders, codes, notices and interpretation notes of, the securities regulatory authorities (including the SEC) of the United States and any applicable states and other jurisdictions.

“Subsidiary” means any entity in which the Company, directly or indirectly:

(i)            beneficially owns or otherwise holds 10% or more of the equity or similar interests;

(ii)           beneficially owns or otherwise holds or controls 10% or more of the outstanding securities entitled to vote generally in the election of such entity’s directors (or the equivalent thereof);

(iii)          if the entity is a limited partnership, is a general partner;

(iv)          if the entity is a limited liability company, is a manager or managing member; or

(v)           otherwise has the ability or right to control (whether by ownership, contractual right or otherwise) the management and policies of such entity.

“Taxes” means (i) any and all federal, state, provincial, local, foreign and other taxes, levies, fees, imposts, duties, and similar governmental charges (including any interest, fines, assessments, penalties or additions to tax imposed in connection therewith or with respect thereto) including (x) taxes imposed on, or measured by, income, franchise, profits or gross receipts, and (y) ad valorem, value added, capital gains, sales, goods and services, use, real or personal property, Capital Stock, license, branch, payroll, estimated, withholding, employment, social security (or similar), unemployment, compensation, utility, severance, production, excise, stamp, occupation, premium, windfall profits, transfer and gains taxes, and customs duties, (ii) 

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any liability for payment of amounts described in clause (i) whether as a result of transferee liability, joint and several liability for being a member of an affiliated, consolidated, combined, unitary or other group for any period, or otherwise by operation of law, and (iii) any liability for the payment of amounts described in clause (i) or (ii) as a result of any tax sharing, tax indemnity or tax allocation agreement or similar agreements to pay or indemnify any other Person on account of Taxes.

“Transaction Documents” means this Agreement, the Registration Rights Agreement, the Mutual Release and each of the other agreements or instruments to which the Company is a party or by which it is bound and which is entered into by the parties hereto or thereto in connection with the Transactions.

“Transactions” means the sale and issuance of the Common Shares and the Warrant to the Investor, and the execution and delivery of the Transaction Documents and the consummation by the Company of all of the transactions contemplated therein.

The following terms have the meaning set forth in the referenced Sections set forth below:

Defined Term	Location of Definition
“1933 Act Legend”	Section 2(g)
“1933 Act”	Recitals
“1934 Act”	Section 2(k)
“Acquiring Entity”	Section 1(d)
“Agreement”	Recitals
“Backstop Agreement”	Section 4(e)
“Backstop Term Sheet”	Section 4(e)
“Closing”	Section 1(a)(i)
“Closing Date”	Section 1(a)(i)
“Committee”	Recitals
“Common Shares”	Recitals
“Common Stock Deemed Outstanding”	Section 4(d)
“Common Stock”	Recitals
“Company”	Recitals
“Company Board”	Recitals
“Company Closing Certificate”	Section 1(a)(ii)
“Company Stock Award Plans”	Section 3(c)
“Company Termination Date”	Section 1(a)(ii)
“Company Triggered Closing”	Section 1(a)(ii)
“Confidentiality Agreement”	Section 4(f)(i)
“Covered Investor”	Section 2(f)
“Distribution”	Section 1(d)
“DTC”	Section 2(g)
“Equity Securities”	Section 4(d)
“Exempted Issuances”	Section 4(d)

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Defined Term	Location of Definition
“Investor”	Recitals
“Investor Closing Notice”	Section 1(a)(i)
“Investor Shares”	Section 4(d)
“Investor Termination Date”	Section 1(a)(i)
“MBCA”	Recitals
“Most Recent 10-Q”	Section 3(g)
“Most Recent Balance Sheet”	Section 3(g)
“Mutual Release”	Recitals
“Outside Date”	Section 6(a)
“Piper”	Section 7(k)
“Pre-Signing Period”	Section 2(k)
“Preemptive Rights Notice”	Section 4(d)
“Principal Market”	Section 3(e)
“Private Offering”	Section 4(d)(i)
“Purchase Price”	Section 1(a)(i)
“Purchase Rights”	Section 1(d)
“Registration Rights Agreement”	Recitals
“Regulation D”	Recitals
“Reporting Period”	Section 4(c)
“Rights Offering”	Section 4(e)
“Rule 13d-3”	Section 4(f)(iii)
“Rule 144”	Section 2(f)
“SEC”	Recitals
“SEC Documents”	Section 3(g)
“Securities”	Recitals
“Share Certificates”	Recitals
“SPA”	Recitals
“Sterling Group”	Section 4(f)(iii)
“Suspension Period”	Section 1(a)(i)
“Warrant”	Recitals
“Warrant Shares”	Recitals

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Exhibit B

THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR (B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR BONA FIDE FINANCING ARRANGEMENT SECURED BY THE SECURITIES.  THE SECURITIES REPRESENTED BY THIS WARRANT MAY BE LESS THAN THE NUMBER SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 2(e) HEREOF.

SELECT COMFORT CORPORATION

NON-TRANSFERABLE

WARRANT TO PURCHASE COMMON STOCK

Warrant No.: SC-001	Number of Shares: 2,000,000
Date of Issuance:                  , 20

Select Comfort Corporation, a Minnesota corporation (the “Company”), hereby certifies that, for Ten United States Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Sterling SC Investor, LLC, a Delaware limited liability company, the registered holder hereof, or its permitted assigns (the “Holder”), is entitled, subject to the terms set forth below, to purchase from the Company upon surrender of this Warrant (if required by Section 2(e)), at any time or times on or after the date hereof, but not after 11:59 P.M. New York City time on the Expiration Date (as defined in Section 1(b) below) Two Million (2,000,000) fully paid nonassessable shares of Common Stock (as defined in Section 1(b) below) of the Company (the “Warrant Shares”) at the Warrant Exercise Price (as defined in Section 1(b) below).

Section 1.

(a)Securities Purchase Agreement.  This Warrant was issued pursuant to that certain Securities Purchase Agreement, dated as of even date herewith, between the Company and Sterling SC Investor, LLC (as such agreement may be amended, restated, modified or supplemented and in effect from time to time, the “Purchase Agreement”) or issued in exchange or substitution therefor or replacement thereof.  Each capitalized term used, and not otherwise defined herein, shall have the meaning ascribed thereto in the Purchase Agreement.

(b)Definitions.  The following words and terms as used in this Warrant shall have the following meanings:

(i)“Common Stock” means (i) the Company’s common stock, par value $0.01 per share, and (ii) any capital stock into which such Common Stock shall have been changed or any capital stock resulting from a reclassification of such Common Stock.

(ii)“Convertible Securities” means any stock or securities (other than Options) directly or indirectly convertible into or exchangeable or exercisable for Common Stock.

(iii)“Expiration Date” means the date that is five (5) years after the Warrant Date (as defined in Section 12) or, if such date does not fall on a Business Day, then the next Business Day.

(iv)“Options” means any rights, warrants or options to subscribe for or purchase any Common Stock or Convertible Securities.

(v)“Organic Change” means any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Company’s assets to another Person or other transaction that is effected in such a way that holders of Common Stock are entitled to receive (either directly or upon subsequent liquidation) stock, securities, cash or assets with respect to or in exchange for Common Stock other than payment of cash dividends.

(vi)“Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization or a government or any department or agency thereof or any other legal entity.

(vii)“Registration Rights Agreement” means that certain Registration Rights Agreement, dated as of even date herewith, between the Company and Sterling SC Investor, LLC, as such agreement may be amended, restated or modified and in effect from time to time.

(viii)“Securities Act” means the Securities Act of 1933, as amended, or any successor thereto.

(ix)“Trading Day” means any day on which the Common Stock is traded on the Principal Market; provided that “Trading Day” shall not include any day on which the Common Stock is scheduled to trade, or actually trades, on such exchange or market for less than 4.5 hours.

(x)“Warrant” means this Warrant and all warrants issued in exchange, transfer or replacement thereof pursuant to the terms of this Warrant.

(xi)“Warrant Exercise Price” shall be equal to, with respect to any Warrant Share, $0.01, subject to adjustment as provided in Section 8 of this Warrant.

(xii)“Weighted Average Price” means, for any security as of any date, the dollar volume-weighted average price for such security on its Principal Market during the period beginning at 9:30 a.m. New York City time (or such other time as its Principal Market publicly announces is the official open of trading) and ending at 4:00 p.m. New York City time

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(or such other time as its Principal Market publicly announces is the official close of trading) as reported by Bloomberg Financial Markets (or any successor thereto) (“Bloomberg”) through its “Volume at Price” functions, or if the foregoing does not apply, the dollar volume-weighted average price of such security on the OTC Bulletin Board (or successor thereto) during the period beginning at 9:30 a.m. New York City time (or such other time as the OTC Bulletin Board publicly announces is the official open of trading), and ending at 4:00 p.m. New York City time (or such other time as the OTC Bulletin Board publicly announces is the official close of trading) as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported on the OTCQX (or successor thereto) or Pink Sheets (or successor thereto) by Pink OTC Markets Inc. (or successor thereto).  If the Weighted Average Price cannot be calculated for such security on such date on any of the foregoing bases, the Weighted Average Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holder.  If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved by an investment banking firm mutually agreeable to the Holder and the Company.  All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during any period during which the Weighted Average Price is being determined.

Section 2.Exercise of Warrant.

(a)Subject to the terms and conditions hereof, this Warrant may be exercised by the Holder hereof then registered on the books of the Company, in whole or in part, at any time on any Business Day on or after the opening of business on the date hereof and prior to 11:59 P.M. New York City time on the Expiration Date by (i) delivery of a written notice, in the form of the exercise notice attached as Exhibit A hereto (the “Exercise Notice”), of the Holder’s election to exercise this Warrant, which notice shall specify the number of Warrant Shares to be purchased and, if such exercise is conditioned upon consummation of any transaction (an “Exercise Trigger Transaction”), such condition to exercise, (ii) (A) payment to the Company of an amount equal to the Warrant Exercise Price multiplied by the number of Warrant Shares as to which this Warrant is being exercised (such product, the “Aggregate Exercise Price”) by check or wire transfer of immediately available funds or (B) notifying the Company that this Warrant is being exercised pursuant to a Cashless Exercise (as defined in Section 2(d)), and (iii) if required by Section 2(e), unless the Holder has previously delivered this Warrant to the Company and it or a new replacement Warrant has not yet been delivered to the Holder, the surrender to a common carrier for overnight delivery to the Company as soon as practicable following such date, of this Warrant (or an indemnification undertaking, in customary form, with respect to this Warrant in the case of its loss, theft or destruction pursuant to Section 10); provided, that if such Warrant Shares are to be issued in any name other than that of the Holder, such issuance shall be deemed a transfer and the provisions of Section 7 shall be applicable.  In the event of any exercise of the rights represented by this Warrant in compliance with this Section 2(a), on the third (3rd) Business Day (the “Warrant Share Delivery Date”) following the date of its receipt of the Exercise Notice, the Aggregate Exercise Price (or notice of Cashless Exercise) and if required by Section 2(e) (unless the Holder has previously delivered this Warrant to the Company and a new or replacement Warrant has not yet been delivered to the Holder), this Warrant (or an indemnification undertaking, in customary form, with respect to this

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Warrant in the case of its loss, theft or destruction pursuant to Section 10) (the “Exercise Delivery Documents”) (or, if the exercise of this Warrant is conditioned upon the consummation of an Exercise Trigger Transaction, on the later of such third (3rd) Business Day and the date of consummation of such Exercise Trigger Transaction), (A) provided that the transfer agent is participating in The Depository Trust Company (“DTC”) Fast Automated Securities Transfer Program and provided that the Holder is eligible to receive shares through DTC, the Company shall credit such aggregate number of shares of Common Stock to which the Holder shall be entitled to the Holder’s or its designee’s balance account with DTC through its Deposit Withdrawal Agent Commission system or (B) if not, the Company shall issue and deliver to the address specified in the Exercise Notice, a certificate, registered in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder shall be entitled.  Upon the latest of (x) the date of delivery of the Exercise Notice, (y) the date of delivery of the Aggregate Exercise Price referred to in clause (ii)(A) above or notification to the Company of a Cashless Exercise referred to in Section 2(d), (z) if the exercise of this Warrant is conditioned upon the consummation of an Exercise Trigger Transaction, the date of such consummation, the Holder shall be deemed for all purposes to have become the Holder of record of the Warrant Shares with respect to which this Warrant has been exercised (the date thereof being referred to as the “Deemed Issuance Date”), irrespective of the date of delivery of this Warrant as required by clause (iii) above or the certificates evidencing such Warrant Shares.

(b)If this Warrant is submitted for exercise, and unless the rights represented by this Warrant shall have expired or shall have been fully exercised, the Company shall, as soon as practicable and in no event later than five (5) Business Days after receipt of this Warrant (the “Warrant Delivery Date”) and at its own expense, issue a new Warrant identical in all respects to this Warrant except it shall represent rights to purchase the number of Warrant Shares purchasable immediately prior to such exercise under this Warrant, less the number of Warrant Shares with respect to which such Warrant is exercised (together with, in the case of a Cashless Exercise, the number of Warrant Shares surrendered in lieu of payment of the Exercise Price).

(c)No fractional shares of Common Stock are to be issued upon the exercise of this Warrant, but rather the number of shares of Common Stock issued upon exercise of this Warrant shall be rounded up or down to the nearest whole number (with 0.5 rounded up).

(d)Notwithstanding anything contained herein to the contrary, the Holder may at any time prior to the Expiration Date, in its sole discretion, exercise this Warrant in whole or in part and, in lieu of making the cash payment otherwise contemplated to be made to the Company upon such exercise in payment of the Aggregate Exercise Price, elect instead to receive upon such exercise the “Net Number” of shares of Common Stock determined according to the following formula (a “Cashless Exercise”):

Net Number = (A x B) - (A x C)

B

For purposes of the foregoing formula:

A= the total number of shares with respect to which this Warrant is then being exercised;

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B= the arithmetic average of the Weighted Average Price of the Common Stock on each of the twenty (20) consecutive Trading Days immediately preceding the date of the delivery of the Exercise Notice; and

C= the Warrant Exercise Price then in effect for the applicable Warrant Shares at the time of such exercise.

(e)Book-Entry.  Notwithstanding anything to the contrary set forth herein, upon exercise of this Warrant in accordance with the terms hereof, the Holder shall not be required to physically surrender this Warrant to the Company unless it is being exercised for all of the Warrant Shares represented by the Warrant.  The Holder and the Company shall maintain records showing the number of Warrant Shares exercised and issued and the dates of such exercises or shall use such other method, reasonably satisfactory to the Holder and the Company, so as not to require physical surrender of this Warrant upon each such exercise.  In the event of any dispute or discrepancy, such records of the Company establishing the number of Warrant Shares to which the Holder is entitled shall be controlling and determinative in the absence of manifest error.  Notwithstanding the foregoing, if this Warrant is exercised as aforesaid, the Holder may not transfer this Warrant unless the Holder first physically surrenders this Warrant to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Warrant of like tenor, registered as the Holder may request, representing in the aggregate the remaining number of Warrant Shares represented by this Warrant.  The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following exercise of any portion of this Warrant, the number of Warrant Shares represented by this Warrant may be less than the number stated on the face hereof.

Section 3.Covenants as to Common Stock.  The Company hereby covenants and agrees as follows:

(a)This Warrant is, and any Warrants issued in substitution for or replacement of this Warrant will upon issuance be, duly authorized and validly issued.

(b)All Warrant Shares that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance and receipt of payment therefor from the Holder (including pursuant to a Cashless Exercise, as applicable), be validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof.

(c)During the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved at least 100% of the number of shares of Common Stock needed to provide for the exercise of the rights then represented by this Warrant.

(d)The Company will not, by amendment of its articles of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of

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securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed by it hereunder, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all such action as may be reasonably requested by the Holder in order to protect the exercise privilege of the Holder against impairment, consistent with the tenor and purpose of this Warrant.  Without limiting the generality of the foregoing, the Company (i) will not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant, and (ii) will take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant.

(e)This Warrant will be binding upon any entity succeeding to the Company by merger, consolidation or acquisition of all or substantially all of the Company’s assets.

Section 4.Taxes.  The Company shall pay any and all taxes that may be payable with respect to the issuance and delivery of Warrant Shares upon exercise of this Warrant.

Section 5.Warrant Holder Not Deemed a Shareholder.  The holder of this Warrant shall not be entitled to vote, receive dividends (except as provided in Section 9(a) regarding Distributions), or be deemed a holder of stock of the Company (except as provided in Section 9(b) regarding Purchase Rights) for any purpose (other than to the extent that the Holder is deemed to be a beneficial holder of shares under applicable securities laws) or otherwise have any of the rights of a shareholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, or receive dividends or subscription rights, prior to the Deemed Issuance Date of the Warrant Shares that the Holder is then entitled to receive upon the due exercise of this Warrant.  In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on the Holder to purchase any securities (except to the extent set forth in an Exercise Notice that has been executed by the Holder and delivered to the Company) or as a shareholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company.

Section 6.Representations of Holder.  The Holder, by the acceptance hereof, represents that it is acquiring this Warrant, and upon exercise hereof (other than pursuant to a Cashless Exercise) will acquire the Warrant Shares, for its own account and not with a view towards, or for resale in connection with, the public sale or distribution of this Warrant or the Warrant Shares, except pursuant to sales registered, or exempted from registration, under the Securities Act; provided, however, that by making the representations herein, the Holder does not agree to hold this Warrant or any of the Warrant Shares for any minimum or other specific term and reserves the right to dispose of this Warrant and the Warrant Shares at any time in accordance with or pursuant to a registration statement or an exemption under the Securities Act.  The Holder further represents, by acceptance hereof, that, as of this date, the Holder is an “accredited investor” as such term is defined in Rule 501(a)(3) of Regulation D promulgated by the Securities and Exchange Commission under the Securities Act.  Each delivery of an Exercise Notice, other than in connection with a Cashless Exercise, shall constitute confirmation at such time by the Holder of the representations concerning the Warrant Shares set forth in the first two sentences of this Section 6, unless contemporaneously with the delivery of such Exercise Notice the Holder notifies the Company in writing that it is not making such representations (a

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“Representation Notice”).  If the Holder delivers a Representation Notice in connection with an exercise, it shall be a condition to the Holder’s exercise of this Warrant and the Company’s obligations set forth in Section 2 in connection with such exercise, that the Company receive such other representations together with an opinion of counsel, in a generally acceptable form, as the Company may reasonably request to assure that the issuance of its securities upon exercise of this Warrant shall not violate any United States or state securities laws.

Section 7.Ownership and Transfer.

(a)The Company shall maintain at its principal executive offices (or such other office or agency of the Company as it may designate by notice to the Holder), a register for this Warrant, in which the Company shall record the name and address of the person in whose name this Warrant has been issued, as well as the name and address of each transferee.  The Company may treat the person in whose name any Warrant is registered on the register as the owner and holder thereof for all purposes, notwithstanding any notice to the contrary, but in all events recognizing any transfers made in accordance with the terms of this Warrant.

(b)This Warrant and the rights granted hereunder shall not be assignable by Holder without the prior written consent of the Company.

Section 8.Adjustment of Warrant Exercise Price and Number of Warrant Shares.

(a)Adjustment of Warrant Exercise Price upon Subdivision or Combination of Common Stock.  If the Company at any time after the date of issuance of this Warrant subdivides (by any stock split, stock dividend, recapitalization or otherwise) its outstanding shares of Common Stock into a greater number of shares, the Warrant Exercise Price in effect immediately prior to such subdivision will be proportionately reduced and the number of shares of Common Stock obtainable upon exercise of this Warrant will be proportionately increased.  If the Company at any time after the date of issuance of this Warrant combines (by combination, reverse stock split or otherwise) its outstanding shares of Common Stock into a smaller number of shares, the Warrant Exercise Price in effect immediately prior to such combination will be proportionately increased and the number of shares of Common Stock obtainable upon exercise of this Warrant will be proportionately decreased.  Any adjustment under this Section 8(a) shall become effective at the close of business on the date the subdivision or combination becomes effective.

(b)Certain Events.  If any event occurs of the type contemplated by the provisions of this Section 8 but not expressly provided for by such provisions, then the Company’s board of directors will make an appropriate adjustment in the Warrant Exercise Price and the number of shares of Common Stock obtainable upon exercise of this Warrant; provided that no such adjustment will increase the Warrant Exercise Price or decrease the number of shares of Common Stock obtainable as otherwise determined pursuant to this Section 8.

(c)Notices.

(i)As soon as reasonably practicable, but in no event later than two (2) Business Days, upon any adjustment of the Warrant Exercise Price, the Company will give written notice thereof to the Holder, setting forth in reasonable detail, and certifying, the

7

calculation of such adjustment; provided, however, that neither the timing of giving any such notice nor any failure by the Company to give such a notice shall effect any such adjustment or the effective date thereof.

(ii)The Company will give written notice to the Holder at least ten (10) days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the Common Stock, (B) with respect to any pro rata subscription offer to holders of Common Stock or (C) for determining rights to vote with respect to any Organic Change (as defined below), dissolution or liquidation, provided that such information shall be made known to the public prior to or in conjunction with such notice being provided to the Holder.

(iii)The Company will also give written notice to the Holder at least ten (10) days prior to the date on which any Organic Change, dissolution or liquidation will take place, provided that such information shall be made known to the public prior to or in conjunction with such notice being provided to the Holder.

Section 9.Dividends, Distributions of Assets; Purchase Rights; Reorganization, Reclassification, Consolidation, Merger or Sale.

(a)If the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of Common Stock, by way of return of capital or otherwise (including any dividend or other distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement or other similar transaction), other than rights to purchase and subscription rights that would be granted, issued or sold in any registered rights offering offered to existing shareholders (a “Distribution”), at any time after the issuance of this Warrant, then, in each such case, the Holder shall be entitled to receive such Distribution, and the Company shall make such Distribution to the Holder, exactly as if the Holder had exercised this Warrant in full (and, as a result, had held all of the shares of Common Stock that the Holder would have received upon such exercise) immediately prior to the record date for such Distribution, or if there is no record therefor, immediately prior to the effective date of such Distribution (but without the Holder’s actually having to so exercise this Warrant).

(b)If at any time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of its capital stock, other than rights to purchase and subscription rights that would be granted, issued or sold in any registered rights offering offered to existing shareholders (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights that the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.

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Section 10.Lost, Stolen, Mutilated or Destroyed Warrant.  If this Warrant is lost, stolen, mutilated or destroyed, the Company shall promptly, upon receipt from the Holder of an indemnification undertaking, in customary form (or in the case of a mutilated Warrant, the Warrant), issue a new Warrant of like denomination and tenor as this Warrant so lost, stolen, mutilated or destroyed.

Section 11.Notice.  Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Warrant must be in writing and will be deemed to have been delivered:  (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one (1) Business Day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same.  The addresses and facsimile numbers for such communications shall be:

If to the Company:

Select Comfort Corporation

9800 59th Avenue North

Minneapolis, Minnesota 55442

Attention:   President and Chief Executive Officer

Facsimile:   (763) 551-6888

And

Select Comfort Corporation

9800 59th Avenue North

Minneapolis, Minnesota 55442

Attention:   General Counsel and Secretary

Facsimile:   (763) 551-6888

With copy to:

Oppenheimer Wolff Donnelly LLP

Plaza VII, Suite 3300

45 South Seventh Street

Minneapolis, MN  55402-1609

Attention:   Thomas R. Marek

Facsimile:   (612) 607-7100

If to the initial Holder of this Warrant, to it at the address and facsimile number set forth in the Purchase Agreement, with copies to the Holder’s representatives as set forth in the Purchase Agreement, or, in the case of the Holder or any other Person named above, at such other address and/or facsimile number and/or to the attention of such other person as the recipient party has

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specified by written notice to the other party at least five (5) Business Days prior to the effectiveness of such change.  Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender’s facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (C) provided by a nationally recognized overnight delivery service shall be rebuttable evidence of personal service, receipt by facsimile or deposit with a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively.

Section 12.Date.  The date of this Warrant is                , 20    (the “Warrant Date”).  This Warrant, in all events, shall be wholly void and of no effect after the earlier to occur of: (i) 11:59 P.M., New York City time, on the Expiration Date, and (ii) an Organic Change.  Notwithstanding any other provisions hereof, the provisions of Section 7 shall continue in full force and effect after such date as to any Warrant Shares or other securities issued upon the exercise of this Warrant.

Section 13.Amendment and Waiver.  Except as otherwise provided herein, the provisions of this Warrants may be amended and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company has obtained the written consent of the Holder.

Section 14.Descriptive Headings; Governing Law.  The descriptive headings of the several sections and paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant.  All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be governed by the internal laws of the State of Minnesota, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Minnesota or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Minnesota.

Section 15.Expenses.  The Holder and its affiliates and any of their successors, assigns or transferees, shall be solely responsible for any fees and expenses incurred by them in connection with exercising their rights under this Warrant.

Section 16.Rules of Construction.  Unless the context otherwise requires, (a) all references to Articles, Sections, Schedules or Exhibits are to Articles, Sections, Schedules or Exhibits contained in or attached to this Warrant, (b) words in the singular or plural include the singular and plural and pronouns stated in either the masculine, the feminine or neuter gender shall include the masculine, feminine and neuter, and (c) the use of the word “including” in this Warrant shall be by way of example rather than limitation.

Section 17.Signatures.  In the event that any signature to this Warrant or any amendment hereto is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.  Notwithstanding the foregoing, the Company shall be obligated to deliver to the Holder an originally executed Warrant.  No party hereto shall raise the use of a facsimile machine or e-mail delivery of a “.pdf” format data file to deliver a

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signature to this Warrant or any amendment hereto or the fact that such signature was transmitted or communicated through the use of a facsimile machine or e-mail delivery of a “.pdf” format data file as a defense to the formation or enforceability of a contract, and each party hereto forever waives any such defense.

[Signature Page Follows]

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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed as of the date first set forth above.

SELECT COMFORT CORPORATION

By:

Name:

Title:

Signature Page to Warrant

EXHIBIT A TO WARRANT

EXERCISE NOTICE

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT

SELECT COMFORT CORPORATION

The undersigned holder hereby exercises the right to purchase                            of the shares of Common Stock (“Warrant Shares”) of SELECT COMFORT CORPORATION, a Minnesota corporation (the “Company”), evidenced by the attached Warrant (the “Warrant”).  Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.

1.  Form of Warrant Exercise Price.  The holder intends that payment of the Warrant Exercise Price shall be made as:

o                            a “Cash Exercise” with respect to                            Warrant Shares; and/or

o                            a “Cashless Exercise” with respect to                            Warrant Shares.

2.  Payment of Warrant Exercise Price.  In the event that the holder has elected a Cash Exercise with respect to some or all of the Warrant Shares to be issued pursuant hereto, the holder shall pay the Aggregate Exercise Price in the sum of $                           to the Company in accordance with the terms of the Warrant.

3.  Exercise Notice Not Conclusive.  The exercise of the Warrant is conditioned upon the consummation of the following Exercise Trigger Transaction:                                                 *

4.  Delivery of Warrant Shares.  The Company shall deliver                            Warrant Shares arising from this Exercise Notice in accordance with the terms of the Warrant in the following name and to the following address:

Issue to:

Facsimile Number:

DTC Participant Number and Name (if electronic book entry transfer):

Account Number  (if electronic book entry transfer):

Date:                                ,            

Name of Registered Holder

By:

Name:

Title:

* No such condition applies if left blank

ACKNOWLEDGMENT

The Company hereby acknowledges this Exercise Notice and hereby directs [TRANSFER AGENT] to issue the above indicated number of shares of Common Stock in accordance with the Transfer Agent Instructions dated                           , 200   from the Company and acknowledged and agreed to by [TRANSFER-AGENT].

SELECT COMFORT CORPORATION

By:

Name:

Title:

EXHIBIT B TO WARRANT

FORM OF WARRANT POWER

FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to                           , Federal Identification No.                  , a warrant to purchase                            shares of the capital stock of Select Comfort Corporation, a Minnesota corporation, represented by warrant certificate no.             , standing in the name of the undersigned on the books of said corporation.  The undersigned does hereby irrevocably constitute and appoint                           , attorney to transfer the warrants of said corporation, with full power of substitution in the premises.

Dated:                            , 200  

Name:

Title:

Exhibit E

FORM OF CLOSING NOTICE

Sterling SC Investor, LLC

1033 Skokie Boulevard, Suite 600

Northbrook, Illinois 60062

(847) 480-4000

[INSERT DATE]

Select Comfort Corporation

9800 59th Avenue North

Minneapolis, Minnesota 55442

Attention:  William McLaughlin

Re:  Notice of Closing

Ladies and Gentlemen,

Reference is made to that certain Securities Purchase Agreement (the “Purchase Agreement”), dated as of October [    ], 2009, by and between Select Comfort Corporation (the “Company”) and Sterling SC Investor, LLC (the “Investor”).  Capitalized terms used, but not otherwise defined herein, shall have the meanings ascribed to them in the Purchase Agreement.

Pursuant to, and in accordance with, Section 1(a) of the Purchase Agreement, the Investor hereby elects to purchase from the Company the Common Shares and the Warrant on [INSERT DATE THAT IS NO LESS THAN FIVE BUSINESS DAYS FROM THE DATE OF THE INVESTOR CLOSING NOTICE], which date, for purposes of the Purchase Agreement, shall be the Closing Date.  This written notice is and shall serve, for purposes of the Purchase Agreement, as the Investor Closing Notice.

Payment of the Purchase Price shall be made by wire transfer to the following account, unless otherwise instructed by the Company in writing at least two (2) Business Days prior to the Closing Date:

[Subject to revision or updating upon instruction of Company]

The Investor hereby requests that the Company deliver the Common Shares in accordance with the terms of the Purchase Agreement in the following name and to the following address:

Issue to:

Facsimile Number:

DTC Participant Number and Name (if electronic book entry transfer):

Account Number  (if electronic book entry transfer):

Further, the Investor hereby requests that the Company issue the Warrant, in the name of [INSERT NAME OF THE INVESTOR OR ITS DESIGNEE], representing the right to purchase the Warrant Shares, and deliver the Warrant to the following address:                                                                       .

STERLING SC INVESTOR, LLC

By:

Name:

Title:

cc:	Mark Kimball, Select Comfort Corporation
	Thomas R. Marek, Oppenheimer Wolff Donnelly LLP

Exhibit F

INDICATIVE TERM SHEET

FOR DISCUSSION PURPOSES ONLY

This Indicative Term Sheet (the “Term Sheet”) sets out a summary of the principal terms in connection with a proposed Standby Purchase Agreement (the “Backstop Agreement”) to be entered into between one or more investment funds affiliated with Sterling Partners (“Sterling”) and Select Comfort Corporation (the “Company”) in connection with Sterling’s backstop of a rights offering to the shareholders of the Company (the “Rights Offering”).

The Term Sheet does not purport to summarize all the conditions, covenants, representations, warranties and other provisions which would be contained in definitive legal documentation for the Backstop Agreement.

RIGHTS OFFERING

Description:	Distribution to shareholders of the Company of subscription rights to subscribe for and purchase shares of the Company’s common stock (“Common Stock”) having an anticipated aggregate purchase price of up to $15 million. For the avoidance of doubt, Sterling, and each of its affiliates, including the Investor (as defined below), may participate in the Rights Offering with respect to shares of issued and outstanding Common Stock (as defined in the Securities Purchase Agreement (the “SPA”), by and between the Company and Sterling SC Investor, LLC (the “Investor”), entered into in connection with the Investor’s $10 million investment in the Company) beneficially owned by such person.
Over-Subscription Privilege:	Shareholders of the Company, participating in the Rights Offering shall be permitted to subscribe for and purchase, on a pro rata basis, shares not subscribed for by other shareholders of the Company (the “Oversubscription Right”).
Backstop Commitment:	Upon the request of the Company, Sterling shall purchase from the Company, at a price per share of Common Stock equal to the subscription price in the Rights Offering, a number of shares of Common Stock equal to the result of (a) the aggregate number of shares of Common Stock offered in the Rights Offering, minus (b) the number of shares of Common Stock subscribed for and purchased pursuant to the Rights Offering (after giving effect to the oversubscription privilege exercised by all shareholders), provided that the Rights Offering is completed on or before the date that is six (6) months after the closing date of the SPA , and the subscription price per share of Common Stock in the Rights Offering is less than or equal to the lesser of (a) $5.00 per share, and (b) 80% of the dollar volume-weighted average price for the Common Stock on the NASDAQ Global Select Market for the twenty (20) consecutive trading days ending on the trading day immediately preceding the date the Rights Offering is priced (the “Backstop Commitment”). The parties agree to negotiate in good faith and use commercially reasonable efforts to enter into a definitive Backstop Agreement. Sterling’s obligation to perform under the Backstop

	Commitment shall be subject to the satisfaction of customary terms and conditions set forth in the Backstop Agreement. In no event shall the Backstop Commitment exceed $5 million and it shall be reduced, dollar for dollar, by the amount for which Sterling has participated in the Rights Offering.
Registration Rights:	The Company will use commercially reasonable efforts to provide Sterling with customary registration rights to resell those shares of the Company acquired pursuant to the Backstop Commitment.  Notwithstanding the foregoing, the Company will not be required to register such shares if the registration would require shareholder approval under the rules of NASDAQ, or any other applicable law, rule or regulation.
Conditions:	The Backstop Agreement will contain customary representations, warranties, conditions, covenants and indemnity provisions.
Expenses:	The Company willreimburse Sterling for up to $30,000 of reasonable, actual, out-of-pocket expenses incurred by Sterling in connection with its participation in the Rights Offering.
Information:	The Company will use commercially reasonable efforts to inform Sterling about the progress and aggregate participation levels in the Rights Offering during the offering period.

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EX-10.2

Exhibit 10.2

Exhibit D

GUARANTEE

OF

STERLING CAPITAL PARTNERS III, L.P.

GUARANTEE, dated as of October 2, 2009 (this “Guarantee”), by Sterling Capital Partners III, L.P., a Delaware limited partnership (the “Guarantor”), in favor of Select Comfort Corporation, a Delaware corporation (the “Company”).

1.Guarantee. To induce the Company to enter into that certain Securities Purchase Agreement, dated as of October 2, 2009 (as amended, supplemented or otherwise modified from time to time, the “Purchase Agreement”; capitalized terms used without definition herein have the meanings ascribed to them in the Purchase Agreement), by and between the Company and Sterling SC Investor, LLC, a Delaware limited liability company (“Buyer”), pursuant to which Buyer shall have the right to purchase shares of Common Stock and a Warrant to acquire shares of Common Stock, the Guarantor absolutely, unconditionally and irrevocably guarantees to the Company, the due and punctual observance, payment, performance and discharge of all obligations of Buyer under the Purchase Agreement (the “Obligations”).

2.Nature of Guarantee. The Company shall not be obligated to file any claim relating to the Obligations in the event that Buyer becomes subject to a bankruptcy, reorganization or similar proceeding, and the failure of the Company to so file shall not affect the Guarantor’s obligations hereunder. In the event that any payment to the Company in respect of any Obligation is rescinded or must otherwise be returned for any reason whatsoever, the Guarantor shall remain liable hereunder with respect to such Obligation as if such payment had not been made. This is an unconditional guarantee of payment and not of collectibility. The Guarantor shall have, and reserves the right to assert, any defenses which Buyer may have to payment of any Obligations other than defenses arising from the bankruptcy or insolvency of Buyer, fraudulent conveyance or fraudulent transfer, moratorium, reorganization or other statutes or proceedings affecting creditors rights generally and other defenses expressly waived hereby.

3.Changes in Obligations, Certain Waivers. The Guarantor agrees that the Company may at any time and from time to time, without notice to or further consent of the Guarantor, extend the time of payment of any of the Obligations, and may also make any agreement with Buyer for the extension, renewal, payment, compromise, discharge or release thereof, in whole or in part, or for any modification of the terms thereof or of any agreement between the Company and Buyer without in any way impairing or affecting this Guarantee. The Guarantor agrees that the obligations of the Guarantor hereunder shall not be released or discharged, in whole or in part, or otherwise affected by (a) the failure of the Company to assert any claim or demand or to enforce any right or remedy against Buyer or any other Person interested in the transactions contemplated by the Purchase Agreement; (b) any change in the time, place or manner of payment of any of the Obligations or any rescission, waiver, compromise, consolidation or other amendment or modification of any of the terms or provisions of the Purchase Agreement or any other agreement evidencing, securing or otherwise executed in connection with any of the Obligations, (c) the addition, substitution or release of any other Person interested in the transactions contemplated by the Purchase Agreement; (d) any change in the corporate existence, structure or ownership of Buyer or any other Person interested in the transactions contemplated by the Purchase Agreement; (e) any insolvency, bankruptcy, reorganization or other similar

proceeding affecting Buyer or any other Person interested in the transactions contemplated in the Purchase Agreement; (f) the existence of any claim, set-off or other rights which the Guarantor may have at any time against Buyer, whether in connection with the Obligations or otherwise; or (g) the adequacy of any other means the Company may have of obtaining payment of the Obligations. The Guarantor waives promptness, diligence, notice of the acceptance of this Guarantee and of the Obligations, presentment, demand for payment, notice of non-performance, default, dishonor and protest, notice of any Obligations incurred and all other notices of any kind (except for notices to be provided to Buyer in accordance with the Purchase Agreement), all defenses which may be available by virtue of any valuation, stay, moratorium law or other similar law now or hereafter in effect, any right to require the marshalling of assets of Buyer or any other Person interested in the transactions contemplated by the Purchase Agreement, and all suretyship defenses generally (other than (i) fraud or willful misconduct by the Company or any of its Subsidiaries or (ii) any defenses to the payment or performance of the Obligations that are available to Buyer under the Purchase Agreement or (iii) breach by the Company of this Guarantee). The Guarantor acknowledges that it will receive substantial direct and indirect benefits from the transactions contemplated by the Purchase Agreement and that the waivers set forth in this Guarantee are knowingly made in contemplation of such benefits. Notwithstanding anything to the contrary contained in this Guarantee, the Company hereby agrees that, to the extent Buyer is relieved of any Obligation under the Purchase Agreement (other than by reason of bankruptcy or insolvency of the Buyer, fraudulent transfer, fraudulent conveyance, moratorium, reorganization and other defenses expressly waived hereby), the Guarantor shall be similarly relieved of such Obligation under this Guarantee.

4.No Waiver.  No failure on the part of the Company to exercise, and no delay in exercising, any right, remedy or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise by the Company of any right, remedy or power hereunder preclude any other or future exercise of any right, remedy or power hereunder.

5.Representations and Warranties. The Guarantor hereby represents and warrants that:

a.the execution, delivery and performance of this Guarantee have been duly authorized by all necessary action and do not contravene any provision of the Guarantor’s partnership agreement, operating agreement or similar organizational documents or any law, regulation, rule, decree, order, judgment or contractual restriction binding on the Guarantor or its assets;

b.all consents, approvals, authorizations and permits of, filings with and notifications to, any governmental authority necessary for the due execution, delivery and performance of this Guarantee by the Guarantor have been obtained or made and all conditions thereof have been duly complied with, and no other action by, and no notice to or filing with, any governmental authority or regulatory body is required in connection with the execution, delivery or performance of this Guarantee;

c.this Guarantee constitutes a legal, valid and binding obligation of the Guarantor enforceable against the Guarantor in accordance with its terms, subject to (i) the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws

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affecting creditors’ rights generally, and (ii) general equitable principles (whether considered in a proceeding in equity or at law);

d.this Guarantee does not constitute a breach or event of default under any other agreement to which the Guarantor is a party, except as would not have a material adverse effect on the Guarantor’s ability to perform its obligations hereunder; and

e.the Guarantor has the financial capacity to pay and perform its obligations under this Guarantee, and all funds necessary for the Guarantor to fulfill its Obligations under this Guarantee shall be available to the Guarantor for so long as this Guarantee shall remain in effect in accordance with Section 8 hereof.

6.No Assignment. Neither the Guarantor nor the Company may assign its rights, interests or obligations hereunder to any other Person (except by operation of law) without the prior written consent of the other party hereto, as the case may be; provided, however, that the Guarantor may assign all or a portion of its obligations hereunder to an affiliate or to an entity managed or advised by an affiliate of the Guarantor, provided that no such assignment shall relieve the Guarantor of any liability or obligation hereunder except to the extent of amounts actually received by the Company from the assignee.

7.Notices. All notices and other communications hereunder will be effective (a) if delivered by hand or overnight courier, when such delivery is made at the address specified in this Section, or (b) if delivered by facsimile, when such facsimile is transmitted to the facsimile number specified in this Section and appropriate confirmation is received. Any notice, request, instruction or other communication to the Guarantor hereunder shall be in writing and delivered by hand or overnight courier service or by facsimile:

To the Guarantor:

Sterling Capital Partners III, L.P.

1033 Skokie Boulevard, Suite 600

Northbrook, Illinois 60062

Attention:  Office of General Counsel

Facsimile:  (847) 480-0199

With a copy to (which shall not constitute notice):

Katten Muchin Rosenman LLP

525 W. Monroe Street

Chicago, Illinois 60661-3693

Attention:   Jeffrey R. Patt, Esq.

                   Mark D. Wood, Esq.

Facsimile:  (312) 902-1061

or to such other address or facsimile number as the Guarantor shall have notified the Company in a written notice delivered to the Company in accordance with the Purchase Agreement. All notices to the Company hereunder shall be delivered as set forth in the Purchase Agreement.

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8.Continuing Guarantee. This Guarantee shall remain in full force and effect and shall be binding on the Guarantor, its successors and assigns until all amounts payable under this Guarantee have been indefeasibly paid or satisfied in full. Notwithstanding the foregoing, this Guarantee shall terminate and the Guarantor shall have no further obligations under this Guarantee as of the earliest of (a) the Closing of the Transactions, (b) the termination of the Purchase Agreement in accordance with its terms by mutual consent of the parties or otherwise under circumstances in which Buyer would thereafter have no liability to the Company for any Obligation under the Purchase Agreement, or (c) the first anniversary of any termination of the Purchase Agreement in accordance with its terms, except as to a claim for payment of any Obligation presented by the Company to Buyer prior to such first anniversary.  Notwithstanding the foregoing, in the event that the Company or any of its affiliates asserts in any litigation or other proceeding that the provisions of this Section 8 or Section 9 hereof are illegal, invalid or unenforceable in whole or in part, or asserting any theory of liability against the Guarantor or any Affiliate of the Guarantor with respect to the transactions contemplated by the Purchase Agreement other than the liability of the Guarantor under this Guarantee, then (i) the obligations of the Guarantor under this Guarantee shall terminate ab initio and be null and void, and (ii) if the Guarantor has previously made any payments under this Guarantee, it shall be entitled to recover such payments; provided, however, that if the Guarantor asserts in any litigation or other proceeding that this Guarantee is illegal, invalid or unenforceable in accordance with its terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws affecting creditors’ rights generally and to general equitable principles (whether considered in a proceeding in equity or at law), then, to the extent the Company prevails in such litigation or proceeding, the Guarantor shall pay on demand all reasonable fees and out-of-pocket expenses of the Company in connection with such litigation or proceeding.

9.No Recourse.

a.The Company acknowledges that the sole assets of Buyer are cash in a de minimus amount and its rights under the Purchase Agreement, and that no additional funds are expected to be contributed to Buyer unless and until the Closing occurs. Notwithstanding anything that may be expressed or implied in this Guarantee or any document or instrument delivered contemporaneously herewith, and notwithstanding the fact that the Guarantor may be a limited partnership, by its acceptance of the benefits of this Guarantee, the Company acknowledges and agrees that, other than with respect to the Company’s rights under this Guarantee, it has no right of recovery against, and no liability shall attach to, the former, current or future stockholders, directors, officers, employees, agents, affiliates, members, managers, general or limited partners or assignees of the Guarantor or Buyer or any former, current or future stockholder, director, officer, employee, general or limited partner, member, manager, affiliate, agent or assignee of any of the foregoing (collectively, but not including the Guarantor, each an “Affiliate”), or, other than its right to recover from the Guarantor for up to the amount of the Obligations (subject to the limitations described herein), the Guarantor, through Buyer or otherwise, whether by or through attempted piercing of the limited partnership veil, by or through a claim by or on behalf of Buyer against an Affiliate or the Guarantor arising under, or in connection with, the Purchase Agreement or the transactions contemplated thereby or otherwise relating thereto, by the enforcement of any assessment or by any legal or equitable proceeding, by virtue of any statute, regulation or applicable law, or otherwise. The Company

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hereby covenants and agrees that it shall not institute, directly or indirectly, and shall cause its respective affiliates not to institute, any proceeding or bring any other claim arising under, or in connection with, the Purchase Agreement or the transactions contemplated thereby or otherwise relating thereto, against an Affiliate or, other than its right to recover from the Guarantor for up to the amount of the Obligations (subject to the limitations described herein), the Guarantor.

b.Recourse against the Guarantor under this Guarantee pursuant to their written guarantees delivered contemporaneously herewith shall be the sole and exclusive remedy of the Company against the Guarantor and any Affiliates in respect of any liabilities or obligations arising under, or in connection with, the Purchase Agreement or the transactions contemplated thereby or hereby or otherwise relating thereto or hereto. Nothing set forth in this Guarantee shall confer or give or shall be construed to confer or give to any Person other than the Guarantor and the Company (including any Person acting in a representative capacity) any rights or remedies against any Person other than the Company and the Guarantor as expressly set forth herein.

c.For all purposes of this Guarantee, a Person shall be deemed to have pursued a claim against another Person if such first Person brings a legal action against such Person, adds such other Person to an existing legal proceeding, or otherwise asserts a legal claim of any nature against such Person.

d.The Company acknowledges that the Guarantor is agreeing to enter into this Guarantee in reliance on the provisions set forth in this Section 9. This Section 9 shall survive termination of this Guarantee.

10.Governing Law. This Guarantee will be governed by, and construed in accordance with, the laws of the State of Delaware, without giving effect to any applicable principles of conflict of laws that would cause the laws of another State to otherwise govern this Guarantee. Each of the parties hereto irrevocably agrees that any legal action or proceeding with respect to this Guarantee and the rights and obligations arising hereunder, or for recognition and enforcement of any judgment in respect of this Guarantee and the rights and obligations arising hereunder brought by the other party hereto or its successors or assigns shall be brought and determined exclusively in any state or federal court in the State of Delaware.  Each of the parties hereto agrees that mailing of process or other papers in connection with any such action or proceeding in the manner provided in Section 7 or in such other manner as may be permitted by applicable laws, will be valid and sufficient service thereof.  Each of the parties hereto hereby irrevocably submits with regard to any such action or proceeding for itself and in respect of its property, generally and unconditionally, to the personal jurisdiction of the aforesaid courts and agrees that it will not bring any action relating to this Guarantee or any of the transactions contemplated by this Guarantee in any court or tribunal other than the aforesaid courts.  Each of the parties hereto hereby irrevocably waives, and agrees not to assert, by way of motion, as a defense, counterclaim or otherwise, in any action or proceeding with respect to this Guarantee and the rights and obligations arising hereunder, or for recognition and enforcement of any judgment in respect of this Guarantee and the rights and obligations arising hereunder (i) any claim that it is not personally subject to the jurisdiction of the above named courts for any reason other than the failure to serve process in accordance with this Section 10, (ii) any claim that it or its property is exempt or immune from jurisdiction of any such court or from any legal process commenced in such courts (whether through service of notice, attachment prior to judgment, attachment in aid

5

of execution of judgment, execution of judgment or otherwise) and (iii) to the fullest extent permitted by the applicable law, any claim that (x) the suit, action or proceeding in such court is brought in an inconvenient forum, (y) the venue of such suit, action or proceeding is improper or (z) this Guarantee, or the subject matter hereof, may not be enforced in or by such courts.

11.WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS GUARANTEE OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY.

12.Counterparts; Effectiveness. This Guarantee may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to each other party.  In the event that any signature to this Guarantee or any amendment hereto is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.  No party hereto shall raise the use of a facsimile machine or e-mail delivery of a “.pdf” format data file to deliver a signature to this Guarantee or any amendment hereto or the fact that such signature was transmitted or communicated through the use of a facsimile machine or e-mail delivery of a “.pdf” format data file as a defense to the formation or enforceability of a contract and each party hereto forever waives any such defense.

[Signature page follows]

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IN WITNESS WHEREOF, the Guarantor and the Company have caused this Guarantee to be executed and delivered as of the date first written above by its officer thereunto duly authorized.

STERLING CAPITAL PARTNERS III, L.P.
By: SC Partners III, L.P.
Its: General Partner
By: Sterling Capital Partners III, LLC
Its: General Partner
By:	/s/ R. Christopher Hoehn-Saric
Name:	R. Christopher Hoehn-Saric
Title:	Senior Managing Director

Accepted and Agreed to:
SELECT COMFORT CORPORATION
By:	/s/ James Raabe
Name:	James Raabe
Its:	Chief Financial Officer

EX-10.3

Exhibit 10.3

Exhibit A

SETTLEMENT, MUTUAL TERMINATION AND GENERAL RELEASE

This Settlement, Mutual Termination and General Release (the “Agreement”) is entered into as of October 2, 2009 between Select Comfort Corporation, a Minnesota corporation (“Select Comfort”), on the one hand, and Sterling SC Investor, LLC, a Delaware limited liability company (“Investor”), and Sterling Capital Partners III, L.P., a Delaware limited partnership, on the other (together with Investor, “Sterling”); Select Comfort and Sterling are referred to collectively as the “Parties” and each individually as a “Party.”

RECITALS

WHEREAS, on May 22, 2009, Select Comfort and Investor entered into a Securities Purchase Agreement (the “SPA”) (capitalized terms used but not otherwise defined herein shall have the respective meanings provided for such terms in the SPA), and Sterling Capital Partners III, L.P. provided a Guarantee with respect to the SPA;

WHEREAS, the SPA conditions each Party’s obligation to effectuate the transactions contemplated by the SPA upon the approval of the affirmative vote of the holders of the greater of (1) a majority of the voting power of the shares of Select Comfort common stock present in person or represented by proxy and entitled to vote on the SPA at a duly called meeting of the shareholders, and (2) a majority of the voting power of the minimum number of the shares of Select Comfort common stock entitled to vote that would constitute a quorum for the transaction of such business at the meeting (“Shareholder Approval”);

WHEREAS, the SPA permits either Party to terminate the SPA if the SPA has been submitted to the Select Comfort shareholders and has failed to obtain Shareholder Approval;

WHEREAS, on August 27, 2009, Select Comfort convened a special meeting of shareholders (the “Shareholder Meeting”) for the purpose of voting on the SPA (the “Shareholder Meeting”);

WHEREAS, according to Select Comfort, the SPA failed to obtain Shareholder Approval at the Shareholder Meeting;

WHEREAS, on September 1, 2009, Investor commenced an action in the Court of Chancery of the State of Delaware (the “Delaware Court”) against Select Comfort, styled Sterling SC Investor, LLC v. Select Comfort Corp., C.A. No. 4855-CC (the “Litigation”), for injunctive relief seeking, among other things, a recount of the shareholder vote at the Shareholder Meeting and an injunction preventing Select Comfort from terminating the SPA;

WHEREAS, Sterling SC Investor, LLC and Select Comfort have negotiated a new Securities Purchase Agreement (the “New SPA”), which is dated as of the same date as this Agreement;

WHEREAS, subsequent to the commencement of the Litigation, counsel for the Parties engaged in arm’s length discussions and negotiations regarding a potential resolution of the claims asserted and relief sought in the Litigation;

WHEREAS, Select Comfort denies all allegations of wrongdoing, fault, liability or damage to Sterling, denies that it engaged in any wrongdoing, denies that it committed any violation of law or contract, denies that it acted improperly in any way, believes that it acted properly at all times, believes the Litigation has no merit, and maintains that it has committed no breach of any obligation to Sterling, but wishes to settle solely for the reasons set forth herein;

WHEREAS, Sterling denies all allegations of wrongdoing, fault, liability or damage to Select Comfort, denies that it engaged in any wrongdoing, denies that it committed any violation of law or contract, denies that it acted improperly in any way, believes that it acted properly at all times, believes the Litigation has merit, and maintains that it has committed no breach of any obligation to Select Comfort, but wishes to settle solely for the reasons set forth herein;

WHEREAS, each of the Parties recognizes the inconvenience, time and expense that would be incurred by continued litigation; and

WHEREAS, the Parties believe that an out-of-court resolution is in their best interests and therefore wish to settle and resolve the claims asserted in the Litigation on the terms set forth below.

AGREEMENT

NOW, THEREFORE, in consideration of the mutual promises and obligations contained herein, the receipt and sufficiency of which is hereby acknowledged, the Parties agree as follows:

A.Dismissal Of The Litigation

Immediately upon the execution and delivery of this Agreement by all the Parties, Sterling shall file with the Delaware Court a notice, in the form attached as Exhibit A, which voluntarily dismisses the Litigation with prejudice, with each side to bear its own attorneys’ fees, costs and expenses.

B.Termination Of The SPA

1.Upon the execution and delivery of this Agreement by all the Parties, Select Comfort and Sterling hereby terminate the SPA pursuant to, and in accordance with the terms of, Section 12(a) of the SPA.

2.Contemporaneously with the execution and delivery of the New SPA, Select Comfort is delivering a payment to Sterling in the amount of $1,750,000, by wire transfer of immediately available funds to an account designated by Sterling as reimbursement for the out-of-pocket expenses incurred by Sterling and its affiliates in connection with the SPA, the New SPA and the transactions contemplated thereby (the “Expense Reimbursement”).  Sterling acknowledges and agrees that the delivery of the Expense Reimbursement to Sterling and the

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execution and delivery of the New SPA shall constitute the full and final satisfaction of any and all obligations of Select Comfort owed to Sterling under the SPA.

C.Effect Of Termination; Mutual Release Of Claims

1.Upon the execution and delivery of this Agreement by all the Parties, the delivery of the Expense Reimbursement to Sterling and with no further action by any Party, Sterling on behalf of itself and each of its parents, affiliates, predecessors, successors and assigns, and on behalf of each of their respective current and former officers, directors, managers, members, partners, employees, agents and other representatives in their capacity as such (collectively the “Sterling Releasing Parties”), shall be deemed to have, and by operation of law shall have, irrevocably waived, released and forever discharged Select Comfort and any of its parent entities, controlling persons, associates, affiliates or subsidiaries and each and all of their respective past, present or future officers, directors, principals, representatives, employees, attorneys, financial or investment advisors, insurers, co-insurers and re-insurers, consultants, accountants, investment bankers, commercial bankers, underwriters, brokers, dealers, advisors or agents, heirs, executors, trustees, general or limited partners or partnerships, limited liability companies, members, joint ventures, personal or legal representatives, estates, administrators, predecessors, successors and assigns (collectively the “Select Comfort Released Parties”) from any and all manner of claims, demands, rights, liabilities, losses, obligations, duties, damages, costs, debts, expenses, interest, penalties, sanctions, fees, attorneys’ fees, actions, potential actions, causes of action, suits, agreements, judgments, decrees, matters, issues and controversies of any kind, nature or description whatsoever, whether known or unknown, disclosed or undisclosed, accrued or unaccrued, apparent or not apparent, foreseen or unforeseen, matured or not matured, suspected or unsuspected, liquidated or not liquidated, fixed or contingent, including Unknown Claims (defined below), that any or all Sterling Releasing Parties ever had, now have, or may have, or otherwise could, can, or might assert, whether direct, derivative, individual, class, representative, legal, equitable or of any other type, or in any other capacity, against any of the Select Comfort Released Parties, whether based on state, local, foreign, federal, statutory, regulatory, common or other law or rule (including but not limited to any claims under federal securities laws or state disclosure law or any claims that could be asserted derivatively on behalf of Select Comfort), which, now or hereafter, are based upon, arise out of, relate in any way to, or involve, directly or indirectly, any of the actions, transactions, occurrences, statements, representations, misrepresentations, omissions, allegations, facts, practices, events, claims or any other matters, things or causes whatsoever, or any series thereof, that were, could have been, or in the future can or might be alleged, asserted, set forth, claimed, embraced, involved, or referred to in, or related to, directly or indirectly, the SPA and the transactions contemplated by the SPA, the Shareholder Meeting, the Shareholder Approval, the Litigation or the subject matter of the Litigation in any court, tribunal, forum or proceeding, including, without limitation, any and all claims which are based upon, arise out of, relate in any way to, or involve, directly or indirectly, (i) any actions, deliberations, or negotiations in connection with the SPA, including communications by Select Comfort and/or Sterling to the Select Comfort shareholders relating to the SPA, (ii) any conduct of any Select Comfort Released Party in connection with the Shareholder Meeting or the solicitation of the Shareholder Approval, (iii) the fees, expenses or costs incurred in prosecuting, defending or settling the Litigation, or (iv) any of the allegations in any of the complaints filed in the Litigation (collectively, the “Sterling Released Claims”); provided, however, that the Sterling Released

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Claims shall not include the right to enforce this Agreement or any obligation under or related to the New SPA or the Transaction.

2.Upon the execution and delivery of this Agreement by all the Parties, the delivery of the Expense Reimbursement to Sterling, and with no further action by any Party, Select Comfort on behalf of itself and each of its parents, affiliates, predecessors, successors and assigns, and on behalf of each of its respective current and former officers, directors, managers, members, employees, agents and other representatives in their capacity as such (collectively the “Select Comfort Releasing Parties”), shall be deemed to have, and by operation of law shall have, irrevocably waived, released and forever discharged Sterling and all of its respective parent entities, controlling persons, associates, affiliates and subsidiaries and each and all of their respective past, present or future officers, directors, principals, representatives, employees, attorneys, financial or investment advisors, insurers, co-insurers and re-insurers, consultants, accountants, investment bankers, commercial bankers, underwriters, brokers, dealers, advisors and agents, heirs, executors, trustees, general or limited partners or partnerships, limited liability companies, members, managers, partners, joint ventures, personal and legal representatives, estates, administrators, predecessors, successors and assigns (collectively the “Sterling Released Parties”) from any and all manner of claims, demands, rights, liabilities, losses, obligations, duties, damages, costs, debts, expenses, interest, penalties, sanctions, fees, attorneys’ fees, actions, potential actions, causes of action, suits, agreements, judgments, decrees, matters, issues and controversies of any kind, nature or description whatsoever, whether known or unknown, disclosed or undisclosed, accrued or unaccrued, apparent or not apparent, foreseen or unforeseen, matured or not matured, suspected or unsuspected, liquidated or not liquidated, fixed or contingent, including Unknown Claims (defined below), that any or all Select Comfort Releasing Parties ever had, now have, or may have, or otherwise could, can, or might assert, whether direct, derivative, individual, class, representative, legal, equitable or of any other type, or in any other capacity, against any of the Sterling Released Parties, whether based on state, local, foreign, federal, statutory, regulatory, common or other law or rule (including but not limited to any claims under federal securities laws or state disclosure law or any claims that could be asserted derivatively on behalf of Sterling), which, now or hereafter, are based upon, arise out of, relate in any way to, or involve, directly or indirectly, any of the actions, transactions, occurrences, statements, representations, misrepresentations, omissions, allegations, facts, practices, events, claims or any other matters, things or causes whatsoever, or any series thereof, that were, could have been, or in the future can or might be alleged, asserted, set forth, claimed, embraced, involved, or referred to in, or related to, directly or indirectly, the SPA and the transactions contemplated by the SPA, the Shareholder Meeting, the Shareholder Approval, the Litigation or the subject matter of the Litigation in any court, tribunal, forum or proceeding, including, without limitation, any and all claims which are based upon, arise out of, relate in any way to, or involve, directly or indirectly, (i) any actions, deliberations, or negotiations in connection with the SPA, including communications by Select Comfort and/or Sterling to the Select Comfort shareholders, (ii) any conduct of any Sterling Released Party in connection with the Shareholder Meeting or the solicitation of the Shareholder Approval, (iii) the fees, expenses or costs incurred in prosecuting, defending or settling the Litigation, or (iv) any of the allegations in any of the complaints filed in the Litigation (collectively, the “Select Comfort Released Claims”); provided, however, that the Select Comfort Released Claims shall not include the right to enforce this Agreement or any obligation under or related to the New SPA or the Transaction.

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3.“Unknown Claims” means any claim that a Party does not know or suspect exists in its favor at the time of the release of claims pursuant to this Agreement, including without limitation those which, if known, might have affected either Party’s decision to enter into this Agreement.  With respect to any of the Sterling Released Claims and Select Comfort Released Claims, the Parties agree that, immediately upon the execution of this Agreement, the delivery of the Expense Reimbursement to Sterling, and with no further action by any Party, the Sterling Releasing Parties and the Select Comfort Releasing Parties shall have expressly waived, relinquished and released any and all provisions, rights and benefits conferred by or under CAL. CIV. CODE § 1542 or any law of the United States or any state of the United States or territory of the United States, or principle of common law, which is similar, comparable or equivalent to CAL. CIV. CODE § 1542, which provides: “A general release does not extend to claims which the creditor does not know or suspect exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.”  Each of the Parties, on behalf of itself and the other Sterling Releasing Parties and Select Comfort Releasing Parties, respectively, expressly acknowledges that it or its attorneys may discover claims, damages, facts or law in addition to or different from those now known or believed to be true, but that it is each Party’s intention, upon execution of this Agreement, the delivery of the Expense Reimbursement to Sterling and with no further action by any Party, to completely, fully, finally and forever settle and release each and every matter released in this Agreement, known or unknown, suspected or unsuspected, which now exist, or heretofore existed, or may hereafter exist, and without regard to the subsequent discovery of additional or different facts.  Each of the Parties expressly acknowledges that the inclusion of “Unknown Claims” was separately bargained for by the other Party, is a key element of this Agreement, and was relied upon by the other Party in entering into this Agreement.

D.Covenant Not to Sue

1.Sterling hereby covenants to the Select Comfort Released Parties not to, with respect to any Sterling Released Claim, directly or indirectly encourage or solicit or voluntarily assist or participate in any way in the filing, reporting or prosecution by any person, including Patrick A. Hopf, Clinton Group, Inc. and Clinton Magnolia Master Fund, Ltd., of a suit, arbitration, mediation or claim (including any third party or derivative claim) against any Select Comfort Released Party relating to any Sterling Released Claim.  Notwithstanding the foregoing, Sterling may comply with the requirements imposed on it through the issuance of a subpoena, court order, or other compulsory process of law (each, a “Legal Order”) provided, that (i) the Legal Order is a valid order of a court or governmental agency of competent jurisdiction, (ii) Sterling promptly notifies Select Comfort that it received a Legal Order, and (iii) Sterling takes all actions that are reasonable and necessary for it to comply, to the maximum extent possible, with its obligations under this Agreement.  Sterling may reimburse Mr. Hopf for costs and expenses incurred by him but only to the extent that such costs and expenses were incurred prior to the date of this Agreement and in connection with litigation relating to the Shareholder Meeting and indemnify Mr. Hopf with respect thereto.  The covenants contained in this Section D(1) shall survive this Agreement indefinitely regardless of any statute of limitations.

2.Select Comfort hereby covenants to the Sterling Released Parties not to, with respect to any Select Comfort Released Claim, directly or indirectly encourage or solicit or

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voluntarily assist or participate in any way in the filing, reporting or prosecution by any person of a suit, arbitration, mediation or claim (including any third party or derivative claim) against any Sterling Released Party relating to any Select Comfort Released Claim.  The covenants contained in this Section D(2) shall survive this Agreement indefinitely regardless of any statute of limitations.

E.Non-Disparagement And Public Statements

1.No Party shall make or knowingly encourage any other person to make directly or indirectly any public or private statement, whether written or oral, that disparages, defames, is critical of, or misrepresents (a) the respective rights and obligations of the Parties under the SPA, (b) the conduct of the Parties relating to the SPA, the solicitation of the Shareholder Approval or the Shareholder Meeting, or (c) the facts that are the subject of the allegations made in the Litigation; provided, however, that nothing herein shall prohibit any statement required to be made to respond to any legal or regulatory process or proceeding, to give testimony under oath or to file any necessary documents in any legal or administrative proceeding arising out of or relating to the SPA or its termination.

2.Each of the Parties may issue a press release announcing the execution of this Agreement shortly after its execution by all the Parties, which press releases shall be subject to the prior review and approval of the other Party, which approval shall not be unreasonably withheld.  Other than as a Party may determine it necessary to respond to any legal or regulatory process or proceeding, to give testimony under oath, or to file any necessary documents in any legal or regulatory proceeding or as may be required by law, each of the Parties will use its reasonable best efforts not to make any public statements (including in any filing with the SEC or any other regulatory or governmental agency, including any stock exchange) that are inconsistent with, or otherwise contrary to, the jointly approved statements in the press release(s) issued pursuant to this Section E.

F.No Admission; Evidentiary Effect Of Settlement

The Parties are entering into this Agreement solely because the proposed settlement will eliminate the burden and risks associated with continuing litigation.  Neither this Agreement nor the fact or any terms of this Agreement, nor the settlement proceedings, nor the settlement negotiations, nor statements in connection therewith, nor any related documents shall:

1.constitute or constitute evidence of an admission or concession by any person regarding any claims, damages, liability or wrongdoing or damages whatsoever;

2.be used or construed as an admission or other evidence of any fault, liability or wrongdoing by or damage to any person, other than such proceedings as may be necessary to consummate or enforce this Settlement Agreement; or

3.be argued to be, or offered or received in evidence as, an admission, concession, presumption or inference against any person in any proceeding, other than such proceedings as may be necessary to consummate or enforce this Settlement Agreement.

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G.Validity And Due Consideration

Each Party represents and warrants to each other Party that: (i) it is duly authorized to execute and deliver this Agreement and no further corporate or other authorizations (including any director, shareholder or member approvals) are required for such Party’s execution, delivery and performance of this Agreement; and (ii) this Agreement constitutes a legal, valid and binding obligation of it, enforceable in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, moratorium or other similar laws affecting creditors’ rights generally and by general principles of equity.

H.Notice

Any notices or other communications required or permitted under this Settlement Agreement (“Notices”) shall be in writing and delivered by overnight courier or personal delivery to the intended recipient (the “Notice Party”) at the addresses set forth below.  All Notices shall be deemed given when delivered to the address designated below, addressed to the attention of the person or persons designated below:

1.If to Select Comfort:

Select Comfort Corporation

9800 59th Avenue North

Minneapolis, Minnesota 55442

Attention: William McLaughlin, and Mark Kimball, Esq.

Facsimile: (763) 551-6888

With a copy to (which shall not constitute notice):

Oppenheimer Wolff Donnelly LLP

Plaza VII, Suite 3300

45 South Seventh Street

Minneapolis, MN 55402-1609

Attention: Thomas R. Marek, Esq.

Facsimile: (612) 607-7100

2.If to Sterling:

Sterling SC Investor, LLC

1033 Skokie Boulevard

Suite 600

Northbrook, Illinois 60062

Attention: Office of

General Counsel

Facsimile: (847) 480-0199

With a copy to (which shall not constitute notice):

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Katten Muchin Rosenman LLP

525 W. Monroe Street

Chicago, Illinois 60661-3693

Attention: Jeffrey R. Patt, Esq., and Mark D. Wood, Esq.

Facsimile: (312) 902-1061

The above designated names and addresses may be changed by written notice delivered in the manner prescribed in this section.

I.Miscellaneous Provisions

1.This Agreement may be amended, waived or modified only by a written instrument signed by all Parties hereto or their successors.

2.The Parties represent and agree that the terms of the Agreement were negotiated at arm’s length and in good faith by the Parties, and reflect a settlement that was reached voluntarily based upon adequate information and sufficient discovery and after consultation with experienced legal counsel.

3.The waiver by any Party of any breach of this Agreement by any other Party shall not be deemed a waiver of that or any other prior or subsequent breach of any provision of this Agreement by any other Party.

4.This Agreement constitutes the entire agreement among the Parties with respect to the subject matter hereof, and no representations, warranties or inducements have been made to or relied upon by any Party concerning this Agreement, other than the representations, warranties and covenants expressly set forth in this Agreement and the New SPA and any other Transaction agreement contemplated thereby.

5.This Agreement may be executed and delivered in one or more counterparts, each of which when executed and delivered shall be deemed to be an original, but all of which taken together shall constitute one and the same Agreement.  No Party shall be bound by this Agreement unless and until it has been executed and delivered by all of the Parties.

6.This Agreement shall be binding upon and shall inure to the benefit of the successors and assigns of the Parties hereto, including any and all of the Select Comfort Released Parties and Sterling Released Parties, and any corporation, partnership, or other entity into or with which any Party hereto may merge, consolidate or reorganize.

7.The Parties agree that they have been represented by counsel during the negotiation, drafting, preparation and execution of this Agreement and, therefore, waive the application of any law or rule of construction providing that ambiguities in an agreement or other document will be construed against the party drafting such agreement or document.

8.Each Party hereto represents and warrants that he or it is the legal owner of all rights and claims attributable to it that are the subject matter of this Agreement and that there has

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been no assignment, hypothecation or transfer by operation of law or otherwise of any such rights or claims.

9.The Parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached.  It is accordingly agreed that each of the Parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement, this being in addition to any other remedy to which they are entitled at law or in equity, without the necessity of posting bonds or other undertaking in connection therewith.  The Parties acknowledge that in the absence of a waiver, a bond or undertaking may be required by a court, and the Parties hereby waive any such requirement of such a bond or undertaking.

10.Notwithstanding the terms of Section B.1. of this Agreement, Select Comfort and Sterling hereby acknowledge and agree that, for federal and state income tax purposes only, the New SPA and the transactions contemplated thereby, including this Agreement, originate with and relate back tothe SPA, and each party shall file all tax returns in a manner consistent with such treatment. Select Comfort shall not file an IRS Form 1099 MISC (or any other series 1099 form) as no income or gain shall be deemed realized by Sterling, or expense or deduction realized by Select Comfort other than the Expense Reimbursement, in connection with the New SPA, and the transactions contemplated thereby, including this Agreement.

11.This Agreement and the transactions contemplated by this Agreement, and all disputes between the Parties under or related to this Agreement or the facts and circumstances leading to its execution, whether in contract, tort or otherwise, shall be governed by, construed and enforced in accordance with the internal laws of the State of Delaware, without reference to conflict of laws principles.

12.Each of the Parties to this Agreement (a) irrevocably submits itself to the personal jurisdiction of any state or federal court sitting in Wilmington, Delaware, as well as to the jurisdiction of all courts to which an appeal may be taken from such courts, in any suit, action or proceeding arising out of or relating to this Agreement or any of the transactions contemplated by this Agreement, (b) agrees that all claims in respect of such suit, action or proceeding shall be brought, heard and determined exclusively in the Delaware Court of Chancery (provided that, in the event that subject matter jurisdiction is unavailable in that court, then all such claims shall be brought, heard and determined exclusively in any other state or federal court sitting in Wilmington, Delaware), (c) agrees that it shall not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from such court, (d) agrees not to bring any action or proceeding arising out of or relating to this Agreement or any of the transactions contemplated by this Agreement in any other court, and (e) expressly waives, and agrees not to plead or to make any claim that any such action or proceeding is subject (in whole or in part) to a jury trial.  Each of the Parties hereto waives any defense of inconvenient forum to the maintenance of any action or proceeding brought in accordance with this paragraph.  Each of the Parties further agrees to waive any bond, surety or other security that might be required of any other party with respect to any action or proceeding, including an appeal thereof.

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13.All titles, headings and captions herein are solely for the convenience of the Parties, and the same shall not be used or construed to interpret or alter the substantive provisions of the paragraphs and subparagraphs to which they pertain.

14.If any provision of this Agreement or the application thereof to any person or circumstance is held invalid or unenforceable, the remainder of this Agreement, and the application of such provision to other persons or circumstances, shall not be affected thereby, and to such end, the provisions of this Agreement are agreed to be severable.

***

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IN WITNESS WHEREOF, the parties hereto have caused this Settlement, Mutual Termination and General Release to be executed on their behalf.

SELECT COMFORT CORPORATION
By:	/s/ James Raabe
Name:	James Raabe
Title:	Chief Financial Officer
STERLING SC INVESTOR, LLC
By:	Sterling Capital Partners III, LP
Its:	Sole Member
By:	SC Partners III, LP
Its:	General Partner
By:	Sterling Capital Partners III, LLC
Its:	General Partner
By:	/s/ R. Christopher Hoehn-Saric
Name:	R. Christopher Hoehn-Saric
Title:	Senior Managing Director
STERLING CAPITAL PARTNERS III, LP
By:	SC Partners III, L.P.
Its:	General Partner
By:	Sterling Capital Partners III, LLC
Its:	General Partner
By:	/s/ R. Christopher Hoehn-Saric
Name:	R. Christopher Hoehn-Saric
Title:	Senior Managing Director

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EXHIBIT A

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

STERLING SC INVESTOR, LLC, a Delaware	)
limited liability company,	)
	)
	)
Plaintiff,	)	Case No. 4855-CC
	)
v.	)
	)
SELECT COMFORT CORPORATION,	)
a Minnesota corporation,	)
	)
Defendant.	)

NOTICE OF DISMISSAL

Please take notice that, pursuant to Court of Chancery Rule 41, the above-captioned action is hereby dismissed with prejudice.

MORRIS, NICHOLS, ARSHT & TUNNELL LLP

Martin P. Tully (#465)

Thomas W. Briggs (#4076)

1201 N. Market Street

Wilmington, Delaware 19801

(302) 658-9200

Attorneys for Plaintiff

Dated:  October     , 2009

EX-10.4

Exhibit 10.4

Exhibit C

REGISTRATION RIGHTS AGREEMENT

REGISTRATION RIGHTS AGREEMENT (this “Agreement”), dated as of October 2, 2009 (the “Effective Date”), by and among Select Comfort Corporation, a Minnesota corporation (the “Company”), and the undersigned buyer (each, a “Buyer” and, collectively, the “Buyers”).

WHEREAS:

A.In connection with the Securities Purchase Agreement, by and among the parties hereto and dated as of October 2, 2009 (the “Securities Purchase Agreement”), the Company has agreed, upon the terms and subject to the conditions of the Securities Purchase Agreement, to issue at the Closing (as defined in the Securities Purchase Agreement) to the Buyers (i) shares (the “Common Shares”) of the Company’s common stock, $0.01 par value ( “Common Stock”) and (ii) a warrant to purchase shares of Common Stock (such warrant, together with any warrants or other securities issued in exchange or substitution therefor or replacement thereof, and as any of the same may be amended, restated or modified and in effect from time to time, being referred to as the “Warrant”; and the shares of Common Stock issuable upon exercise of the Warrant being referred to as the “Warrant Shares”); and

B.Pursuant to the Securities Purchase Agreement, the Company has agreed to provide to the Buyers certain registration rights under the Securities Act of 1933, as amended, or any similar successor statute, and the rules and regulations thereunder (collectively, the “1933 Act”), and applicable state securities laws.

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Buyer, intending to be legally bound, agree as follows:

1.DEFINITIONS.

As used in this Agreement, the following terms shall have the following meanings:

a.             “1934 Act” means, collectively, the Securities Exchange Act of 1934, as amended, or any similar successor statute, and the rules and regulations thereunder.

b.             “Average Daily Trading Volume” means the average daily trading volume of the Common Stock on the Principal Market during the period beginning at 9:30 a.m. New York City time (or such other time as its Principal Market publicly announces is the official open of trading) and ending at 4:00 p.m. New York City time (or such other time as its Principal Market publicly announces is the official close of trading) as reported by Bloomberg Financial Markets (or any successor thereto) (“Bloomberg”) during the ten (10) Trading Days ending on the Trading Day immediately prior to the day on which a sale is to be effected.

c.             “Block Trade” means any single trade for at least 5,000 shares of Common Stock on the Company’s Principal Market.

d.             “Business Day” means any day other than Saturday, Sunday or any other day on which commercial banks in the City of New York are authorized or required by law to remain closed.

e.             “Company Securities” means any security (as defined in Section 2(a)(1) of the 1933 Act) issued by the Company after the Effective Date.

f.              “FINRA” means the Financial Industry Regulatory Authority, Inc., or any successor thereto.

g.             “Initial Effectiveness Deadline” means the earlier of (i) the date that is seventy-five (75) days after the Closing Date, and (ii) the fifth Business Day after the Company is notified by the SEC that the Registration Statement will not be reviewed or is no longer subject to further review and comment (i.e., all outstanding comments thereon have been resolved to the satisfaction of the SEC staff).

h.             “Initial Filing Deadline” means the later of (i) October 31, 2009, or (ii) the fifth Business Day after the Closing Date.

i.              “Form S-3” means such form of registration statement under the 1933 Act as in effect on the date hereof or any successor form under the 1933 Act subsequently adopted by the SEC which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC after the effective date of such registration statement.

j.              “Investor” means the Buyer, any transferee or assignee thereof to whom a Buyer assigns its rights under this Agreement and who agrees to become bound by the provisions of this Agreement in accordance with Section 9 and any transferee or assignee thereof to whom a transferee or assignee assigns its rights under this Agreement and who agrees to become bound by the provisions of this Agreement in accordance with Section 9.

k.             “Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization and a governmental or any department or agency thereof, or any other legal entity.

l.              “Principal Market” means, with respect to the Common Stock, the Nasdaq Global Select Market; provided, however, that, if at any time after the date of this Agreement the principal national stock exchange or trading market for Common Stock is other than the Nasdaq Global Select Market, “Principal Market” shall at such time mean, with respect  to the Common Stock, such other national stock exchange or trading market; and, with respect to any other security, “Principal Market” means the principal national securities exchange or trading market for such security.

m.            “Qualified Financing Transaction” means any transaction: (i) involving the issuance of 5% or more of any class of Company Securities, or (ii) the primary purpose of which is to satisfy, extinguish or otherwise refinance the Company’s outstanding indebtedness under the amended and restated credit agreement with the Company’s lenders.

n.             “Register,” “registered,” and “registration” refer to a registration effected by preparing and filing one or more Registration Statements in compliance with the 1933 Act and the declaration or ordering of effectiveness of such Registration Statement(s) by the SEC.

o.             “Registrable Securities” means (i) the Common Shares, (ii) the Warrant Shares issued or issuable upon exercise of the Warrant and (iii) any shares of capital stock of the Company issued or issuable with respect to the Common Shares, the Warrant Shares or the Warrant as a result of any stock split, stock dividend, recapitalization, exchange or similar event or otherwise; provided, however, that any such Registrable Securities shall cease to be Registrable Securities when (A) a Registration Statement with respect to the sale of such securities becomes effective under the 1933 Act and such securities are disposed of in accordance with such Registration Statement, or (B) such securities are sold in accordance with Rule 144 (as defined in Section 8).

p.             “Registration Statement” means the registration statement of the Company filed with the SEC under the 1933 Act pursuant to Section 2(a) hereof covering the Registrable Securities.

q.             “Rule 415” means Rule 415 under the 1933 Act or any successor rule providing for offering securities on a continuous or delayed basis.

r.              “SEC” means the U.S. Securities and Exchange Commission, or any successor thereto.

s.             “Trading Day” means any day on which the Common Stock is traded on the Principal Market; provided that “Trading Day” shall not include any day on which the Common Stock is scheduled to trade, or actually trades, on the Principal Market for less than 4.5 hours.

Capitalized terms used herein and not otherwise defined herein shall have the respective meanings set forth in the Securities Purchase Agreement.

2.MANDATORY REGISTRATION.

a.             Mandatory Registration.  The Company shall prepare and file with the SEC a Registration Statement on Form S-3 (subject to Section 2(c)), covering the resale of all of the Registrable Securities no later than the Initial Filing Deadline.

b.             Form of Registration. In the event that Form S-3 is not available for the registration of the resale of the Registrable Securities hereunder, the Company shall (i) register the Registrable Securities on Form S-1 or another appropriate form reasonably acceptable to the Buyer and (ii) undertake to register such Registrable Securities on Form S-3 (by post-effective amendment to the existing Registration Statement or otherwise) as soon as such form is available; provided that the Company shall maintain the effectiveness of the Registration Statement then in effect until such time as a Form S-3 covering the Registrable Securities has been declared effective by the SEC.

c.             Effectiveness Deadline.  The Company shall use all commercially reasonable efforts to have the Registration Statement declared effective by the SEC as soon as practicable, but in no event later than the Initial Effectiveness Deadline.  Notwithstanding the foregoing, the Initial Effectiveness Deadline shall be extended, without liability, in the event that the Company’s failure to obtain the effectiveness of the Registration Statement on a timely basis results from the failure of a Investor to timely provide the Company with information requested by the Company and necessary to complete the Registration Statement in accordance with the requirements of the Securities Act.  In addition, in the event that the Company’s failure to obtain the effectiveness of the Registration Statement on a timely basis results from events or circumstances that are beyond the reasonable control of the Company, the Initial Effectiveness Deadline shall be automatically extended to the earlier of (i) the date that is ninety (90) days after the Closing Date, and (ii) the tenth Business Day after the Company is notified by the SEC that the Registration Statement will not be reviewed or is no longer subject to further review and comment (i.e., all outstanding comments thereon have been resolved to the satisfaction of the SEC staff).

d.             Allocation of Registrable Securities in the Initial Registration.  The Company will not include in the Registration Statement any securities which are not Registrable Securities.  In the event that an Investor sells or otherwise transfers any of such Investor’s Registrable Securities, each transferee shall be allocated a pro rata portion of the then remaining number of Registrable Securities included in such Registration Statement for such transferor.

3.RELATED OBLIGATIONS.

Whenever the Company is obligated to file a Registration Statement with the SEC pursuant to Section 2, the holders of Registrable Securities have requested that any Registrable Securities be registered pursuant to this Agreement, or the Company is otherwise obligated to file a Registration Statement pursuant to this Agreement, the Company shall use all commercially reasonable efforts to effect the registration of the Registrable Securities in accordance with the intended method of disposition thereof and, pursuant thereto, the Company shall have the following obligations:

a.             No later than the second Business Day after the Registration Statement becomes effective, the Company shall file with the SEC the final prospectus included therein pursuant to Rule 424 (or successor thereto) promulgated under the 1933 Act.  The Company shall use commercially reasonable efforts to keep each Registration Statement continuously effective at all times until the earlier of: (i) the first date as of which the Investor may then sell all of the Registrable Securities covered by such Registration Statement pursuant to Rule 144, and (ii) one hundred and eighty (180) days after the Closing Date (the “Registration Period”).  If (i) the Company desires to undertake and consummate a rights offering with respect to certain shares of the Common Stock (the “Rights Offering”), which determination shall be in the sole discretion of the Company’s board of directors, (ii) the Investor beneficially owns more than ten (10%) of the Company’s outstanding Common Stock (after giving effect to the Rights Offering) as a result of the Investor’s participation in the Rights Offering, and (iii) the Investor’s participation that resulted in the Investor acquiring beneficial ownership of more than 10% of the Company’s outstanding Common Stock was required in order for the Company to satisfy the minimum gross proceeds condition to the closing of the Rights Offering, then the Company agrees that the Registration Period will be extended such that the Registration Period will

continue until one hundred and eighty (180) days after the date on which Investor acquired those shares that caused the Investor to beneficially own more than 10% of the Common Stock (the “Extended Registration Period”).  The Registration Statement (including any amendments or supplements thereto and any prospectuses (preliminary, final, summary or free writing) shall comply as to form and content with the applicable requirements of the 1933 Act and not contain or incorporate by reference any untrue statement of a material fact or omit to state a material fact required to be stated therein, or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading.  The Registration Statement shall contain a “plan of distribution” approved by the Investor.  The term “commercially reasonable efforts” shall mean, among other things, that the Company shall respond to any comments of the staff of the SEC with respect to a Registration Statement as promptly as reasonably practicable and shall submit to the SEC, as promptly as reasonably practicable after the Company learns that no review of a Registration Statement will be made by the staff of the SEC or that the staff of the SEC has no further comments on the Registration Statement, as the case may be, a request for acceleration of effectiveness of such Registration Statement to a time and date not later than 48 hours after the submission of such request.

b.             The Company shall prepare and file with the SEC such amendments (including post-effective amendments) and supplements to a Registration Statement and any prospectus used in connection with such Registration Statement (which prospectus supplements shall be filed pursuant to Rule 424 (or successor thereto) promulgated under the 1933 Act) as may be necessary to keep such Registration Statement effective at all times during the Registration Period, and, during such period, comply with the provisions of the 1933 Act with respect to the disposition of all Registrable Securities of the Company covered by such Registration Statement until such time as all of such Registrable Securities shall have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof as set forth in such Registration Statement.  In the case of any amendment or supplement to a Registration Statement or prospectus that is required to be filed pursuant to this Agreement (including pursuant to this Section 3(b)) by reason of the Company filing a report under the 1934 Act, the Company shall have incorporated such report by reference into such Registration Statement, if applicable and permitted by law, or shall file such amendments or supplements with the SEC on the same day.  The Company shall use all commercially reasonable efforts to cause any post-effective amendment to a Registration Statement to become effective as soon as practicable after such filing.  No later than the second Business Day after a post-effective amendment to a Registration Statement becomes effective, the Company shall file with the SEC the final prospectus included therein pursuant to Rule 424 (or successor thereto) promulgated under the 1933 Act.

c.             The Investor shall have the right to select one legal counsel to review such Registration Statements (“Legal Counsel”).  The Company shall reasonably cooperate with Legal Counsel in performing the Company’s obligations under this Agreement.  Without limiting the foregoing, the Company shall (A) permit Legal Counsel to review and comment upon any Registration Statement and any amendment or supplement to any Registration Statement (or to any prospectus included therein) at least five (5) Business Days prior to its filing with the SEC, and (B) not file any Registration Statement, amendment or supplement described in the foregoing clause (A) in a form to which Legal Counsel reasonably objects in writing on a timely basis, unless in the good faith opinion of the Company, after consultation with its outside counsel, such filing is necessary to comply with applicable law. The Company shall not submit a

request for acceleration of the effectiveness of a Registration Statement or any amendment or supplement thereto without providing prior notice thereof to Legal Counsel and the Investor.  The Company shall furnish (which may be by e-mail) to Legal Counsel, without charge, (i) promptly after the same is prepared and filed with the SEC, one copy of any Registration Statement and any amendment(s) thereto, including financial statements and schedules, all documents incorporated therein by reference and all exhibits that have not been filed via the SEC’s EDGAR filing system (or successor thereto) and (ii) upon the effectiveness of any Registration Statement, one copy of the prospectus included in such Registration Statement and all amendments and supplements thereto.  The Company shall reasonably cooperate with Legal Counsel in performing the Company’s obligations pursuant to this Section 3.

d.             The Company shall furnish to the Investor whose Registrable Securities are included in any Registration Statement, without charge, (i) promptly after the same is prepared and filed with the SEC, at least one copy of such Registration Statement and any amendment(s) thereto, including financial statements and schedules, all documents incorporated therein by reference that have not been filed via the SEC’s EDGAR filing system (or successor thereto), all exhibits and each preliminary prospectus, (ii) upon the effectiveness of any Registration Statement, at least one copy of the prospectus included in such Registration Statement and all amendments and supplements thereto (or such other number of copies as such Investor may reasonably request) and (iii) such other documents, including copies of any prospectus (preliminary, final, summary or free writing), as such Investor may reasonably request from time to time in order to facilitate the disposition of the Registrable Securities owned by such Investor.

e.             The Company shall use all commercially reasonable efforts to (i) register and qualify, unless an exemption from registration and qualification applies, the resale by the Investor of the Registrable Securities covered by a Registration Statement under the securities or “blue sky” laws of such jurisdictions within the United States reasonably requested by any Investor, (ii) prepare and file in those jurisdictions, such amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof during the Registration Period, (iii) take such other actions as may be necessary to maintain such registrations and qualifications in effect at all times during the Registration Period, and (iv) take all other actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to (x) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(e) or (y) subject itself to general taxation in any such jurisdiction.  The Company shall promptly notify Legal Counsel and the Investor that holds Registrable Securities of the receipt by the Company of any notification with respect to the suspension of the registration or qualification of any of the Registrable Securities for sale under the securities or “blue sky” laws of any jurisdiction or its receipt of actual notice of the initiation or threatening of any proceeding for such purpose.

f.              The Company shall notify Legal Counsel and the Investor in writing of the happening of any event, as promptly as practicable after becoming aware of such event, as a result of which any prospectus included in, or relating to, a Registration Statement, as then in effect, includes an untrue statement of a material fact or omission to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances

under which they were made, not misleading (provided that in no event shall such notice contain any material, nonpublic information), and promptly prepare and file with the SEC a supplement or amendment to such Registration Statement to correct such untrue statement or omission, and deliver at least one copy of such supplement or amendment to Legal Counsel and the Investor.  The Company shall also promptly notify Legal Counsel and the Investor in writing (i) when a prospectus or any prospectus supplement or post-effective amendment has been filed, and when a Registration Statement or any post-effective amendment has become effective (notification of such effectiveness shall be delivered to Legal Counsel and the Investor by facsimile on the same day of such effectiveness), (ii) of any request by the SEC for amendments or supplements to a Registration Statement or related prospectus or related information, and (iii) of the Company’s reasonable determination that a post-effective amendment to a Registration Statement would be appropriate.

g.             The Company shall use all commercially reasonable efforts to prevent the issuance of any stop order or other suspension of effectiveness of a Registration Statement, or the suspension of the qualification of any of the Registrable Securities for sale in any jurisdiction and, if such an order or suspension is issued, to obtain the withdrawal of such order or suspension at the earliest possible moment and to notify Legal Counsel and the Investor who holds Registrable Securities being sold of the issuance of such order and the resolution thereof or its receipt of actual notice of the initiation or threat of any proceeding for such purpose.

h.             At the reasonable request (in the context of the securities laws) of any Investor, or in the case of an underwritten offering upon the request of any underwriter, the Company shall furnish to such Investor or underwriter, as the case may be, on the date of the effectiveness of the Registration Statement and on such other dates as such Investor or underwriter may reasonably request (i) a “comfort letter,” dated such date, from the Company’s independent registered public accountants, in form and substance as is customarily given by independent registered public accountants to underwriters in an underwritten public offering, addressed to the Investor and any underwriters (or if such accountants are prohibited by generally accepted auditing standards from issuing such a “comfort letter” to an Investor, the Company shall furnish to such Investor an “agreed upon procedures” letter covering the same matters to the greatest extent possible, and otherwise in customary form and substance), and (ii) an opinion, dated as of such date, of counsel representing the Company for purposes of such Registration Statement, in form, scope and substance as is customarily given to underwriters in an underwritten public offering, addressed to such Investor or underwriter, as the case may be.  Notwithstanding anything to the contrary in this Agreement, in no event shall Investor be permitted to request that the Company, nor shall the Company in any way be obligated to, enter into any written agreement, arrangement, or understanding to engage a third party to act as an underwriter.

i.              At the reasonable request (in the context of the securities laws) of any Investor or, in the case of an underwritten offering, upon the request of any underwriter, the Company shall make available for inspection during regular business hours by (i) any Investor, (ii) Legal Counsel and (iii) one firm of accountants or other agents retained by the Investor (collectively, the “Inspectors”), and in the case of an underwritten offering by any underwriter and its legal counsel and representatives, all pertinent financial and other records, and pertinent corporate documents and properties of the Company (collectively, the “Records”), as shall be reasonably deemed necessary by such Inspector or underwriter, as the case may be, and cause the

Company’s officers, directors or employees, as the case may be, to supply such relevant information that any Inspector or underwriter may reasonably request; provided, however, that each Inspector shall agree to hold in strict confidence and shall not make any disclosure (except to an Investor or underwriter) or use of any Record or other information that the Company determines in good faith to be confidential, and of which determination such Inspectors is so notified, unless (a) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in any Registration Statement or is otherwise required under the 1933 Act, (b) the release of such Records is ordered pursuant to a subpoena or other order from a court or government body of competent jurisdiction, or (c) the information in such Records has been made generally available to the public other than by disclosure in violation of this or any other agreement of which such Inspector has knowledge.  The Investor agrees that it shall, upon learning that disclosure of such Records is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt notice to the Company and allow the Company, at its expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, the Records deemed confidential.  Nothing herein (or any other confidentiality agreement between the Company and any Investor) shall be deemed to limit any Investor’s ability to sell Registrable Securities in a manner that is otherwise consistent with applicable laws and regulations, provided that such Investor receiving information pursuant to this Section 3(i) complies with its confidentiality obligations pursuant to this Section 3(i).

j.              The Company shall hold in confidence and not make any disclosure of information concerning an Investor provided to the Company unless (i) disclosure of such information is necessary to comply with federal or state securities laws, (ii) the disclosure of such information is necessary to avoid or correct a misstatement or omission in any Registration Statement, (iii) the release of such information is ordered pursuant to a subpoena or other final, non-appealable order from a court or governmental body of competent jurisdiction, or (iv) such information has been made generally available to the public other than by disclosure in violation of this Agreement or any other agreement.  The Company agrees that it shall, upon learning that disclosure of such information concerning an Investor is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt written notice to such Investor and allow such Investor, at such Investor’s expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, such information.

k.             The Company shall use all commercially reasonable efforts to cause all the Registrable Securities covered by a Registration Statement to be listed on each securities exchange or trading market on which securities of the same class or series issued by the Company are listed.  The Company shall pay all fees and expenses in connection with satisfying its obligation under this Section 3(k).

l.              The Company shall cooperate with the Investor who holds Registrable Securities being offered and the underwriters, if any, and, to the extent applicable, facilitate the timely preparation and delivery of certificates or uncertificated shares (not bearing any restrictive legend) representing the Registrable Securities to be offered pursuant to a Registration Statement and enable such certificates or uncertificated shares to be in such denominations or amounts, as the case may be, as the Investor may reasonably request and registered in such names as the Investor may request.

m.            The Company shall provide a transfer agent and registrar of all such Registrable Securities not later than the effective date of the applicable Registration Statement.

n.             If requested by an Investor, the Company shall (i) as soon as reasonably practicable incorporate in a prospectus supplement or post-effective amendment such information as such Investor requests to be included therein relating to the sale and distribution of Registrable Securities, including information with respect to such Investor, the number of Registrable Securities being offered or sold, the purchase price being paid therefor and any other terms of the offering of the Registrable Securities to be sold in such offering; (ii) as soon as practicable make all required filings of such prospectus supplement or post-effective amendment after being notified of the matters to be incorporated in such prospectus supplement or post-effective amendment; and (iii) as soon as reasonably practicable, supplement or make amendments to any Registration Statement or prospectus if reasonably requested by an Investor.

o.             The Company shall use all commercially reasonable efforts to cause the Registrable Securities covered by the applicable Registration Statement to be registered with or approved by such other governmental agencies or authorities in the United States as may be necessary to consummate the disposition of such Registrable Securities.

p.             The Company shall make generally available to its security holders as soon as practical, but not later than ninety (90) days after the close of the period covered thereby, an earnings statement (in form complying with the provisions of Rule 158 under the 1933 Act) covering a 12-month period beginning not later than the first day of the Company’s fiscal quarter next following the effective date of a Registration Statement.

q.             The Company shall otherwise use all commercially reasonable efforts to comply with all applicable rules and regulations of the SEC in connection with any registration hereunder.

r.              Within two (2) Business Days after a Registration Statement that covers applicable Registrable Securities is ordered effective by the SEC, the Company shall deliver, and shall cause legal counsel for the Company to deliver, to the transfer agent for such Registrable Securities (with copies to the Investor whose Registrable Securities are included in such Registration Statement) confirmation that such Registration Statement has been declared effective by the SEC in substantially the form attached hereto as Exhibit A, provided that if the Company changes its transfer agent, it shall immediately deliver any previously delivered notices under this Section 3(r) and any subsequent notices to such new transfer agent.

s.             To the extent not made by the underwriters in the case of an underwritten offering, the Company shall make such filings with FINRA, pursuant to NASD Rule 2710 or otherwise (including providing all required information and paying required fees thereto), as and when requested by any Investor, or in the case of an underwritten offering, by any underwriter, and make all other filings and take all other actions reasonably necessary to expedite and facilitate the disposition by the Investor of Registrable Securities pursuant to a Registration Statement, including reasonably cooperating with any broker-dealer through which any Investor proposes to resell Registrable Securities and promptly responding to any comments received from FINRA.

t.              The Company shall enter into such customary agreements (including, in the case of underwritten offering, an underwriting agreement) and take such other actions as the any of the Investor or underwriters, if any, may reasonably request in order to expedite and facilitate the disposition of the Registrable Securities and any other securities covered by a

Registration Statement.  Without limiting the foregoing, in connection with any underwritten offering and taking into account the Company’s business needs, the Company shall make appropriate officers of the Company available for meetings with prospective purchasers of the Registrable Securities and prepare and present to potential investors customary “road show” materials, in each case in accordance with the recommendations of the underwriters and in all respects in a manner consistent with other issuances of securities in an offering of a similar size to such offering of the Registrable Securities.

u.The Company shall notify the Investor and the managing underwriters, if any, as promptly as reasonably practicable, and (if requested by any such Person) confirm such notice (which notice shall, pursuant to clauses (ii), (iii), (v) and (vi) hereof, be accompanied by an instruction to suspend use of the Prospectus until the requisite changes have been made) in writing, (i) when a prospectus or any prospectus supplement or post-effective amendment has been filed, and, with respect to a Registration Statement or any post-effective amendment, when the same has become effective, (ii) of any request by the SEC or any other federal or state governmental authority for amendments or supplements to a Registration Statement or related prospectus or for additional information, (iii) of the issuance by the SEC or any other federal or state governmental authority of any stop order suspending the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose, (iv) if at any time the representations and warranties of the Company contained in any agreement contemplated by Section 4(t) (including any underwriting agreement) cease to be true and correct in any material respect, if and only to the extent that such representations and warranties are continuing under such agreement or if there is a continuing prospectus delivery requirement, (v) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, and (vi) of the occurrence of any event that makes any statement made in such Registration Statement or related prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in a Registration Statement, prospectus or any such document so that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading and, in the case of the prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

4.OBLIGATIONS OF THE INVESTOR.

a.At least seven (7) Business Days prior to the first anticipated filing date of a Registration Statement and at lease five (5) Business Days prior to the filing of any amendment or supplement to a Registration Statement or prospectus, the Company shall notify the Investor in writing of the information, if any, the Company requires from each such Investor if such Investor elects to have any of such Investor’s Registrable Securities included in such Registration Statement or, with respect to an amendment or a supplement, if such Investor’s Registrable Securities are included in such Registration Statement (each an “Information Request”). Provided that the Company shall have complied with its obligations set forth in the preceding sentence, it shall be a condition precedent to the obligations of the Company to complete the registration pursuant to this Agreement with respect to the Registrable Securities of

a particular Investor that such Investor shall furnish to the Company, in response to an Information Request, such information regarding itself, the Registrable Securities held by it and the intended method of disposition of the Registrable Securities held by it as shall be reasonably required to effect the registration of such Registrable Securities and shall execute such documents in connection with such registration as the Company may reasonably request.

b.The Investor agrees to cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of any Registration Statement in which any Registrable Securities held by such Investor are being included.  No Investor shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of Sections 2, 3 or 10.

c.The Investor agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3(g) or the first sentence of Section 3(f) or, in the case of an offering pursuant to Rule 415, receipt of a Suspension Notice, such Investor will promptly discontinue disposition of Registrable Securities pursuant to any Registration Statement(s) covering such Registrable Securities until such Investor’s receipt of the copies of the supplemented or amended prospectus contemplated by Section 3(d) or the first sentence of Section 3(f) or receipt of notice that no supplement or amendment is required or that the Black Out has ended.  Notwithstanding anything to the contrary, the Company shall cause its transfer agent to deliver unlegended shares of Common Stock to a transferee of an Investor in accordance with the terms of the Securities Purchase Agreement in connection with any sale of Registrable Securities with respect to which an Investor provides reasonable evidence that such Investor has entered into a contract for sale prior to the Investor’s receipt of a notice from the Company of the happening of any event of the kind described in Section 3(u).

d.The Investor agrees, in connection with any underwritten offering made pursuant to a Registration Statement filed pursuant to this Agreement in which such Investor has elected to include Registrable Securities, if requested (pursuant to a written notice) by the managing underwriter(s) not to effect any public sale or distribution of any common equity securities of the Company (or securities convertible into or exchangeable or exercisable for such common equity securities) (except as part of such underwritten offering) during the period commencing not earlier than 7 days prior to and continuing for not more than 90 days (or such shorter period as the managing underwriter(s) may permit) after the effective date of the related Registration Statement (or date of the prospectus supplement if the offering is made pursuant to a “shelf” registration) pursuant to which such underwritten offering shall be made; provided, that such Investor shall only be so bound so long as and to the extent that each executive officer and director of the Company and other shareholder having registration rights with respect to the securities of the Company is similarly bound.

5.EXPENSES OF REGISTRATION.

All expenses, other than underwriting discounts and commissions, incurred in connection with registrations, filings and qualifications pursuant to, or otherwise in connection with the Company’s compliance with its obligations under, Sections 2 and 3, including all registration, listing and qualifications fees, printers and accounting fees, and fees and disbursements of counsel for the Company, shall be paid by the Company.  The Company shall also reimburse the Investor for the reasonable fees and disbursements of Legal Counsel in

connection with registrations, filings and qualifications pursuant to Sections 2 and 3 of this Agreement in an amount not to exceed $50,000 per Registration Statement.  In no event, however, will the Company be responsible for any underwriting discount or selling commission with respect to any sale of Registrable Securities pursuant to this Agreement, and Investor shall be responsible for any taxes of any kind (including, without limitation, transfer taxes) with respect to any disposition, sale or transfer of Registrable Securities and for any legal, accounting and other expenses incurred by it, except as provided in the preceding sentence with respect to Legal Counsel, in connection with any Registration Statement.

6.INDEMNIFICATION.

In the event any Registrable Securities are included in a Registration Statement under this Agreement:

a.To the fullest extent permitted by law, the Company will, and hereby does, indemnify, hold harmless and defend the Investor and any underwriter, and the directors, officers, partners, members, managers, employees, agents, representatives of, and each Person, if any, who controls any Investor or underwriter within the meaning of the 1933 Act or the 1934 Act (each, an “Indemnified Person”), against any losses, claims, damages, liabilities, judgments, fines, penalties, charges, costs, reasonable attorneys’ fees, amounts paid in settlement or expenses, joint or several, (collectively, “Claims”) incurred in investigating, preparing or defending any action, claim, suit, inquiry, proceeding, investigation or appeal taken from the foregoing by or before any court or governmental, administrative or other regulatory agency authority, or body (including the SEC or any state securities commission, authority or self-regulatory organization, in the United States or anywhere else in the world), whether pending or threatened, whether or not an indemnified party is or may be a party thereto (“Indemnified Damages”), to which any of them may become subject insofar as such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of a material fact in (including by way of incorporation be reference) a Registration Statement or any post-effective amendment thereto or in any filing made in connection with the qualification of the offering under the securities or other “blue sky” laws of any jurisdiction in which Registrable Securities are offered (“Blue Sky Filings”), or the omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) any untrue statement or alleged untrue statement of a material fact contained (including by way of incorporation by reference) in any preliminary, final, summary or free writing prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the SEC) or the omission or alleged omission to state therein (including by way of incorporation be reference) any material fact necessary to make the statements made therein, in light of the circumstances under which the statements therein (including by way of incorporation be reference) were made, not misleading, or (iii) any violation or alleged violation by the Company of the 1933 Act, the 1934 Act, any other law, including any state securities law, or any rule or regulation thereunder relating to the offer or sale of the Registrable Securities pursuant to a Registration Statement (the matters in the foregoing clauses (i) through (iii) being, collectively, “Violations”).  Subject to Section 6(c), the Company shall reimburse the Indemnified Persons, promptly as such expenses are incurred and are due and payable, for any legal fees or other reasonable expenses incurred by them in connection with investigating or defending any such Claim.  Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(a): (i) shall

not apply to a Claim by an Indemnified Person arising out of or based upon a Violation which occurs in reliance upon and in conformity with information furnished in writing to the Company by such Indemnified Person for such Indemnified Person expressly for use in connection with the preparation of the Registration Statement or any such amendment thereof or supplement thereto if such prospectus (or amendment or supplement thereto) was timely filed with the SEC and furnished by the Company to such Investor pursuant to Section 3(d), (ii) shall not apply to a Claim by an Indemnified Person arising out of or based upon sales of Registrable Securities by such Indemnified Person pursuant to a Registration Statement in violation of Section 4(c), and (iii) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Company, which consent shall not be unreasonably withheld, conditioned or delayed.  Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Person and shall survive the transfer of the Registrable Securities by the Investor pursuant to Section 9.

b.In connection with any Registration Statement in which an Investor is participating, each such Investor agrees to severally and not jointly indemnify, hold harmless and defend, to the same extent and in the same manner as is set forth in Section 6(a), the Company, each of its directors, each of its officers who signs the Registration Statement, and each Person, if any, who controls the Company within the meaning of the 1933 Act or the 1934 Act (each an “Indemnified Party”), against any Claim or Indemnified Damages to which any of them may become subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim or Indemnified Damages arise out of or are based upon (i) any Violation, in each case to the extent, and only to the extent, that such Violation occurs in reliance upon and in conformity with written information furnished to the Company by such Investor expressly for use in connection with such Registration Statement or (ii) sales of Registrable Securities by such Indemnified Person pursuant to a Registration Statement in violation of Section 4(c) and, subject to Section 6(c), such Investor will reimburse any legal or other expenses reasonably incurred by an Indemnified Party in connection with investigating or defending any such Claim; provided, however, that the indemnity agreement contained in this Section 6(b) and the agreement with respect to contribution contained in Section 7 shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of such Investor, which consent shall not be unreasonably withheld, conditioned or delayed; provided, further, however, that the aggregate liability of the Investor in connection with any Violation shall not exceed the net proceeds to such Investor as a result of the sale of Registrable Securities pursuant to the Registration Statement giving rise to such Claim.  Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Indemnified Party and shall survive any transfer of the Registrable Securities by an Investor pursuant to Section 9.

c.Promptly after receipt by an Indemnified Person or Indemnified Party under this Section 6 of notice of the commencement of any action or proceeding (including any governmental action or proceeding) involving a Claim, such Indemnified Person or Indemnified Party shall, if a Claim in respect thereof is to be made against any indemnifying party under this Section 6, deliver to the indemnifying party a written notice of the commencement thereof, and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel mutually satisfactory to the indemnifying party and the Indemnified Person or the Indemnified Party, as the case may be. In any such proceeding, any Indemnified Person or Indemnified Party may retain its own counsel, but, except as provided in

the following sentence, the fees and expenses of that counsel will be at the expense of that Indemnified Person or Indemnified Party, as the case may be, unless (i) the indemnifying party and the Indemnified Person or Indemnified Party, as applicable, shall have mutually agreed to the retention of that counsel, (ii) the indemnifying party does not assume the defense of such proceeding in a timely manner or (iii) in the reasonable opinion of counsel retained by the Indemnified Person or Indemnified Party, the representation by such counsel for the Indemnified Person or Indemnified Party and the indemnifying party would be inappropriate due to actual or potential differing interests between such Indemnified Person or Indemnified Party and any other party represented by such counsel in such proceeding.  The Company shall pay reasonable fees for up to one separate legal counsel (plus local counsel) for the Investor, and such legal counsel shall be selected by the Investor holding at least two-thirds (2/3) in interest of the Registrable Securities included in the Registration Statement to which the Claim relates.  The indemnifying party shall keep the Indemnified Person or Indemnified Party fully apprised at all times as to the status of the defense or any settlement negotiations with respect thereto.  No indemnifying party shall be liable for any settlement of any action, claim or proceeding effected without its prior written consent, provided, however, that the indemnifying party shall not unreasonably withhold, delay or condition its consent.  No indemnifying party shall, without the prior written consent of the Indemnified Person or Indemnified Party, consent to entry of any judgment or enter into any settlement or other compromise with respect to any pending or threatened action or claim in respect of which indemnification or contribution may be or has been sought hereunder (whether or not the Indemnified Person or Indemnified Party is an actual or potential party to such action or claim) which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Person or Indemnified Party of a release from all liability in respect to such Claim or litigation, and such settlement shall not include any admission as to fault on the part of the Indemnified Person or Indemnified Party.  Following indemnification as provided for hereunder, the indemnifying party shall be subrogated to all rights of the Indemnified Person or Indemnified Party with respect to all third parties, firms or corporations relating to the matter for which indemnification has been made.  The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnified Person or Indemnified Party under this Section 6, except to the extent that the indemnifying party is prejudiced in its ability to defend such action.

d.The indemnification required by this Section 6 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or Indemnified Damages are incurred.

e.The indemnity agreements contained herein shall be in addition to (i) any cause of action or similar right of the Indemnified Person or Indemnified Party against the indemnifying party or others, and (ii) any liabilities the indemnifying party may be subject to pursuant to the law.

7.CONTRIBUTION.

To the extent any indemnification by an indemnifying party is prohibited or limited by law, the indemnifying party agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Section 6 to the fullest extent permitted by law; provided, however, that:  (i) no Person involved in the sale of Registrable Securities who is guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of

the 1933 Act) in connection with such sale, shall be entitled to contribution from any Person involved in such sale of Registrable Securities who was not guilty of fraudulent misrepresentation; and (ii) contribution by any Investor shall be limited to an amount equal to the net amount of proceeds received by such Investor from the sale of such Registrable Securities pursuant to the Registration Statement giving rise to such action or claim for indemnification, less the amount of any damages that such Investor has otherwise been required to pay in connection with such sale.

8.REPORTS UNDER THE 1934 ACT.

With a view to making available to the Investor the benefits of Rule 144 promulgated under the 1933 Act or any other similar rule or regulation of the SEC that may at any time permit the Investor to sell securities of the Company to the public without registration (“Rule 144”), the Company agrees to:

a.make and keep public information available, as those terms are understood and defined in Rule 144;

b.maintain, and not terminate, its status as an issuer required to file reports under the 1934 Act;

c.file with the SEC in a timely manner all reports and other documents required of the Company under the 1934 Act so long as the Company remains subject to such requirements and the filing of such reports and other documents is required for the applicable provisions of Rule 144; and

d.furnish to the Investor so long as such Investor owns Registrable Securities, promptly upon request, (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144 and the 1934 Act, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company (or information regarding the locations thereof on the SEC’s EDGAR filing system or successor thereto), and (iii) such other information as may be reasonably requested to permit the Investor to sell such securities pursuant to Rule 144 without registration.

The obligations of the Company under this Section 8 shall continue for a period of twelve (12) months following the Closing Date; provided that if, as of the Closing Date, such Investor is, or pursuant to the Rights Offering becomes, an affiliate (as defined in Rule 144) of the Company, then such period shall be extended to twenty-four (24) months.  In no event shall the Company be required to comply with this Section 8 if it ceases to maintain the registration of its Common Stock under the 1933 Act as a result of a “going private” transaction approved by the Company’s shareholders.

9.ASSIGNMENT OF REGISTRATION RIGHTS.

The rights and obligations under this Agreement shall not be assignable directly or indirectly whether by operation of law, merger or sale of substantially all the assets or stock of the Company or Investor.

10.LIMITATIONS ON REGISTRATION RIGHTS.

a.Suspension of Trading.  At any time after the Registrable Securities are covered by an effective Registration Statement, the Company may deliver to the holders of such Registrable Securities a certificate (the “Suspension Certificate”) approved by the Chief Executive Officer or Chief Financial Officer of the Company and signed by an officer of the Company stating that the Board of Directors of the Company in good faith reasonably believes that the effectiveness of and sales of Registrable Securities under the Registration Statement would: (i) materially interfere with any transaction that would require the Company to prepare financial statements under the Securities Act that the Company would otherwise not be required to prepare in order to comply with its obligations under the Exchange Act, or (ii) require public disclosure of a material transaction or event prior to the time such disclosure might otherwise be required.  Upon receipt of a Suspension Certificate by the Investor, it shall refrain from selling or otherwise transferring or disposing of any Registrable Securities then held for a specified period of time (a “Suspension Period”) not to exceed twenty (20) calendar days.  The Registration Period or Extended Registration Period shall be automatically extended by the number of days that elapse during any Suspension Period.

b.Discontinued Disposition.  By its acquisition of Registrable Securities, the Investor agrees that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in Section 3(u)(ii)-(vi), the Investor will forthwith discontinue disposition of such Registrable Securities under the Registration Statement until it is advised in writing by the Company, but in no event more than twenty (20) calendar days, that the use of the applicable Prospectus (as it may have been supplemented or amended) may be resumed (a “Black-Out” and together with any Suspension Period, the “Covered Periods”). The Company shall be permitted to cause the Investor to refrain from selling or otherwise transferring or disposing of any Registrable Securities for up to three (3) Covered Periods during the Registration Period.  If the Extended Registration Period is triggered, then the Company shall be permitted to cause the Investor to refrain from selling or otherwise transferring or disposing of any Registrable Securities for one (1) additional Covered Period during the Extended Registration Period.  The Registration Period or Extended Registration Period shall be automatically extended by the number of days that elapse during any Black-Out.

c.Qualified Financing Disposition Restriction.  Notwithstanding anything to the contrary, until the earlier to occur of: (i) six months after the Closing Date, or (ii) the date the Company closes on a Qualified Financing Transaction, the Investor will be deemed to have agreed, by virtue of its acquisition of Registrable Securities, to the Company’s right to cause the Investor to refrain from selling or otherwise transferring or disposing of any Registrable Securities, at any time for up to thirty (30) days, upon receipt of a notice from the Company that it is planning to enter into a definitive agreement in connection with a Qualified Financing Transaction (“Financing Black-Out”).  The Financing Black-Out may only be exercised by the Company on one occasion.  The Registration Period or Extended Registration Period shall be automatically extended by the number of days that elapse during any Financing Black-Out.

d.Trading Volume Limitations.  The Investor covenants and agrees that until the earlier to occur of: (i) six months after the Closing Date, or (ii) the date the Company closes on a Qualified Financing Transaction, it shall be prohibited, on any Trading Day, from selling (including short sales) or otherwise disposing of, whether pursuant to a Registration Statement or otherwise, Registrable Securities held by such Investor that would represent greater than ten

percent (10%) of the Average Daily Trading Volume.  The Investor also may submit a request to the Company that it be permitted to execute a Block Trade not otherwise permitted under this Section 10(d), which request shall be subject to the prior approval of the Company, which approval shall not be unreasonably withheld, conditioned or delayed.

e.Stop Orders.  The Company may impose stop transfer instructions to enforce the provisions of this Section 10.

11.AMENDMENT OF REGISTRATION RIGHTS.

Provisions of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and Investor.  Any amendment or waiver effected in accordance with this Section 10 shall be binding upon the Investor and the Company.  No such amendment shall be effective to the extent that it applies to less than all of the holders of the Registrable Securities.  No consideration shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of any of this Agreement unless the same consideration also is offered to all of the parties to this Agreement.

12.TERMINATION.

a.This Agreement shall terminate and be of no further force and effect upon the earlier to occur of: (i) the date on which the Company terminates the registration of its Common Stock under Section 12 of the 1933 Act, or (ii) the date on which the Registration Period ends.  Notwithstanding the foregoing, the terms and conditions of Sections 5, 6, 7, 10, 11, 12 and 13 shall survive any termination of this Agreement until the thirtieth (30th) day following the expiration of the statute of limitations applicable to the Violations in question.

b.If at any time the Securities Purchase Agreement is terminated without a Closing (as defined in the Securities Purchase Agreement) having occurred, this Agreement will automatically terminate concurrent with the termination of the Securities Purchase Agreement.  For the avoidance of doubt, in the event of a termination pursuant to this Section 12(b), none of the rights or obligations of the Company or Investor will survive such termination.

13.MISCELLANEOUS.

a.A Person is deemed to be a holder of Registrable Securities whenever such Person owns or is deemed to own of record such Registrable Securities.  If the Company receives conflicting instructions, notices or elections from two or more Persons with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice or election received from the registered owner of such Registrable Securities.

b.For any Investor that is a partnership, limited liability company or corporation, the partners, members, stockholders, subsidiaries, parents and affiliates of such Investor, or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing Persons shall be deemed to be a single “Investor”, and any pro rata reduction under this Agreement with respect to such “Investor” shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such “Investor,” as defined in this sentence.

c.Any notice, consent, waiver, request, instruction or other communication required or permitted to be given under the terms of this Agreement shall be in writing and will be deemed to have been duly given:  (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one (1) Business Day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same.  The addresses and facsimile numbers for such communications shall be:

If to the Company:

Select Comfort Corporation
9800 59th Avenue North
Minneapolis, Minnesota 55442
Attention: Mark Kimball
Facsimile: (763) 551-6888

With a copy to:

Oppenheimer Wolff Donnelly LLP

Plaza VII, Suite 3300

45 South Seventh Street

Minneapolis, MN 55402-1609

Attention: Thomas R. Marek

Facsimile: (612) 607-7100

If to Legal Counsel, to its address and facsimile number provided by the holders of Registrable Securities designating such Legal Counsel pursuant to Section 3(c).

If to a Buyer, to its address and facsimile number set forth on the Schedule of Buyers attached to the Securities Purchase Agreement, with copies to such Buyer’s representatives as set forth on such Schedule of Buyers, or, in the case of a Buyer or other party named above, to such other address and/or facsimile number and/or to the attention of such other person as the recipient party has specified by written notice given to each other party at least 5 days prior to the effectiveness of such change.

If to an Investor (other than the Buyer), to such Investor at the address and/or facsimile number reflected in the records or the Company.

Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender’s facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (C) provided by a courier or overnight courier service shall be rebuttable evidence of personal service, receipt by facsimile or deposit with a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively.  Notwithstanding the foregoing, the Company or its counsel may transmit versions of any Registration Statement (or any amendments or supplements thereto) to Legal Counsel in satisfaction of its obligations under Section 3(c) to permit Legal Counsel to review such Registration Statement prior to filing (and solely for such purpose) by email to such e-mail

address as has been provided for such purpose by Legal Counsel, provided that delivery and receipt of such transmission shall be confirmed by electronic, telephonic or other means.

d.Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof.

e.All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by the laws of the State of Delaware, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Delaware or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of Delaware. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting the State of Delaware, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper.  Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof by registered or certified mail, return receipt requested, or by deposit with a nationally recognized overnight delivery service, to such party at the address for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.  If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction.  EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

f.This Agreement and the other Transaction Documents constitute the entire agreement among the parties hereto with respect to the subject matter hereof and thereof.  There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein and therein.  This Agreement and the other Transaction Documents supersede all prior agreements and understandings among the parties hereto with respect to the subject matter hereof and thereof.

g.Subject to the requirements of Section 9, this Agreement shall inure to the benefit of and be binding upon the permitted successors and assigns of each of the parties hereto.

h.The headings in this Agreement are for convenience of reference only and shall not form part of, or affect the meaning or interpretation of, this Agreement.

i.This Agreement and any amendments hereto may be executed and delivered in two or more identical counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original, but all of which

taken together shall constitute one and the same agreement. This Agreement shall become effective and binding upon each party hereto when counterparts have been signed by each party hereto and delivered to the other parties hereto, it being understood that all parties need not sign the same counterpart.  In the event that any signature to this Agreement or any amendment hereto is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.  No party hereto shall raise the use of a facsimile machine or e-mail delivery of a “.pdf” format data file to deliver a signature to this Agreement or any amendment hereto or the fact that such signature was transmitted or communicated through the use of a facsimile machine or e-mail delivery of a “.pdf” format data file as a defense to the formation or enforceability of a contract and each party hereto forever waives any such defense.

j.Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

k.All consents and other determinations to be made by the Investor pursuant to this Agreement shall be made only by the Investor.

l.The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent and no rules of strict construction will be applied against any party.

m.Each Buyer and each holder of the Registrable Securities shall have all rights and remedies set forth in the Transaction Documents and all rights and remedies that such Buyers and holders have been granted at any time under any other agreement or contract and all of the rights that such Buyers and holders have under any law.  Any Person having any rights under any provision of this Agreement shall be entitled to enforce such rights specifically (without posting a bond or other security or proving actual damages), to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights granted by law or in equity.

n.This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns and, to the extent provided in Sections 6(a) and 6(b) hereof, the Investor, any underwriter, and the directors, officers, partners, members, managers, employees, agents, representatives of, and each Person, if any, who controls any Investor or underwriter within the meaning of the 1933 Act or the 1934 Act and each of the Company’s directors, each of the Company’s officers who signs the Registration Statement, and each Person, if any, who controls the Company within the meaning of the 1933 Act or the 1934 Act, and is not for the benefit of, nor may any provision hereof be enforced by, any other Person.

o.Unless the context otherwise requires, (i) all references to Sections, Schedules or Exhibits are to Sections, Schedules or Exhibits contained in or attached to this Agreement, (ii) words in the singular or plural include the singular and plural and pronouns stated in either the masculine, the feminine or neuter gender shall include the masculine,

feminine and neuter and (iii) the use of the word “including” in this Agreement shall be by way of example rather than limitation.

*   *   *   *   *

IN WITNESS WHEREOF, each party hereto has caused this Registration Rights Agreement to be duly executed as of the date first written above.

COMPANY:
Select Comfort Corporation
By:	/s/ James Raabe
Name:	James Raabe
Title:	Chief Financial Officer
BUYERS:
Sterling SC Investor, LLC
By:  Sterling Capital Partners III, L.P.
Its:  Sole Member
By: SC Partners III, L.P.
Its:  General Partner
By:  Sterling Capital Partners III, LLC
Its:   General Partner
By:	/s/ R. Christopher Hoehn-Saric
Name:	R. Christopher Hoehn-Saric
Title:	Senior Managing Director

EXHIBIT A

FORM OF NOTICE OF EFFECTIVENESS

OF REGISTRATION STATEMENT

[TRANSFER AGENT]

Attn:

Re:Select Comfort Corporation

Ladies and Gentlemen:

We are counsel to Select Comfort Corporation, a Minnesota corporation (the “Company”), and have represented the Company in connection with that certain Securities Purchase Agreement (the “Purchase Agreement”) entered into by and among the Company and the buyers named therein (collectively, the “Holders”) pursuant to which the Company issued to the Holders shares of Common Stock of the Company.  Pursuant to the Purchase Agreement, the Company also has entered into a Registration Rights Agreement with the Holders (the “Registration Rights Agreement”), pursuant to which the Company agreed, among other things, to register the Registrable Securities (as defined in the Registration Rights Agreement), under the Securities Act of 1933, as amended (the “1933 Act”).  In connection with the Company’s obligations under the Registration Rights Agreement, on                                , 200 , the Company filed a Registration Statement on Form [S-    ] (File No. 333-                          ) (the “Registration Statement”) with the Securities and Exchange Commission (the “SEC”) relating to the Registrable Securities, which names each of the Holders as a selling stockholder thereunder.

In connection with the foregoing, we advise you that a member of the SEC’s staff has advised us by telephone that the SEC has entered an order declaring the Registration Statement effective under the 1933 Act at [ENTER TIME OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge, after telephonic inquiry of a member of the SEC’s staff, that any stop order suspending its effectiveness has been issued or that any proceedings for that purpose are pending before, or threatened by, the SEC, and the Registrable Securities are available for resale under the 1933 Act pursuant to the Registration Statement.

Very truly yours,

[ISSUER’S COUNSEL]

By:

cc:[LIST NAMES OF HOLDERS]

EX-99.1

Exhibit 99.1

FOR IMMEDIATE RELEASE

Media Contact:
Gabby Nelson
(763) 551-7460
gabby.nelson@selectcomfort.com Investor Contact:
Jim Raabe
(763) 551-7498
investorrelations@selectcomfort.com

SELECT COMFORT TERMINATES SECURITIES PURCHASE AGREEMENT; NEGOTIATES NEW $10 MILLION STERLING PARTNERS INVESTMENT

MINNEAPOLIS – (October 5, 2009) – Select Comfort Corporation (NASDAQ: SCSS), the nation’s leading bed retailer and creator of the SLEEP NUMBER® bed, today announced it terminated the Securities Purchase Agreement entered into with Sterling Partners on May 22, 2009, and entered into a new Securities Purchase Agreement. As part of the termination agreement, both companies mutually released claims relating to the original agreement.

Under terms of the new Securities Purchase Agreement, Sterling Partners has the right through June 2010 to invest $10.0 million in exchange for 2.5 million shares of the company’s common stock priced at $4.00 per share and warrants to purchase two million shares of the company’s common stock at an exercise price of $0.01 per share. Select Comfort can require the investment upon securing an acceptable extended credit agreement from its lenders. With the close of the investment and exercise of the warrants, Sterling Partners will own approximately 8.9 percent of the company’s common stock.

“This agreement positions us to pursue additional capital, which combined with the Sterling investment, will strengthen our financial position and increase our financial flexibility,” said Bill McLaughlin, president and CEO, Select Comfort Corporation. “In addition to exploring additional financing alternatives for the company, we continue to negotiate with our lenders to secure a permanent financing agreement.”

-more-

The termination date of the current credit agreement is June 9, 2010, with the most recent waiver the company is operating under in effect until October 13, 2009.

Select Comfort also stated that sales trends continue to improve, with positive same-store sales growth during August and September. Cost and cash controls implemented during the past 18 months remain in place and continue to be effective. The company anticipates that its third-quarter results will include one-time charges ranging from $3.0 million to $5.0 million associated with the original Securities Purchase Agreement and its termination.

About Select Comfort Corporation

Founded more than 20 years ago, Select Comfort was ranked the no. 1 bedding retailer in the United States for nine years running.(1) Based in Minneapolis, the company designs, manufactures, markets and supports a line of adjustable-firmness mattresses featuring air-chamber technology, branded the Sleep Number® bed, as well as foundations and bedding accessories. SELECT COMFORT® products are sold through its approximately 400 company-owned stores located across the United States; select bedding retailers; direct marketing operations; and online at www.sleepnumber.com.

Forward-Looking Statements

Statements used in this news release relating to future plans, events, financial results or performance are forward-looking statements subject to certain risks and uncertainties including, among others, such factors as our ability to fund our operations through cash flow from operations or availability under our bank line of credit or other sources, and the cost of credit or other capital resources necessary to finance operations; the risk of non-compliance with financial covenants under our bank line of credit and the risk that we may not be successful in obtaining continuing waivers or other financial accommodations from our lenders; the potential need to obtain additional capital through the issuance of debt or equity securities, which may significantly increase our costs or dilute our existing shareholders, and the risk that we may not be successful in obtaining additional capital that may be needed; current general and industry economic trends; consumer confidence; the effectiveness of our marketing messages; the efficiency of our advertising and promotional efforts; consumer acceptance of our products, product quality, innovation and brand image; availability of attractive and cost-effective consumer credit options; execution of our retail store distribution strategy, including our ability to cost-effectively close under-performing store locations; our dependence on significant suppliers, and our ability to maintain relationships with key suppliers, including several-sole source suppliers; the vulnerability of key suppliers to recessionary

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pressures, labor negotiations, liquidity concerns or other factors; rising commodity costs and other inflationary pressures; industry competition; our ability to continue to improve our product line; warranty expenses; risks of pending and potentially unforeseen litigation; increasing government regulations, including new flammability standards for the bedding industry and new safety standards for consumer products, which have or will add product cost pressures and have or will require implementation of systems and manufacturing process changes to ensure compliance; the adequacy of our management information systems to meet the evolving needs of our business and evolving regulatory standards applicable to data privacy and security; our ability to attract and retain senior leadership and other key employees, including qualified sales professionals; and uncertainties arising from global events, such as terrorist attacks or a pandemic outbreak, or the threat of such events.  Additional information concerning these and other risks and uncertainties is contained in our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K, and other periodic reports filed with the SEC. The company has no obligation to publicly update or revise any of the forward-looking statements in this news release.

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(1) Furniture/Today.

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