Sleep Number Corporation - Chapter 11 Plan Terms

Plan Terms

Overview

• Sleep Number filed its second revised joint Chapter 11 plan of liquidation on Oct. 16, 2026. The plan sends all of the estate's distributable assets, net of a plan administrator reserve, to the prepetition lenders. Their claims are allowed at $477.5 million, less any amounts paid under the paydown order before the effective date. General unsecured creditors share a $3.5 million cash GUC trust. The plan treats that trust as the sole consideration for the official committee of unsecured creditors' release of its challenge rights under the DIP orders.
• The plan liquidates what is left after the sale of all or substantially all of the debtors' assets to SNBR Inc. That sale was approved under the amended sale order [ECF No. 470] and runs on an amended and restated asset purchase agreement dated July 18, 2026. The debtors and SNBR Inc. and its subsidiaries also signed a transition services agreement dated July 31, 2026. Assets transferred to the buyer are not among the estate assets the plan distributes.
• Sleep Number Corporation and four affiliates filed Chapter 11 on June 12, 2026, in the U.S. Bankruptcy Court for the Southern District of New York. The debtors filed their initial plan on Sept. 4, 2026 [ECF No. 616] and a revised plan on Oct. 15, 2026, one day before the current version. The committee, appointed June 23, 2026, joins the debtors in urging creditors to vote to accept.
• After the effective date, the debtors continue as wind-down debtors under plan administrator Rudy Morando. The plan administrator liquidates the remaining assets and resolves all claims other than general unsecured claims. A GUC trustee chosen by the committee reconciles and pays general unsecured claims. The plan is a joint plan that works as a separate plan for each debtor and does not substantively consolidate the estates.

Committee Settlement and Challenge Release

• Consideration: $3.5 million in cash funded from the estates into the GUC trust. The plan deems this the sole consideration for the committee's release of all challenge rights under paragraph 12 of the DIP orders. No party has to contribute any other assets to the trust.
• On the effective date, the challenge deadline terminates irrevocably and the committee dissolves. The plan treats this as final confirmation of two points: the debtors' stipulations and releases in paragraph F of the DIP orders bind all parties in interest in these and any successor cases, and no party may reopen, revive or assert a challenge to the prepetition liens, the prepetition secured obligations or the adequate protection obligations.
• The committee survives only to prosecute its professionals' fee claims and to appear in any appeal of the confirmation order. After the effective date, the wind-down debtors pay committee fees and expenses only on those matters.
• The lenders' deficiency claims are excluded from the general unsecured class and from the GUC trust beneficiaries, so the lenders do not share in the trust on account of any unsecured shortfall.

Prepetition Debt and DIP Financing

• Prepetition loans: the prepetition credit agreement is among Sleep Number Corporation as borrower, the guarantors, the lenders and the administrative agent. The plan defines that agreement as the fourteenth amendment to the amended and restated credit and security agreement dated as of Feb. 14, 2018.
• Term loans: $177.5 million of principal outstanding at the petition date, on term loans issued Dec. 3, 2021, under the sixth amendment to the prepetition credit agreement.
• Revolver: $475 million of principal outstanding at the petition date.
• Paydown: the paydown order [ECF No. 671] authorizes the debtors to pay certain amounts outstanding under the prepetition loan documents. Payments made under it before the effective date reduce the lenders' $477.5 million allowed claim.
• DIP facility: a $260 million postpetition, superpriority, senior secured, priming facility. It was approved under an interim order entered June 15, 2026 [ECF No. 74], a second interim order [ECF No. 226] and a final order [ECF No. 429].
• The plan pays the administrative agent's accrued and unpaid fees, expenses, disbursements, contribution and indemnification payable under the DIP orders, whether incurred before or after the petition date. These are allowed administrative claims, paid on or as soon as practicable after the effective date, with no fee application, proof of claim or court approval required.
• The DIP orders stay in full force after confirmation and bind the wind-down debtors, the plan administrator and all parties in interest. The plan, confirmation order and plan supplement cannot modify, waive or impair the prepetition secured parties' rights under those orders without the administrative agent's written consent, and those protections survive the effective date.
• The plan expressly preserves the liens securing the prepetition loan claims and the adequate protection liens, and the administrative agent has no obligation to release them. Those liens shrink by the amount of each plan distribution to the lenders and terminate automatically on the dissolution date.

Treatment of Claims and Interests

• Class 1, other secured claims (unimpaired, deemed to accept): at the debtors' option, either payment in full in cash on the later of the effective date and 30 business days after allowance, or other treatment consistent with section 1129, including the indubitable equivalent of the claim.
• Class 2, other priority claims (unimpaired, deemed to accept): at the option of the applicable debtor or wind-down debtor, payment in full in cash on the applicable distribution date or other treatment consistent with section 1129(a)(9). A holder that does not object to confirmation is deemed to consent to treatment different from what section 1129(a)(9) provides.
• Class 3, prepetition loan claims (impaired, entitled to vote): allowed at $477.5 million, less any amounts paid under the paydown order before the effective date. Holders keep their prepetition liens and adequate protection liens and receive their pro rata share of distributable assets. Distributable assets are all assets of the debtors or wind-down debtors at any time, including cash, net of funding the plan administrator reserve and excluding the GUC trust assets. The lenders also take all proceeds of retained causes of action and anything left in the wind-down account and plan administrator reserve on the dissolution date. Distributions go through the administrative agent, subject to its charging lien under the loan documents.
• Class 4, general unsecured claims (impaired, entitled to vote): pro rata share of the GUC trust net assets, meaning the $3.5 million of trust cash less trust fees and expenses, including the cost of reconciling and objecting to general unsecured claims. Prepetition loan deficiency claims are not general unsecured claims.
• Class 5, prepetition intercompany claims (impaired, deemed to reject): cancelled with no distribution.
• Class 6, section 510(b) claims (impaired, deemed to reject): cancelled with no distribution.
• Class 7, existing interests in Sleep Number Corporation (impaired, deemed to reject): cancelled with no distribution.
• Class 8, intercompany interests (impaired, deemed to reject): cancelled with no distribution.
• A voting class in which no eligible holder votes is presumed to accept the plan. A class with no allowed or temporarily allowed claims as of the voting deadline is eliminated for voting and acceptance purposes. The disclosure statement order will set the voting deadline, voting record date and plan objection deadline.

Unclassified Claims

• Administrative claims: paid in full in cash on the effective date if allowed by then (or when due), within 30 days after an allowance order becomes final, in the ordinary course for postpetition ordinary-course liabilities, or on terms agreed with the debtors, wind-down debtors or plan administrator or set by a final order. A holder that does not object before the plan objection deadline is deemed to consent to payment after the effective date. Requests are due 30 days after the effective date, and late claims are barred and discharged. A timely administrative claim that draws no objection by the claims objection deadline is deemed allowed in the amount requested.
• Claims that are assumed liabilities under the asset purchase agreement do not count as administrative, priority, priority tax or other secured claims under the plan. They are not paid from the plan administrator reserve and are not obligations of the debtors or wind-down debtors.
• Priority tax claims: paid in full in cash on the applicable distribution date. A holder that does not object to confirmation is deemed to consent to being paid under the plan after the effective date.
• Professional fee claims: paid in full in cash, first from a professional fee escrow account and then from the wind-down account. The debtors fund the escrow before the effective date with professionals' estimates of accrued fees and of fees after the effective date. Final fee applications are due 45 days after the effective date. The escrow is held in trust solely for professionals, is not estate property and is free of liens. It reverts to the wind-down account only after all allowed professional fee claims are paid in full and the prepetition loan claims are satisfied.
• After the confirmation date, professionals no longer need court approval for retention or fees. They deliver summary invoices to the debtors, the administrative agent and the plan administrator and are paid within 10 days unless there is a written objection.

GUC Trust

• Funding: $3.5 million in cash from the estates, vesting in the trust on the effective date free and clear of claims and liens. Trust fees and expenses, including professionals and claims reconciliation, are paid solely from the trust.
• Trustee: chosen by the committee and named in the plan supplement. The trustee has sole authority over the allowance, disallowance and payment of general unsecured claims and owes the fiduciary duties a Chapter 7 trustee owes unsecured creditors. Indemnity and liability protections are payable solely from trust assets and do not cover fraud, gross negligence or willful misconduct. The plan's definition of the trust agreement requires it to be reasonably acceptable to the debtors and the committee, while its plan supplement definition, which lists the trust agreement, also requires the administrative agent's reasonable acceptance.
• Beneficial interests are uncertificated and passive, carry no voting or control rights and may not be transferred except as applicable law allows.
• Solely to make trust distributions easier, general unsecured claims against all debtors are treated as single obligations of the trust, with inter-debtor guarantees and joint and several claims collapsed into one claim. The debtors remain separate entities for setoff purposes.
• The plan administrator and the GUC trustee must each give the other at least seven days' notice before seeking to move a claim into or out of the general unsecured class, and the other has standing to object.
• The wind-down debtors give commercially reasonable access to claims records at no cost to themselves and share privileged claims materials without waiving privilege.
• Term: the trust dissolves once distributions are complete, and no later than five years after the effective date unless the court extends it. A residual too small to distribute may be donated to a 501(c)(3) charity unrelated to the debtors. Holders that do not provide tax documentation within 90 days of the trustee's first written request forfeit their distributions, and their claims are disallowed.

Wind-Down and Plan Administrator

• Plan administrator: Rudy Morando. On the effective date, Morando replaces the debtors' directors and officers as sole director and officer of each wind-down debtor and serves as estate representative under section 1123(b)(3)(B), with the trustee duties of sections 704(a)(1), (2) and (5). The plan administrator has sole authority after the effective date over claims other than general unsecured claims. The plan administration agreement must be acceptable to the administrative agent.
• Plan administrator reserve: segregated accounts holding the wind-down account, the professional fee escrow account and distributable assets received after the initial distribution date. The wind-down account is funded with the wind-down reserve amount. The plan leaves that amount blank and ties it to a wind-down budget, which will be included in the plan supplement and needs the administrative agent's consent.
• The reserve pays, among other things, expenses of the wind-down debtors and the plan administrator (including wind-up and record-storage costs under the wind-down budget), allowed administrative claims filed after the effective date (paid from the wind-down account), and professional fees incurred after the effective date. If the reserve falls short on those administrative claims, distributable assets received later pay them before any further distribution to the lenders. Any balance on the dissolution date goes to the lenders.
• The administrative agent must consent before the plan administrator sets up additional reserves or moves cash between accounts, and before the wind-down debtors abandon equity interests in non-debtor entities.
• The plan administrator's retained professionals are paid monthly under the wind-down budget without court approval. The plan administrator and those professionals are exculpated and indemnified by the wind-down debtors, except for fraud, willful misconduct or gross negligence.
• The debtors' privileges transfer to the plan administrator, except privileges relating to claims released under the plan and to legal advice from Davis Polk & Wardwell LLP as the debtors' counsel.
• The sale transaction documents, including the asset purchase agreement, sale order and transition services agreement, are deemed assumed by and vest in the wind-down debtors. The plan provides that this is not an assignment under Section 3.12 of the transition services agreement. The wind-down debtors and the plan administrator take the debtors' place for access to books and records transferred to the purchaser.
• The wind-down debtors dissolve once the plan administrator certifies that all distributions have been made and the court enters a final decree closing the last case.

Retained Causes of Action

• Retained claims are limited to three categories: claims related to Google's advertising practices, claims related to tariff refunds, and any other claims the debtors, the committee and the administrative agent agree to add to the schedule filed with the plan supplement. All proceeds are distributable assets for the prepetition lenders.
• The plan waives non-insider preference claims under section 547 and state-law analogs. It also excludes claims released by final order, claims assigned under the asset purchase agreement and claims against released parties.

Releases, Exculpation and Injunction

• Released parties: the debtors; the wind-down debtors, solely to the extent a claim could have been brought against the debtors; the administrative agent; the lenders; the committee; each claim holder that returns a ballot without opting out; and the related parties of each. An entity is not a released party if it opts out on its ballot or by timely objecting to confirmation, or if its timely objection to the releases is still unresolved at confirmation.
• Releasing parties: the same entities, plus the debtors' estates. Related parties give a release only to the extent the releasing party has authority to bind them. Holders in the nonvoting classes (Classes 1, 2, 6, 7 and 8) give no release in that capacity. Beyond the named parties, the third-party release therefore binds only holders that return a ballot and do not opt out.
• The Oct. 16 plan drops the disbursing agents from both the released-party and releasing-party lists that appeared in the Oct. 15 revised plan.
• Debtor release: the debtors, wind-down debtors and estates release the released parties from all claims relating to the debtors, the restructuring, intercompany and prepetition transactions, the loan documents, the DIP facility and the plan. This expressly includes avoidance actions and veil-piercing, alter-ego and lender liability claims. The third-party release covers the same matters, though its list of expressly included claims omits lender liability. Neither release covers retained causes of action or claims for willful misconduct (including actual fraud) or gross negligence. A released party's release becomes void ab initio if it pursues a released claim against another released party and does not drop it on request. Actions over the amount, priority or secured status of a claim, and releases or indemnities granted under another settlement or final order, are exempt from that rule.
• Exculpation: covers the debtors, the administrative agent, the lenders, the committee and its members, and their related parties, for acts between the petition date and the effective date relating to the cases, the DIP facility, the plan, the disclosure statement and the sale. It does not cover willful misconduct (including actual fraud) or gross negligence determined by final order.
• Gatekeeping: before pursuing a claim against a released or exculpated party that relates to a released or exculpated claim, an entity must first obtain a final order from the bankruptcy court finding the claim colorable and not released. The request must attach the proposed complaint and include a proposed attorney fee reserve, to be deposited in the court's registry to indemnify defendants.
• Article IX.B deems the debtors discharged under sections 1141(d)(1)(A) and 1141(d)(3), but Article IX.J, which applies notwithstanding any other plan provision, provides that the debtors will not receive a discharge under section 1141(d)(3).
• Plan distributions are final and cannot be avoided, clawed back or disgorged by the debtors, wind-down debtors, plan administrator or GUC trustee.

D&O Insurance and Indemnification

• The wind-down debtors assume all insurance contracts, including the D&O policies, with cure costs of $0. They must maintain six years of D&O and employee liability tail coverage on terms no less favorable than existing coverage, with an aggregate limit no lower than the existing limit.
• Indemnification obligations to current and former directors, officers, managers and employees are assumed, but recovery is limited to insurance. Provided the wind-down debtors have maintained the D&O policies, the wind-down debtors, the plan administrator reserve, the GUC trust and distributable assets carry no liability for them. Indemnification is unavailable where a final order finds fraud, willful misconduct, gross negligence, bad faith, self-dealing or breach of the duty of loyalty.

Conditions to Effectiveness

• The effective date is the first business day after confirmation on which no stay is in effect, the conditions are satisfied or waived, and the debtors declare the plan effective. The conditions are:
  • Entry of an unstayed confirmation order in a form reasonably acceptable to the committee and the administrative agent
  • Receipt of all authorizations, consents and regulatory approvals needed to implement the plan
  • Payment in full of court-approved professional fees
  • Full cash funding of the professional fee escrow account
  • Execution of the plan administration agreement and appointment of the plan administrator
  • Full cash funding of the plan administrator reserve, including the wind-down account
  • Execution of the GUC trust agreement, vesting of the trust assets and wiring of the trust cash
  • Execution of the plan supplement and other implementing documents
  • No law, order or pending governmental action blocking consummation
• The debtors may waive any condition other than entry of the confirmation order, with the reasonable consent of the committee and the administrative agent. The conditions in Article X.A.4–A.5, covering escrow funding and the plan administration agreement, also require the written consent of each affected professional.

Consent and Amendment Rights

• Before substantial consummation, the debtors may modify the plan with the reasonable consent of the administrative agent and the committee. Between confirmation and the effective date, they may make technical changes without court approval as long as those changes do not materially and adversely affect holders' treatment.
• If the plan does not win the required acceptances, the debtors may reclassify claims or amend or withdraw the plan in whole, in part or as to a particular debtor, with the reasonable consent of the administrative agent. With the agent's reasonable consent, a debtor as to which the plan is withdrawn may be dismissed or may sell its assets to another debtor for cash at a fair value approved by the court.
• The plan supplement, including the plan administration agreement, GUC trust agreement and schedule of retained causes of action, must be reasonably acceptable to the debtors, the committee and the administrative agent. Any plan provision the court alters must also be reasonably acceptable to those three parties.
• The debtors may revoke, withdraw or delay the plan as to any or all debtors before confirmation and file subsequent plans. If the plan is revoked or withdrawn, the confirmation order is vacated, or confirmation or the effective date does not occur, then absent further court order the plan is void, any settlement it embodies that a final order has not separately approved (including its fixing of claim amounts) is void, and nothing in the plan waives any claim or prejudices any party's rights.

Key Deadlines and Distribution Mechanics

• Deadlines after the effective date run from that date: 30 days for administrative claim requests and the return of utility deposits, 45 days for final fee applications and 180 days for claims objections, subject to court extension.
• The distribution record date is the confirmation date unless the debtors or plan administrator designate otherwise. Distributions totaling less than $250 need not be made, and interim distributions are required only if they exceed $10,000 in total. Unclaimed distributions are forfeited after 90 days and uncashed checks are void after 120 days, with the cash going back to the wind-down account or the GUC trust.
• Postpetition interest does not accrue and is not paid on claims except as provided by section 506(b), the plan or the confirmation order.