Sleep Number - Chapter 11 Case Summary

Business Description

Headquartered in Minneapolis, Minnesota, Sleep Number Corporation ("SNBC" and, together with debtors Select Comfort Retail Corporation, Select Comfort Canada Holding Inc., Select Comfort SC LLC, and Sleep Number Health Corporation, "Sleep Number," the "Debtors," or the "Company") is a personalized sleep wellness company that designs, manufactures, and sells smart mattresses, bases, and related products.

• The Company's mattresses are built to adapt to each sleeper, combining adjustable firmness, pressure-relieving support, and temperature-balancing comfort that evolve with customers' changing needs over time.
• Backed by nearly 40 years of innovation, more than 1,000 patents and patents pending, and billions of hours of sleep data, Sleep Number reports having helped over 16 million people improve their sleep.

As of the Petition Date, the Company employed approximately 2,920 people and operated 572 Sleep Number stores with locations across all 50 U.S. states.

Smart Product Platform

Sleep Number's mattresses and bases pair physical comfort with a digital sleep wellness platform. Among their core features, the Company's smart products:

• Provide signature firmness adjustability, allowing each sleeper to set a preferred comfort level.
• Use digital sensing to deliver sleep health and quality metrics and feedback.
• Apply "sense and do" technology that automatically adjusts the mattress to maintain comfort throughout the night.
• Offer individualized temperature control and temperature-balancing technology, such as the Climate360® system.

The smart mattresses are positioned across a range of price points, deliver daily personalized sleep insights, and receive new features through over-the-air updates.

Redesigned Portfolio

In March 2026, Sleep Number announced a redesigned mattress portfolio, introducing five new beds and streamlining its lineup from 12 to seven beds to make it easier for customers to find the right fit while maintaining a luxury experience at a more approachable price point. The seven-bed portfolio is organized into three collections—ComfortMode™, ComfortNext™, and Climate™.

• Two of the new beds feature Sleep Number's first Tri-Brid™ design, combining micro coils, foam, and adjustable air to provide additional shoulder, knee, hip, and lower back relief.

Recognition

Sleep Number has received a range of industry and consumer recognitions, including:

• Ranked #1 in customer satisfaction for both in-store and online mattress purchases in the J.D. Power 2025 U.S. Mattress Satisfaction Study—its fifth such distinction from J.D. Power.
• Named America's Best in Customer Service by USA Today (2026) and One of the Most Trustworthy Companies in America by Newsweek (2026).
• Its ClimateCool® smart bed was recognized in 2025 by TIME (Best Inventions), Forbes (Best Smart Mattress), the Esquire Sleep Awards, the Men's Health Sleep Awards, the Oprah Daily Sleep O-wards (Best Cooling Mattress), and Men's Journal (Best Smart Bed).
• Its Climate360® was recognized by Forbes as the Best Smart Bed for Temperature Control.

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Corporate History

The Company was founded in 1987 as Select Comfort Corporation, with the goal of making better sleep accessible for everyone. It opened its first retail store in 1992, bringing personalized sleep solutions directly to customers, and introduced home delivery and professional set-up services in 2000.

• Select Comfort became publicly traded in 1998 and is listed on the Nasdaq Global Select Market under the symbol "SNBR."
• In 2017, the Company changed its legal name to Sleep Number Corporation and rebranded as "Sleep Number."

As of the Petition Date, Sleep Number had 142,500,000 shares of common stock authorized, of which 23,250,154 shares were outstanding.

Corporate Structure

SNBC is a public holding company that wholly owns four direct subsidiaries—Select Comfort Retail Corporation, Select Comfort Canada Holding Inc., Select Comfort SC LLC, and Sleep Number Health Corporation—each of which is a Debtor in these Chapter 11 Cases.

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Operations Overview

Sales and Marketing

Sleep Number operates an exclusive, direct-to-consumer distribution model that integrates its digital and physical channels to support long-term customer relationships. As the sole distributor of its products, the Company maintains a nationwide portfolio of retail stores, selecting high-quality, convenient, and visible locations based on factors such as each market's sales and profit potential, geography, demographics, and proximity to other brand experiences.

• Since 2010, the Company has repositioned a significant share of its mall stores into stronger, optimally sized non-mall locations while adding stores in both existing and new markets.
• In 2025, retail stores generated 88% of net sales, with the remaining 12% derived from online, phone, chat, and other channels.

Customer acquisition and retention are central to the Company's strategy and are supported by the Sleep Number rewards loyalty program.

• The program, whose members are known as Smart Sleepers℠, has welcomed more than 1.9 million members since its launch.
• Its most dedicated members participate in over three million digital engagements per year, interacting with branded video, web, email, and blog content and posting product reviews on social media that further extend the Company's brand exposure.

In 2025, Sleep Number reset its marketing strategy to reach a larger addressable market. In April 2026, it launched "To a Good Life's Sleep," its first major integrated campaign in several years, shifting from feature- and utility-based messaging toward a benefit-focused narrative spanning entry-level options through premium smart beds.

Intellectual Property

Sleep Number's business depends in part on its intellectual property portfolio, with a particular focus on smart features that improve sleep quality and thermal solutions that address temperature disruptions. As of the Petition Date, the Company held various U.S. and foreign patents and patent applications covering elements such as air control and remote control systems, air chamber features, mattress construction, foundation and sensing systems, automated adjustments, and in-bed temperature control.

• The Company owns trademarks and service marks registered with the U.S. Patent and Trademark Office, several of which are registered or the subject of pending applications in various foreign countries.
• Its additional intellectual property includes trade secrets, trade dress, and copyrights related to its products, processes, and technologies.

Partnerships and Collaborations

• National Football League (NFL): Sleep Number has been the Official Sleep and Wellness Partner of the NFL since 2018, with related partnerships with the NFL Players Association and the Professional Football Athletic Trainers Society. In 2025, it partnered with three clubs—the Los Angeles Rams, the Dallas Cowboys, and the Minnesota Vikings—to support national media and community-activation efforts in key markets.
• Health and Research Institutions: Leveraging its accurate, longitudinal sleep data, the Company has partnered with the Mayo Clinic, the American Cancer Society ("ACS"), Northwestern University, and the University of Pittsburgh on research into how sleep affects health.
  • Its 2020 collaboration with the Mayo Clinic produced multiple research projects, including studies on disrupted sleep and markers of aging, excessive daytime sleepiness and its cardiovascular implications, and the prevalence of disordered sleep among patients of Somali heritage.
  • In 2022, building on the audience gained through its NFL partnership, the Company partnered with ACS on a six-year study of the connection between cancer and sleep quality, with the goal of developing sleep strategies and guidance for cancer patients and survivors. Sleep Number also donates sleep solutions to ACS's Hope Lodges across the country.
• Travis Kelce: In January 2026, the Company announced a strategic partnership with three-time Super Bowl champion Travis Kelce, who committed to acquire common stock on the open market, receive compensatory restricted stock units vesting over an initial three-year term subject to customary conditions, and participate in future marketing efforts.

Employees

As of the Petition Date, Sleep Number employed approximately 2,920 people, including the current members of the Debtors' boards of directors or similar governing bodies. Contract workers typically account for approximately 18% of the Company's total workforce.

• Employees are located across multiple sites in the United States.
• None of the employees are represented by a union or party to a collective bargaining agreement.

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Prepetition Obligations

As of the Petition Date, Sleep Number reported approximately $672.5 million in aggregate outstanding principal funded debt. The Company’s prepetition obligations consist of a revolving credit facility and two term loan facilities (collectively, the Prepetition Secured Credit Facilities), each guaranteed by all of the Debtors and secured by a security interest in substantially all of the Debtors’ assets. The capital structure is summarized below:

Prepetition Secured Credit Facilities

• The Debtors’ funded debt is governed by an Amended and Restated Credit and Security Agreement dated Feb. 18, 2018 (the Prepetition Credit Agreement), entered into with U.S. Bank National Association as administrative agent and the lenders party thereto. Under the agreement, SNBC, as borrower, obtained term loans and commitments for the revolving facility.
  • Prepetition Revolving Loans: Approximately $475 million is outstanding, maturing Dec. 3, 2027.
  • Prepetition 2021 Term Loans: Approximately $177.5 million is outstanding, maturing Dec. 3, 2027.
  • Prepetition 2026 Term Loans: Approximately $20 million is outstanding, maturing June 30, 2026.
• The Prepetition Term Loans together account for approximately $197.5 million of the outstanding principal.

Thirteenth Amendment and Forbearance

• On April 27, 2026, the Debtors, the lenders and U.S. Bank — as Administrative Agent, Swing Line Lender and Issuing Lender — entered into a Forbearance Agreement and Thirteenth Amendment to the Prepetition Credit Agreement, which, among other things:
  • Provided a $25 million term loan facility (the Prepetition 2026 Term Loans) maturing June 30, 2026, subject to a $5 million amortization payment that was made on June 1, 2026.
  • Required the lenders to forbear from exercising certain rights and remedies in respect of specified events of default under the Prepetition Credit Agreement.
  • Suspended the minimum liquidity financial covenant from April 27, 2026 through the last business day of the first week ending after July 1, 2026.
  • Prohibited disbursements or new draws under the Prepetition Revolving Credit Facility from exceeding an agreed permitted variance amount.
  • Required the Company to satisfy certain milestones, including those tied to consummating a strategic transaction designed to maximize enterprise value and provide for payment in full of the obligations under the Prepetition Credit Agreement.

Letters of Credit

• As of the Petition Date, approximately $8.3 million in aggregate principal amount of letter of credit commitments remains outstanding under the Prepetition Revolving Credit Facility.
  • The Debtors do not expect a request to cash collateralize these letters of credit during the course of these Chapter 11 Cases.

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Events Leading to Bankruptcy

• Over the last several years, Sleep Number—like many retailers—has contended with a series of industry-specific and macroeconomic headwinds that strained its business and resources, ultimately driving the Debtors to seek chapter 11 relief. The Company commenced these Chapter 11 Cases to implement a value-maximizing going-concern sale supported by the Stalking Horse Bidder and the lenders and agent under its Prepetition Secured Credit Facilities.

Recent Macroeconomic Trends

• Over the past decade, multiple mattress retailers have faced distress stemming from a common set of pressures, producing what amounted to a historic industry recession:
  • A pronounced consumer shift toward e-commerce eroded in-store foot traffic and sales, while the difficulty of maintaining a right-sized real estate portfolio and distribution network—combined with diminishing profit margins across the vertical—weighed on the entire sector.
  • For Sleep Number specifically, the cumulative effect of heightened competition, reduced discretionary consumer spending, an unpredictable regulatory environment, elevated inflation and interest rates, a less dependable global supply chain, and rising operating costs materially impacted the Company's bottom line.
• A more recent and distinct catalyst was the unpredictable shifting of U.S. trade rules layered atop an already vulnerable global supply chain:
  • Beginning in April 2025, the U.S. government began imposing and proposing a new wave of tariffs on imported goods—goods on which Sleep Number relied heavily to manufacture and assemble its smart beds and mattresses—including tariffs levied under the International Emergency Economic Powers Act of 1977 ("IEEPA") that applied to certain of the Company's direct-import products during fiscal year 2025.
  • Although the U.S. Supreme Court ruled in February 2026 that IEEPA does not authorize the President to impose tariffs, the broader trade landscape remained complex, and the Company continued to navigate ongoing regulatory uncertainty—particularly the prospect of alternative tariff frameworks on U.S. imports.

Internal Cost-Cutting Measures

• During the pandemic, Sleep Number experienced a significant demand spike and pursued a strategy that overexpanded its cost structure—including its store footprint, manufacturing capabilities, and debt levels. The resulting increase in leverage reduced the Company's ability to weather prolonged macroeconomic headwinds.
• To spearhead a turnaround, the Company appointed Linda Findley as CEO in April 2025:
  • Findley immediately moved to repair the capital structure and streamline operations—creating a nimbler organization built for faster decision-making by consolidating roles across key functions and strengthening accountability. These efforts reduced operating costs by $136 million versus 2024 (excluding restructuring and other non-recurring costs), including by optimizing the real estate portfolio and right-sizing the fixed cost base.
  • In November 2025, the Company introduced its turnaround strategy, "Sleep Number Shifts," a company-wide effort to reposition the brand, reach new customer groups, and reignite growth, centered on three pillars:
    • Product: simplifying its offering to grow the customer base while building on demand from repeat customers.
    • Marketing: modernizing efforts by expanding channels and reach with new creative and a sharper focus on return on investment.
    • Distribution: optimizing store footprints and exploring opportunities to expand into new physical and digital channels.
• These measures improved the Company's liquidity position and afforded the breathing room needed to transition toward exploring long-term restructuring options in 2026.

Evaluating Restructuring Options

• To analyze its financing needs and develop capital structure solutions, Sleep Number assembled a team of advisors:
  • Guggenheim Securities, LLC was retained as investment banker in February 2026; AlixPartners, LLP was engaged as operational advisor to support the business plan and transformation, accelerate cost savings, and aid contingency planning; and existing counsel Davis Polk & Wardwell LLP was mandated to advise on restructuring strategies.
• With its advisors, the Company exhaustively pursued a range of alternatives, including recapitalization and financing from new sources and existing stakeholders, strategic combinations, and the marketing and sale of its assets or operations to third parties:
  • Beginning in March 2026, Guggenheim Securities contacted 33 parties, 26 of which executed non-disclosure agreements and received diligence materials. Ultimately, only one party submitted a written recapitalization proposal, which the Company—after a comprehensive evaluation with its advisors—deemed neither actionable nor in the best interest of stakeholders. While several senior bridge financing proposals were received, the existing lender group would not consent to being primed, and no actionable unsecured or junior financing proposals materialized.
• Based on recent performance trends, the Company concluded that the only viable path to preserve its business and liquidity was to raise incremental bridge financing from its existing lenders while launching a marketing process to identify a purchaser for its assets as a going concern—structured to minimize disruption to customer, employee, and vendor relationships and to maximize value for all stakeholders.

Governance Enhancements

• The Board determined that several governance enhancements were in the Debtors' best interests, each of which was approved and implemented:
  • In March 2026, the Board formed a Special Transactions Committee to lead the refinancing and strategic alternatives initiative and to make recommendations to the full Board.
  • On June 4, 2026, the Board appointed Colin M. Adams—an experienced restructuring professional—to the boards of Sleep Number Corporation and each other Debtor, and as a member of the Special Transactions Committee. Mr. Adams also serves as the sole member of each Debtor's Special Investigations Committee, established to evaluate certain potential claims the Debtors may hold.
  • On June 12, 2026, the Board appointed Kent Percy of AP Services, LLC as Chief Restructuring Officer to assist with the chapter 11 filings and provide management services in connection with these Chapter 11 Cases.

Prepetition Sale and Marketing Process

• Prior to the Petition Date, Sleep Number conducted a robust, 14-week marketing process for the sale of substantially all of its assets:
  • With Guggenheim Securities, the Company prepared marketing materials and contacted 53 potential strategic and financial purchasers. Of these, 19 executed non-disclosure agreements and received a confidential information memorandum and data-room access, and five submitted preliminary proposals. The Debtors intend to continue this marketing process during the Chapter 11 Cases.
• These efforts culminated in an agreement with SNBR Inc., an affiliate of Sleep Country Canada Inc. (the "Stalking Horse Bidder" or "Sleep Country"), to serve as stalking horse bidder for substantially all of the Company's assets:
  • Sleep Country expressed strong interest from day one of the prepetition process and engaged actively in diligence and negotiations throughout. Founded in 1994 and operating under the Sleep Country, Dormez-vous, Casper (Canada), Endy, Hush, Silk & Snow, and Simba (U.K.) banners, Sleep Country is Canada's leading specialty sleep retailer, with a network of over 300 corporate-owned stores and an industry-leading sleep ecosystem.
  • Under the Stalking Horse APA, dated June 12, 2026, the Stalking Horse Bidder has committed—subject to Court approval—to acquire substantially all of the Company's assets for a purchase price of $415 million in cash plus the assumption of certain liabilities, subject to certain potential purchase price adjustments. The Stalking Horse Bid will set the floor for competing bids during the Chapter 11 Cases.
• To confirm the Stalking Horse Bid is the highest or best offer, the Debtors proposed Bidding Procedures permitting competing bids, building on the momentum of the prepetition process to maximize value while preserving the business as a going concern:
  • Given the comprehensive prepetition marketing and bidders' existing familiarity with the assets, the Debtors determined that a 26-day post-petition marketing and diligence period is reasonable. The proposed timeline targets a July 8, 2026 bid deadline, a July 13, 2026 auction (if any) at Davis Polk's New York offices, a July 15, 2026 sale hearing, and a sale closing by July 31, 2026 (subject to required regulatory approvals). A prompt sale is imperative to preserve valued customer, employee, and vendor relationships.

Prepetition Liquidity Initiatives

• Since the beginning of 2026, the Company explored a range of liquidity options to support its restructuring alternatives, including the going-concern sale:
  • The Company received several senior bridge financing proposals, but the existing lender group would not consent to being primed, and no actionable unsecured or junior financing proposals were received.
  • In April 2026, Sleep Number incurred the Prepetition 2026 Term Loans to obtain additional financing for general corporate purposes and to improve its liquidity position while remaining focused on its strategic objectives.
  • On May 13, 2026, pursuant to the Thirteenth Amendment and a participation agreement, SNBC sold to a third-party buyer all of its rights in its claims for tariff refunds previously paid to U.S. Customs and Border Protection under IEEPA, along with related rights (the "IEEPA Tariff Refund Sale").
• While the liquidity generated by the cost-cutting measures, Prepetition 2026 Term Loan Financing, and IEEPA Tariff Refund Sale was insufficient to fully address Sleep Number's obligations, it enabled the Company to pursue a robust prepetition marketing process and identify the Stalking Horse Bidder in support of a value-maximizing sale.

DIP Financing and Path Forward

• In parallel with the sale process, Sleep Number negotiated and secured postpetition financing with its existing lender group under the Prepetition Credit Agreement, consisting of up to $65 million in new money and up to $195 million in the form of a roll-up of prepetition obligations converted on a 3:1 basis (the "DIP Facility"):
  • With Guggenheim Securities, the Debtors also conducted a broader outreach to test for alternative financing, contacting 11 prospective sources on a priming, pari passu, or junior basis. None expressed willingness to lend on an unsecured or junior basis, and while three priming proposals were received—including an unsolicited term sheet from a party not under NDA—the existing lender group would not consent to being primed.
  • The Company believes the negotiated DIP terms provide the best opportunity to meet near-term obligations, honor commitments to customers, employees, vendors, and other stakeholders, and position Sleep Number to run a value-maximizing sale process.
• The DIP Facility will bolster liquidity and signal to stakeholders that operations will continue in the ordinary course as the Company pursues an efficient sale and prepares to emerge from bankruptcy. Mindful that speed preserves value—and that lingering in chapter 11 would accrue significant administrative claims and risk the loss of employee, customer, and supplier confidence—the Debtors have calibrated their DIP and sale milestones toward a swift, value-maximizing outcome.
• In short, commencing these Chapter 11 Cases with an expeditious, streamlined sale process backstopped by the Stalking Horse Bidder and DIP Financing from the existing lender group represents the optimal outcome achievable under the challenging prepetition circumstances—ensuring that Sleep Number, a prominent American brand, continues as a going concern, preserving its relationships with employees, customers, vendors, suppliers, and business partners, and positioning the Company for long-term success.