The United States District Court for the District of Minnesota granted final approval to the settlement of th securities class action filed against Select Comfort Corporation and certain of its former officers and directors. On February 28, 2003, the settlement agreement received final approval from the court, resulting in the dismissal with prejudice of the plaintiffs' complaint.

By the notice of proposed settlement dated December 13, 2002, a settlement fund of $5,750,000 has been established. The proposed settlement continues to await a ruling.

As reported by the Company’s FORM 10-K/A For The Fiscal Year Ended December 30, 2000, the Company and the individual defendants brought a motion to dismiss all claims on November 10, 1999. The motion was heard by a magistrate judge on December 21, 1999. On January 27, 2000, the magistrate recommended that the claims based on Section 11 of the federal securities laws be dismissed. The magistrate recommended that the motion to dismiss be denied with respect to the claims based on Rule 10b-5 of the federal securities laws. In February 2000, both the plaintiffs and the defendants formally objected to the magistrate's recommendation. The objection was made to the United States District Court in Minnesota. On May 12, 2000, the United States District Court in Minnesota adopted the recommendation of the magistrate and denied the defendants' motion to dismiss the Rule 10b-5 claims. The Court also adopted the recommendation of the magistrate and dismissed the plaintiff's Section 11 claims without prejudice and with leave to amend.

On March 31, 2000, the Company and certain of its former officers and directors were named as defendants in a class action lawsuit filed on behalf of the Company's shareholders in U.S. District Court in Minnesota asserting identical factual allegations as the consolidated complaint described above. The suit alleges claims based on Sections 11 and 12(a)(2) of the federal securities laws. The complaint does not specify an amount of damages claimed. The Company believes this complaint is without merit and intends to vigorously defend the claims. The above two class actions were consolidated by the United States District Court Magistrate on July 24, 2000.

The original Complaint charges that throughout the Class Period, defendants violated the U.S. securities laws by issuing materially false and misleading statements and by omitting material facts required to be disclosed so as to make the statements issued not materially false and misleading. Specifically, the complaint alleges that defendants failed to disclose that the Company's only source of customer financing had significantly tightened its credit standards in January 1999 and that the Company's sales had been, and would continue to be severely negatively impacted. The Complaint also charges defendants with issuing a series of materially false and misleading statements in order to obscure the truth concerning the Company's sales and financial condition.

The complaint further alleges that the true facts concerning the dire state of the Company's financial condition were finally disclosed prior to the commencement of trading on June 8, 1999. When trading in Select Comfort's shares opened later that day, the price of the Company's common stock plunged more than 43% from $13 1/8 to $7 7/16 evidencing the materiality of the information that had long been withheld from Class members by defendants.