manufacturing facilities for a significant period of time as a result of fire, explosion, act of war or terrorism, flood, hurricane, tornado, typhoon, earthquake, lightning or other natural disaster could increase our costs of doing business and lead to delays in shipping our beds to customers. Such delays could result in increased returns and adversely affect future sales.

CompetitionSignificant.    The mattress industry is highly competitive. Our business could be harmed by existing competitive pressures or from one or more new entrants into the market.

        Our Sleep Number beds compete with a number of different types of mattress alternatives, including standard innerspring mattresses, foam mattresses, waterbeds, futons and long-termother air-supported mattress products sold through a variety of channels, including home furnishings stores, specialty mattress stores, department stores, mass merchants, wholesale clubs, telemarketing programs, television infomercials and catalogs. The mattress industry is characterized by a high degree of concentration among the three largest manufacturers of innerspring mattresses with nationally recognized brand names, including Sealy, which also owns the Stearns & Foster brand, Serta and Simmons. Numerous other manufacturers, primarily operating on a regional or niche basis, serve the balance of the mattress market. Tempur-Pedic International, Inc. and other companies compete in the mattress industry with foam mattress products. A number of mattress manufacturers, including Sealy and Simmons, as well as a number of smaller manufacturers, including low-cost foreign manufacturers, have offered air beds that compete with our products.

        We believe that many of our competitors, including in particular the three largest innerspring mattress manufacturers and Tempur-Pedic, have greater financial, marketing and manufacturing resources and better brand name recognition than we do and sell products through broader and more established distribution channels. Our stores and other company-controlled distribution channels compete with other retailers who often provide a wider selection of mattress alternatives than we offer through our channels of distribution, which may place our channels of distribution at a competitive disadvantage. These manufacturing and retailing competitors, or new entrants into the market, may compete aggressively and gain market share with existing and new mattress products, and may pursue or expand their presence in the air bed segment of the market. Some competitors may engage in aggressive advertising strategies that may include false or misleading claims about competitive products and/or our products. Any such competition could inhibit our ability to retain or increase market share, inhibit our ability to maintain or increase prices and reduce our margins, which could harm our sales, profitability and financial condition.

Need for Continuous Product Improvement.    If we are unable to enhance our existing products and develop and market new products that respond to customer needs and achieve market acceptance, we may not be able to regain growth in sales or improvement in profitability.

        One of our growth strategies is to continue to lead our industry in product innovation and sleep expertise by enhancing existing products and by developing and marketing new products that deliver personalized comfort and better sleep. We may not be successful in developing or marketing enhanced or new products that will receive acceptance in the marketplace. Further, the resulting level of sales from any of our enhanced or new products may not justify the costs associated with the development and marketing. Any failure to continue to develop and market enhanced or new products in a cost-effective manner could harm our ability to regain growth in sales or growth in profitability.

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Adequacy of Management Information Systems.    In December 2008, we abandoned plans to implement an SAP®-based enterprise-wide information technology architecture. As a result, we are currently enhancing our existing management information systems to support our existing and anticipated business needs and to comply with evolving payment card industry and state and federal regulatory standards applicable to data privacy and security. This project may take longer and may require more resources to implement than anticipated, may cause distraction of key personnel, and may cause disruptions to our business. Any of these outcomes could impair our ability to achieve critical strategic initiatives and could harm our sales, profitability and financial condition.

        We depend upon our management information systems for many aspects of our business. Our current information systems architecture includes some off-the-shelf programs as well as some key software that has been developed by our own programmers, which is not easily modified or integrated with other software and systems and limits the flexibility and scalability of our information systems. Our business will be adversely affected if our management information systems are disrupted or if we are unable to improve, upgrade, integrate or expand our systems to meet business and regulatory requirements. In addition, any failure of our web sitesystems and processes to adequately protect customer information from theft or loss could adversely affectimpact our net sales.business, reputation, sales, profitability and financial condition.

Risks of Compliance with Governmental Regulations

        We depend on our web site forare subject to a certain percentagewide variety of government regulations relating to the bedding industry or to various aspects of our netbusiness and operations, including without limitation:

•

Regulations relating to the proper labeling of bedding merchandise and other aspects of product handling and sale;



•

State regulations related to the proper labeling and sale of bedding products produced in part from refurbished components;



•

Federal and state flammability standards applicable generally to mattresses and mattress and foundation sets;



•

Federal safety standards applicable to children's products generally, including some mattresses products;



•

Environmental and product safety regulations;



•

Consumer protection and data privacy regulations;



•

Regulations related to marketing and advertising claims;



•

Various federal and state "do not call" or "do not mail" list requirements;



•

Federal, state and foreign labor laws, including but not limited to laws relating to occupational health and safety, employee privacy, wages and hours, overtime pay, harassment and discrimination, equal opportunity, and employee leaves and benefits;



•

Antitrust regulations in the United States and foreign jurisdictions where we distribute our products;



•

Import and export regulations;



•

Federal and state tax laws; and



•

Federal and state securities laws.

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        Although we believe that we are in compliance in all material respects with these regulations and have implemented a variety of measures to promote continuing compliance, regulations may change over time and we may be required to incur expenses and/or to modify our operations in order to ensure compliance with these regulations, which could harm our profitability and financial condition. If we are found to be in violation of any of the foregoing laws or regulations, we could become subject to fines, penalties, damages or other sanctions, as well as potential adverse public relations, which could adversely impact our business, reputation, sales, profitability and for advertisingfinancial condition.

Risks of Compliance with Flammability Standards.    All mattresses and mattress and foundation sets, including ours, became subject to new federal flammability standards and related regulations in July 2007. Compliance with these regulations has increased our products. Ifproduct costs, has required modifications to our web site becomes unavailable for a significant periodsystems and operations and may increase the risk of timedisruptions to our business due to ongoing testing to assure compliance or due to regulatory inspections.

        The federal Consumer Product Safety Commission adopted new flammability standards and related regulations which became effective nationwide in July 2007 for mattresses and mattress and foundation sets. Compliance with these requirements has resulted in higher materials and manufacturing costs for our products, and has required modifications to our information technologysystems and business operations, further increasing our costs. To the extent we are unable to offset increased costs through value engineering and similar initiatives, or Internet failure,through price increases, our netprofitability may be adversely impacted. If we choose to increase prices to offset the increased costs, our unit sales volumes could be adversely affected.impacted.

12        Compliance also requires more complicated manufacturing processes, which may reduce our manufacturing capacity and may require us to expand our manufacturing capacity sooner than otherwise anticipated.

        The Consumer Product Safety Improvement Act (CPSIA) establishes new lead and phthalates content standards for certain children's products, including some mattresses. Portions of the CPSIA, including compliance with the component content standards became effective February 10, 2009. The Consumer Product Safety Commission has stayed the enforcement of the testing and certification requirements for the component testing and certification until February 10, 2010. Compliance with these regulations may increase our product costs and may require modifications to our systems and operations.

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Risks of Seasonal Influences.    Our business is subject to seasonal influences and a substantial portion of our net sales is often realized in the last month or last few weeks of a quarter, due in part to our promotional schedule and commission structure. Because the level ofAs our sales and marketing expense isexpenditures are largely based on our expectations of future customer inquiries and net sales, and cannot be adjusted quickly, a shortfall infailure to meet these expectations may harm our profitability.profitability and financial condition.

        Our business is subject to some seasonal influences, with typically lower sales in the second quarter, and higherincreased sales during the fourth quarterselected holiday season due to greater mall traffic.or promotional periods. Furthermore, a substantial portion of our sales is often realized in the last month or last few weeks of a quarter, due in part to our promotional schedule and commission structure. The level of salesour marketing and marketingadvertising expenses and new store opening costs is based, in significant part, on our expectations of future customer inquiries and net sales and cannot be adjusted quickly. If there is a shortfall in expected net sales or in the conversion rate of customer inquiries, we may be unable to adjust our spending in a timely manner and our sales, profitability and financial condition may be significantly harmed.

We are subject to government regulations relating to the bedding industryProduct Returns and may be required to incur expenseWarranty Claims.    Significant and modifyunexpected return rates under our operations in order to ensure compliance with these regulations.

Our operations are subject to state30-night trial period, or significant and local consumer protection and other regulations relating to the bedding industry. These regulations vary among the states in which we do business. The regulations generally impose requirements as to the proper labeling of bedding merchandise, restrictions regarding the identification of merchandise as “new” or otherwise, controls as to hygiene and other aspects of product handling and sale and penalties for violations. Although we believe that we are in substantial compliance with these regulations and have implemented a variety of measures to promote continuing compliance, we may be required in the future to incur expense and/or modifyunexpected warranty claims under our operations in order to ensure compliance with these regulations, which20-year limited warranty, could harm our operating results.sales, profitability and financial condition.

        Our directPart of our marketing operationsand advertising strategy focuses on providing a 30-night trial in which customers may return their beds and obtain a refund of the purchase price if they are or may become subject to various adopted or proposed federal and state “do not call” list requirements. The Federal Trade Commission has amended its rules to provide for a national “do not call” registry. Under these new federal regulations, consumers may begin to have their phone numbers added to the national “do not call” registry beginning in July 2003. In September 2003, telemarketers will have access to the registry and will be required to scrub their call lists against the national “do not call” registry at least once every 90 days. A telemarketer may call a consumerfully satisfied with whom it has an established business relationship for up to 18 months after the consumer’s last purchase, delivery or payment even if the consumer’s name is on the national “do not call” registry. A company may also call a consumer for up to three months after the consumer makes an inquiry or submits an application to the company. In addition, if a consumer asks a company not to call, the companyour product. Return rates may not call even if there is an established business relationship.remain within acceptable levels. An unexpected increase in return rates could harm our sales, profitability and financial condition. We believealso provide our customers with a 20-year limited warranty on our beds. We may receive significant and unexpected claims under these warranty obligations that we arecould exceed our warranty reserves. Warranty claims in substantial compliance with existing requirements, and plan to comply with the new federal requirements described above when they become effective, but these requirements may be further modified over time and may adversely affect our direct marketing sales or costs.

The federal Consumer Product Safety Commission and various state regulatory agencies are considering new rules relating to fire retardancy standards for the bedding industry. The State of California plans to adopt, effective in the year 2004, new fire retardancy standards that have not yet been finally defined. If adopted, such new rules may adversely affect our costs, manufacturing processes and materials. We are developing product solutions that are intended to enable us to meet the new standards. Because the new standards have not been finally determined, however, our solutions may not enable us to meet the new standards. We expect that any required product modifications will add cost to our product.

     A portionexcess of our net sales consists of refurbished products that are assembled in part from components returnedwarranty reserves could harm our profitability and financial condition.

Exposure to us from customers. These refurbished products must be properly labeled and marketed as refurbished products under applicable state laws. Our sales of refurbished products are limited to approximately 24 states, as the remaining states do not allow the sale of refurbished bedding products.

Product Liability ClaimsFailure to comply with health and safety requirements could expose us to a material liability.

We are subject to federal, state and local laws and regulations relating to occupational health and safety. We may not at all times be in compliance with all such requirements. We have made and will continue to make capital and other expenditures to comply with health and safety requirements.

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.    We may face exposure to product liability.liability claims.

        We face an inherent business risk of exposure to product liability claims in the event that the use of any of our products resultsis alleged to have resulted in personal injury or property damage. In the event that any of our products proves to be defective, we may be required to recall or redesign such products. In 2004 and in 2008, we experienced increased returns and adverse impacts on sales, as well as product liability litigation, as a result of media reports related to the alleged propensity of our products to develop mold. We may experience material increases in returns and material adverse impacts on sales or additional litigation in the event any similar media reports were to occur in the future. We maintain insurance against product liability claims, but such coverage may not continue to be available on terms acceptable to us orand may not be adequate for liabilities actually incurred. A successful claim brought against us in excess of available insurance coverage, or any claim or product recall that results in significant adverse publicity against us, may have a material adverse effect on our business.

Protection of Our Intellectual Property.    If we are unable to protect our intellectual property, we may be unable to prevent other companies from using our technology in competitive products.

We depend upon endorsements by national radio personalitiesown various U.S. and foreign patents and patent applications related to promotecertain elements of the design and function of our beds and related products. We also own several registered and unregistered trademarks and trademark applications, including in particular our Select Comfort and Sleep Number trademarks, which we believe have significant value and are important to the marketing of our products to customers. In addition to patents and trademarks, we rely upon copyrights, trade secrets and other intellectual property rights and we have implemented several measures to protect our intellectual property and confidential information contained in our products, such as entering into assignment of invention and nondisclosure agreements with certain of our employees. Our ability to compete

effectively with other companies depends, to a significant extent, upon our ability to maintain the lossproprietary nature of whichour owned intellectual property and confidential information. Our intellectual property rights may not provide substantial protection against infringement or piracy and may be circumvented by our competitors. Our protective measures may not protect our intellectual property rights or confidential information or prevent our competitors from developing and marketing products that are similar to or competitive with our beds or other products. In addition, the reductionlaws of some foreign countries may not protect our intellectual property rights and confidential information to the same extent as the laws of the United States. If we are unable to protect our intellectual property, we may be unable to prevent other companies from using our technology or trademarks in effectiveness ofconnection with competitive products, which could adversely affect our sales.

        Our integrated marketing program dependsIntellectual property litigation, which could result in partsubstantial costs to us and the diversion of significant time and effort by our executive management, may be necessary to enforce our patents and trademarks and to protect our trade secrets and proprietary technology. We may not have the financial resources necessary to enforce or defend our intellectual property rights.

        We are not aware of any material intellectual property infringement or invalidity claims that may be asserted against us, however, it is possible that third parties, including competitors, may successfully assert such claims. The cost of defending such claims, or any resulting liability, or any failure to obtain necessary licenses on national radio personalities, including Paul Harveyreasonable terms, may adversely impact our sales, profitability and Rush Limbaugh.financial condition.

Dependence on Management and Other Key Employees.    The loss of either Paul Harveythe services of any members of our executive management team could adversely impact our ability to execute our business strategy and growth initiatives and could harm our business.

        We are currently dependent upon the continued services, ability and experience of our executive management team, particularly William R. McLaughlin, our Chief Executive Officer. The loss of the services of Mr. McLaughlin or Rush Limbaugh or a reductionany other member of our executive management team could have an adverse effect on our ability to execute our business strategy and growth initiatives and on our sales, profitability and financial condition. We do not maintain any key person life insurance on any members of our executive management team. Our future growth and success will also depend upon our ability to attract, retain, and motivate other qualified personnel.

Risks of International Distribution.    Through relationships with other parties, we distribute products in Canada and Australia, which presents some additional risks to our business.

        To date, the vast majority of our sales have been made in the effectivenessU.S. and we have sold only very minimal quantities of their endorsement couldproducts in foreign jurisdictions. In late 2005 we began to distribute our products in Canada through an independent retailer. In late 2007 we entered into relationships with an Australian-based manufacturer and an Australian-based retailer to begin distribution of Sleep Number beds in Australia and New Zealand. Our lack of experience in international distribution presents some risks to our business, including without limitation the need to build awareness of our products and brand in new markets, the need to gain market acceptance for new products that represent a significant departure from traditional bedding products, logistical and systems complexities, different levels of protection of our intellectual property, language and cultural differences, the need to comply with additional and different regulatory requirements, foreign currency exchange risks, and political instability.

        Although several members of our senior management team have significant experience in international distribution of consumer goods, as a company our experience in this area is limited. The current economic environment and its impact on our business has limited our ability to invest in our international infrastructure, which may adversely affectimpact the sales and profitability of our sales.international

        Concern has grown recently over the possibility of a significant or global outbreak of H1N1 (swine flu), avian flu or a similar pandemic. A significant outbreak of H1N1 (swine flu), avian flu, or a similar pandemic, or even a perceived threat of such an outbreak, could cause significant disruptions to positively affect our netsupply chain, manufacturing capability and distribution system that could adversely impact our ability to produce and deliver products, which could result in a loss of sales or we may not be able to sustainand adversely impact on our current netprofitability and financial condition. Similarly, such events could adversely impact consumer confidence and consumer demand generally, which could adversely impact our sales, levels.

Risks Related to this Offeringthe Common Shares

Price FluctuationsOur stock price may be volatile and your investment in our common stock could suffer a decline in value.

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USE OF PROCEEDS

        We will not receive any proceeds from the sale of shares of our common stock you should be aware thatby the occurrenceselling shareholder.

        The selling shareholder will pay any underwriting discounts and commissions incurred by the selling shareholder. We will reimburse the selling shareholder for up to $50,000 of expenses incurred by it for legal services in connection with registrations, filings and qualifications relating to the shares. We will bear all other costs, fees and expenses incurred by us in effecting the registration of the events describedshares covered by this prospectus, including, without limitation, all registration and filing fees and fees and expenses of our counsel and our accountants.

SELLING SHAREHOLDER

        On October 2, 2009, we entered into a Securities Purchase Agreement with the selling shareholder named below pursuant to which we agreed to sell an aggregate of 2,500,000 shares of our common stock, along with warrants to purchase an additional aggregate 2,000,000 shares of our common stock. The warrants are immediately exercisable and expire on November 13, 2014.

        On November 13, 2009, we closed on the sale to the selling shareholder of shares of common stock and warrants to purchase shares of common stock under the Securities Purchase Agreement. We received aggregate gross proceeds of $10 million in connection with the sale of the shares and warrants to Sterling, before deduction of transaction expenses. This prospectus covers, among other things, the offer and sale by the selling shareholder listed below of up to 4,500,000 shares of common stock, including the shares issued to the selling shareholder pursuant to the Securities Purchase Agreement and the shares issuable to the selling shareholder upon exercise of the warrants.

        We are registering the above-referenced shares to permit the selling shareholder to resell the shares in the “Risk Factors” sectionmanner contemplated under the "Plan of Distribution."

        The selling shareholder may sell some, all or none of their shares. We do not know how long the selling shareholder will hold the shares before selling them. We currently have no agreements, arrangements or understandings with the selling shareholder regarding the sale of any of the shares other than the Securities Purchase Agreement, the Registration Rights Agreement and elsewherethe warrants. The shares offered by this prospectus may be offered from time to time by the selling shareholder.

        The following table sets forth the name of the selling shareholder, the number of shares owned by the selling shareholder, the number of shares that may be offered under this prospectus by the selling shareholder and the number of shares of our common stock to be owned by the selling shareholder after this offering is completed, assuming that all offered shares are sold as contemplated herein. The number of shares in the column "Number of Common Shares Registered for Sale Hereby" represents all of the shares that such selling shareholder may offer under this prospectus. Except as otherwise disclosed in this prospectus could harm(or as disclosed in any document incorporated by reference) including information incorporated herein by reference, the selling shareholder has no, and within the past three fiscal years has not had, any position, office or other material relationship with us.

        Ownership is based upon information provided by the selling shareholder and a Schedule 13G filed with the SEC by the selling shareholder. The percentages of shares owned after the offering are based on 48,088,075 shares of our business, financial condition, operating resultscommon stock outstanding as of November 16, 2009. In computing the number of shares beneficially owned by, and prospects.the percentage ownership of, the selling shareholder, all of the 2,000,000 shares of our common stock issuable upon exercise of the warrants are considered outstanding.

17        The selling shareholder may have sold or transferred, in transactions exempt from the registration requirements of the Securities Act, some or all of their shares since the date on which the information in the table is presented. Information about the selling shareholder may change over time. Information

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regarding the selling shareholder may change from time to time. Any such changed information will be set forth in supplements to this prospectus if required.

PLAN OF DISTRIBUTION

USE OF PROCEEDS

        We are registering the shares of common stock issued, and the shares of common stock issuable upon exercise of the warrants, to the selling shareholder to permit the resale of these shares of common stock by the selling shareholder from time to time after the date of this prospectus. We will not receive any of the proceeds from the sale by the selling shareholder of the shares of common stock. We will bear all fees and expenses incident to our obligation to register the shares of common stock.

        The selling shareholder may sell all or a portion of the shares of common stock beneficially owned by them and offered hereby from time to time directly or through one or more underwriters, broker-dealers or agents. If the shares of common stock are sold through underwriters, broker-dealers or agents, the selling shareholder will be responsible for any discounts, concessions or commissions. The shares of common stock may be sold on any national securities exchange or quotation service on which the securities may be listed or quoted at the time of sale, in the over-the-counter market or in transactions otherwise than on these exchanges or systems or in the over-the-counter market and in one or more transactions at fixed prices, at prevailing market prices at the time of the sale, at varying prices determined at the time of sale, or at negotiated prices. These sales may be effected in transactions, which may involve crosses or block transactions. The selling shareholder may use any one or more of the following methods when selling shares:

•

ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;



•

block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;



•

purchases by a broker-dealer as principal and resale by the broker-dealer for its account;



•

an exchange distribution in accordance with the rules of the applicable exchange;

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•

privately negotiated transactions;



•

settlement of short sales entered into after the effective date of the registration statement of which this prospectus is a part;



•

broker-dealers may agree with the selling shareholder to sell a specified number of such shares at a stipulated price per share;



•

through the writing or settlement of options or other hedging transactions, whether such options are listed on an option exchange or otherwise;



•

the distribution of the shares by the selling shareholder to its partners, members or stockholders;



•

through one or more underwritten offerings on a firm commitment or best efforts basis;



•

a combination of any such methods of sale; and



•

any other method permitted pursuant to applicable law.

        The selling shareholder also may resell all or a portion of the shares in open market transactions in reliance upon Rule 144 under the Securities Act, as permitted by that rule, or Section 4(1) under the Securities Act, if available, rather than under this prospectus, provided that it meets the criteria and conforms to the requirements of those provisions.

        Broker-dealers engaged by the selling shareholder may arrange for other broker-dealers to participate in sales. If the selling shareholder effects such transactions by selling shares of common stock to or through underwriters, broker-dealers or agents, such underwriters, broker-dealers or agents may receive commissions in the form of discounts, concessions or commissions from the selling shareholder or commissions from purchasers of the shares of common stock for whom they may act as agent or to whom they may sell as principal (which discounts, concessions or commissions as to particular underwriters, broker-dealers or agents may be in excess of those customary in the types of transactions involved to the extent permitted by applicable law).

        In connection with sales of the shares of common stock or otherwise, the selling shareholder may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the shares of common stock in the course of hedging in positions they assume. The selling shareholder may also sell shares of common stock short, and if such short sale shall take place after the date that this Registration Statement is declared effective by the Commission, the selling shareholder may deliver shares of common stock covered by this prospectus to close out the short positions and to return borrowed shares in connection with such short sales. The selling shareholder may also loan or pledge shares of common stock to broker-dealers that in turn may sell such shares, to the extent permitted by applicable law. The selling shareholder may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities that require the delivery to such broker-dealer or other financial institution of shares offered underby this prospectus, bywhich shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction). Notwithstanding the foregoing, the selling shareholders.

DIVIDEND POLICY

     Weshareholder have never declared or paid any cash dividendsbeen advised that they may not use shares registered on our common stock. We currently intendthis registration statement to retain our future earnings, if any, to finance the expansion of our business and do not expect to pay any cash dividends in the foreseeable future.

PRICE RANGE OF COMMON STOCK

Our common stock is quoted on the Nasdaq National Market and trades under the symbol “SCSS.” The following table sets forth the high and lowcover short sales prices per share of our common stock as reportedmade prior to the date the registration statement, of which this prospectus forms a part, has been declared effective by the Nasdaq National MarketSEC.

        The selling shareholder may, from time to time, pledge or grant a security interest in some or all of the shares of common stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock from time to time pursuant to this prospectus or any amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act, amending, if necessary, the list of selling shareholder to include the pledgee, transferee or other successors in interest as selling shareholder under this prospectus. The selling shareholder also may transfer or donate the shares of common stock in a gift,

        The selling shareholder has informed the Company that it is not a registered broker-dealer or an affiliate of a registered broker-dealer and, at the time it entered into the Securities Purchase Agreement providing for the periods indicated.

     On February 26, 2003,purchase of the highshares and low sales pricethe warrants from us, did not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the common stock. Upon the Company being notified in writing by the selling shareholder that any material arrangement has been entered into with a broker-dealer for the sale of our common stock onthrough a block trade, special offering, exchange distribution or secondary distribution or a purchase by a broker or dealer, a supplement to this prospectus will be filed, if required, pursuant to Rule 424(b) under the Nasdaq National Market was $9.08 per shareSecurities Act, disclosing (i) the name of each such selling shareholder and $8.55 per share, respectively. Theof the participating broker-dealer(s), (ii) the number of record holdersshares involved, (iii) the price at which such shares of our common stock as of February 14, 2003 was approximately 189.

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CAPITALIZATION

The following table sets forth our capitalization at December 28, 2002, on an actual basis and as adjusted to give effect(vi) other facts material to the exercisetransaction. The selling shareholder may indemnify any broker-dealer that participates in transactions involving the sale of warrantsthe shares of common stock against certain liabilities, including liabilities arising under the Securities Act.

        Under the securities laws of some states, the shares of common stock may be sold in such states only through registered or licensed brokers or dealers. In addition, in some states the shares of common stock may not be sold unless such shares have been registered or qualified for sale in such state or an exemption from registration or qualification is available and is complied with.

        At any time a particular offer of the shares of common stock is made by the selling shareholder, we will file a revised prospectus or prospectus supplement, if required. Such prospectus supplement or post-effective amendment will be filed with the SEC to purchase 400,000reflect the disclosure of required additional information with respect to the distribution of the shares of common stock. Pursuant to the Registration Rights Agreement, we may suspend the sale of shares by the selling shareholder pursuant to this prospectus for certain periods of time for certain reasons, including if the prospectus is required to be supplemented or amended to include additional material information.

        The selling shareholder and any other person participating in such distribution will be subject to applicable provisions of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder, including, without limitation, Regulation M of the Exchange Act, which may limit the timing of purchases and sales of any of the shares of common stock by the selling shareholder and any other participating person. Regulation M may also restrict the ability of any person engaged in the distribution of the shares of common stock to engage in market-making activities with respect to the shares of common stock. All of the foregoing may affect the marketability of the shares of common stock and the paymentability of our estimated offering expenses. This table shouldany person or entity to engage in market-making activities with respect to the shares of common stock.

        There can be read in conjunction with our Consolidated Financial Statements and Notes thereto included elsewhere in this prospectus.

     The above table excludes 10,185,194 and 9,785,194no assurance that the selling shareholder will sell any or all of the shares of common stock issuable upon exerciseregistered pursuant to the registration statement, of outstanding warrants and stock options atwhich this prospectus forms a weighted average exercise pricepart.

        We will pay all expenses of $3.23 and $3.32 per share on an actual and as adjusted basis, respectively. The table also excludes 727,272the registration of the shares of common stock issuablepursuant to the Registration Rights Agreement, including, without limitation, Securities and Exchange Commission filing fees and expenses of compliance with state securities or "blue sky" laws. The selling shareholder will pay all underwriting discounts and selling commissions, if any, and any related legal expenses incurred by it in excess of $50,000. We will indemnify the selling shareholder against certain liabilities, including liabilities under the Securities Act, in accordance with the Registration Rights Agreement, or the selling shareholder will be entitled to contribution. We may be indemnified by the selling shareholder against civil liabilities, including liabilities under the Securities Act, that may arise from any written information furnished to us by the selling shareholder specifically for use in this prospectus, in accordance with the related Registration Rights Agreement, or we may be entitled to contribution.

LEGAL MATTERS

        The validity of the shares of common stock offered by this prospectus will be passed upon conversionfor us by Oppenheimer Wolff & Donnelly LLP, Minneapolis, Minnesota.

EXPERTS

        The consolidated financial statements and financial statement schedule of a $4.0 million principal amount subordinated convertible debenture, convertible at $5.50 per share, outstandingSelect Comfort Corporation and subsidiaries as of January 3, 2009 and December 28, 2002.

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SELECTED CONSOLIDATED FINANCIAL DATA

     The table below shows selected consolidated financial data and selected operating data for our last five years. The consolidated statement of operations data for each of the fiscal years in the three-year period ended December 28, 2002January 3, 2009, and management's assessment of the consolidated balance sheet data at December 28, 2002effectiveness of internal control over financial reporting as of January 3, 2009 have been incorporated by reference herein in reliance upon the report of KPMG LLP, independent registered public accounting firm, incorporated by reference herein, and December 29, 2001 are derived from our auditedupon the authority of said firm as experts in accounting and auditing.

        The audit report covering the January 3, 2009 consolidated financial statements included elsewhere in this prospectus. The consolidated statement of operations data for each ofcontains an explanatory paragraph that states that the fiscal years in the two-year period ended January 1, 2000 and the consolidated balance sheet data at December 30, 2000, January 1, 2000 and January 2, 1999 are derivedCompany's losses from our audited consolidated financial statements not included in this prospectus. Historical results are not necessarily indicative of future results.

The following selected consolidated financial data should be read in conjunction with our Consolidated Financial Statements and Notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included elsewhere in this prospectus.

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(1)	Includes charges for store closings and asset impairments of $0.2 million, $1.4 million, $2.0 million, $1.5 million and $0.0 million for 2002, 2001, 2000, 1999 and 1998, respectively. See Note 4 to our Consolidated Financial Statements.
(2)	Pro forma net income (loss) per share reflects the effects on net income from specific non-recurring items and from the recognition of an income tax benefit (provision) for years where a regular tax provision, at a rate of 38%, was not recorded. Generally accepted accounting principles (GAAP) did not allow us to reduce net income for income tax expense in 2002 or to provide an income tax benefit in 2001 or 2000. Because we expect to record income tax in future periods, we believe pro forma net income (loss) per share provides a more meaningful comparison than GAAP net income (loss) per share for the periods presented and future periods. In addition, we excluded the effect of the extraordinary after-tax, non-cash charges associated with early repayment of our $5.0 million of 12% senior secured debt in December 2002 because we have no remaining debt which could result in a similar charge in the future. A reconciliation of diluted net income (loss) per share (as determined in accordance with GAAP) to pro forma net income (loss) per share is as follows:

(3)	Includes stores operated in leased departments within other retail stores (13, 22, 25, 45 and 14 at the end of 2002, 2001, 2000, 1999 and 1998, respectively).
(4)	For stores open during the entire period indicated.
(5)	Stores enter the comparable store calculation in the 13th full month of operation. The number of comparable stores used to calculate such data was 307, 317, 314, 262 and 199 for 2002, 2001, 2000, 1999 and 1998, respectively. Our 1998 comparable store sales increase reflects adjustments for an additional week of sales in 1997. Without adjusting for the additional week, comparable store sales would have been 17.9% in 1998.
(6)	Earnings before interest, income taxes, depreciation, amortization and other non-cash charges, including non-cash compensation (EBITDA) is a key financial measure but should not be construed as an alternative to operating income or cash flows from operating activities (as determined in accordance with GAAP). We believe that EBITDA is a useful supplement to net income and other income statement data in understanding cash flows generated from operations that are available for taxes, debt service and capital expenditures. A reconciliation of operating income (loss) to EBITDA for each of the fiscal years indicated is as follows:

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MANAGEMENT’S DISCUSSION AND ANALYSIS

Overview and Critical Accounting Policies

     We are the leading developer, manufacturer and marketer of premium quality, adjustable-firmness beds. The air chamber technology of our proprietary Sleep Number bed allows adjustable firmness on each side of the mattress and provides a sleep surface that is clinically proven to provide better sleep quality and greater relief of back pain compared to traditional mattress products.

Our critical accounting policies relate to revenue recognition, accrued sales returns, accrued warranty costs and impairment of long-lived assets and long-lived assets to be disposed of by us. The effect of these policies on our financial statements is incorporated in the discussion below.

     We generate revenue by selling our products through four complementary distribution channels. Three of these channels, retail, direct marketing and e-commerce, are company-controlled and sell directly to consumers. Our wholesale channel sells to leading home furnishings retailers, specialty bedding retailers and the QVC shopping channel.

Revenue recognition. We record revenue at the time product is shipped to the customer, except when beds are delivered and set up by our home delivery employees, in which case revenue is recorded at the time the bed is delivered and set up in the home.

Accrued sales returns. We reduce sales at the time revenue is recognized for estimated returns. This estimate is based on historical return rates, which are reasonably consistent from period to period. If actual returns vary from expected rates, revenue in future periods is adjusted, which could have a material adverse effect on future results of operations.

Channel sales. The proportion of our total net sales, by dollar volume, from each of our channels during the last three years is summarized as follows:

The number of company-operated retail locations during the last three years is summarized as follows: