Securities Purchase Agreement

On May 22, 2009 Select Comfort Corporation (the "Company") entered into a Securities Purchase Agreement (the "Securities Purchase Agreement") with Sterling SC Investor, LLC, a Delaware limited liability company ("Sterling") and an affiliate of Sterling Capital Partners III, L.P. ("Sterling Partners"), that provides for the sale of common stock to Sterling for gross proceeds to the Company of $35 million. Pursuant to the terms of the Securities Purchase Agreement, the Company will issue to Sterling, subject to the approval of the Company's shareholders, 50,000,000 shares of the Company's common stock at a purchase price of $0.70 per share. The issuance of the shares of the Company's common stock and the other actions contemplated by the Securities Purchase Agreement are collectively referred to herein as the "Transaction." As a result of the Transaction, Sterling will own approximately 52.5% of the Company's outstanding common stock.

The Transaction is expected to close (the "Closing") in the third quarter of 2009 and is subject to certain closing conditions, including but not limited to, approval by the Company's shareholders, accuracy of representations and warranties of the Company and Sterling, amending and restating the Company's existing Credit Agreement dated as of June 9, 2006, as previously amended, including most recently as of May 22, 2009 (the "Credit Agreement"), on the terms described in the term sheet attached hereto as Exhibit 99.2 and otherwise in form and substance satisfactory to Sterling, and other customary closing conditions. The Company's lenders have agreed, in a letter dated May 22, 2009, to negotiate in good faith with the Company to amend and restate the Credit Agreement in the manner described in the term sheet. The aforementioned description of the letter from the Company's lenders is qualified in its entirety by reference to such letter, a copy of which is included as Exhibit 99.3 to this Current Report on Form 8-K and incorporated herein by reference.

The Company's board of directors and a committee of the board of directors composed solely of disinterested directors has approved the Securities Purchase Agreement and the consummation of the Transaction and has recommended that the Company's shareholders vote in favor of the Transaction. The Company has received a written opinion from Duff & Phelps LLC, financial advisor to the board of directors, to the effect that, as of the date of such opinion, and based upon and subject to the matters set forth therein, the purchase price to be received by the Company in exchange for the issuance and sale of the shares of common stock in the Transaction is fair, from a financial point of view, to the common shareholders of the Company (without giving effect to any impact of the proposed Transaction on any particular shareholder other than in its capacity as a shareholder).

The Securities Purchase Agreement provides that, following the Closing, the Company will have a nine member board of directors, which will include five members designated by Sterling and four members designated by the Company's current Board of Directors. Additionally, so long as Sterling beneficially owns, in the aggregate, at least 20% of the total voting power of the Company's outstanding common stock entitled to vote for elections of directors, Sterling shall be entitled to designate for nomination by the Company's board of directors a number of members of the board of directors proportional to its ownership of the Company's outstanding common stock entitled to vote for elections of directors. The Company will be obligated to take all actions that are reasonably necessary or desirable to cause the designated directors to be elected to the board of directors.

The Company intends to use the net proceeds from the Transaction for general corporate and working capital purposes.

Pursuant to the Securities Purchase Agreement, from and after the Closing, so long as Sterling beneficially owns, in the aggregate, greater than 20% of the Company's outstanding common stock, Sterling will have preemptive rights for any future Company issuance of its equity securities, excluding certain exempted issuances. If the Company decides to issue any equity securities, other than those

certain exempted issuances, then it would be required to provide notice to Sterling and offer to sell a pro rata amount of those securities to Sterling, on the same terms it proposes to sell the securities to other parties, based on Sterling's percentage ownership of the Company's outstanding common stock immediately prior to the proposed issuance of equity securities.

In certain circumstances, the Company will be required to pay a termination fee if the Closing does not occur. The termination fee is $1.5 million for most termination reasons, but can be $4 million, in certain circumstances if the termination occurs in connection with a transaction that results in a person or group acquiring beneficial ownership of 80% or more of the common stock of the Company. On or prior to the Closing or any termination of the Securities Purchase Agreement by the Company, the Company will pay Sterling's expenses for the Transaction up to $1,000,000, of which $350,000 has been placed in an escrow account in accordance with an escrow agreement with Sterling and Wells Fargo Bank, acting as escrow agent. In addition, the Company has agreed to pay . . .

The information required by this Item 2.03 is set forth under the heading "Amendment No. 11 to Credit Agreement" in Item 1.01, which is incorporated herein by reference.

The information required by this Item 3.02 is set forth in Item 1.01, which is incorporated herein by reference.

The shares to be issued pursuant to the Securities Purchase Agreement have not been registered under the Securities Act of 1933, as amended (the "Securities Act"). The securities will be issued to accredited investors in reliance upon exemptions from registration under Section 4(2) of the Securities Act and/or Regulation D promulgated thereunder. As a result, the securities may not be offered or sold in the United States absent registration under or exemption from the Securities Act and any applicable state securities laws. Sterling has represented to the Company that it is an "accredited investor" as defined in Regulation D and that the shares of the Company's common stock are being acquired for investment. The Company has not engaged in a general solicitation or advertising with regard to the Transaction and has not offered securities to the public in connection with the Transaction.

Press Release

On May 26, 2009, the Company issued a press release announcing the Transaction and that it had entered into the agreements relating to the Transaction. The press release is attached hereto as Exhibit 99.1.

(d) Exhibits.

10.1   Securities Purchase Agreement by and among Select Comfort Corporation and
       Sterling SC Investor, LLC.

10.2   Guarantee by Sterling Capital Partners III, LP in favor of Select Comfort
       Corporation.

10.3   Form of Registration Rights Agreement to be entered into by and among
       Select Comfort Corporation and Sterling SC Investor, LLC.

10.4   Form of Management Services Agreement to be entered into by and among
       Select Comfort Corporation and Sterling Fund Management, LLC.

10.5   Amendment No. 11 to Credit Agreement, dated as of May 22, 2009.

10.6   GE Waiver and Consent, dated May 21, 2009.

99.1   Press Release, dated May 26, 2009.

99.2   Term Sheet from the Company's lenders, dated May 22, 2009.

99.3   Letter from the Company's lenders, dated May 22, 2009.