Sleep Number Corporation - Chapter 11 Plan Terms

Plan Terms

Overview

• Sleep Number Corporation and four debtor affiliates filed a joint Chapter 11 plan of liquidation on Sept. 4, 2026, following the sale of substantially all assets to SNBR Inc. and providing for the resolution of all outstanding claims and interests through a wind-down administered by a plan administrator and a $3.5 million trust for general unsecured creditors.
• The debtors filed Chapter 11 on June 12, 2026 in the Southern District of New York; the U.S. Trustee appointed an official committee of unsecured creditors on June 23, 2026 [ECF No. 110].
• The plan is filed jointly for administrative convenience but constitutes a separate plan of liquidation for each debtor and does not substantively consolidate any of them.
• The debtors and the committee jointly recommend acceptance, stating that a Chapter 7 liquidation could result in the loss of significant value and a corresponding reduction in distributions to certain classes, along with delay, litigation, and additional costs.

Prepetition Capital Structure

• Funded debt consists of loans under the Fourteenth Amendment to Amended and Restated Credit and Security Agreement, dated Feb. 14, 2018, among Sleep Number Corporation as borrower, the guarantors, the lenders, and the administrative agent:
  • Revolving loans with an outstanding principal balance of $475 million as of the petition date.
  • 2021 term loans issued Dec. 3, 2021 under the sixth amendment to the credit agreement, with an outstanding principal balance of $177.5 million as of the petition date.
• The plan allows the prepetition loan claims in the aggregate amount of $477.5 million, less any amounts paid to holders under the paydown order before the effective date. That allowed amount is $175 million below the $652.5 million of principal the plan states was outstanding across the revolver and the 2021 term loans as of the petition date, and the plan does not bridge the two figures.
• The debtors filed a motion on Sept. 4, 2026 seeking authority to pay certain amounts outstanding under the prepetition loan documents; the plan's allowed-claim figure is reduced by any payments made under an order approving that motion.
• Any portion of the prepetition loan claim that is not a secured claim constitutes a deficiency claim; the plan folds those deficiency claims into the Class 3 prepetition loan claims and expressly excludes them from the general unsecured claim class and from the GUC trust beneficiary pool.

Sale Transaction

• The sale of all or substantially all assets to SNBR Inc. was approved by the sale order entered at ECF No. 430, under an amended and restated asset purchase agreement dated July 18, 2026 between Sleep Number Corporation and the purchaser.
• The debtors and SNBR Inc. and its subsidiaries also entered into a transition services agreement dated July 31, 2026.
• On the effective date, the sale transaction documents, meaning the purchase agreement, the sale order, and the transition services agreement, are deemed assumed by and vest with the wind-down debtors, and that assumption is deemed not to be an assignment under Section 3.12 of the transition services agreement.
• Where books and records transferred to the purchaser, the wind-down debtors or plan administrator are substituted for the debtors for access purposes, as is the GUC trustee for the claims-reconciliation records it needs.
• Any administrative, other priority, priority tax, or other secured claim that is an assumed liability under the purchase agreement is not a claim under the plan, is not satisfied from the plan administrator reserve, and is not an obligation of the debtors or wind-down debtors.

DIP Financing and DIP Order Preservation

• The $260 million postpetition, superpriority, senior secured, priming DIP facility was authorized 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 classifies no DIP claim and provides no treatment for one, preserving the DIP orders and the prepetition secured parties' protections through confirmation and the effective date.
• Nothing in the plan, confirmation order, or plan supplement may modify, waive, reject, or impair the prepetition secured parties' rights under the DIP orders absent the administrative agent's written consent; the DIP orders remain in full force after the confirmation date, bind the debtors, wind-down debtors, plan administrator, and any party in interest, and the protections granted to the prepetition secured parties survive confirmation and the effective date.
• On or as soon as practicable after the effective date, all accrued and unpaid fees, expenses, disbursements, contribution, or indemnification of the administrative agent, whether incurred before or after the petition date, are paid to the extent payable under the DIP orders and constitute allowed administrative claims, with no requirement that the agent, lenders, or their professionals file applications or proofs of claim.

Classification and Treatment of Claims and Interests

• Class 1 – Other Secured Claims (unimpaired, deemed to accept): payment in full in cash on the later of the effective date and 30 business days after allowance, or any other treatment consistent with section 1129, including the indubitable equivalent, at the debtors' option.
• Class 2 – Other Priority Claims (unimpaired, deemed to accept): payment in full in cash on the applicable distribution date or other treatment consistent with section 1129(a)(9), at the option of the applicable debtor or wind-down debtor.
• Class 3 – Prepetition Loan Claims (impaired, entitled to vote): each holder retains its prepetition liens and adequate protection liens and receives its pro rata share of the distributable assets, defined as all assets and cash of the debtors or wind-down debtors net of the funding of the plan administrator reserve and excluding the GUC trust assets.
  • Proceeds of retained causes of action constitute distributable assets and flow to this class.
  • Distributions on prepetition loan claims are made to or at the direction of the administrative agent, subject to its charging lien under the loan documents.
  • Liens against estate property are released on the effective date as distributions are made, but the liens securing the prepetition loan claims and the adequate protection liens are carved out: they survive confirmation, are reduced only by the amount of each distribution to this class, and terminate automatically on the dissolution date.
• Class 4 – General Unsecured Claims (impaired, entitled to vote): each holder is entitled solely to its pro rata share of the GUC trust net assets; deficiency claims on the prepetition loans are not general unsecured claims.
• Classes 5 through 8 (impaired, presumed to reject, no distribution): prepetition intercompany claims, section 510(b) claims, existing interests in Sleep Number Corporation, and intercompany interests are each cancelled, released, and extinguished on the effective date.
• A voting class in which no holder casts a ballot is presumed to accept the plan.
• The debtors will not receive a discharge under section 1141(d)(3), with collection of any claim after the effective date subject to a paragraph of the confirmation order left blank in the filed plan. That provision applies notwithstanding any other plan provision, and so governs over the effect-of-confirmation article's general statement that the debtors are deemed discharged and released on the effective date.

Unclassified Claims: Treatment, Bar Dates, and Objection Deadlines

• Administrative claims, professional fee claims, priority tax claims, and U.S. Trustee fees are unclassified and paid in full in cash: an administrative claim allowed by the effective date is paid then or when it comes due, one allowed later within 30 days after the allowance order becomes final, and ordinary-course postpetition liabilities on the terms of the transaction that created them; priority tax claims are paid on the applicable distribution date. A holder that does not object, by the plan objection deadline for an administrative claim and to confirmation for a priority tax claim, is deemed to consent under section 1129(a)(9) to payment on the plan's terms.
• Requests for payment of administrative claims accrued through the effective date are due 30 days after the effective date, and professional fee claims 45 days after; a holder that misses the deadline is forever barred from asserting the claim against the debtors, the wind-down debtors, or the plan administrator, and the only notice given is the bar-date notice served with the effective-date notice and posted to the case website.
• No request is required for administrative claims already allowed, for claims the debtors or the plan administrator agree in writing need not be filed, or for U.S. Trustee quarterly fees.
• An administrative claim not objected to by the claims objection deadline, 11:59 p.m. prevailing Eastern time 180 days after the effective date and subject to further Court-ordered extensions, is deemed allowed in the amount requested; objections to a professional's final fee request are due at 4:00 p.m. prevailing Eastern time 20 calendar days after it is filed.

GUC Trust

• The GUC trust assets consist of $3.5 million in cash funded from the debtors' estates, vesting in the trust on the effective date free and clear of all claims and liens and exempt from transfer taxes under section 1146(a).
  • Under no circumstance are the debtors, wind-down debtors, or any other party required to contribute any additional assets, and after the effective date no other party retains any interest in the trust assets.
  • Trust fees and expenses, including all costs of reconciling and objecting to general unsecured claims, are paid solely from the trust assets, so beneficiaries share the net figure.
• The committee selects the GUC trustee, whose identity will be filed with the plan supplement; the trustee holds sole power to distribute the net assets and sole post-effective-date authority to object to general unsecured claims. A holder that does not provide the tax documentation the trustee requests within 90 days of first written request forfeits its present and future distributions and has its general unsecured claim disallowed and expunged in full, with the forfeited funds reverting to the trust for redistribution to other beneficiaries.
• Beneficial interests are passive and uncertificated, carry no voting, consent, or other shareholder-like control rights, and may not be transferred, sold, or pledged except in accordance with applicable law.
• The trust is intended to qualify as a liquidating trust under Treasury Regulations section 301.7701-4(d), with no objective to continue a trade or business, and the trustee owes beneficiaries fiduciary duties of the type a Chapter 7 trustee owes unsecured creditors.
• The trust dissolves once all required distributions have been made and in no event later than five years from the effective date, unless the Court, on the trustee's ex parte motion made before the fifth anniversary, grants a fixed-period extension to complete the recovery on and liquidation of the trust assets; net assets left at dissolution go to holders of allowed general unsecured claims, or, if too small to make a further distribution practicable, to an unrelated tax-exempt charity after reserving the cost of winding up the trust.
• Although the plan does not substantively consolidate the debtors, general unsecured claims are consolidated administratively for distribution: each claim is treated as one claim against the consolidated debtors and as one obligation of the trust, and intercompany guarantees and joint liability are eliminated, while setoff is still tested debtor by debtor and contractual subordination rights are unaffected.

Wind-Down and Plan Administrator

• Rudy Morando will serve as plan administrator, appointed by each debtor as sole director and sole officer of the wind-down debtors upon the deemed termination and resignation of existing directors and officers on the effective date, succeeding to their powers, serving as the estates' representative under section 1123(b)(3)(B) and carrying the trustee duties under sections 704(a)(1), (2), and (5).
• The debtors continue in existence after the effective date as wind-down debtors to wind down the businesses, liquidate remaining assets, resolve disputed claims other than general unsecured claims, pay allowed claims other than general unsecured claims, file tax returns, and administer the plan in accordance with the wind-down budget.
• Wind-down transactions include dissolving direct and indirect subsidiaries, effecting the purchase of some or all of the assets of, or interests in, any debtor (which may be structured as a taxable transaction for U.S. federal income tax purposes), making required filings or recordings, and abandoning non-debtor equity interests under section 554 with the administrative agent's consent.
• Except as the plan otherwise provides, all rights of holders of claims or interests, including options and warrants to purchase interests or obligating the debtors to issue or transfer them, are cancelled on the effective date.
• The plan administrator holds all transferred privileges, excluding privileges relating to claims released under the plan and to legal advice provided by Davis Polk & Wardwell LLP as debtors' counsel.

Plan Administrator Reserve and Wind-Down Account

• The wind-down reserve amount is left blank in the filed plan; the amount necessary to fund the wind-down account will be set in the wind-down budget, which is filed with the plan supplement and subject to the administrative agent's consent.
• On or before the effective date the debtors establish and fund the plan administrator reserve in cash, inclusive of the wind-down reserve amount and the professional fee escrow amount, and use those funds to establish segregated accounts for each.
• The reserve pays the expenses of the wind-down debtors and the plan administrator, distributions from the wind-down account on allowed post-effective-date claims, meaning administrative claims filed after the effective date and not already satisfied, and professional fee claims incurred from and after the effective date; if the reserve cannot pay those post-effective-date claims in full, distributable assets received after the effective date go to them before any distribution to prepetition loan claim holders.
• Residual amounts in the wind-down account and any amount remaining in the plan administrator reserve on the dissolution date are distributed to holders of allowed prepetition loan claims.
• Allowed professional fee claims are paid first from the professional fee escrow account and, to the extent it falls short, from the wind-down account, with any remaining shortfall carried as an allowed administrative claim payable from the plan administrator reserve; the escrow is held in trust for the professionals, is not property of the estates or the debtors, and no lien or claim may encumber it. Its funds revert to the wind-down account only after all allowed professional fee claims are paid in full and following satisfaction of the prepetition loan claims.
• The plan administrator may establish additional reserves and transfer cash among accounts, in each case with the administrative agent's consent.

Committee Dissolution and Challenge Settlement

• On the effective date the deadline for challenging the prepetition liens and claims under the DIP orders terminates irrevocably and the committee dissolves automatically, with members released from all duties and liabilities except to prosecute professional fee claims for pre-effective-date services and to appear on any appeal of the confirmation order; the wind-down debtors and plan administrator fund no committee member or advisor fees after the effective date outside those two purposes.
• That termination and dissolution constitute final and irrevocable confirmation that the GUC trust and the vesting of the $3.5 million in trust assets are the sole consideration for the committee's release of all challenge rights under paragraph 12 of the DIP orders; that the debtors' stipulations and releases in paragraph F of the DIP orders are permanently binding on all parties in interest in these cases and any successor cases; and that no party may reopen, revive, or assert any challenge to the prepetition liens, the prepetition secured obligations, or the adequate protection obligations.

Retained Causes of Action

• Retained causes of action are limited to claims related to Google's advertising practices, claims related to tariff refunds, and any claims the debtors, the committee, and the administrative agent agree by mutual consent to add to the schedule of retained causes of action, which will be filed with the plan supplement.
• Excluded are causes of action released by final order, those assigned and transferred under the asset purchase agreement, and preference claims assertable under section 547 or state law analogs against any non-insider, which are expressly waived under the plan.
• No retained cause of action may be asserted against a released party released under the plan; the wind-down debtors retain and may pursue the balance upon consummation, with proceeds distributed to holders of allowed prepetition loan claims.

Releases

• Released parties are the debtors, the wind-down debtors, the plan administrator, the administrative agent, the disbursing agents, the GUC trustee, the lenders, the committee, each holder of a claim that returns a ballot without checking the opt-out box, and the related parties of each of the foregoing.
  • An entity that opts out by timely objecting to confirmation or by checking the ballot box, or that timely objects to the releases where the objection is unresolved before confirmation, is not a released party.
• Releasing parties comprise the same list plus the debtors' estates; holders of claims or interests in the non-voting classes, Classes 1, 2, 6, 7, and 8, are not releasing parties in that capacity.
• The debtor release runs from the debtors, wind-down debtors, their estates, and the plan administrator, and covers claims they or their affiliates could assert in their own right or that any holder could assert derivatively, including avoidance actions and veil-piercing, alter-ego, contribution, indemnification, and lender liability theories.
• The third-party release runs from each releasing party on an opt-out basis, which the plan states makes it consensual, and covers the same subject matter: the debtors and the Chapter 11 cases, the in- and out-of-court restructuring efforts and intercompany transactions, the DIP facility and DIP documents, the plan, plan documents, disclosure statement and loan documents, the purchase, sale, or rescission of any debtor security, and the negotiation and performance of the plan and related documents through the effective date.
• Neither release reaches retained causes of action, acts or omissions constituting willful misconduct including actual fraud or gross negligence, or any obligation of a party under the plan or any implementing document.
• A released party that asserts a released claim against another released party and does not abandon it on request loses its own release ab initio, except for actions to prosecute the amount, priority, or secured status of a prepetition or administrative claim and for releases or indemnities granted under any settlement or other final order.

Exculpation and Injunction

• Exculpated parties are the debtors, the administrative agent, the plan administrator, the GUC trustee, the lenders, the committee and its members in that capacity, and their related parties, each in its capacity as such during the Chapter 11 cases.
• Exculpation covers acts and omissions connected with the cases, the DIP facility and DIP documents, the plan and plan supplement, the disclosure statement, the sale transaction, and the administration of property to be distributed, excepting willful misconduct including actual fraud or gross negligence as determined by final order, and is temporally limited to claims arising between the petition date and the effective date.
• All entities holding claims arising before the effective date are permanently enjoined from commencing or continuing any action, enforcing any judgment, creating or enforcing any lien, asserting setoff or subrogation, or interfering with consummation, in each case as to released, exculpated, or settled claims and other than to enforce a right to a plan distribution; setoff survives only where a timely proof of claim explicitly preserved it or the entity was excused from filing.
• No entity may pursue or support a claim against a released or exculpated party without first obtaining a Bankruptcy Court determination, after notice and hearing, that the claim is colorable and not released, attaching the proposed complaint, and then obtaining specific authorization by final order; the request must include a proposed attorney fee reserve, subject to modification by the Court, deposited into the Court's registry to indemnify potential defendants against the costs of a successful defense.
• Injunctions and stays in effect on the confirmation date, other than those imposed by the plan or the confirmation order, remain in force until the later of the effective date and the date stated in the order granting them; the injunctions the plan and confirmation order themselves impose run according to their own terms.

Conditions Precedent to the Effective Date

• Entry of a confirmation order, in form reasonably acceptable to the committee and the administrative agent, that is not stayed, rescinded, vacated, or reversed on appeal.
• Receipt of all authorizations, consents, regulatory approvals, rulings, or documents necessary to implement the plan.
• Payment in full of all professional fees and expenses already approved by the Court, and funding of the professional fee escrow account in cash in full.
• Execution of the plan administration agreement and the plan administrator's appointment and assumption of its rights and responsibilities.
• Creation and full cash funding of the plan administrator reserve, including the wind-down account at the wind-down reserve amount and the professional fee escrow account at the professional fee escrow amount.
• Execution of the GUC trust agreement, vesting of the GUC trust assets, and wiring of the cash portion to the trust.
• Execution of all documents necessary to implement the plan, including the plan supplement.
• No law or order in effect preventing consummation, and no pending governmental action seeking to stay, enjoin, or prohibit it.
• The debtors may waive or modify any condition other than entry of the confirmation order with the reasonable consent of the committee and the administrative agent and without notice or Court action, except that the professional fee escrow funding and plan administration agreement conditions may be waived only with the written consent of each affected professional.

Consent and Amendment Rights

• The plan supplement, comprising the plan administration agreement, the GUC trust agreement, the schedule of retained causes of action, and any other contemplated documentation, must be in form and substance reasonably acceptable to the debtors, the committee, and the administrative agent, and the debtors may amend it through the effective date with the committee's and agent's reasonable consent, without further Court order.
• Before the confirmation date the debtors may alter, amend, or modify the plan in whole, in part, or as to a particular debtor without additional disclosure, and may modify or withdraw it entirely, in each case with the reasonable consent of the committee and the administrative agent.
• If the plan is not accepted by the requisite number and amount of voting claims, the debtors reserve the right to reclassify claims and interests, which the plan's modification and severability provision conditions on the administrative agent's reasonable consent, and they may revoke, withdraw, or delay consideration of the plan as to any or all debtors before the confirmation date and file subsequent plans. Where the plan is withdrawn as to one debtor, or confirmation as to that debtor is denied, that debtor may at its option and with the agent's reasonable consent have its case dismissed or sell its assets to another debtor for cash at a fair value proposed by the debtors and approved by the Court.
• The plan administration agreement must be in form and substance acceptable to the administrative agent, and the wind-down budget is subject to the agent's consent.

D&O Coverage and Indemnification

• The wind-down debtors are deemed to assume all insurance contracts, including the D&O liability policies, with cure costs of $0 for each, and may not terminate or reduce coverage for pre-effective-date conduct.
• The debtors and wind-down debtors will maintain director, officer, and employee tail coverage for six years following the effective date on terms no less favorable than existing coverage and with an aggregate limit no less than the existing limit upon placement.
• Indemnification obligations to current and former directors, officers, managers, and employees are deemed assumed and survive, but recovery is limited solely to available insurance proceeds: no assets of the wind-down debtors, the plan administrator reserve, the wind-down account, the professional fee escrow account, the GUC trust, or any distributable assets are available except to the extent needed to maintain the policies themselves, each covered person bears its own cost of pursuing coverage, and an insurer's denial, limitation, or exhaustion of coverage creates no liability against those parties so long as the D&O policies have been maintained.
• The assumption does not cover any person determined by final order to be liable for fraud, willful misconduct, gross negligence, bad faith, self-dealing, or breach of the duty of loyalty.