Sleep Number Corporation - Chapter 11 DIP Terms

DIP Terms

Borrower(s) / Guarantor(s)

• Sleep Number Corporation, as DIP Borrower
• Each of the DIP Borrower's subsidiaries and affiliates that are Debtors — Select Comfort Retail Corporation, Select Comfort Canada Holding Inc., Select Comfort SC LLC, and Sleep Number Health Corporation — as DIP Guarantors, guaranteeing the DIP Obligations on a joint and several basis

Agent / Lender(s)

• U.S. Bank National Association, as DIP Agent and Administrative Agent (and, under the prepetition facility, as Prepetition Loan Agent, Prepetition Issuing Lender, and Prepetition Swing Line Lender)
• The lenders from time to time party thereto, as DIP Lenders; the DIP Facility is provided by the applicable 2026 Term Loan Lenders, and the DIP Loans and DIP Roll-Up Loans are made (or deemed made) as 2026 Term Loans under the Amended Credit Agreement

DIP Commitments

• Postpetition, superpriority, senior secured, priming term loan facility in an aggregate principal amount of up to $260 million, consisting of:
  • Up to $65 million in new money superpriority senior secured term loan commitments:
    • Delayed Draw Interim New Money DIP Loans, available in multiple draws up to $50 million upon entry of the First Interim Order and up to $61,365,931 in the aggregate upon entry of the Second Interim Order
    • Delayed Draw New Money DIP Loans, available in multiple draws upon entry of the Final Order in an amount up to the difference between $65 million and the Delayed Draw Interim New Money DIP Loans funded prior to entry of the Final Order
  • DIP Roll-Up Loans, capped at $195 million, effected by converting Prepetition Secured Obligations into DIP Roll-Up Loans on a cashless, dollar-for-dollar basis, without novation, on a 3:1 basis (i.e., $3.00 of Prepetition Secured Obligations converted for each $1.00 of New Money DIP Loans actually drawn and funded)
    • The Prepetition Secured Parties would not otherwise consent to the use of their Cash Collateral or the subordination of their liens, and the DIP Lenders would not extend credit, without the DIP Roll-Up Loans; the roll-up is authorized as consideration for the DIP Lenders' funding and not as adequate protection
• Once repaid, no 2026 Term Loan may be reborrowed
• Prepetition Secured Obligations converted into DIP Roll-Up Loans are applied in a specified order: first, Administrative Agent expenses; second, accrued interest and fees on the Prepetition 2026 Term Loans; third, principal of the Prepetition 2026 Term Loans; fourth, accrued interest and fees on the other Loans; fifth, principal of the Revolving Loans, the 2021 Term Loans, and Letter of Credit Exposure (together with hedge and bank product obligations); and finally, any remaining Prepetition Obligations
• As of the Petition Date, the Debtors stipulated to Prepetition Secured Obligations of not less than $20,000,000 in Prepetition 2026 Term Loan Obligations, not less than $177,500,000 in Prepetition 2021 Term Loan Obligations, and not less than $475,000,000 in Prepetition RCF Obligations, in each case plus accrued interest, fees, and other obligations

Cash Collateral

• All of the Debtors' cash wherever located and held, including cash in deposit accounts, that constitutes or will constitute cash collateral of the Prepetition Secured Parties (including the proceeds of Prepetition Collateral) or the DIP Secured Parties within the meaning of section 363(a) of the Bankruptcy Code

Interest Rate

• On the DIP Loans and Roll-Up Loans (as 2026 Term Loans), as selected by the Borrower:
  • Term SOFR + 8.00%, or
  • Alternate Base Rate + 7.00% (0% floor)
• Roll-Up Loans bear interest at the rate applicable to 2026 Term Loans from and after the date deemed made; except as ordered by the Court or permitted by the Bankruptcy Code, no interest is payable on Prepetition Obligations on or after the Petition Date to the extent such payments are stayed
• Interest is payable on each Interest Payment Date and on the 2026 Term Loan Maturity Date
• Default Rate: 5.0% in excess of the rate otherwise applicable to the 2026 Term Loans (and 2.0% in excess for other Loans and Obligations), applicable upon the election of the Administrative Agent or the Required DIP Lenders, except that during an Event of Default under Section 8.1 or 8.11 the Default Rate applies automatically without any election

Fees

• Upfront Fee: $5.2 million, fully earned, due, and paid in cash upon the initial funding of the DIP Loans
• Exit Fee: $5.2 million in the aggregate, fully earned upon the initial funding of the DIP Loans, due and payable in cash in an amount equal to 2.00% of the principal amount of the DIP Loans (including DIP Roll-Up Loans) prepaid or repaid on the date of such prepayment or repayment, with the balance payable in full upon the full prepayment or repayment of the DIP Loans (including the DIP Roll-Up Loans)
• Payment of the DIP Professional Fees and Expenses — all out-of-pocket costs and expenses, whether prepetition or postpetition, of the DIP Agent and the DIP Lenders, including the reasonable and documented fees and expenses of Faegre Drinker Biddle & Reath LLP, legal counsel to the DIP Agent — plus indemnification of the DIP Secured Parties (and their affiliates, officers, directors, attorneys, agents, and employees) as provided under the DIP Loan Agreement
• Other fees are payable as set forth in the Administrative Agent Fee Letters. No commitment fee accrues on or after the Petition Date
• DIP Professional Fees and Expenses and Adequate Protection Professional Fees and Expenses are payable without fee applications or compliance with U.S. Trustee guidelines, subject to delivery of summary invoices to counsel to the Debtors, the U.S. Trustee, and counsel to the Official Committee, and a ten-calendar-day Review Period; undisputed amounts are paid promptly and disputed amounts are held pending consensual or Court resolution

Maturity

• With respect to the DIP Loans and Roll-Up Loans, the earliest to occur of:
  • The Scheduled Maturity Date, September 15, 2026
  • The substantial consummation of a confirmed plan of reorganization or liquidation in the Chapter 11 Cases
  • Dismissal of the Chapter 11 Cases or conversion of any of the cases to chapter 7
  • Appointment of a trustee in any of the Chapter 11 Cases (subject to any extension under Section 8.12(b) of the DIP Loan Agreement)
  • If any such date is not a Business Day, the maturity date is the immediately succeeding Business Day
• The occurrence of an Event of Default under the DIP Loan Agreement (occurring after the Fourteenth Amendment Effective Date) constitutes a DIP Termination Event, unless waived in writing by the DIP Agent (at the direction of the Required DIP Lenders), which waiver may be evidenced by email from counsel to the DIP Agent. Upon a DIP Termination Event, the DIP Agent (at the instruction of the requisite DIP Lenders) and the Prepetition Loan Agent (at the instruction of the requisite Prepetition Secured Parties) may deliver a written Remedies Notice to counsel for the Debtors, the U.S. Trustee, and counsel for the Official Committee declaring the DIP Termination Declaration Date, and — effective no sooner than seven calendar days thereafter (the Remedies Notice Period) and subject to the Carve Out in all respects — may, among other things, terminate, reduce, or restrict the commitments, accelerate the DIP Obligations, terminate the DIP Facility as to further liability, terminate or restrict the Debtors' ability to use Cash Collateral, charge the default rate, and exercise or enforce rights against the DIP Collateral or Prepetition Collateral
• The DIP Loan Parties and the Official Committee may seek emergency relief before the Court during the Remedies Notice Period, in which case the Remedies Notice Period automatically extends until the Court adjudicates the Emergency Motion. During the Remedies Notice Period, the Debtors may use Cash Collateral solely to (i) fund payroll and critical expenses necessary to keep the business operating or consented to by the DIP Agent with the consent of the Required DIP Lenders, (ii) fund the Carve Out, and (iii) file an Emergency Motion. Unless the Court orders otherwise, the automatic stay terminates upon expiration of the Remedies Notice Period

Milestones

• Other than with the prior written consent of the Required DIP Lenders, failure to satisfy any of the following constitutes an Event of Default:
  • The Interim DIP Order must be entered within three days following the Petition Date
  • The Debtors must file a motion to approve the retention of their investment bank under section 327(a), in form and substance reasonably acceptable to the Administrative Agent and the Required DIP Lenders, within 21 days following the Petition Date
  • The Bankruptcy Court must enter a Bidding Procedures Order in form and substance reasonably acceptable to the Administrative Agent within 28 days following the Petition Date
  • The deadline for submission of qualified bids must occur within 28 days following the Petition Date
  • The Final DIP Order must be entered within 30 days following the Petition Date, and must include waivers, in form and substance satisfactory to the Required DIP Lenders, of (i) the right to surcharge collateral under section 506(c), (ii) the "equities of the case" exception under section 552(b), and (iii) marshaling
  • If one or more qualified bids are received, an auction for the sale of all or substantially all of the Credit Parties' assets satisfying the Bidding Procedures Order — and reserving the Administrative Agent's right to credit bid under section 363(k) — must be conducted by July 13, 2026
  • The Bankruptcy Court must enter a sale order, in form and substance reasonably acceptable to the Administrative Agent, approving the sale of all or substantially all of the Credit Parties' assets free and clear under section 363, by July 15, 2026
  • All Hart-Scott-Rodino and other applicable antitrust or regulatory filings necessary to consummate the sale must be made by the earliest of (i) the date required to obtain approvals in time to close by July 31, 2026, (ii) July 15, 2026, and (iii) the date required under the applicable purchase agreement
  • A sale of all or substantially all of the assets of the Credit Parties, on terms and conditions acceptable to the Administrative Agent and the Required DIP Lenders, must be consummated by July 31, 2026
  • No order may be entered confirming a plan of reorganization or liquidation that is not an Acceptable Plan, and no DIP Order may be reversed, stayed, vacated, or materially modified without the required consents
• The Administrative Agent may extend any of the foregoing dates in writing (which may be by email from its counsel), but not beyond five Business Days following the scheduled date without the prior written consent of the Required DIP Lenders

Carve Out

• Statutory fees payable to the Clerk of the Court and the U.S. Trustee under 28 U.S.C. § 1930(a), plus interest
• Up to $100,000 in fees and expenses of a chapter 7 trustee appointed under section 726(b)
• Accrued but unpaid Allowed Professional Fees of the Debtor Professionals and Committee Professionals incurred at any time on or before the first business day following delivery of a Carve Out Trigger Notice, whether allowed before or after such delivery (including any restructuring, sale, success, or other transaction fee of the Debtors' or the Official Committee's investment bankers or financial advisors fully earned, due, and payable before delivery of a Carve Out Trigger Notice)
• Clauses (i) through (iii) above — the statutory fees, the $100,000 chapter 7 trustee amount, and the pre-notice Allowed Professional Fees — together constitute the Pre-Carve Out Notice Amount
• Post-Carve Out Notice Amount: Allowed Professional Fees incurred after the first business day following delivery of a Carve Out Trigger Notice, in an aggregate amount not to exceed $2.5 million
• The Approved DIP Budget includes $2.25 million in fees and expenses for Committee Professionals through July 31, 2026, which may not be reduced absent the Committee Professionals' express written consent
• A Carve Out Trigger Notice may be delivered by the DIP Agent (at the direction of the Required DIP Lenders) following a DIP Termination Event and may be included in a Remedies Notice
• Each Professional Person must deliver a Weekly Statement of estimated fees and expenses each Friday, and a Final Statement within one business day of the Carve Out Trigger Date
• Beginning with the week ending June 20, 2026, the Debtors must fund a segregated trust account (the Funded Reserve Account) in an amount equal to the greater of (i) unpaid Estimated Fees and Expenses per the Weekly Statements and (ii) unpaid Allowed Professional Fees contemplated in the Approved DIP Budget through the most recent Calculation Date, plus the Post-Carve Out Notice Amount, plus two forward weeks of budgeted Allowed Professional Fees. On the Carve Out Trigger Date, the Debtors must fund the Pre-Carve Out Trigger Notice Reserve and then the Post-Carve Out Trigger Notice Reserve
• Following delivery of a Carve Out Trigger Notice, the DIP Agent and the Prepetition Loan Agent may not sweep or foreclose on the Debtors' cash until the Carve Out Reserves are fully funded. The Carve Out Reserves are not subject to the control of the DIP Secured Parties or Prepetition Secured Parties, are not subject to the DIP Liens or Adequate Protection Liens, and do not constitute DIP Collateral or Prepetition Collateral (though residual cash is subject to their liens). No budget, Carve Out amount, or reserve caps what Professional Persons may assert as administrative expense claims

Use of Proceeds

• In accordance with the Approved DIP Budget or the Approved Cash Collateral Budget, as applicable, subject to Permitted Variances:
  • Effectuate the conversion of certain Prepetition Secured Obligations into DIP Roll-Up Loans on a 3:1 basis as each draw of New Money DIP Loans is funded
  • Provide working capital and fund other general corporate purposes, permit the orderly continuation of the Debtors' business, and maintain relationships with vendors, suppliers, customers, and other parties
  • Implement a sale transaction
  • Pay Adequate Protection Obligations and fund the Carve Out
  • Pay the costs of administering the Debtors' estates
  • Pay related transaction costs, fees, liabilities, and expenses under the DIP Facility, including professional fees and expenses incurred by the Administrative Agent and the 2026 Term Loan Lenders in connection with the preparation, negotiation, documentation, and Court approval of the DIP Facility

Credit Bid

• Subject to the lien priorities set forth in the Final Order and to the Bidding Procedures Order, the DIP Agent (acting at the direction of the Required DIP Lenders), on behalf of itself and the other DIP Secured Parties, has the right to credit bid all or any portion of the DIP Obligations in any sale of the DIP Collateral
• Subject only to the rights of parties-in-interest under the Challenge provisions, the Prepetition Loan Agent (acting at the direction of the applicable requisite Prepetition Lenders), on behalf of itself and the other Prepetition Secured Parties, has the right to credit bid up to the full amount of the Prepetition Secured Obligations (including any Adequate Protection Obligations) in any sale of the Prepetition Collateral — in each case without the need for further Court order, whether the sale is effectuated under section 363(k), 1123, or 1129(b), by a chapter 7 trustee under section 725, or otherwise

Collateral and Excluded Assets

• DIP Collateral consists of substantially all of the Debtors' assets, including all prepetition and postpetition property of the estates and all unencumbered assets, and the proceeds, products, rents, and profits thereof
• The DIP Collateral and the Adequate Protection Liens do not include Avoidance Actions, Avoidance Action Proceeds, commercial tort claims, or the proceeds of commercial tort claims, or the Excluded DIP Collateral as defined in the DIP Loan Agreement
• The DIP Liens and Adequate Protection Liens also do not encumber (i) leasehold interests in non-residential real property where the lease prohibits or restricts such liens, except as permitted under applicable non-bankruptcy law (though they do extend to the proceeds of any sale or disposition of such leases), (ii) security deposits or the Debtors' interests in pre-paid rent, unless liens thereon are expressly permitted by the underlying lease documents (with liens attaching upon any reversion to the Debtors), and (iii) leasehold interests (other than proceeds) under the real property leases identified on Schedule 1 to the Debtors' lease rejection motion
• Anti-assignment and consent provisions in leases (other than non-residential real property leases), licenses, and other contracts are unenforceable against the granting of the DIP Liens and Adequate Protection Liens, but this does not impair any party's ability to assume, assign, or object to assumption or assignment

Challenge Period and Budget

• The Challenge Deadline is:
  • For the Official Committee, July 31, 2026
  • For all other parties in interest (other than the Official Committee), the earlier of (A) August 22, 2026 and (B) the commencement of the Sale Hearing
  • Any later date agreed to by the Debtors and the applicable DIP Agent or Prepetition Loan Agent, or ordered by the Court for cause; the deadline is tolled during the pendency of a timely filed Standing Motion (solely for the party seeking standing)
• Challenge Budget: no more than $250,000 of the DIP Collateral, Prepetition Collateral (including Cash Collateral), or the DIP Facility, in the aggregate, may be used by a chapter 7 or chapter 11 trustee or the Official Committee solely to investigate (but not to prosecute) the Prepetition Liens or Prepetition Secured Obligations

Securities and Priorities

• Subject and subordinate to the Carve Out in all respects, the DIP Agent, for the benefit of the DIP Secured Parties, is granted valid, binding, enforceable, non-avoidable, and automatically perfected DIP Liens on all DIP Collateral, with the following priorities:
  • First-priority senior liens on all DIP Collateral not subject to valid, perfected, and non-avoidable liens as of the Petition Date, pursuant to section 364(c)(2)
  • Priming senior liens on the Prepetition Collateral, senior to the Prepetition Liens and the Adequate Protection Liens, pursuant to section 364(d)(1)
  • Junior liens on DIP Collateral subject to Permitted Prior Senior Liens, pursuant to section 364(c)(3)
• The DIP Liens and Adequate Protection Liens are subject and subordinate to the Permitted Prior Senior Liens
• Pursuant to section 364(c)(1), all DIP Obligations constitute allowed superpriority administrative expense claims against each of the Debtors' estates, having priority over all other obligations, subject only to the Carve Out

Adequate Protection

Prepetition Secured Parties

• Adequate protection against the net post-petition Diminution in Value of the Prepetition Secured Parties' liens and security interests in the Prepetition Collateral, including Cash Collateral
• Adequate Protection Claims: superpriority administrative expense claims under section 507(b) in the amount of any Diminution in Value, subject and subordinate only to the Carve Out and the DIP Superpriority Claims and senior to all other claims
• Adequate Protection Liens: valid, binding, enforceable, and automatically perfected liens on the DIP Collateral in the amount of any Diminution in Value, senior to all other liens on the DIP Collateral but subject and subordinate only to the Carve Out and the DIP Liens
• Payment of the Adequate Protection Professional Fees and Expenses of the Prepetition Loan Agent, including the reasonable and documented fees and expenses of Faegre Drinker Biddle & Reath LLP, legal counsel to the Prepetition Loan Agent
• Reporting: the Debtors shall provide the Prepetition Loan Agent and counsel to the Official Committee with all written reports delivered to the DIP Secured Parties
• Reporting rights of the Prepetition Loan Agent continue after the DIP Obligations are paid in full, unless and until the applicable Prepetition Secured Obligations are also paid in full
• Section 507(b) reservation: nothing in the Final Order impairs the application of section 507(b) if the adequate protection provided proves insufficient, and the Court makes no finding that the adequate protection granted is in fact adequate; any additional section 507(b) claims carry the same relative priority as the Adequate Protection Claims

Waivers

• Upon entry of the Final Order and subject to the Carve Out:
  • Section 506(c): except to the extent of the Carve Out, no costs or expenses of administration may be charged against or recovered from the DIP Collateral, the Prepetition Collateral, the DIP Secured Parties, or the Prepetition Secured Parties under sections 506(c) or 105(a) without the prior written consent of the applicable secured parties, and no such consent may be implied
  • Section 552(b): the "equities of the case" exception shall not apply
  • The equitable doctrine of "marshaling" and other similar doctrines shall not apply with respect to the DIP Collateral or the Prepetition Collateral; however, nothing in the Final Order affects the Court's ability to direct marshaling

Stub Rent Reserve

• Within two business days following entry of the Final Order, the Debtors must fund a segregated account with $5,193,168, in accordance with the Approved DIP Budget, on account of unpaid lease obligations under property leases (solely to the extent they constitute valid claims) for the period from June 12, 2026 through June 30, 2026 (the Stub Rent Claims)
• The DIP Liens, Prepetition Liens, and Adequate Protection Liens attach to the Stub Rent Reserve with the same validity and priority as to other collateral, and the reserve constitutes DIP Collateral and Prepetition Collateral; however, upon a DIP Termination Event the DIP Agent may not exercise remedies against the Stub Rent Reserve without further order of the Court, on notice to lease counterparties
• Funds may be used only to pay Stub Rent Claims, payable to each counterparty upon the earlier of the effective date of assumption or rejection of the applicable lease; any remainder reverts automatically to the Debtors' general operating accounts for use in accordance with the applicable budget
• Funding the reserve is not a finding as to the validity, amount, or priority of any Stub Rent Claim and grants no landlord any lien senior to or pari passu with the DIP Liens, Prepetition Liens, Adequate Protection Liens, DIP Superpriority Claims, or Adequate Protection Claims

Roll-Up Unwind Reservation

• Notwithstanding anything to the contrary, and to the extent required by Local Rule 4001-2(g)(5), the Court reserves the right to unwind or partially unwind the DIP Roll-Up Loans, after notice and a hearing, in the event of a timely and successful Challenge to the validity, enforceability, extent, perfection, or priority of the Prepetition Secured Obligations or Prepetition Liens, or a determination that the Prepetition Secured Obligations were under-secured as of the Petition Date, and, as a result, the Roll-Up Loans unduly advantaged the Prepetition Secured Parties
• To the extent any DIP Roll-Up Loans are unwound by a final, non-appealable order, the corresponding Prepetition Secured Obligations are reinstated to the status, priority, and security position held immediately prior to conversion

Mandatory Prepayments

• Subject to the DIP Orders, the Borrower must prepay the DIP Facility Obligations in an amount equal to 100% of the Net Cash Proceeds received in connection with any merger, sale, transfer, or disposition of any Company or its assets (other than permitted dispositions), any recapitalization, any equity issuance or capital contribution, any incurrence of Indebtedness other than the DIP Facility or permitted debt, and any insurance or condemnation proceeds (subject to a $100,000 repair-and-replace exception)
• Net Cash Proceeds are applied first to repay the DIP Obligations in respect of the New Money DIP Loans, and thereafter — subject to the rights of parties-in-interest under the Challenge provisions — to the DIP Obligations in respect of the DIP Roll-Up Loans
• Prepayments include accrued interest, any amount payable under the Administrative Agent Fee Letters (including the 2.00% exit fee), and any Article III breakage amounts; the principal amount otherwise due is reduced to accommodate such fees

Debtors' Stipulations and Releases

• Subject only to the Challenge rights described above, the Debtors stipulate that the Prepetition Liens were valid, binding, enforceable, non-avoidable, and properly perfected, senior to all other liens subject only to Permitted Prior Senior Liens; that the Prepetition Secured Obligations are legal, valid, binding, and non-avoidable; that no offsets, defenses, or counterclaims exist; and that the estates hold no claims or causes of action against the Prepetition Secured Parties
• Subject to the Challenge provisions as to non-Debtor parties, the Debtors and their estates release the DIP Secured Parties and Prepetition Secured Parties and their related persons from all claims and causes of action existing as of the date of the Final Order, including lender liability and equitable subordination claims, excluding claims a court finally determines primarily result from bad faith, fraud, gross negligence, or willful misconduct

Permitted Variance

• Tested on a cumulative rolling weekly basis:
  • The Debtors shall not request a New Money DIP Loan exceeding, on an aggregate basis, 110.0% of the DIP Loan proceeds approved for the applicable draw period under the then-applicable Approved DIP Budget, measured cumulatively from the Petition Date
  • As of the last day of each week, aggregate operating receipts for the consecutive four-week period then ending shall not be less than 90.0% of the budgeted Operating Receipts for such period
  • As of the last day of each week, aggregate disbursements and other dispositions of cash and assets for the consecutive four-week period then ending shall not exceed 110.0% of the budgeted Total Disbursements for such period