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Sample Business Contracts

Promissory Note - Medallion Capital Inc. and Select Comfort Corp.

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THIS NOTE HAS NOT BEEN REGISTERED  UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, OFFERED FOR SALE
OR  TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE  REGISTRATION  STATEMENT FOR THIS
NOTE UNDER THE ACT OR AN OPINION OF COUNSEL  THAT  REGISTRATION  IS NOT REQUIRED
UNDER THE ACT.


                           SELECT COMFORT CORPORATION

                           NOTE DUE SEPTEMBER 28, 2006

Amount: $5,000,000.00                                   Date: September 28, 2001
Rate: 12%                                         Maturity: September   28, 2006

     FOR  VALUE  RECEIVED,  the  undersigned,   SELECT  COMFORT  CORPORATION,  a
Minnesota  corporation (the "Company"),  and SELECT COMFORT RETAIL  CORPORATION,
SELECT COMFORT DIRECT  CORPORATION,  SELECT COMFORT SC CORPORATION,  DIRECT CALL
CENTERS,  INC., AND  SELECTCOMFORT.COM  CORPORATION,  all of which are Minnesota
corporations,  (the "Subsidiaries") (the Company and the Subsidiaries being each
a "Loan  Party"  and  collectively  the  "Loan  Parties"),  hereby  jointly  and
severally  promise to pay to MEDALLION  CAPITAL,  INC.  ("Lender"),  a Minnesota
corporation  and a licensee under the Small Business  Investment Act of 1958, at
its office at 7831 Glenroy Road, Suite 480,  Minneapolis,  Minnesota 55439-3132,
the principal amount of Five Million Dollars ($5,000,000) together with interest
on the  unpaid  principal  balance  from the date  hereof at the rate of 12% per
annum,  provided that in the event of a Default as defined in the Loan Agreement
referred to below which continues for 90 consecutive  days, the unpaid principal
balance  shall bear  interest  at a rate equal to the lesser of 19% per annum or
the maximum  amount  permitted  by law from the date of such  Default  until the
Default is waived by the Lender in writing or cured to the  satisfaction  of the
Lender.  Interest  calculations  shall be based on a 360-day  year and a 10 year
amortization schedule.

     Interest  shall accrue without  payment until October 1, 2001.  Thereafter,
principal  and  interest  shall be due and payable as  provided in the  attached
amortization schedule,  with the final installment of principal and interest due
on  September  28,  2006,  in the amount  necessary  to repay in full the unpaid
principal  and interest.  All payments  received will be first applied to unpaid
interest with any remainder being applied toward principal reduction.

     This Note has been  delivered in conjunction  with a Loan  Agreement  dated
September  28, 2001,  by and among the Company,  the Lender and the Loan Parties
referred  to  therein.  Any  capitalized  terms in this Note shall have the same
meaning as set forth in the Loan Agreement.

     This  Note is  subject  to  prepayment  in whole or part at any time at the
option  of the  Company.  In the case of any  prepayment  of less than the total
principal amount  outstanding on the Note, the prepayment shall be applied first
to the interest owed and then to  installments of


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principal in the inverse order of their maturity.  In the event of prepayment of
principal, the following prepayment fees shall apply:

                                         Percent of Prepaid Principal
           Prepayment Date               Due as Prepayment Penalty
           ------------------------     -----------------------------

           September 28, 2002            5%
           September 28, 2003            4%
           September 28, 2004            3%
           September 28, 2005            2%
           July 28, 2006                 1%

     Notwithstanding  the  foregoing,  Lender agrees to waive the prepayment fee
(i) if the closing  sale price of the  Company's  common  stock (as  reported on
NASDAQ) is $4.00 or more per share for the 90  consecutive  calendar  day period
immediately prior to such prepayment, or (ii) if all of the shares obtained upon
exercise of the Warrant have  actually  been sold for an average  price of $4.00
per share (without deduction for selling costs).

     Upon the  occurrence of any Default (as defined in the Loan  Agreement) the
Lender shall have all the rights and remedies provided in the Loan Agreement and
the other agreements securing this Note.

     The Company agrees,  if this Note is placed in the hands of an attorney for
collection after the occurrence of a Default, to pay reasonable  attorneys' fees
and other costs as  permitted  by law.  The Company  waives  demand for payment,
presentment, notice of dishonor, notice of non-payment, diligence in collecting,
grace, notice and protest. No release of any security for this Note or extension
of time for payment of this Note shall  release or modify the  liability  of the
Company under this Note.

     This Note shall be governed by the laws of the State of Minnesota and shall
be binding upon the Company,  its successors and assigns, and shall inure to the
benefit of the holder hereof, its successors and assigns.

SELECT COMFORT CORPORATION

By:  /s/ Mark A. Kimball
     ------------------------------------------
       Mark A. Kimball, Senior Vice President

SELECT COMFORT RETAIL CORPORATION

By:  /s/ Mark A. Kimball
     ------------------------------------------
       Mark A. Kimball, Senior Vice President

SELECT COMFORT DIRECT CORPORATION

By:  /s/ Mark A. Kimball
     ------------------------------------------
       Mark A. Kimball, Senior Vice President



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SELECT COMFORT SC CORPORATION

By:  /s/ Mark A. Kimball
     ------------------------------------------
       Mark A. Kimball, Senior Vice President

DIRECT CALL CENTERS, INC.

By:  /s/ Mark A. Kimball
     ------------------------------------------
       Mark A. Kimball, Senior Vice President

SELECTCOMFORT.COM CORPORATION

By:  /s/ Mark A. Kimball
     ------------------------------------------
       Mark A. Kimball, Senior Vice President



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                                                                          09/26/2001      Page 1
-------------------------------------------------------------------------------------------------
Select Comfort
-------------------------------------------------------------------------------------------------

Compound Period......:       Monthly

Nominal Annual Rate..:     12.000   %
Effective Annual Rate:     12.683   %
Periodic Rate........:      1.0000  %
Daily Rate...........:      0.03333 %

CASH FLOW DATA
-------------------------------------------------------------------------------------------------
      Event            Start Date          Amount          Number      Period       End Date
-------------------------------------------------------------------------------------------------
                                                                   
1  Loan                09/28/2001        5,000,000.00          1
2  Payment             11/01/2001       Interest Only         24      Monthly      10/01/2003
3  Payment             11/01/2003           71,735.47         36      Monthly      10/01/2006
4  Payment             10/01/2006        4,063,703.80          1

AMORTIZATION SCHEDULE - Normal Amortization, 360 Day Year


        Date               Payment           Interest           Principal           Balance
-------------------------------------------------------------------------------------------------
                                                                   
 Loan  09/28/2001                                                                  5,000,000.00
    1  11/01/2001          55,050.00          55,050.00              0.00          5,000,000.00
    2  12/01/2001          50,000.00          50,000.00              0.00          5,000,000.00
 2001  Totals             105,050.00         105,050.00              0.00          5,000,000.00

    3  01/01/2002          50,000.00          50,000.00              0.00          5,000,000.00
    4  02/01/2002          50,000.00          50,000.00              0.00          5,000,000.00
    5  03/01/2002          50,000.00          50,000.00              0.00          5,000,000.00
    6  04/01/2002          50,000.00          50,000.00              0.00          5,000,000.00
    7  05/01/2002          50,000.00          50,000.00              0.00          5,000,000.00
    8  06/01/2002          50,000.00          50,000.00              0.00          5,000,000.00
    9  07/01/2002          50,000.00          50,000.00              0.00          5,000,000.00
   10  08/01/2002          50,000.00          50,000.00              0.00          5,000,000.00
   11  09/01/2002          50,000.00          50,000.00              0.00          5,000,000.00
   12  10/01/2002          50,000.00          50,000.00              0.00          5,000,000.00
   13  11/01/2002          50,000.00          50,000.00              0.00          5,000,000.00
   14  12/01/2002          50,000.00          50,000.00              0.00          5,000,000.00
 2002  Totals             600,000.00         600,000.00              0.00

   15  01/01/2003          50,000.00          50,000.00              0.00          5,000,000.00
   16  02/01/2003          50,000.00          50,000.00              0.00          5,000,000.00
   17  03/01/2003          50,000.00          50,000.00              0.00          5,000,000.00
   18  04/01/2003          50,000.00          50,000.00              0.00          5,000,000.00
   19  05/01/2003          50,000.00          50,000.00              0.00          5,000,000.00
   20  06/01/2003          50,000.00          50,000.00              0.00          5,000,000.00
   21  07/01/2003          50,000.00          50,000.00              0.00          5,000,000.00
   22  08/01/2003          50,000.00          50,000.00              0.00          5,000,000.00
   23  09/01/2003          50,000.00          50,000.00              0.00          5,000,000.00
   24  10/01/2003          50,000.00          50,000.00              0.00          5,000,000.00
   25  11/01/2003          71,735.47          50,000.00         21,735.47          4,978,264.53
   26  12/01/2003          71,735.47          49,782.65         21,952.82          4,956,311.71
 2003  Totals             643,470.94         599,782.65         43,688.29


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                                                                          09/26/2001      Page 2
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Select Comfort
-------------------------------------------------------------------------------------------------
        Date               Payment           Interest           Principal           Balance
-------------------------------------------------------------------------------------------------

   27  01/01/2004          71,735.47          49,563.12          22,172.35       4,934,139.36
   28  02/01/2004          71,735.47          49,341.39          22,394.08       4,911,745.28
   29  03/01/2004          71,735.47          49,117.45          22,618.02       4,889,127.26
   30  04/01/2004          71,735.47          48,891.27          22,844.20       4,866,283.06
   31  05/01/2004          71,735.47          48,662.83          23,072.64       4,843,210.42
   32  06/01/2004          71,735.47          48,432.10          23,303.37       4,819,907.05
   33  07/01/2004          71,735.47          48,199.07          23,536.40       4,796,370.65
   34  08/01/2004          71,735.47          47,963.71          23,771.76       4,772,598.89
   35  09/01/2004          71,735.47          47,725.99          24,009.48       4,748,589.41
   36  10/01/2004          71,735.47          47,485.89          24,249.58       4,724,339.83
   37  11/01/2004          71,735.47          47,243.40          24,492.07       4,699,847.76
   38  12/01/2004          71,735.47          46,998.48          24,736.99       4,675,110.77
 2004  Totals             860,825.64         579,624.70         281,200.94

   39  01/01/2005          71,735.47          46,751.11          24,984.36       4,650,126.41
   40  02/01/2005          71,735.47          46,501.26          25,234.21       4,624,892.20
   41  03/01/2005          71,735.47          46,248.92          25,486.55       4,599,405.65
   42  04/01/2005          71,735.47          45,994.06          25,741.41       4,573,664.24
   43  05/01/2005          71,735.47          45,736.64          25,998.83       4,547,665.41
   44  06/01/2005          71,735.47          45,476.65          26,258.82       4,521,406.59
   45  07/01/2005          71,735.47          45,214.07          26,521.40       4,494,885.19
   46  08/01/2005          71,735.47          44,948.85          26,786.62       4,468,098.57
   47  09/01/2005          71,735.47          44,680.99          27,054.48       4,441,044.09
   48  10/01/2005          71,735.47          44,410.44          27,325.03       4,413,719.06
   49  11/01/2005          71,735.47          44,137.19          27,598.28       4,386,120.78
   50  12/01/2005          71,735.47          43,861.21          27,874.26       4,358,246.52
 2005  Totals             860,825.64         543,961.39         316,864.25

   51  01/01/2006          71,735.47          43,582.47          28,153.00       4,330,093.52
   52  02/01/2006          71,735.47          43,300.94          28,434.53       4,301,658.99
   53  03/01/2006          71,735.47          43,016.59          28,718.88       4,272,940.11
   54  04/01/2006          71,735.47          42,729.40          29,006.07       4,243,934.04
   55  05/01/2006          71,735.47          42,439.34          29,296.13       4,214,637.91
   56  06/01/2006          71,735.47          42,146.38          29,589.09       4,185,048.82
   57  07/01/2006          71,735.47          41,850.49          29,884.98       4,155,163.84
   58  08/01/2006          71,735.47          41,551.64          30,183.83       4,124,980.01
   59  09/01/2006          71,735.47          41,249.80          30,485.67       4,094,494.34
   60  10/01/2006          71,735.47          40,944.94          30,790.53       4,063,703.81
   61  10/01/2006       4,063,703.80               0.01       4,063,703.81               0.00
 2006  Totals           4,781,058.50         422,811.98       4,358,246.52

Grand Totals            7,851,230.72       2,851,230.72       5,000,000.00

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