UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

------------------------------

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934

Filed by the Registrant [X]
Filed by party other than the Registrant [ ]

Check the appropriate box:

[ ] Preliminary Proxy Statement

[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))

[X] Definitive Proxy Statement

[ ] Definitive Additional Materials

[ ] Soliciting Material Pursuant toss. 240.14a-11(c) orss. 240.14a-12

------------------------------

SELECT COMFORT CORPORATION
(Name of Registrant as Specified In Its Charter)

SELECT COMFORT CORPORATION
(Name of Person(s) Filing Proxy Statement)

------------------------------
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[X] No fee required.

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6105 TRENTON LANE NORTH
MINNEAPOLIS, MINNESOTA 55442

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 17, 2001

TO THE SHAREHOLDERS OF SELECT COMFORT CORPORATION:

The Annual Meeting of Shareholders of Select Comfort Corporation, a
Minnesota corporation (the "Company"), will be held on Tuesday, July 17, 2001,
at 3:00 p.m., local time, at the Hilton Hotel Minneapolis North, 2200 Freeway
Blvd., Brooklyn Center, Minnesota 55430, for the following purposes:

1. To elect three persons to serve as directors for three-year terms;

2. To consider and act upon a proposal to grant full voting rights to The St.
Paul Companies, Inc. and its affiliates related to the acquisition of
shares of common stock of the Company under the Minnesota Control Share
Acquisition Act;

3. To consider and act upon a proposal to approve the issuance by the Company
of its Senior Secured Convertible Notes in the aggregate principal amount
of up to $12 million (initially convertible into an aggregate of up to
12,000,000 shares of the common stock of the Company) together with
warrants to purchase up to an aggregate of 4,800,000 shares of the common
stock of the Company in a private placement;

4. To consider and act upon a proposal to amend the Select Comfort Corporation
1997 Stock Incentive Plan to increase the number of shares of common stock
reserved for issuance by 3,000,000 shares from 3,500,000 shares to
6,500,000 shares;

5. To consider and act upon a proposal to amend the Select Comfort Corporation
1999 Employee Stock Purchase Plan to increase the number of shares of
common stock reserved for issuance by 500,000 shares from 500,000 shares to
a total of 1,000,000 shares;

6. To consider and act upon a proposal to approve the material terms of the
performance goals under the Select Comfort Corporation Executive and Key
Employee Incentive Plan;

7. To consider and act upon a proposal to ratify the appointment of KPMG LLP,
independent certified public accountants, as independent auditors for the
Company for the fiscal year ending December 29, 2001; and

8. To transact such other business as may properly come before the meeting or
any adjournment thereof.

Only shareholders of record at the close of business on May 18, 2001 will
be entitled to notice of, and to vote at, the meeting and any adjournments
thereof. It is important that your shares be represented and voted at the
meeting. PLEASE MARK, SIGN, DATE AND MAIL THE ENCLOSED PROXY CARD IN THE
POSTAGE-PAID ENVELOPE PROVIDED AS SOON AS POSSIBLE TO ACCOMMODATE OUR MEETING
SCHEDULED FOR JULY 17, 2001.

By Order of the Board of Directors,

/s/Mark A. Kimball

Mark A. Kimball
SENIOR VICE PRESIDENT,
GENERAL COUNSEL & SECRETARY

June 18, 2001
Minneapolis, Minnesota

TABLE OF CONTENTS

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Page
-----
INTRODUCTION.................................................................. 3
Shareholders Entitled to Vote................................................. 3
Revocation of Proxies......................................................... 3
Quorum Requirements........................................................... 4
Vote Required................................................................. 4
Proxy Solicitation Costs...................................................... 4

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.................................................................... 5
Security Ownership of Certain Beneficial Owners............................... 5
Security Ownership of Management.............................................. 6

ELECTION OF DIRECTORS......................................................... 8
Nomination.................................................................... 8
Vote Required................................................................. 8
Board Recommendation.......................................................... 8
Information About Nominees and Other Directors................................ 9
Other Information About Nominees and Other Directors......................... 10
Information About the Board and its Committees............................... 11
Director Compensation........................................................ 12
Compensation Committee Interlocks and Insider Participation.................. 13

EXECUTIVE COMPENSATION AND OTHER BENEFITS.................................... 14
Summary of Cash and Certain Other Compensation............................... 14
Option Grants and Exercises.................................................. 15
Employment Agreements........................................................ 17
Change in Control Arrangements............................................... 18

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION...................... 20
Compensation Philosophy and Objectives....................................... 20
Executive Compensation Program Components.................................... 21
Chief Executive Officer Compensation......................................... 22
Section 162(m)............................................................... 23

AUDIT COMMITTEE REPORT....................................................... 24

COMPARATIVE STOCK PERFORMANCE................................................ 25

CERTAIN TRANSACTIONS......................................................... 26
Director Relationship........................................................ 26
Amended and Restated Registration Rights Agreement........................... 26
Employment Agreements........................................................ 26
GE Financing and Restructuring of GE Warrants................................ 26
Acquisition of Assets of SleepTec, Inc....................................... 27

PROPOSAL TO GRANT VOTING RIGHTS WITH RESPECT TO SHARES OF THE
COMPANY'S COMMON STOCK PURSUANT TO THE CONTROL SHARE
ACQUISITION ACT.............................................................. 28
Proposal..................................................................... 28
Background................................................................... 28
Vote Required................................................................ 30
Board Recommendation......................................................... 31

PROPOSAL TO APPROVE THE ISSUANCE BY THE COMPANY OF ITS SENIOR
SECURED CONVERTIBLE NOTES AND WARRANTS....................................... 32
Proposal..................................................................... 32
Background................................................................... 32
Terms of the Private Placement............................................... 34
Effects of the Private Placement............................................. 37
Rationale for the Private Placement.......................................... 38
Vote Required................................................................ 39
Board Recommendation......................................................... 39

AMENDMENT TO 1997 STOCK INCENTIVE PLAN....................................... 40
Proposed Amendment........................................................... 40
Purpose of Amendment......................................................... 40
Summary of the 1997 Plan..................................................... 40
Federal Income Tax Consequences.............................................. 44
Incentive Awards Granted Under the 1997 Plan................................. 47
Vote Required................................................................ 48
Board Recommendation......................................................... 48

AMENDMENT TO THE 1999 EMPLOYEE STOCK PURCHASE PLAN........................... 49
Proposed Amendment........................................................... 49
Purpose of the Amendment..................................................... 49
Summary of the Purchase Plan................................................. 50
Federal Income Tax Consequences.............................................. 53
Vote Required................................................................ 54
Board Recommendation......................................................... 54

APPROVAL OF THE MATERIAL TERMS OF THE PERFORMANCE GOALS
UNDER THE SELECT COMFORT CORPORATION EXECUTIVE AND KEY
EMPLOYEE INCENTIVE PLAN...................................................... 55
Proposal..................................................................... 55
Description of the Incentive Plan............................................ 55
Reason for Shareholder Approval.............................................. 57
Vote Required................................................................ 57
Board Recommendation......................................................... 57

RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS............................ 58
Appointment of Auditors...................................................... 58
Audit Fees................................................................... 58
All Other Fees............................................................... 58
Vote Required................................................................ 58
Board Recommendation......................................................... 58

OTHER MATTERS................................................................ 59
Section 16(a) Beneficial Ownership Reporting Compliance...................... 59
Shareholder Proposals for 2002 Annual Meeting................................ 59
Other Business............................................................... 60
Copies of 2000 Annual Report................................................. 60
Incorporation of Information by Reference.................................... 60

iii

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6105 TRENTON LANE NORTH
MINNEAPOLIS, MINNESOTA 55442

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PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS

JULY 17, 2001
---------------------

INTRODUCTION

---------------------

This proxy statement is being mailed to our shareholders beginning on or about
June 18, 2001 in connection with the solicitation of proxies by the Board of
Directors for use at the Annual Meeting of Shareholders. The meeting will be
held on Tuesday, July 17, 2001, at 3:00 p.m., local time, at the Hilton Hotel
Minneapolis North, 2200 Freeway Boulevard, Brooklyn Center, Minnesota 55430, for
the purposes set forth in the Notice of Meeting.

Your vote is important. A proxy card is enclosed for your use. YOU ARE SOLICITED
ON BEHALF OF THE BOARD OF DIRECTORS, TO MARK, SIGN, DATE AND RETURN THE PROXY
CARD IN THE ACCOMPANYING ENVELOPE. No postage is required if mailed within the
United States.

Proxies will be voted as specified by you. Signed proxies that lack any such
specification will be voted in favor of the proposals set forth in the Notice of
Meeting and in favor of the election as directors of the three nominees for
directors listed in this proxy statement.

THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL OF THE PROPOSALS SET
FORTH IN THE NOTICE OF MEETING.

SHAREHOLDERS ENTITLED TO VOTE

Shareholders of record at the close of business on May 18, 2001 will be entitled
to vote at the meeting. As of that date, there were 18,126,265 outstanding
shares of common stock. Each share is entitled to one vote on each matter to be
voted on at the Annual Meeting. Shareholders are not entitled to cumulate voting
rights.

REVOCATION OF PROXIES

Any shareholder giving a proxy may revoke it at any time prior to its use at the
Annual Meeting by:

o giving written notice of such revocation to the Secretary of the Company,

o filing a duly executed proxy bearing a later date with the Secretary of the
Company, or

o appearing at the Annual Meeting and filing written notice of revocation
with the Secretary of the Company prior to use of the proxy.

QUORUM REQUIREMENTS

The presence at the Annual Meeting, in person or by proxy, of the holders of a
majority of the outstanding shares of common stock entitled to vote at the
Annual Meeting (9,063,133 shares) will constitute a quorum for the transaction
of business at the Annual Meeting. In general, shares of common stock
represented by a properly signed and returned proxy card will be counted as
shares present and entitled to vote at the Annual Meeting for purposes of
determining a quorum, without regard to whether the card reflects abstentions
(or is left blank) or reflects a "broker non-vote" on a matter. A "broker
non-vote" is a card returned by a broker on behalf of its beneficial owner
customer that is not voted on a particular matter because voting instructions
have not been received, and the broker has no discretionary authority to vote.

VOTE REQUIRED

Assuming a quorum is represented at the Annual Meeting, either in person or by
proxy, the election of each of the nominees for director requires the
affirmative vote of the holders of a majority of the shares present and entitled
to vote in person or by proxy at the meeting. The proposal to approve the
acquisition by The St. Paul Companies, Inc. and certain of its affiliated
entities of 305,000 shares of the common stock of the Company under the
Minnesota Control Share Acquisition Act requires (1) the affirmative vote of the
holders of a majority of the voting power of all shares entitled to vote,
including all shares held by The St. Paul Companies, Inc. and its affiliates,
and (2) the affirmative vote of the holders of a majority of the voting power of
all shares entitled to vote excluding all shares held by The St. Paul Companies,
Inc. and its affiliates and excluding all shares held by any officer of the
Company. The approval of each of the other proposals described in this proxy
statement requires the affirmative vote of the holders of a majority of the
shares present and entitled to vote in person or by proxy at the meeting.

Shares represented by a proxy card that includes any broker non-votes on a
matter will be treated as shares not entitled to vote on that matter, and thus
will not be counted in determining whether that matter has been approved. Shares
represented by a proxy card voted as abstaining on any of the proposals will be
treated as shares present and entitled to vote that were not cast in favor of a
particular matter, and thus will be counted as votes against that matter. Signed
proxies that lack any specification will be voted in favor of each of the
proposals set forth in the Notice of Meeting and in favor of the election as
directors of each of the three nominees for directors listed in this proxy
statement.

PROXY SOLICITATION COSTS

The cost of soliciting proxies, including the preparation, assembly and mailing
of proxies and soliciting material, as well as the cost of forwarding such
material to the beneficial owners of our common stock will be borne by us. Our
directors, officers and regular employees may, without compensation other than
their regular compensation, solicit proxies by telephone, telegraph or personal
conversation. We may reimburse brokerage firms and others for expenses in
forwarding proxy materials to the beneficial owners of our common stock.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

---------------------

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

The following table sets forth information, as of April 28, 2001, with
respect to each person who was known by us to be the beneficial owner of more
than 5% of Select Comfort common stock.

SHARES OF COMMON STOCK
BENEFICIALLY OWNED (1)
-------------------------------
NAME AMOUNT PERCENT OF CLASS
- ---------------------------------------------- ------------- ----------------

St. Paul Venture Capital, Inc. (2) 7,020,293 36.8%

Consumer Venture Partners II, L. P. (3) 1,962,801 10.8%

General Electric Capital Corporation (4) 1,107,914 5.8%

- ------------------------

(1) Except as otherwise indicated in the footnotes to this table, the persons
named in the table have sole voting and dispositive power with respect to
all shares of common stock. Shares of common stock subject to options or
warrants currently exercisable or exercisable within 60 days are deemed
outstanding for computing the percentage of the person or group holding
such options or warrants but are not deemed outstanding for computing the
percentage of any other person or group.

(2) Includes 4,806,022 shares held by St. Paul Fire and Marine Insurance
Company, 321,017 shares held by St. Paul Venture Capital IV, LLC, 955,900
shares held by St. Paul Venture Capital V, LLC and 275 shares held by St.
Paul Venture Capital Affiliates Fund I, LLC. Includes (i) 59,769 shares
issuable upon exercise of outstanding warrants held by St. Paul Fire and
Marine Insurance Co., (ii) 11,677 shares issuable upon exercise of
outstanding warrants and options held by St. Paul Venture Capital IV, LLC.,
(iii) 138,361 shares issuable upon exercise of outstanding options held by
St. Paul Venture Capital V, LLC, and (iv) 727,272 shares issuable upon
conversion of a convertible debenture held by St. Paul Venture Capital V,
LLC. The St. Paul Companies, Inc. owns all of the issued and outstanding
shares of capital stock of St. Paul Fire and Marine Insurance Co. The St.
Paul Fire and Marine Insurance Co. owns 99% of the membership interests in
St. Paul Venture Capital IV, LLC and St. Paul Venture Capital V, LLC.
Patrick A. Hopf, Chairman of the Board of Directors of the Company, is the
Managing General Partner of St. Paul Venture Capital IV, LLC and St. Paul
Venture Capital V, LLC. Does not include shares issuable upon conversion or
exercise of securities purchased by St. Paul Venture Capital VI, LLC in the
Private Placement referred to under Proposal 3. Does not include shares
held of record by Mr. Hopf or his family members. See "--Security Ownership
of Management." The address of St. Paul Venture Capital, Inc. is 10400
Viking Drive, Suite 550, Eden Prairie, Minnesota 55344.

(3) Includes 1,962,801 shares held by Consumer Venture Partners II, L.P.
Christopher P. Kirchen, a director of the Company, is the general partner
of Consumer Venture Associates II, L.P., which is the general partner of
Consumer Venture Partners II, L.P. Does not include any shares held of
record by Mr. Kirchen. See "--Security Ownership of Management." The
address of Consumer Venture Partners II, L.P. is One Stamford Plaza, 263
Tresser Blvd., 16th Floor, Stamford, Connecticut 06901.

(4) Includes 1,107,914 shares issuable upon exercise of an outstanding warrant,
exercisable at $8.57 per share. In connection with the Private Placement
discussed in detail below under Proposal 3, General Electric Capital
Corporation agreed to cancel this warrant and accept in exchange for the
cancelled warrant a new warrant to purchase 135,000 shares, exercisable at
$1.00 per share. The address of General Electric Capital Corporation is 260
Long Ridge Road, Stamford, Connecticut 06927.

SECURITY OWNERSHIP OF MANAGEMENT

The following table sets forth information regarding the beneficial
ownership of Select Comfort common stock as of April 28, 2001 by each director
and nominee for director, by each executive officer named in the Summary
Compensation Table under the heading "Executive Compensation and Other Benefits"
and by all directors and executive officers of Select Comfort as a group.

SHARES OF COMMON STOCK
BENEFICIALLY OWNED (1)
-------------------------------
NAME AMOUNT PERCENT OF CLASS
- ---------------------------------------------- ------------- ----------------

William R. McLaughlin (2) 144,000 *

Tracey T. Breazeale (3) 77,142 *

Mark A. Kimball (4) 115,387 *

Gregory T. Kliner (5) 123,736 *

Ronald E. Mayle (6) 203,963 1.1%

Patrick A. Hopf (7) 7,028,293 38.3%

Thomas J. Albani (8) 44,929 *

Christopher P. Kirchen (9) 2,010,138 11.1%

David T. Kollat (10) 44,929 *

Ervin R. Shames (11) 253,611 1.4%

Jean-Michel Valette (12) 20,134 *

All directors and executive officers 10,162,746 52.7%
as a group (14 persons) (13)
- ------------------------
* Less than 1% of the outstanding shares.

(2) Includes 125,000 shares issuable upon exercise of outstanding options.

(3) Includes 68,222 shares issuable upon exercise of outstanding options. On
February 1, 2001 Ms. Breazeale became Senior Vice President, Special
Projects and her work schedule was reduced to 25% of full time.

(4) Includes 91,833 shares issuable upon exercise of outstanding options.

(5) Includes 121,701 shares issuable upon exercise of outstanding options.

(6) Includes 193,167 shares issuable upon exercise of outstanding options. Mr.
Mayle resigned his position with the Company and ceased to serve as an
employee of the Company as of April 21, 2001.

(7) Includes (i) 8,000 shares held by Mr. Hopf's wife and children and (ii) an
aggregate of (A) 6,083,214 outstanding shares, (B) 209,807 shares issuable
upon exercise of outstanding options and warrants, and (C) 727,272 shares
issuable upon conversion of a convertible debenture, all of which are
beneficially owned by St. Paul Fire and Marine Insurance Company. See
"--Security Ownership of Certain Beneficial Owners." Mr. Hopf's address is
10400 Viking Drive, Suite 550, Eden Prairie, Minnesota 55344.

(8) Includes 7,334 shares issuable upon exercise of outstanding options.

(9) Includes 7,334 shares issuable upon exercise of outstanding options. Also
includes 1,962,801 shares beneficially owned by and Consumer Venture
Partners II, L.P., as to which Mr. Kirchen shares voting and dispositive
power. Mr. Kirchen has the same business address as Consumer Venture
Partners II, L. P. See "--Security Ownership of Certain Beneficial Owners."

(10) Includes 44,834 shares issuable upon exercise of outstanding options.

(11) Includes 103,611 shares issuable upon exercise of outstanding options held
by Mr. Shames and 100,000 shares issuable upon exercise of outstanding
options held by Louise G. Shames, Trustee of the Ervin R. Shames Estate
Reduction Family Trust U/A dated October 30, 1997.

(12) Includes 7,334 shares issuable upon exercise of outstanding options.

(13) Includes an aggregate of 1,154,899 shares issuable upon exercise of
outstanding options and warrants held by officers, directors and their
affiliates. Also includes all shares beneficially owned by St. Paul Fire
and Marine Insurance Company, Inc., H&Q Select Comfort Investors, L.P. and
Consumer Venture Partners II, L. P. See "--Security Ownership of Certain
Beneficial Owners."

ELECTION OF DIRECTORS

(PROPOSAL 1)

---------------------

NOMINATION

Article XIV of our Articles of Incorporation provides that the number of
directors must be at least one but not more than twelve and must be divided into
three classes as nearly equal in number as possible. The exact number of
directors is determined from time to time by the Board of Directors, and
currently consists of seven members. The term of each class is three years and
the term of one class expires each year in rotation.

The Board has nominated the following individuals to serve as directors of the
Company for terms of three years, expiring at the 2004 Annual Meeting of
Shareholders, or until their successors are elected and qualified:

o Thomas J. Albani
o David T. Kollat
o William R. McLaughlin

All of the nominees are current members of the Board.

VOTE REQUIRED

Assuming a quorum is represented at the Annual Meeting, either in person or by
proxy, the election of each nominee requires the affirmative vote of a majority
of the shares of common stock represented in person or by proxy at the Annual
Meeting.

BOARD RECOMMENDATION

The Board recommends a vote FOR the election of Messrs. Albani, Kollat and
McLaughlin. In the absence of other instructions, the proxies will be voted FOR
the election of each of Messrs. Albani, Kollat and McLaughlin.

If prior to the Annual Meeting the Board should learn that any nominee will be
unable to serve for any reason, the proxies that otherwise would have been voted
for such nominee will be voted for such substitute nominee as selected by the
Board. Alternatively, the proxies, at the Board's discretion, may be voted for
such fewer number of nominees as results from the inability of any such nominee
to serve. The Board has no reason to believe that any of the nominees will be
unable to serve.

INFORMATION ABOUT DIRECTORS

The following table sets forth certain information, as of March 31, 2001,
that has been furnished to us by each director and each person who has been
nominated by the Board to serve as a director of the Company.

DIRECTOR
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION SINCE
- ---------------------------------- ----- --------------------------------------- -----------

NOMINEES FOR THREE-YEAR TERMS EXPIRING IN 2004:

Thomas J. Albani (2) 58 Former President and Chief Executive 1994
Officer of Electrolux Corporation

David T. Kollat (2) 62 President and Chairman of 22 Inc. 1994

William R. McLaughlin 44 President and Chief Executive Officer 2000
of Select Comfort Corporation

DIRECTORS NOT STANDING FOR ELECTION THIS YEAR WHOSE TERMS EXPIRE IN 2002:

Christopher P. Kirchen (1)(3) 58 Managing General Partner of Brand 1991
Equity Ventures and General Partner
of Consumer Venture Partners

Jean-Michel Valette (3) 40 Independent Adviser 1994

DIRECTORS NOT STANDING FOR ELECTION THIS YEAR WHOSE TERMS EXPIRE IN 2003:

Patrick A. Hopf (1) 52 President of St. Paul Venture Capital, 1991
Inc.

Ervin R. Shames (1)(3) 60 Independent Management Consultant 1996

- ------------------

(1) Member of the Executive Committee
(2) Member of the Compensation Committee
(3) Member of the Audit Committee

OTHER INFORMATION ABOUT DIRECTORS

THOMAS J. ALBANI has served as a director of Select Comfort since February 1994.
Mr. Albani served as President and Chief Executive Officer of Electrolux
Corporation, a manufacturer of premium floor care machines, from July 1991 to
May 1998. From September 1984 to April 1989, Mr. Albani was employed by
Allegheny International Inc., a home appliance manufacturing company, in a
number of positions, most recently as Executive Vice President and Chief
Operating Officer. Mr. Albani also serves as a director of Dyersburg
Corporation.

DAVID T. KOLLAT has served as a director of Select Comfort since February 1994.
Mr. Kollat has served as President and Chairman of 22 Inc., a research and
consulting company for retailers and consumer goods manufacturers, since 1987.
From 1976 until 1987, Mr. Kollat served in various capacities for The Limited, a
women's apparel retailer, including Executive Vice President of Marketing and
President of Victoria's Secret Catalogue. Mr. Kollat also serves as a director
of numerous companies, including The Limited, Inc., Wolverine World Wide, Inc.,
Consolidated Stores Corporation, Cooker Restaurant Corporation and Cone Mills
Corporation.

CHRISTOPHER P. KIRCHEN has served as a director of Select Comfort since December
1991. Mr. Kirchen is currently Managing General Partner of Brand Equity
Ventures, a venture capital partnership that he co-founded in March 1997. Mr.
Kirchen is also a General Partner of Consumer Venture Partners, an investor in
the Company, a position he has held since 1986. Mr. Kirchen also serves as a
director of a number of privately held companies.

JEAN-MICHEL VALETTE has served as a director of Select Comfort since 1994. Mr.
Valette is an independent adviser to branded consumer companies. From August
1998 to May 2000, Mr. Valette served as President and Chief Executive Officer of
Franciscan Estates, Inc., the Fine Wine Division of Constellation Brands, Inc.
Mr. Valette was a Managing Director of Hambrecht & Quist LLC from October 1994
to August 1998 and served as a Senior Analyst at Hambrecht & Quist LLC from
November 1992 to October 1994. Hambrecht & Quist LLC was one of the underwriters
of the Company's initial public offering. Mr. Valette also serves as a director
of Peet's Coffee and Tea, Inc. and of Golden State Vintners, Inc., as well as a
number of privately held companies.

WILLIAM R. MCLAUGHLIN joined the Company in March 2000 as President and Chief
Executive Officer. From December 1988 to March 2000, Mr. McLaughlin served as an
executive of Pepsico Foods International in various capacities, including from
September 1996 to March 2000 as President of Frito Lay Europe, Middle East and
Africa, and from June 1993 to June 1996, as President of Grupo Gamesa, a cookie
and flour company based in Mexico.

PATRICK A. HOPF was elected Chairman of the Board of Directors in April 1999 and
has served as a director of Select Comfort since December 1991. Mr. Hopf also
served as the Chairman of the Board of Directors of the Company from August 1993
to April 1996. Mr. Hopf is President of St. Paul Venture Capital, Inc., a
venture capital firm, and is the Managing General Partner of

St. Paul Venture Capital IV, LLC and St. Paul Venture Capital V, LLC. From
August 1988 to January 1999, Mr. Hopf served as Vice President of St. Paul Fire
and Marine Insurance Company. St. Paul Venture Capital IV, LLC, St. Paul Venture
Capital V, LLC and St. Paul Fire and Marine Insurance Company are investors in
the Company. Mr. Hopf also serves as a director of a number of privately held
companies.

ERVIN R. SHAMES has served as a director of Select Comfort since April 1996.
From April 1996 to April 1999, Mr. Shames served as Chairman of the Board of
Directors. Since January 1995, Mr. Shames has served as an independent
management consultant to consumer goods and services companies, advising on
management and marketing strategy. Since 1996 he has been a visiting lecturer at
the University of Virginia's Darden Graduate School of Business. From December
1993 to January 1995, Mr. Shames served as the Chief Executive Officer of
Borden, Inc. and was President and Chief Operating Officer of Borden, Inc. from
July 1993 until December 1993. Mr. Shames serves as a director and as chairman
of the compensation committee of the board of directors of Online Resources
Corporation.

INFORMATION ABOUT THE BOARD AND ITS COMMITTEES

The Board of Directors met four times and took action by written consent on two
occasions during fiscal 2000. All of the current directors attended 75% or more
of the meetings of the Board and all such committees on which they served during
fiscal 2000.

The Board has a standing Executive Committee, a standing Audit Committee and a
standing Compensation Committee.

EXECUTIVE COMMITTEE. The Executive Committee consists of Messrs. Hopf, Kirchen
and Shames and has the authority to take all actions that the Board as a whole
is able to take, except as limited by applicable law. The Executive Committee
did not meet during fiscal 2000.

AUDIT COMMITTEE. The Audit Committee provides assistance to the Board in
satisfying its fiduciary responsibilities relating to accounting, auditing,
operating and reporting practices of the Company, and reviews the annual
financial statements of the Company, the selection and work of the Company's
independent auditors and the adequacy of internal controls for compliance with
corporate policies and directives. The Audit Committee consisted of Messrs.
Albani, Kirchen and Kollat through March of 2000, and thereafter consisted of
Messrs. Kirchen, Shames and Valette. The Audit Committee met three times during
fiscal 2000.

COMPENSATION COMMITTEE. The Compensation Committee:

o reviews general programs of compensation and benefits for all employees of
the Company;

o makes recommendations to the Board concerning such matters as compensation
to be paid to the Company's officers and directors; and

o administers the Company's stock option and incentive plans, pursuant to
which stock options and other incentive awards may be granted to eligible
employees,

officers, directors and consultants of the Company.

The Compensation Committee consisted of Messrs. Hopf, Shames and William J.
Lansing, a former director, through March of 2000, and thereafter consisted of
Messrs. Albani and Kollat. The Compensation Committee met or took action by
written consent on four occasions in fiscal 2000.

DIRECTOR COMPENSATION

MEETING FEES. All non-employee directors of the Company receive $3,500 for each
meeting of the Board of Directors attended and $500 for each committee meeting
attended.

STOCK OPTIONS. Each newly elected non-employee director is eligible for an
initial grant of options to purchase 20,000 shares of common stock at an
exercise price equal to the fair market value of the common stock on the date of
grant. These initial options become exercisable in equal monthly increments over
a 24-month period, so long as the director remains a director of Select Comfort.
After the vesting of this initial grant, each non-employee director is eligible
for an annual grant, subject to action by the Board and coincident with the
annual meeting of shareholders, of options to purchase 10,000 shares of common
stock at an exercise price equal to the fair market value of the common stock on
the date of the annual meeting of shareholders. These annual options become
exercisable in equal monthly increments over a 36-month period, so long as the
director remains a director of Select Comfort. All of the options granted to
directors remain exercisable for a period of up to 10 years after the date of
grant, subject to continuous service on the Board.

OPTION GRANTS FOR SERVICE AS CHAIRMAN OF THE BOARD. For service as Chairman of
the Board, in May 1999 the Board of Directors granted to St. Paul Venture
Capital V, LLC, an affiliate of Mr. Hopf's employer, St. Paul Venture Capital,
Inc., options to purchase a total of 250,000 shares exercisable at $15.38 per
share, of which 50,000 vest in equal monthly increments over 36 months, 50,000
vest at such time that the trading price of Select Comfort common stock has
exceeded $50.00 per share for at least 30 consecutive trading days, and 150,000
vest at such time that the trading price of Select Comfort common stock has
exceed $100.00 per share for at least 30 consecutive trading days.

OPTION GRANTS FOR SERVICE AS INTERIM PRESIDENT AND CEO. Mr. Hopf received no
cash compensation for his service as Interim President and CEO during 1999 or
2000. In consideration of such service, the Board of Directors granted to St.
Paul Venture Capital V, LLC, an affiliate of Mr. Hopf's employer, St. Paul
Venture Capital, Inc., 10,000 options per month for the months of July through
December 1999, and 27,000 options per month for the months of January and
February of 2000. Mr. Hopf's service as Interim President and CEO ceased after
February of 2000.

REIMBURSEMENT OF EXPENSES. All directors are reimbursed for travel expenses for
attending meetings of the Board and any Board committees.

NO DIRECTOR COMPENSATION FOR EMPLOYEE DIRECTORS. Directors who are employees of
the Company do not receive additional compensation for their services as
directors.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Messrs. Hopf, Lansing and Shames served as members of the Compensation Committee
of the Board of Directors through March of fiscal 2000, and thereafter the
Compensation Committee consisted of Messrs. Albani and Kollat. In the last half
of 1999 and the first two months of 2000, Mr. Hopf served as Interim President
and CEO of the Company pending the search for the successor to Mr. McAthie, who
resigned in July 1999. See "Election of Directors -- Director Compensation."

Mr. Hopf is the President of St. Paul Venture Capital, Inc. and Managing General
Partner of St. Paul Venture Capital IV, LLC, and St. Paul Venture Capital V,
LLC, which are investors in the Company. Mr. Hopf was elected Chairman of the
Board of Directors in April 1999 and previously served as Chairman of the Board
of Directors of the Company from August 1993 to April 1996.

For a description of certain transactions involving these entities, see "Certain
Transactions."

No other relationships existed during fiscal 2000 with respect to members of the
Compensation Committee that would be required to be disclosed under the rules of
the Securities Act of 1933.

EXECUTIVE COMPENSATION AND OTHER BENEFITS

---------------------

SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION

The following table provides summary information concerning cash and
non-cash compensation paid to or earned by each of the persons serving in the
capacity of Chief Executive Officer in 2000 and the four most highly compensated
executive officers other than the CEO serving as executive officers at the end
of 2000 (the "Named Executive Officers").

SUMMARY COMPENSATION TABLE

LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------- ------------
SECURITIES ALL OTHER
UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) ($)(1)
- ------------------------------ ---- ------------ ------------- ------------ ------------

William R. McLaughlin (2) 2000 $ 390,372 $ 146,390 (3) 600,000 $ 123,428 (4)
PRESIDENT AND CHIEF EXECUTIVE 1999 -- -- -- --
OFFICER 1998 -- -- -- --

Patrick A. Hopf (5) 2000 -- -- 64,000 --
INTERIM PRESIDENT AND CHIEF 1999 -- -- 50,000 --
EXECUTIVE OFFICER 1998 -- -- -- --

Tracey T. Breazeale (6) 2000 200,000 30,808 36,000 2,400
SENIOR VICE PRESIDENT, 1999 71,923 30,000 100,000 105,008
SPECIAL PROJECTS 1998 -- -- -- --

Mark A. Kimball (7) 2000 201,243 45,280 (3) 36,000 --
SENIOR VICE PRESIDENT, CHIEF 1999 117,788 -- 125,000 --
ADMINISTRATIVE OFFICER, 1998 -- -- -- --
SECRETARY AND GENERAL COUNSEL

Gregory T. Kliner 2000 186,992 42,073 (3) 28,000 2,400
SENIOR VICE PRESIDENT OF 1999 183,197 -- 15,000 2,139
OPERATIONS 1998 157,574 52,204 15,000 2,628

Ronald E. Mayle (8) 2000 225,000 50,625 36,000 2,400
SENIOR VICE PRESIDENT OF 1999 202,615 -- 80,000 13,077
RETAIL 1998 161,231 50,352 25,000 --

- ---------------------------

(1) Except as noted, the amounts disclosed for each individual represent Select
Comfort's contributions to the accounts of the named individuals in Select
Comfort's 401(k) defined contribution plan.

(2) Mr. McLaughlin became President and Chief Executive Office on March 21,
2000.

(3) Represents bonuses accrued in 2000, the payment of which is deferred
pending the achievement of quarterly profitability by the Company.

(4) Includes $2,106 in contributions to the account of Mr. McLaughlin in Select
Comfort's 401(k) defined contribution plan and $121,322 in payment for
reimbursement of relocation expenses.

(5) Mr. Hopf was Interim President and Chief Executive Officer of the Company
from July 19, 1999 to March 20, 2000. Includes 114,000 shares issuable upon
exercise of outstanding options issued to St. Paul Venture Capital IV, LLC.

(6) Ms. Breazeale became Senior Vice President of Strategic Planning and
Branding on August 2, 1999. On February 1, 2001 Ms. Breazeale became Senior
Vice President, Special Projects and her work schedule was reduced to 25%
of full time, with a proportionate reduction in salary.

(7) Mr. Kimball became Senior Vice President, Chief Administrative Officer,
General Counsel and Secretary on May 3, 1999.

(8) Mr. Mayle resigned his position with the Company and ceased to serve as an
employee of the Company as of April 21, 2001.

OPTION GRANTS AND EXERCISES

The following tables summarize option grants and exercises during the
fiscal year ended December 30, 2000 to or by the Named Executive Officers and
the potential realizable value of the options held by such persons at December
30, 2000.

OPTION GRANTS IN LAST FISCAL YEAR

INDIVIDUAL GRANTS (1) POTENTIAL REALIZABLE
------------------------------------------------ VALUE AT ASSUMED
PERCENT OF ANNUAL RATES
TOTAL OF STOCK PRICE
NUMBER OF OPTIONS APPRECIATION
SECURITIES GRANTED TO EXERCISE FOR OPTION TERM (2)
UNDERLYING EMPLOYEES OR BASE ---------------------
OPTIONS IN FISCAL PRICE EXPIRATION
NAME GRANTED(#) YEAR ($/SH) DATE 5% 10%
- ----------------------- ------------- ---------- -------- ---------- ---------- ----------

William R. McLaughlin 50,000 (3) 3.8% $5.91 03/21/10 $ 185,473 $ 470,271
100,000 (4) 7.6% 5.91 03/21/10 370,945 940,542
150,000 (5) 11.5% 5.91 03/21/10 556,418 1,410,813
300,000 (6) 22.9% 5.91 03/22/10 1,113,222 2,822,826

Patrick A. Hopf (8) 27,000 (6) 2.1% 3.61 01/15/10 79,527 201,641
10,000 (7) 0.8% 4.72 01/28/10 28,774 72,947
27,000 (6) 2.1% 4.58 02/15/10 80,094 203,023

Tracey T. Breazeale 16,000 (6) 1.2% 4.38 02/02/10 44,349 112,129
20,000 (3) 1.5% 4.82 02/08/10 60,360 153,183

Mark A. Kimball 16,000 (6) 1.2% 4.38 02/02/10 44,349 112,129
20,000 (3) 1.5% 4.82 02/08/10 60,360 153,183

Gregory T. Kliner 8,000 (6) 0.6% 4.38 02/02/10 22,175 56,065
20,000 (3) 1.55 4.82 02/08/10 60,360 153,183

Ronald E. Mayle 16,000 (6) 1.2% 4.38 02/02/10 44,349 112,129
20,000 (3) 1.5% 4.82 02/08/10 60,360 153,183

- --------------------

(1) All of the options granted to the Named Executive Officers were granted
under the Company's 1990 and 1997 Stock Incentive Plan.

(2) In accordance with the rules of the Securities and Exchange Commission, the
amounts shown on this table represent hypothetical gains that could be
achieved for the respective options if exercised at the end of the option
term. These gains are based on assumed rates of stock appreciation of 5%
and 10% compounded

annually from the date the respective options were granted to their
expiration date and do not reflect the Company's estimates or projections
of future common stock prices. The gains shown are net of the option price,
but do not include deductions for taxes or other expenses associated with
the exercise. Actual gains, if any, on stock option exercises will depend
upon the future performance of the common stock, the executive's continued
employment with the Company or its subsidiaries and the date on which the
options are exercised. The amounts represented in this table might not
necessarily be achieved.

(3) These options become exercisable when the average of the high and low sales
prices of the Company's common stock, as reported by the Nasdaq National
Market System, exceeds $12.00 per share for at least 30 consecutive trading
days.

(4) These options become exercisable when the average of the high and low sales
prices of the Company's common stock, as reported by the Nasdaq National
Market System, exceeds $24.00 per share for at least 30 consecutive trading
days.

(5) These options become exercisable when the average of the high and low sales
prices of the Company's common stock, as reported by the Nasdaq National
Market System, exceeds $36.00 per share for at least 30 consecutive trading
days.

(6) These options become exercisable in as nearly equal as possible monthly
installments over a 36-month period, so long as the executive remains
employed by the Company or one of its subsidiaries at that date. To the
extent not already exercisable, these options become immediately
exercisable in full upon certain changes in control of the Company and
remain exercisable for the remainder of their term.

(7) These options became immediately exercisable at the date of grant.

(8) Represents options granted to St. Paul Venture Capital V, LLC, an affiliate
of St. Paul Venture Capital, Inc., Mr. Hopf's employer.

AGGREGATED OPTION EXERCISES IN
LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES

NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES VALUE OPTIONS AT DECEMBER 30, 2000 AT DECEMBER 30, 2000 (2)
ACQUIRED ON REALIZED ---------------------------- --------------------------
NAME EXERCISE (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ -------- ------------- ------------- ----------- -------------

William R. McLaughlin --- --- 75,000 525,000 --- ---

Patrick A. Hopf (3) --- --- 75,750 38,250 --- ---

Tracey T. Breazeale --- --- 48,889 87,111 --- ---

Mark A. Kimball --- --- 69,028 91,972 --- ---

Gregory T. Kliner --- --- 117,450 43,695 --- ---

Ronald E. Mayle --- --- 183,332 92,668 --- ---

- ----------------------

(1) Value based on the difference between the fair market value of one share of
common stock on the date of exercise and the exercise price of the option.

(2) Value based on the difference between the fair market value of one share of
common stock at December 30, 2000 ($1.4375) and the exercise price of the
options ranging from $4.08 to $17.00 per share. Options are in-the-money if
the market price of the shares exceeds the option exercise price.

(3) Includes 114,000 shares issuable upon exercise of outstanding options
granted to St. Paul Venture Capital V, LLC.

EMPLOYMENT AGREEMENTS

WILLIAM R. MCLAUGHLIN. We have entered into a letter agreement with William R.
McLaughlin pursuant to which he serves as President and CEO. Mr. McLaughlin
receives a base salary and is entitled to participate in the Company's incentive
compensation plans. Upon involuntary termination of Mr. McLaughlin's employment
by the Board or constructive dismissal, Mr. McLaughlin is entitled to one year's
salary as severance compensation and the unvested portion of his initial grant
of 300,000 options would become fully vested. Upon an involuntary termination or
constructive dismissal of Mr. McLaughlin's employment following a change in
control of the of Company, Mr. McLaughlin would be entitled to two years' salary
as severance compensation and his stock options would become fully vested.

NOEL F. SCHENKER. We have entered into a letter agreement with Noel F. Schenker
pursuant to which she serves as Senior Vice President, Marketing and New
Business Development of the Company. Ms. Schenker receives a base salary and is
entitled to participate in the Company's incentive compensation plans. Upon the
involuntary termination of Ms. Schenker's employment following a change in
control, a termination without cause or a constructive dismissal, Ms. Schenker
is entitled to one year's salary as severance and the unvested portion of her
initial grant of 100,000 options would become fully vested.

GREGORY T. KLINER. We have entered into a letter agreement with Gregory T.
Kliner pursuant to which he serves as Senior Vice President of Operations of the
Company. Mr. Kliner receives a base salary and is entitled to participate in the
Company's incentive compensation plans.

JAMES C. RAABE. We have entered into a letter agreement with James C. Raabe
pursuant to which he serves as Vice President and Chief Financial Officer of the
Company. Mr. Raabe receives a base salary and is entitled to participate in the
Company's compensation plans.

MARK A. KIMBALL. We have entered into a letter agreement with Mark A. Kimball
pursuant to which he serves as Senior Vice President, Chief Administrative
Officer, General Counsel and Secretary of the Company. Mr. Kimball receives a
base salary and is entitled to participate in the Company's incentive
compensation plans. Upon termination of Mr. Kimball's employment without cause,
Mr. Kimball is entitled to one year's salary as severance compensation.

MICHAEL J. THYKEN. We have entered into a letter agreement with Michael J.
Thyken pursuant to which he serves as Vice President and Chief Information
Officer of the Company. Mr. Thyken receives a base salary and is entitled to
participate in the Company's incentive compensation plans.

TRACEY T. BREAZEALE. We have entered into a letter agreement with Tracey T.
Breazeale pursuant to which she serves as a Senior Vice President of the
Company. Ms. Breazeale receives a base salary and is entitled to participate in
the Company's incentive compensation plans. In February 2001, Ms. Breazeale's
work schedule was reduced to 25% of full time, with a proportionate reduction in
salary.

RONALD E. MAYLE. We entered into a letter agreement with Ronald E. Mayle
pursuant to

which he served as Senior Vice President of Retail. Mr. Mayle's employment with
the Company terminated as of April 21, 2001.

CHANGE IN CONTROL ARRANGEMENTS

Under the Company's 1990 Omnibus Stock Option Plan (the "1990 Plan") and the
1997 Stock Incentive Plan (the "1997 Plan"), if a "change in control" of the
Company occurs, then, unless the Compensation Committee decides otherwise either
at the time of grant of an incentive award or at any time thereafter, all
outstanding options will become immediately exercisable in full and will remain
exercisable for the remainder of their terms, regardless of whether the
participant to whom such options have been granted remains in the employ or
service of the Company or any subsidiary.

In addition, under the 1997 Plan, if a "change in control" of the Company
occurs, then, unless the Compensation Committee decides otherwise either at the
time of grant of an incentive award or at any time thereafter:

o all outstanding stock appreciation rights will become immediately
exercisable in full and will remain exercisable for the remainder of their
terms, regardless of whether the participant to whom such stock
appreciation rights have been granted remains in the employ or service of
the Company or any subsidiary;

o all outstanding restricted stock awards will become immediately fully
vested and non-forfeitable; and

o all outstanding performance units and stock bonuses will vest and/or
continue to vest in the manner determined by the Compensation Committee and
set forth in the agreement evidencing such performance units or stock
bonuses.

In addition, the Compensation Committee may pay cash for all or a portion of the
outstanding options. The amount of cash the participants would receive will
equal (a) the fair market value of such shares immediately prior to the change
in control minus (b) the exercise price per share and any required tax
withholding. The acceleration of the exercisability of options under the 1990
and 1997 Plans may be limited, however, if the acceleration would be subject to
an excise tax imposed upon "excess parachute payments."

Under the 1990 and 1997 Plans, a "change in control" will include any of the
following:

o the sale, lease, exchange or other transfer of all or substantially all of
the assets of the Company to a corporation not controlled by the Company;

o the approval by our shareholders of a plan or proposal for the liquidation
or dissolution of the Company;

o any change of control that is required by the Securities and Exchange
Commission to be reported;

o any person who was not a shareholder of the Company on the effective date
of the Plan becomes the beneficial owner of 50% or more of the voting power
of the Company's outstanding common stock; or

o the "continuity" directors (directors as of the effective date of the Plan
and their future nominees) ceasing to constitute a majority of the Board of
Directors.

Notwithstanding anything in the foregoing to the contrary, solely for purposes
of options granted under such plans prior to July 27, 1999, no change in control
will be deemed to have occurred for purposes of the 1990 and 1997 Plans by
virtue of any transaction which was approved by the affirmative vote of at least
a majority of the "continuity" directors, as defined above. For options granted
on or after July 27, 1999, each of the transactions constituting a change in
control as defined above will constitute a change in control for purposes of the
plans regardless of whether the transaction was approved by the continuity
directors.

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

---------------------

The Compensation Committee is comprised solely of non-employee directors and
consisted of Ervin R. Shames, Patrick A. Hopf and William J. Lansing through
March of 2000, and thereafter consisted of Thomas J. Albani and David T. Kollat.
The Compensation Committee makes recommendations to the Board of Directors
concerning the compensation and benefits of the Company's directors, executive
officers and key employees, and acts on such other matters relating to their
compensation as it deems appropriate. The Compensation Committee administers our
stock option plans, pursuant to which incentive stock options, non-statutory
stock options, restricted stock awards, stock appreciation rights, performance
units and stock bonuses may be granted to eligible employees, officers,
directors and consultants. The Compensation Committee also administers our
executive and key employee incentive plan, pursuant to which eligible employees
may be granted incentive compensation for achievement of Company and individual
performance targets.

COMPENSATION PHILOSOPHY AND OBJECTIVES

The philosophy underlying the decisions and recommendations of the Compensation
Committee is to encourage, recognize and reward results and achievements, at
both Company and individual levels, that are aligned with the interests of our
shareholders. Consistent with this philosophy, the objectives for the Company's
executive compensation programs are to:

o Motivate executives to achieve desired Company performance goals by
rewarding such achievements.

o Provide compensation that is competitive with comparable companies to
enable the Company to attract and retain key executive talent.

o Align the interests of the Company's executives with the interests of the
Company's shareholders.

In determining its recommendations as to the compensation of the Company's
executives, the Compensation Committee considers factors, such as Company
performance, both in isolation and in comparison to companies of comparable
size, development and complexity; the individual performance of executive
officers; historical compensation levels at the Company; the overall competitive
environment for executives and the level of compensation necessary to attract
and retain the talent necessary to achieve the Company's objectives. The
Compensation Committee places primary emphasis on Company performance (rather
than individual performance) as measured against goals approved by the
Compensation Committee. In analyzing these factors, the Compensation Committee
from time to time reviews competitive compensation data gathered in comparative
surveys or collected by independent consultants.

EXECUTIVE COMPENSATION PROGRAM COMPONENTS

The three principal components of Select Comfort's executive compensation
programs are base salary, annual incentive bonuses, and long-term incentive
opportunities under our stock option plans. Each of these components is
discussed in greater detail below.

BASE SALARY. The Compensation Committee's recommendations regarding the base
salary of the executive officers of the Company, including the compensation of
the President and Chief Executive Officer, are based on a number of factors,
including each executive officer's experience and qualifications, the potential
impact of the individual on the Company's performance, the level of skill and
responsibility required to fulfill the individual's responsibilities and the
other factors described above. Base salaries are reviewed annually, and the
Compensation Committee seeks to set executive officer base salaries at
moderately to aggressively competitive levels in relation to the companies with
which the Company competes for executives. Base salaries for the executive
officers were increased at the beginning of 2000 in order to retain key members
of the management team to pursue the Company's turnaround plans. For 2001, base
salaries for the executive officers have been maintained at the same levels as
in 2000.

ANNUAL INCENTIVE BONUS. The Company's annual incentive bonus program is designed
to provide a direct financial incentive to the Company's executive officers,
including the President and Chief Executive Officer, as well as other key
employees, for achievement of specific Company performance goals. Consistent
with the requirements of the Company's Executive and Key Employee Incentive
Plan, at the beginning of each fiscal year, the Compensation Committee
determines:

o The employees by grade level that are eligible to participate in the plan
for the year;

o The quarterly and/or annual performance goal or goals (from among sales
growth and volume, net operating profit, cash flow, earnings per share,
return on capital, and/or return on assets) for the year; and

o For each eligible employee, (A) the target bonus level as a percentage of
base compensation, (B) the portion of the target bonus level that is based
on achievement of objective company performance goals, and (C) the portion
of the target bonus level, if any, that is based on achievement of
objective individual performance goals.

In fiscal 2000, the Compensation Committee established incentive compensation
for executive officers based on Company-wide operating profit and cash flow
targets, and also established minimum bonus levels in order to retain key
management team members to enable the Company to pursue its turnaround plans.
Payment of incentive compensation to executive officers related to fiscal 2000
has been deferred pending the return of the Company to quarterly profitability.
For fiscal 2001, incentive compensation for the executive officers is based
exclusively on Company-wide annual operating profit and cash flow performance
targets.

LONG-TERM INCENTIVE COMPENSATION. The Compensation Committee makes long-term
incentive compensation available to the Company's executive officers, as well as
to many other employees of the Company, through the grant of stock options. The
purpose of stock option grants is to advance the interests of the Company and
its shareholders by enabling the Company to attract and retain persons of
ability to

perform services for the Company, including persons performing
services for the Company as executive officers. By granting stock options to
executive officers and other employees, the Compensation Committee seeks to
align the long-term interests of these individuals with those of the Company's
shareholders by creating a strong and direct nexus between compensation and
shareholder return and to enable executive officers and key managers to develop
and maintain a significant ownership position in the Company. The Compensation
Committee determines the number of options and the terms and conditions of such
options based on certain factors, including (for grants to executive officers)
the past performance of the executive officer, the executive officer's potential
impact on the achievement of the Company's objectives, past grants or awards of
stock-based compensation, and comparative compensation data regarding option
grants by companies of comparable size and complexity. Additionally, options may
be granted to an executive officer as an incentive at the time the executive
officer joins the Company.

All options have an exercise price equal to 100% of the fair market value of the
common stock on the date of grant. In past periods, options have typically
become exercisable in 36 equal monthly increments over a 36-month period from
the date of grant. For option grants made in 2001, the options typically become
exercisable in three equal increments on each of the first three anniversaries
of the date of grant. Options typically remain exercisable for a period of 10
years from the date of grant, provided the individual continues to be employed
by the Company during such period. Alternatively, some option grants have been
"performance-based" and become fully exercisable upon the trading price of the
Company's common stock reaching or exceeding certain levels for at least 30 days
or upon the end of a five-year period from the date of grant.

In 2000, the Compensation Committee approved the grant of options to all
executive officers and key managers of the Company. The primary purposes of the
2000 stock option grants was to provide an incentive to newly hired executive
officers and managers, to retain previously employed executive officers and
managers, and to align the interests of all such executive officers and key
managers with the interests of the shareholders of the Company.

CHIEF EXECUTIVE OFFICER COMPENSATION

During fiscal 2000, two different people served in the capacity of President and
CEO for different parts of the year.

Patrick A. Hopf served as interim President and CEO from mid-July 1999 until
mid-March 2000, pending the search for a permanent President and CEO. Mr. Hopf
did not serve as, and was not compensated as, an employee of the Company. In
consideration for Mr. Hopf's service as interim President and CEO, the
Compensation Committee granted to St. Paul Venture Capital V, LLC, which is an
affiliate of Mr. Hopf's employer, 10,000 options per month for the first six
months and 27,000 options per month for the final two months of Mr. Hopf's
tenure.

William R. McLaughlin was hired as President and CEO in March 2000. The
principal terms of Mr. McLaughlin's compensation package include: (A) an annual
base salary of $500,000; (B) a cash bonus of between 0% and 100% of base salary;
and (C) options to purchase an aggregate of up to 600,000 shares of common
stock, including (i) up to 300,000 shares vesting in equal monthly increments
over 36 months, (ii) 50,000 shares vesting at such time that the trading price
of Select Comfort common stock exceeds $12.00 per share for 30 consecutive
trading days, (iii) 100,000 shares vesting at such time that the trading price
of Select Comfort common

stock exceeds $24.00 per share for 30 consecutive trading days, and (iv) 150,000
shares vesting at such time that the trading price of Select Comfort common
stock exceeds $36.00 per share for 30 consecutive trading days. The payment to
Mr. McLaughlin of incentive compensation in the amount of $146,390 accrued in
2000 has been deferred pending the achievement of a quarterly operating profit
by the Company.

In addition to the foregoing, Mr. McLaughlin (i) is entitled to participate in
standard employee benefit plans offered by the Company, (ii) was entitled to and
received reimbursement of relocation and temporary living expenses aggregating
$121,322 in 2000, (iii) is entitled to severance compensation in certain
circumstances, and (iv) is eligible for additional stock options as may be
granted from time to time by the Compensation Committee. See "Executive
Compensation and Other Benefits - Employment and Consulting Agreements."

The terms of Mr. McLaughlin's compensation were determined in part on the basis
of a survey completed by an independent consultant of compensation and benefits
payable to CEOs for companies of comparable size and complexity to Select
Comfort.

SECTION 162(m)

Section 162(m) of the Internal Revenue Code limits the deductibility of certain
compensation paid to the chief executive officer and each of the four other most
highly compensated executives of a publicly held corporation to $1,000,000. In
2000, the Company did not pay "compensation" within the meaning of Section
162(m) to any such executive officers in excess of $1,000,000.

The $1,000,000 limit on deductibility does not apply to compensation that meets
certain requirements for qualified performance-based compensation as further
described in the Internal Revenue Code. The Company's 1997 Stock Incentive Plan,
as well as the Executive and Key Employee Incentive Plan (of which, the material
terms of the performance goals are submitted for approval by shareholders at the
Annual Meeting), are designed to permit stock options or cash incentive awards
granted under the respective plans to qualify as deductible performance-based
compensation under the Internal Revenue Code. In reviewing and adopting other
executive compensation programs, the Compensation Committee plans to continue to
consider the impact of Section 162(m) limitations in light of the materiality of
the deductibility of potential benefits and the impact of such limitations on
other compensation objectives. Because the Compensation Committee seeks to
maintain flexibility in accomplishing the Company's compensation goals, however,
it has not adopted a policy that all compensation must be fully deductible.

COMPENSATION COMMITTEE

Thomas J. Albani
David T. Kollat

AUDIT COMMITTEE REPORT

---------------------

The Audit Committee of the Board of Directors is responsible for providing
independent, objective oversight of the Company's accounting functions and
internal controls. The Audit Committee is composed of three directors, each of
whom is independent as defined by the National Association of Securities
Dealers' listing standards, and operates under a written charter approved by the
Board of Directors. A copy of the charter is attached to this Proxy Statement as
Appendix A.

Management is responsible for the Company's internal controls and financial
reporting process. KPMG LLP, the Company's independent certified public
accountants, are responsible for performing an independent audit of the
Company's consolidated financial statements in accordance with auditing
standards generally accepted in the United States of America and to issue a
report thereon. The Audit Committee's responsibility is to monitor and oversee
these processes.

In connection with these responsibilities, the Audit Committee met on three
occasions with management and the independent accountants during 2000.
Management represented to the Audit Committee that the Company's consolidated
financial statements were prepared in accordance with accounting principles
generally accepted in the United States of America, and the Audit Committee has
reviewed and discussed the consolidated financial statements with management and
the independent accountants. The Audit Committee discussed with the independent
accountants the matters required by Statement on Auditing Standards No. 61
(Communication with Audit Committees). The Company's independent accountants
also provided the Audit Committee written disclosures required by Independence
Standards Board Standard No. 1 (Independence Discussions with Audit Committees),
and the Audit Committee discussed with the independent accountants that firm's
independence.

Based upon the Audit Committee's discussions with management and the independent
accountants, and the Audit Committee's review of the representations of
management and the independent accountants, the Audit Committee recommended that
the Board of Directors include the audited consolidated financial statements in
the Company's Annual Report on Form 10-K for the year ended December 30, 2000,
filed with the Securities and Exchange Commission.

AUDIT COMMITTEE

Christopher P. Kirchen, Chairman
Ervin R. Shames
Jean-Michel Valette

COMPARATIVE STOCK PERFORMANCE

---------------------

The graph below compares, for the period from December 3, 1998 through
December 30, 2000, the total cumulative shareholder return on Select Comfort
common stock to the total cumulative return on The Nasdaq Stock Market (U.S.)
Index and the Standard & Poor's 400 Retail (Specialty) Index. The graph assumes
a $100 investment in Select Comfort common stock, The Nasdaq Stock Market (U.S.)
Index and the Standard & Poor's 400 Retail (Specialty) Index on January 2, 2000
and the reinvestment of all dividends.

COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG SELECT COMFORT CORPORATION,
THE STANDARD & POOR'S 400 RETAIL (SPECIALTY) INDEX
AND THE NASDAQ STOCK MARKET (U.S.) INDEX
DECEMBER 3, 1998 TO DECEMBER 30, 2000

CUMULATIVE TOTAL RETURN
-------------------------------------------------
12/3/98 1/2/99 1/01/00 12/30/00
------- ------- ------- --------
SELECT COMFORT CORPORATION 100.00 155.51 23.90 8.46
NASDAQ STOCK MARKET (US) 100.00 112.65 209.34 125.96
PEER GROUP 100.00 126.37 103.23 92.31

[GRAPHIC OMITTED]

CERTAIN TRANSACTIONS

------------------------

DIRECTOR RELATIONSHIPS

Patrick A. Hopf, Chairman of the Board of Directors of Select Comfort, is the
President of St. Paul Venture Capital, Inc. Mr. Hopf is the Managing General
Partner of St. Paul Venture Capital IV, LLC and St. Paul Venture Capital V, LLC.
St. Paul Venture Capital IV, LLC, St. Paul Venture Capital V, LLC, St. Paul
Venture Capital Affiliates Fund I, LLC (each of which funds is managed by St.
Paul Venture Capital, Inc.) and St. Paul Fire and Marine Insurance Co. are
significant shareholders of the Company.

Christopher P. Kirchen, a director of Select Comfort, is a general partner of
Consumer Venture Associates II, L.P., which is the general partner of Consumer
Venture Partners II, L.P., a significant shareholder of the Company.

Jean-Michel Valette, a director of Select Comfort, was a Managing Director of
Hambrecht & Quist LLC from October 1994 to August 1998 and a Senior Analyst of
Hambrecht & Quist LLC from November 1992 to October 1994. Mr. Valette was also a
member of the general partner of H&Q Select Comfort Investors, L.P., an investor
in the Company and a related party to Hambrecht & Quist LLC. Hambrecht & Quist
LLC was one of the underwriters of the Company's initial public offering
completed in December 1998.

AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT

Certain holders of our common stock and warrants to purchase shares of our
common stock, including certain directors and more than 5% shareholders, have
certain demand and incidental registration rights covering such shares pursuant
to a certain Amended and Restated Registration Rights Agreement dated December
28, 1995, as amended, among the Company and the other parties thereto.

EMPLOYMENT AGREEMENTS

For a discussion of the employment agreements entered into by the Company and
certain Named Executive Officers, see "Executive Compensation and Other
Benefits--Employment Agreements."

GE FINANCING AND RESTRUCTURING OF GE WARRANTS

In March 1997, we entered into a Purchase Agreement with General Electric
Capital Corporation ("GECC"), pursuant to which we issued to GECC a senior
subordinated promissory note in the principal amount of $15.0 million. We repaid
this note in full in December 1998 with a portion of the net proceeds of our
initial public offering. In addition to this note, we issued to GECC a warrant
to purchase 1,100,000 shares of common stock exercisable through March 31, 2005
at an exercise price of $10.50 and a warrant providing contingent rights to
purchase up to 1,000,000 shares of common stock at an exercise price of $.01

after May 1, 1999, subject to adjustment and cancellation upon the occurrence of
certain events.

Effective in March 1998, the Company and GECC restructured these warrants by
combining them into one warrant to purchase 1,309,583 shares of common stock at
an exercise price of $8.82. In November 1998, in connection with the reduction
of the conversion price of our Series E preferred stock, we issued an additional
warrant to GECC to purchase 5,513 shares of common stock at an exercise price of
$8.82 per share. In December 1998, in connection with our initial public
offering, GECC exercised a portion of this warrant and as of January 1, 1999,
held a combined warrant to purchase an aggregate of 1,076,098 shares of common
stock at an exercise price of $8.82 per share. By operation of certain
anti-dilution provisions in GECC's warrant, as of April 28, 2001, GECC's warrant
represented rights to acquire 1,107,914 shares at an exercise price of $8.57 per
share. In connection with the Private Placement discussed in detail below under
Proposal 3, GECC agreed to cancel this warrant and accept in exchange for the
cancelled warrant a new warrant to purchase 135,000 shares at an exercise price
of $1.00 per share. GECC has certain demand and incidental registration rights
covering the shares of common stock issuable upon exercise of this warrant.

ACQUISITION OF ASSETS OF SLEEPTEC, INC.

In May 1999, the Company entered into a Series C Preferred Stock Purchase
Agreement pursuant to which the Company invested $2,000,000 in SleepTec, Inc., a
developer and manufacturer of sofa sleepers with air supported mattresses, in
exchange for 57% of the Series C Convertible Preferred Stock of SleepTec,
representing approximately 10.3% of the fully diluted equity of SleepTec at that
time. In December 1999, the Series C Convertible Preferred Stock of SleepTec was
split on a 1.45714 for 1 basis. As a result of this stock split, the Company's
investment in the Series C Convertible Preferred Stock of SleepTec represented
approximately 13.55% of the fully diluted equity of SleepTec at that time.
Affiliates of St. Paul Venture Capital, Inc. own a majority of the outstanding
capital stock of SleepTec. Patrick A. Hopf, the Chairman of the Board of
Directors of Select Comfort, is the President of St. Paul Venture Capital, Inc.
and a member of the Board of Directors of SleepTec, Inc.

In November 2000, the Company acquired substantially all of the business and
assets of SleepTec. The aggregate purchase price paid by the Company for the
assets of SleepTec consisted of (i) a non-interest-bearing subordinated
convertible debenture in the original principal amount $4,000,000 due November
10, 2005 and convertible at any time into shares of the Company's common stock
at the rate of $5.50 per share; (ii) $400,000 in cash; and (iii) $250,000 in a
combination of cash and equity (in the form of options) to employees of SleepTec
for transition services and severance compensation.

In fiscal 2000, the Company purchased product in the amount of $377,000 from
SleepTec.

All of the terms of the Company's relationship with and acquisition of SleepTec
were determined through arm's-length negotiations and management believes that
all such terms are no less favorable than terms available from any unrelated
party.

PROPOSAL TO GRANT VOTING RIGHTS WITH RESPECT TO SHARES OF THE
COMPANY'S COMMON STOCK PURSUANT TO THE CONTROL SHARE
ACQUISITION ACT

(PROPOSAL 2)

-----------------------

PROPOSAL

At the Annual Meeting, shareholders will be asked to consider and vote on the
following proposed resolution:

"RESOLVED, that pursuant to Section 302A.671, Subd. 4a of the Minnesota Business
Corporation Act, full voting rights are hereby granted to all shares of common
stock, par value $.01 per share, of Select Comfort Corporation (the "Company")
that are, or hereafter become, beneficially owned by The St. Paul Companies,
Inc. ("The St. Paul") or any person or entity affiliated with The St. Paul,
including without limitation St. Paul Fire and Marine Insurance Company, St.
Paul Venture Capital IV, LLC, St. Paul Venture Capital V, LLC, or St. Paul
Venture Capital VI, LLC (The St. Paul and such affiliated entities are
collectively referred to as "St. Paul"), regardless of whether such shares are
or were acquired in a control share acquisition as defined in Section 302A.011,
Subd. 38, or otherwise, provided that, so long as the provisions of Section
302A.671 of the Minnesota Business Corporation Act continue to apply to the
Company, in no event shall St. Paul be granted voting rights with respect to
shares acquired in a control share acquisition, as defined in Section 302A.011,
Subd. 38, which exceed 50% of the outstanding voting power of the Company
without a separate vote of shareholders."

BACKGROUND

Section 302A.671 of the Minnesota Business Corporation Act, and related
definitions (the "Control Share Acquisition Act"), can operate to restrict the
voting power of shares held by a shareholder if the shares are acquired in a
"control share acquisition" (as defined) that exceeds a certain percentage
voting threshold. There are three relevant thresholds, expressed as a percentage
of outstanding voting power, under the Control Share Acquisition Act: (i) at
least 20% but less than 33-1/3%; (ii) at least 33-1/3% but less than or equal to
50%; and (iii) over 50%.

For example, if an "acquiring person" (as defined) acquires shares in a control
share acquisition that results in the total beneficial ownership of the
acquiring person equaling or exceeding the 20% threshold, the acquiring person
may only exercise voting power with respect to the number of shares that
represent less than 20% of the outstanding voting power of that company. The
Control Share Acquisition Act removes the voting power from the number of shares
acquired in a "control share acquisition" (as defined) that are in excess of the
20% beneficial ownership threshold. The voting power is restored only if
approved by the required votes of that company's shareholders.

The acquiring person may request that a resolution be put before the
shareholders to

authorize the restoration of voting rights for the shares acquired in excess of
the threshold. In addition, the acquiring person must file an information
statement with the company containing certain information for inclusion in the
company's proxy statement. If the shareholders approve the restoration of voting
power, the acquiring person will have full voting rights with respect to the
shares acquired in excess of the threshold and full voting rights with respect
to any additional shares that may be acquired by the acquiring person up to the
next threshold. For example, an acquiring person who seeks and obtains approval
of the shareholders to vote all shares in excess of the 33.3% threshold, may
only exercise voting rights with respect to shares acquired up to the 50%
threshold; if the acquiring person's beneficial ownership through a control
share acquisition exceeds 50% of the outstanding voting power, the shares
acquired in a control share acquisition in excess of the 50% threshold will
become non-voting unless voting power is restored by the shareholders. A COPY OF
THE CONTROL SHARE ACQUISITION ACT IS INCLUDED AS APPENDIX B ATTACHED TO THIS
PROXY STATEMENT.

In compliance with the Control Share Acquisition Act, The St. Paul Companies,
Inc. and certain of its affiliated entities named in the proposed resolution
(hereinafter collectively referred to as "St. Paul"), have submitted an
Information Statement and requested that the Company seek shareholder approval
of the above resolution at the Annual Meeting. A COPY OF THE INFORMATION
STATEMENT SUBMITTED BY ST. PAUL IS INCLUDED AS APPENDIX C ATTACHED TO THIS PROXY
STATEMENT. The following background information is derived in part from the
Information Statement:

Between September 8, 2000 and September 18, 2000, St. Paul Venture Capital V,
LLC ("SPVC V") purchased 305,000 shares of Select Comfort common stock in open
market brokerage transactions for aggregate purchase consideration of $876,418
(including brokers' commissions), representing an average price of $2.87 per
share. Corporate funds of SPVC V were used to purchase these shares.

Prior to the acquisition of the 305,000 shares in the transactions described
above, St. Paul beneficially owned 5,972,495 shares of Select Comfort common
stock, representing 33.1% of the outstanding voting power. Following the
acquisition of the 305,000 shares in the transactions described above, St. Paul
beneficially owned 6,277,495 shares, representing 34.8% of the outstanding
voting power. Of the 6,277,495 shares beneficially owned by St. Paul at the time
of the control share acquisition as described above, 271,056 shares have no
voting rights unless the resolution set forth above is approved by the requisite
votes of the shareholders at the Annual Meeting.

Subsequent to the transactions described above, St. Paul has also become the
beneficial owner of a convertible subordinated debenture in the principal amount
of $4,000,000 that was issued by the Company as consideration for the
acquisition of the assets of SleepTec. As the debenture is convertible into
shares of Select Comfort common stock at a price of $5.50 per share, St. Paul
has the right to acquire 727,272 shares of Select Comfort common stock upon
conversion of the debenture. See " Certain Transactions - Acquisition of Assets
of SleepTec, Inc." In addition, in connection with the Private Placement
discussed in detail below under Proposal 3, St. Paul has become the beneficial
owner of (i) a senior secured convertible note in the original principal amount
of $4.1 million,

convertible into shares of the Company's common stock initially at the rate of
$1.00 per share; and (ii) warrants to purchase an aggregate of 1,640,000 shares,
exercisable at $1.00 per share.

Though the shares underlying the convertible subordinated debenture, the senior
secured convertible note and the warrants described above do not carry any
voting rights until the shares are issued upon conversion or exercise of such
securities, St. Paul's rights to vote these shares upon issuance would not be
restricted by the Control Share Acquisition Act because:

o Beneficial ownership of the 727,272 shares underlying the convertible
subordinated debenture was acquired in an independent transaction after the
33.3% threshold was exceeded (as a result of the September 2000 purchases
by SPVC V) and the beneficial ownership of these shares did not result in
St. Paul reaching a "new range of voting power" under the Control Share
Acquisition Act; and

o The shares of common stock issued upon conversion or exercise of the
subordinated convertible debenture, the senior secured convertible note and
the warrants described above would be shares acquired directly from the
company and such acquisitions are not included within the definition of a
"control share acquisition" under the Control Share Acquisition Act.

Patrick A. Hopf, the Chairman of the Board of Directors of the Company, is the
President of St. Paul Venture Capital, Inc., which is the manager of St. Paul
Venture Capital IV, LLC and St. Paul Venture Capital V, LLC. Each of these LLCs
is 99% owned by St. Paul Fire and Marine Insurance Company, which is a wholly
owned subsidiary of The St. Paul Companies, Inc.

VOTE REQUIRED

Under the Control Share Acquisition Act, the proposal being presented would
enable St. Paul to vote all shares of common stock that it currently holds, and
any subsequently acquired shares up to an aggregate of 50% of the outstanding
voting power of the Company. The proposal must receive the following affirmative
votes to be approved:

(1) The affirmative vote, whether in person or by proxy, of the holders of
a majority of all the outstanding common stock; and

(2) The affirmative vote, whether in person or by proxy, of the holders of
a majority of all the outstanding common stock, excluding "interested
shares" as that term is defined in the Minnesota statutes.

Under Minnesota Statutes, "interested shares" means shares owned by St. Paul, by
officers of the Company or by any employee of the Company who is also a director
of the Company. As of the record date:

(1) 18,126,265 shares of common stock were outstanding and entitled to
vote at the Annual Meeting; and

(2) 6,171,342 shares of common stock were considered "interested shares,"
including 6,082,939 shares beneficially owned by St. Paul and 88,403
shares owned by officers of the Company.

See "Security Ownership of Certain Beneficial Owners and Management."

BOARD RECOMMENDATION

The Board of Directors recommends that the shareholders vote FOR approval of the
resolution to grant St. Paul full voting rights with respect to shares of the
Company's common stock held by St. Paul pursuant to the Control Share
Acquisition Act.

PROPOSAL TO APPROVE THE ISSUANCE BY THE COMPANY OF ITS
SENIOR SECURED CONVERTIBLE NOTES AND WARRANTS

(PROPOSAL 3)

---------------------

PROPOSAL

At the Annual Meeting, shareholders will be asked to consider and vote on the
following proposed resolution:

"RESOLVED, that the issuance by Select Comfort Corporation (the "Company") of
Senior Secured Convertible Notes in the aggregate principal amount of up to $12
million, together with Warrants to purchase an aggregate of up to 4,800,000
shares of the common stock of the Company, as approved by the Board of Directors
of the Company, is hereby ratified and approved for purposes of all applicable
rules of The Nasdaq Stock Market."

BACKGROUND

In April 2001, the Company commenced a private offering to accredited investors
only of Senior Secured Convertible Notes (the "Notes") in the aggregate
principal amount of up to $12 million together with Warrants (the "Warrants") to
purchase up to an aggregate of 4,800,000 shares of its common stock in a private
placement to raise capital to meet the Company's working capital requirements.
The offering and sale of the Notes and the Warrants raising proceeds in the
amount of up to $12 million as described herein, and the transactions and
obligations of the Company related to the sale of these securities, are
collectively referred to herein as the "Private Placement." On June 7, 2001, the
company completed the sale of Notes in the aggregate principal amount of $11
million together with Warrants to purchase 4,400,000 shares of common stock in
the Private Placement.

Investors in the Private Placement include:

o St. Paul Venture Capital VI, LLC, an affiliate of our largest shareholder,
St. Paul Venture Capital, Inc. and its affiliated entities (see "Security
Ownership of Certain Beneficial Owners and Management and Proposal 2
above), in the amount of $4.1 million;

o A corporation in which William R. McLaughlin, our President and CEO and a
director of the Company, has an ownership interest and for which he serves
as a director, in the amount of $1 million; and

o Three of our independent directors, including Thomas J. Albani, Ervin R.
Shames and Jean-Michel Valette, each in the amount of $50,000.

The Board of Directors appointed a Special Committee consisting solely of David
T. Kollat and Christopher P. Kirchen, both of whom are independent directors not
participating in any way in the Private Placement, to consider and act on the
proposed Private Placement. The Company

also retained Duff & Phelps, LLC ("Duff & Phelps") as a financial advisor to
render an opinion as to the fairness to the Company and its shareholders from a
financial point of view of the terms of the sale of the Notes and Warrants in
the Private Placement. Duff & Phelps is a nationally recognized financial
advisory firm that is regularly engaged in rendering financial opinions in
connection with mergers and acquisitions, private placements, tax matters,
corporate planning and other purposes. Duff & Phelps had previously been
retained in connection with assessing the fairness, from a financial point of
view, of the terms of a guaranty related to a financing of senior debt which was
ultimately unsuccessful. Duff & Phelps Securities, LLC, a subsidiary of Duff &
Phelps, had assisted Select Comfort in pursuing such financing.

On May 30, 2001, the Special Committee received Duff & Phelps' draft report
regarding its analysis of the fairness of the terms of the sale of the Notes and
Warrants in the Private Placement, and the Special Committee approved the terms
of the Private Placement subject to various conditions to closing, including the
receipt of an opinion as to the fairness of the transaction from a financial
point of view from Duff & Phelps. On June 5, 2001, Duff & Phelps provided its
written opinion to the Board of Directors, that, based upon and subject to
various considerations and assumptions, as of such date, the terms of the sale
of the Notes and Warrants in the Private Placement were fair, from a financial
point of view, to the Company and its shareholders. Duff & Phelps opinion is
attached to this Proxy Statement as Appendix D and is incorporated herein by
reference. THE COMPANY'S SHAREHOLDERS ARE ENCOURAGED TO READ THE ATTACHED
OPINION IN ITS ENTIRETY.

Duff & Phelps' opinion is directed to the Board of Directors only and is
directed only as to the fairness, from a financial point of view, to the Company
and its shareholders of the terms of the sale of the Notes and Warrants in the
Private Placement and does not constitute a recommendation to any of the
Company's shareholders as to how such shareholder should vote on any matter.

Duff & Phelps received customary fees, including reimbursement of certain
out-of-pocket expenses, for its services as a financial advisor related to the
Private Placement. The Company has agreed to indemnify Duff & Phelps against
certain expenses and liabilities, including liabilities under federal securities
law, incurred in connection with its services as a financial advisor.

We are asking our shareholders to approve the issuance of the Notes and the
Warrants in the Private Placement in accordance with the MarketPlace Rules of
The Nasdaq Stock Market. These rules are applicable to the Company because our
common stock is listed on The Nasdaq Stock Market, and include the following:

o Rule 4350(i)(1)(D), which requires shareholder approval of certain
transactions involving the issuance of common stock, or securities
convertible into or exercisable for common stock, equal to 20% or more of
the common stock, or 20% or more of the voting power of securities,
outstanding before the issuance at a price (or in the case of convertible
securities, a conversion price) less than the greater of the book or market
value of the common stock;

o Rule 4350(i)(1)(A), which requires shareholder approval when an arrangement
is made pursuant to which stock of the issuing company may be acquired by
officers or directors of that company; and

o Rule 4350(i)(1)(B), which requires shareholder approval of the issuance of
securities that would result in a change of control of the Company.

Rule 4350(i)(1)(B) does not define when a change of control of an issuer may be
deemed to have occurred. Although the Company does not believe that the issuance
of the Notes and the Warrants constitutes a change in control of the Company,
the Company is seeking shareholder approval to ensure compliance with that rule
(if The Nasdaq Stock Market determines this rule is applicable) as well as with
the other rules for which shareholder approval is or may be required in
connection with the issuance of the Notes and the Warrants in the Private
Placement.

TERMS OF THE PRIVATE PLACEMENT

The summary set forth below reflects the principal terms of the Private
Placement and is qualified in its entirety by reference to the actual text of
the definitive transaction documents related to the Private Placement. We will
furnish to our shareholders without charge a copy of the definitive transaction
documents upon receipt from any such person of a written request therefor. Such
request should be sent to:

Select Comfort Corporation
6105 Trenton Lane North
Minneapolis, Minnesota 55442
Attn: Shareholder Information

TERMS OF THE SENIOR SECURED CONVERTIBLE NOTES. The Notes bear interest at the
rate of 8% per year, payable in cash on each anniversary of the issuance of the
Notes. The Notes are due and payable in full after five years, and may only be
prepaid with the consent of the holders of 67% of the principal amount of the
outstanding Notes. The Notes are secured by a first priority lien on
substantially all of the Company's and its subsidiaries' assets.

The principal amount of the Notes is convertible into shares of the common stock
of the Company at any time at the option of the holders, initially at the rate
of $1.00 per share of common stock. The principal amount of the Notes is subject
to automatic conversion into shares of the Company's common stock, initially at
the rate of $1.00 per share of common stock (i) any time after the first
anniversary of the issuance of the Notes, provided that the market price of the
common stock has equaled or exceeded $4.00 per share (as adjusted for stock
splits, stock dividends, recapitalizations and the like) for a period of at
least 10 out of 20 consecutive trading days or (ii) in the event that the
holders of at least 67% of the outstanding principal amount of the Notes consent
to such conversion.

The conversion price of the Notes is subject to proportional adjustment for
stock splits, stock dividends, recapitalizations and the like.

The conversion price of the Notes is also subject to adjustment downward to the
price per share at which the Company issues any shares, or rights to acquire
shares, of its common stock at a price per share that is less than the
then-current conversion price (the "Price Anti-Dilution Provisions").

However, the grant and exercise of options to and by employees, directors and
consultants of the Company, and the exercise or conversion of warrants or
convertible securities existing as of the date of issuance of the Notes, would
not trigger the Price Anti-Dilution Provisions. In addition, if the average
market price of the common stock for the 10 consecutive trading days ending on
October 31, 2001 is below the then-current conversion price of the Notes, the
conversion price would be automatically adjusted on October 31, 2001 to that
10-day average (the "October Reset Provision"). In the event of the downward
adjustment of the conversion price of the Notes pursuant to the foregoing terms,
the number of shares issuable upon conversion of the Notes would be increased
thereby.

Notwithstanding the foregoing, pending approval of the Private Placement by
shareholders of the Company, the initial conversion price of the Notes, and the
conversion price of the Notes as it may be adjusted pursuant to the terms of the
immediately preceding paragraph, may not under any circumstances be less than
$0.74 per share. If shareholder approval of the Private Placement is obtained,
the restriction described above will not apply and the conversion price
(initially $1.00 per share) will be subject to adjustment pursuant to the Price
Anti-Dilution Provisions and the October Reset Provision as described above
without any minimum level applicable to the conversion price.

TERMS OF THE WARRANTS. Investors in the Private Placement will also receive
Warrants to purchase a number of shares of the Company's common stock equal to
40% of the dollar amount invested in the Private Placement divided by $1.00. The
Warrants represent rights to purchase shares of the Company's common stock
initially at an exercise price of $1.00 per share. The exercise price of the
Warrants is subject to adjustment such that the exercise price will always equal
the then-current conversion price of the Notes. In the event of the downward
adjustment of the exercise price of the Warrants pursuant to the terms set forth
above, the number of shares purchasable upon exercise of the Warrants would be
increased to an amount equal to (i) the original exercise price of the Warrants
multiplied by the original number of Warrants, divided by (ii) the new exercise
price of the Warrants. The Warrants are fully exercisable upon issuance and will
expire after five years. The exercise price is payable in cash or, at the option
of the holder, the Warrants or any part thereof may be exchanged for shares of
common stock equal to the economic value of the portion of the Warrants being
exercised.

NOTE PURCHASE AGREEMENT. The Notes and the Warrants are issued pursuant to a
Note Purchase Agreement containing customary representations, warranties,
covenants and conditions. Without limiting the foregoing, the Note Purchase
Agreement provides that, subject to certain exceptions, as long as the Notes
remain outstanding, consent of the holders of 67% of the securities issued or
issuable in the Private Placement, including shares issuable upon conversion of
the Notes or upon exercise of the Warrants, would be required for:

o Any amendment to the articles or bylaws of the Company that would have an
adverse impact on the Notes;

o Any redemption of any shares of capital stock of the Company;

o Any payment of a dividend on any shares of capital stock of the Company;

o Any merger, other corporate reorganization or sale of control of the
Company, or any transaction in which all or any substantial part of the
assets of the Company are sold or licensed on an exclusive basis;

o Any liquidation, dissolution or winding up of the Company;

o The incurrence by the Company of debt (other than up to $5 million of
senior debt financing);

o The granting by the Company of liens on its assets (except for certain
permitted liens); and

o The making by the Company of any loans, investments or guaranties.

The Note Purchase Agreement contains customary events of default, upon which (i)
the interest rate on the Notes would be increased by 3% per year and (ii) the
holders of the Notes would have the right to accelerate payment of the Notes.
Events of default include, without limitation, payment defaults, covenant
defaults, material misrepresentations, cross-defaults, bankruptcy and
insolvency, and change in control of the Company.

RIGHTS OF FIRST REFUSAL. Except in the event of a public offering of Common
Stock, or the grant or exercise of options to or by employees, directors or
consultants of the Company, or the exercise or conversion of warrants or
convertible securities existing as of the date of issuance of the Notes and
certain other exceptions, the holders of the Notes, for a period of five years,
have a 15-day right of first refusal on the sale of any additional shares of
capital stock or rights to purchase capital stock of the Company to maintain
their pro rata ownership.

REGISTRATION RIGHTS. The holders of the Notes and Warrants are entitled to
certain demand and incidental registration rights. These registration rights
give the holders certain customary rights to have the shares of common stock
issuable upon conversion of the Notes or exercise of the Warrants registered by
the Company for resale under applicable federal and state securities laws.

VOTING AGREEMENT. Shareholders, who together with St. Paul Venture Capital VI,
LLC and its affiliates hold an aggregate of 54.1% of the outstanding shares of
the Company, have entered into a Voting Agreement under which such shareholders
have agreed to vote in favor of the issuance of the Notes and the Warrants in
the Private Placement.

PLACEMENT AGENT'S FEES. The Company has engaged an agent to assist in the
placement of the securities offered in the Private Placement. For its services
in connection with the Private Placement, the agent is entitled to (i) a cash
fee equal to 4.5% of the aggregate proceeds to the Company from the Private
Placement (reduced by 50% with respect to proceeds received in connection with
any sale to any director, officer, or beneficial owner of 1% or more of common
stock of the Company) and (ii) warrants to purchase a number of shares of common
stock, at an exercise price of $1.20 per share, equal to the amount of the cash
fee as set forth above divided by $1.20.

ADJUSTMENT OF GE WARRANT. In connection with the Private Placement, the Company
agreed to issue to GECC a new warrant to

purchase 135,000 shares at an exercise price of $1.00 per share in exchange for
GECC's previously outstanding warrant to purchase 1,107,914 shares at an
exercise price of $8.57 per share and GECC's agreement, in the case of an
underwritten offering, to subordinate its incidental registration rights to the
demand registration rights of the investors in the Private Placement. This new
GECC warrant will expire on March 31, 2005, the same expiration date as under
the original warrant. See "Certain Transactions - GE Financing and Restructuring
of GE Warrants."

EFFECTS OF THE PRIVATE PLACEMENT

DILUTION TO SHAREHOLDERS. Prior to the initial closing of the Private Placement
on June 7, 2001 and the adjustment of the GE warrant as described above, there
were 18,126,265 shares of common stock of the Company issued and outstanding,
and outstanding options, warrants and convertible securities representing rights
to acquire an additional 5,894,599 shares of the Company's common stock in the
aggregate, subject to various terms and conditions and at various exercise or
conversion prices, for an aggregate total of 24,020,864 shares of common stock
on a fully diluted basis.

Following the issuance of $11 million in aggregate principal amount of the Notes
at the initial closing, investors in the Private Placement hold (i) rights to
receive 11,000,000 shares of our common stock upon conversion of the Notes at
$1.00 per share; and (ii) rights to purchase up to an additional 4,400,000
shares at a price of $1.00 per share upon exercise of the Warrants. All of the
share information set forth herein excludes the effect of any adjustments to the
conversion price of the Notes or the exercise price of the Warrants pursuant to
the terms described above.

The issuance of the Notes and the Warrants in the Private Placement, and the
adjustment of the GE warrant in connection with the Private Placement, will also
have the effect of reducing the exercise price of, and increasing the number of
shares purchasable under, certain currently outstanding warrants to purchase
shares of common stock of the Company. Following the issuance of $11 million in
aggregate principal amount of the Notes at the initial closing, and adjustment
of the GE warrant as described above, warrants to purchase an aggregate of
173,021 shares of common stock at an exercise price of $5.25 per share
outstanding prior to the Private Placement and held by various investors
(including St. Paul Venture Capital, Inc. and its affiliated entities, which
holds 67,723 of such warrants), would be adjusted to represent rights to
purchase 277,841 shares at an exercise price of $3.27 per share.

As a result of the foregoing, following the issuance of $11 million in aggregate
principal amount of the Notes at the initial closing together with 4,400,000
Warrants, there are 18,126,265 shares of common stock issued and outstanding,
and outstanding options, warrants and convertible securities (including the
Notes and Warrants issued in the Private Placement) representing rights to
acquire an additional 20,674,295 shares in the aggregate, subject to various
terms and conditions, for an aggregate total of 38,800,560 shares of common
stock on a fully diluted basis. Investors in the Private Placement would hold
rights to acquire an aggregate of 15,400,000 shares upon conversion of the Notes
and exercise of the Warrants, representing 39.7% of all shares

of the Company's common stock on a fully diluted basis.

If the Company were to close on the full maximum principal amount of the Private
Placement in the amount of $12 million, the Company would issue Notes and
Warrants representing rights to acquire an additional 1,400,000 shares, subject
to the adjustments described above. At the present time, however, the Company
does not believe that additional Notes or Warrants will be issued in the Private
Placement.

In the event that the conversion price of the Notes and the exercise price of
the Warrants is adjusted downward following the closing of the Private Placement
by operation of the Price Anti-Dilution Provisions or the October Reset
Provision described above, the percentage of the fully diluted shares that
investors in the Private Placement would have the right to receive in the future
would be increased and the ownership interests of existing shareholders of the
Company would be further diluted.

VOTING RIGHTS. Investors in the Private Placement will not have any voting
rights related to the shares underlying the Notes and the Warrants unless and
until such shares are acquired upon conversion of the Notes or exercise of the
Warrants.

SECURITY INTEREST IN ASSETS OF THE COMPANY. The obligations of the Company under
the Notes will be secured by a first priority lien on substantially all of the
assets of the Company and its subsidiaries, subject only to certain prior
permitted liens. This security interest (i) may impair the Company's ability to
obtain additional asset-based financing if such additional financing becomes
necessary in the future and (ii) will give the investors in the Private
Placement priority over unsecured creditors and holders of common stock in the
event of any reorganization or liquidation of the Company.

RATIONALE FOR THE PRIVATE PLACEMENT

The report of our independent accountants on our financial statements for the
fiscal year ended December 30, 2000 contains an explanatory paragraph expressing
substantial doubt about the Company's ability to continue as a going concern as
a result of our negative cash flows. The Company has incurred pre-tax losses
from operations of $26.0 million and $15.0 million in 2000 and 1999,
respectively, and had negative working capital of $18.2 million at December 30,
2000. As a result of fiscal 2000 operating losses and the recent downturn in the
economy, which has adversely affected our sales trends, without the additional
financing provided by the Private Placement, our current cash flows may not be
sufficient to meet our near-term liquidity needs. Our near-term cash needs have
been further impacted by:

o The seasonality of our business, with lower sales volumes historically
occurring during the second quarter;

o The timing of marketing and advertising expenditures, with the initial
launch of our Sleep Number(R) campaign occurring in the first and second
quarters of the current fiscal year and higher direct marketing
expenditures in the early part of the year when rates are more favorable;
and

o Working capital needs as we expand our wholesale activities through a
significant QVC sales event in May 2001.

In the fourth quarter of 2000, we began pursuing $10 million or more of working
capital financing from a variety of potential sources. Due to our traditional
business model, under which we manufacture product to meet consumer orders and
maintain minimal levels of finished goods inventory, the recent economic
downturn, and recent tightening of credit markets, we have been unable to obtain
traditional asset-based financing in amounts sufficient to fully meet our
working capital requirements.

As a result, early in the second quarter of this year, we began pursuing the
Private Placement. We have also been aggressively managing our costs and cash
flow to preserve and extend our cash resources. Cost reduction efforts have
included termination of non-core business initiatives, closure of certain
facilities, including one of three manufacturing facilities, one of two
administrative offices and one of two call centers, closure of retail stores,
reduction of corporate and administrative overhead and staffing, and adjustment
of advertising, promotional and other marketing programs. We are also pursuing
programs to improve our liquidity, including negotiation of supplier and
landlord payment terms, the reduction of inventory levels and the deferral of
capital programs.

We believe that the proceeds from the Private Placement, together with the cost
reduction efforts and the aggressive management of current and future cash
resources, will provide sufficient working capital to fund operations for the
foreseeable future.

VOTE REQUIRED

Approval of the Private Placement requires the affirmative vote of the holders
of a majority of the shares of common stock present and entitled to vote in
person or by proxy on the matter at the Annual Meeting, and the affirmative vote
of at least a majority of the minimum number of votes necessary for a quorum.

BOARD OF DIRECTORS RECOMMENDATION

The Board of Directors recommends that the shareholders vote FOR approval of the
Private Placement. Unless a contrary choice is specified, proxies solicited by
the Board of Directors will be voted FOR approval of the Private Placement.

AMENDMENT TO 1997 STOCK INCENTIVE PLAN

(PROPOSAL 4)

------------------------

PROPOSED AMENDMENT

On March 28, 1997, the Board of Directors of the Company adopted the Select
Comfort Corporation 1997 Stock Incentive Plan (the "1997 Plan"), which the
Company's shareholders approved on March 27, 1998. On May 1, 2001, the Board
amended the 1997 Plan, subject to shareholder approval, to increase the number
of shares of common stock reserved for issuance under the 1997 Plan by 3,000,000
shares, from 3,500,000 shares to a total of 6,500,000 shares. You are being
asked to approve this amendment at the Annual Meeting.

PURPOSE OF THE AMENDMENT

Providing stock option grants and other incentive awards under the 1997 Plan is
an important element in the overall success of Select Comfort. In general, the
Board believes that equity-based incentives align the interests of the Company's
management and employees with those of the Company's shareholders. In addition,
providing stock option grants and other incentive awards under the 1997 Plan is
an important strategy for attracting and retaining the type of high-quality
executives, employees and advisors the Board believes necessary for Select
Comfort to achieve its goals. Given the intense competition for such personnel,
the Board believes that its ability to offer competitive compensation packages,
including those with equity-based incentive components, is particularly
important in attracting and retaining qualified candidates.

A general description of the basic features of the 1997 Plan is outlined below.
Unless otherwise indicated, the following summary of the principal provisions of
the 1997 Plan assumes the approval of the proposed amendment to the 1997 Plan.
This summary is qualified in its entirety by reference to the actual text of the
1997 Plan, a copy of which you may obtain from the Company at the address set
forth at the beginning of this proxy statement.

SUMMARY OF THE 1997 PLAN

INTRODUCTION. The 1997 Plan permits the Company to grant options, stock
appreciation rights, restricted stock awards, performance units and stock
bonuses.

PURPOSE OF THE 1997 PLAN. The 1997 Plan's purpose is to advance the Company's
interests and the interests of our shareholders by enabling us to attract and
retain talented persons by:

o providing an incentive to such individuals through equity participation in
the Company; and

o rewarding such individuals who contribute to the achievement of the
Company's economic objectives.

ELIGIBLE PARTICIPANTS. All employees (including officers and directors who are
also employees) of Select Comfort or any subsidiary and any non-employee
directors, consultants and independent contractors of Select Comfort or any
subsidiary who, in the judgment of the Compensation Committee, have contributed,
are contributing or are expected to contribute to the achievement of the
Company's economic objectives are eligible to participate in the 1997 Plan. As
of May 1, 2001, there were approximately 1,600 employees of the Company eligible
to be granted incentive awards under the 1997 Plan.

Participants may be granted one or more incentive awards, alone or in
combination with other awards. The incentive awards will always be subject to
whatever terms and conditions the Compensation Committee determines, provided
such terms and conditions are consistent with the 1997 Plan. All incentive
awards are deemed granted as of the date specified in the Compensation
Committee's resolution, which will be the date of the participant's award
agreement.

ADMINISTRATION. The Compensation Committee of the Board of Directors administers
the 1997 Plan. The Compensation Committee has the authority to determine all
provisions of incentive awards as long as they are consistent with the terms of
the 1997 Plan. The Compensation Committee also has the authority to amend or
modify the terms of any outstanding incentive award in any manner. Any such
amendment or modification, however, must be permitted by the 1997 Plan and may
not adversely affect any participant's rights without his or her consent. Each
determination, interpretation or other action of the Committee will be
conclusive and binding for all purposes on all persons.

STOCK SUBJECT TO THE 1997 PLAN. Prior to the proposed amendment of the 1997 Plan
described in this proxy statement, there were 3,500,000 shares of common stock
authorized for issuance under the 1997 Plan. The amendment to the 1997 Plan
proposed hereby would increase the number of shares authorized under the 1997
Plan from 3,500,000 to 6,500,000 shares. As of May 30, 2001, we had granted
options to purchase an aggregate of 4,390,275 shares of common stock under the
1997 Plan, 410,367 of which had been exercised, 1,113,165 of which had been
cancelled, and 2,866,743 of which remain outstanding at a weighted average
exercise price of $7.41 per share. As a result, as of May 30, 2001, 222,890
shares of common stock were available for future grants under the 1997 Plan. If
this proposal is approved by the shareholders at the Annual Meeting, 3,222,890
shares of common stock will be available for future grants.

The following points describe how the number of shares of common stock available
for issuance under the 1997 Plan is determined at any point in time.

o OUTSTANDING INCENTIVE AWARDS -- reduces the maximum number of shares
available for issuance.

o SHARES ISSUED UPON EXERCISE OF OUTSTANDING OPTIONS -- reduces the maximum
number of shares available for issuance.

o INCENTIVE AWARD LAPSES OR EXPIRES UNEXERCISED OR UNVESTED -- shares become
available again for issuance.

o OPTION IS FORFEITED OR TERMINATED UNEXERCISED OR UNVESTED -- shares become
available again for issuance.

o RESTRICTED STOCK AWARD IS FORFEITED -- shares do not become available for
further issuance under the 1997 Plan.

o WE PAY FOR THE INCENTIVE AWARD, IN CASH, NOT COMMON STOCK -- shares become
available again for issuance.

OPTIONS. An option provides the optionee with the opportunity to purchase shares
of common stock in a specified amount, at a predetermined price for a specific
period of time. Incentive options may only be granted with an exercise price
equal to at least the fair market value of the common stock on the date of
grant, which is defined in the 1997 Plan to equal the average of the high and
low trading prices of the common stock on the Nasdaq National Market on the date
of grant. On May 1, 2001, the average of the high and the low trading prices as
reported on the Nasdaq National Market was $0.85 per share. Options will become
exercisable at such times and in such installments as may be determined by the
Compensation Committee, provided that options may not be exercisable after 10
years from their date of grant.

The exercise price of options must be paid in cash, except that the Compensation
Committee may allow payment to be made (in whole or in part) by delivery of a
"broker exercise notice" (pursuant to which the broker or dealer is instructed
to sell enough shares or loan the optionee enough money to pay the exercise
price and to remit such sums to the Company), a promissory note or by transfer
of shares of common stock (either previously owned by the participant or to be
acquired upon option exercise). The aggregate fair market value of shares of
common stock with respect to which incentive stock options within the meaning of
Section 422 of the Internal Revenue Code become exercisable for the first time
by a participant in any calendar year may not exceed $100,000. Any incentive
options in excess of this amount will be treated as non-statutory options.

STOCK APPRECIATION RIGHTS. A stock appreciation right is a right to receive a
payment from the Company in the form of common stock, cash or a combination of
both, equal to the difference between the fair market value of one or more
shares of common stock and the exercise price of such shares. The exercise price
of a stock appreciation right will be determined by the Compensation Committee,
but may not be less than the fair market value of the common stock on the date
of grant. Stock appreciation rights become exercisable at such times and in such
installments as may be determined by the Compensation Committee, except that
stock appreciation rights may not become exercisable prior to six months from
their date of grant and may not be exercisable after 10 years from their date of
grant. A holder of a stock appreciation right has no rights as a shareholder
with respect to any shares subject to a stock appreciation right unless and
until he or she exercises the right and the Compensation Committee decides to
pay the holder in the form of common stock.

RESTRICTED STOCK AWARDS. A restricted stock award is an award of shares of
common stock that cannot be transferred to any person for some predetermined
period of time, and may have to be returned to the Company upon the occurrence
of certain conditions. The Compensation Committee may impose such restrictions
or conditions to the vesting of restricted stock awards as it deems appropriate,
including that the participant remain in the continuous employ or service of the
Company for a certain period or that the participant or the Company satisfy
certain performance goals or criteria. No restricted stock award may vest prior
to six months from its date of grant. Unless the Compensation Committee
determines otherwise, any dividends or distributions paid with respect to shares
of common stock subject to the unvested portion of a restricted stock award will
be subject to the same restrictions as the shares to which such dividends or
distributions relate.

PERFORMANCE UNITS. A performance unit is a right to receive cash, common stock,
or a combination of both, upon the achievement of established performance goals.
A performance unit will vest at such times and in such installments as may be
determined by the Compensation Committee. The Compensation Committee may impose
such restrictions or conditions to the vesting of performance units as it deems
appropriate, including that the participant remain in the continuous employ or
service of the Company for a certain period or that the participant or the
Company satisfy certain performance goals or criteria.

STOCK BONUSES. A stock bonus is an award of common stock upon the achievement of
established performance goals.

EFFECT OF BREACH OF CONFIDENTIALITY OR NON-COMPETE AGREEMENT. Without notice,
the Compensation Committee may immediately terminate all of a participant's
rights under the 1997 Plan and his or her incentive awards if such participant
materially breaches the terms of any confidentiality or non-compete agreement
entered into with the Company or any subsidiary, whether such breach occurs
before or after the participant voluntarily terminates his or her service with
the Company.

EFFECT OF CHANGE IN CONTROL. See "Executive Compensation and Other Benefits --
Change in Control Arrangements" for discussion regarding the effects of a
"change in control" on incentive awards granted under the 1997 Plan.

EFFECT OF TERMINATION OF EMPLOYMENT ON SERVICE. In the event a participant's
employment or other service with the Company is terminated by reason of death,
disability or retirement,

o all outstanding options and stock appreciation rights will remain
exercisable to the extent then exercisable for a period of one year after
such termination (three months in the case of retirement), but in no event
after their original expiration date,

o all restricted stock awards then held by the participant will become fully
vested and nonforfeitable, and

o all performance units and stock bonuses then held by the participant will
vest or continue to vest according to their original terms.

In the event a participant's employment or other service with the Company is
terminated

for any other reason, other than for cause, all outstanding options and stock
appreciation rights will remain exercisable to the extent then exercisable for a
period of three months after such termination.

In the event a participant's employment or other service with the Company is
terminated for cause,

o all outstanding options and stock appreciation rights will immediately
terminate without notice,

o all restricted stock awards that have not vested as of such termination
will be terminated and forfeited, and

o all performance units and stock bonuses then held by the participant will
vest or continue to vest according to their original terms.

The Company may, in its discretion, modify these post-termination provisions,
provided that no option or stock appreciation right may remain exercisable
beyond its expiration date.

AMENDMENT OF 1997 PLAN. The Board of Directors has the following powers with
respect to the 1997 Plan:

o The Board may suspend or terminate all or a portion of the 1997 Plan at any
time.

o The Board may amend the 1997 Plan to conform to any change in applicable
laws or regulations.

o The Board may amend the 1997 Plan in whatever manner it deems to be in the
Company's best interests.

The Board may not, however, make an amendment to the 1997 Plan without
shareholder approval if shareholder approval is required under Rule 16(b)(3)
under the Securities Exchange Act of 1934, Section 422 of the Internal Revenue
Code or the rules of the Nasdaq Stock Market. Furthermore, the Board cannot make
any modification to the 1997 Plan that would adversely affect outstanding
incentive awards without the consent of the affected participants.

TERMINATION. The 1997 Plan will terminate on March 28, 2007, unless terminated
earlier by the Board. No incentive award may be granted after such termination.
Incentive awards outstanding upon termination of the 1997 Plan may continue to
be exercised, or become free of restrictions, in accordance with their terms.

FEDERAL INCOME TAX CONSEQUENCES

The following description of federal income tax consequences is based on current
statutes, regulations and interpretations. The description does not include
foreign, state or local income tax consequences. In addition, the description is
not intended to address specific tax consequences applicable to directors,
executive officers or greater than 10% shareholders of the Company or to any
individual participant who receives an incentive award under the 1997 Plan.

INCENTIVE STOCK OPTIONS. There will not be any federal income tax consequences
to either the participant or the Company as a result of the grant to an employee
of an incentive stock option under the 1997 Plan. The exercise by a participant
of an incentive stock option also will not result in any federal income tax
consequences to the Company or the participant, except that (i) an amount equal
to the excess of the fair market value of the shares acquired upon exercise of
the incentive stock option,

determined at the time of exercise, over the amount paid for the shares by the
participant will be includable in the participant's alternative minimum taxable
income for purposes of the alternative minimum tax, and (ii) the participant may
be subject to an additional excise tax if any amounts are treated as excess
parachute payments (see explanation below). Special rules will apply if
previously acquired shares of common stock are permitted to be tendered in
payment of an option exercise price.

If the participant disposes of the incentive stock option shares acquired upon
exercise of the incentive stock option, the federal income tax consequences will
depend upon how long the participant has held the shares. If the participant
does not dispose of the shares within two years after the incentive stock option
was granted, nor within one year after the participant exercised the incentive
stock option, then the participant will recognize a long-term capital gain or
loss. The amount of the long-term capital gain or loss will be equal to the
difference between (i) the amount the participant realized on disposition of the
shares, and (ii) the option price at which the participant acquired the shares.
The Company is not entitled to any compensation expense deduction under these
circumstances.

If the participant does not satisfy both of the above holding period
requirements, then the participant will be required to report as ordinary
income, in the year the participant disposes of the shares, the amount by which
the lesser of (i) the fair market value of the shares at the time of exercise of
the incentive stock option, or (ii) the amount realized on the disposition of
the shares, exceeds the option price for the shares. The Company will be
entitled to a compensation expense deduction in an amount equal to the ordinary
income includable in the taxable income of the participant. This compensation
income may be subject to withholding. The remainder of the gain recognized on
the disposition, if any, or any loss recognized on the disposition, will be
treated as long-term or short-term capital gain or loss, depending on the
holding period.

NON-STATUTORY STOCK OPTIONS. Neither the participant nor the Company incurs any
federal income tax consequences as a result of the grant of a non-statutory
stock option. Upon exercise of a non-statutory stock option, a participant will
recognize ordinary income, subject to withholding, on the date of exercise in an
amount equal to the difference between (i) the fair market value of the shares
purchased, determined on the date of exercise, and (ii) the consideration paid
for the shares. The participant may be subject to an additional excise tax if
any amounts are treated as excess parachute payments (see explanation below).
Special rules will apply if previously acquired shares of common stock are
permitted to be tendered in payment of an option exercise price.

At the time of a subsequent sale or disposition of any shares of common stock
obtained upon exercise of a non-statutory stock option, any gain or loss will be
treated as long-term or short-term capital gain or loss, depending on the
holding period from the date of exercise.

In general, the Company will be entitled to a compensation expense deduction in
connection with the exercise of a non-statutory stock option for any amounts
includable in the taxable income of the participant as ordinary income, provided
the

Company complies with any applicable withholding requirements.

STOCK APPRECIATION RIGHTS. A participant who receives a stock appreciation right
will not recognize any taxable income at the time of the grant. Upon the
exercise of a stock appreciation right, the participant will realize ordinary
income in an amount equal to the cash and the fair market value of any shares of
common stock received by the participant. Provided that proper withholding is
made, the Company will be entitled to a compensation expense deduction for any
amounts includable by the participant as ordinary income.

RESTRICTED STOCK AWARDS. With respect to shares issued pursuant to a restricted
stock award that are not subject to a substantial risk of forfeiture, a
participant will include as ordinary income in the year of receipt an amount
equal to the fair market value of the shares received on the date of receipt.
With respect to shares that are subject to a substantial risk of forfeiture, a
participant may file an election under Section 83(b) of the Internal Revenue
Code within 30 days after the shares are received to include as ordinary income
in the year of receipt an amount equal to the fair market value of the shares
received on the date of receipt (determined as if the shares were not subject to
any risk of forfeiture). The Company will receive a corresponding tax deduction,
provided that proper withholding is made. If a Section 83(b) election is made,
the participant will not recognize any additional income when the restrictions
on the shares issued in connection with the stock award lapse. At the time any
such shares are sold or disposed of, any gain or loss will be treated as
long-term or short-term capital gain or loss, depending on the holding period
from the date of receipt of the restricted stock award.

A participant who does not make a Section 83(b) election within 30 days of the
receipt of a restricted stock award that is subject to a substantial risk of
forfeiture will recognize ordinary income at the time of the lapse of the
restrictions in an amount equal to the then fair market value of the shares. The
Company will receive a corresponding tax deduction, provided that proper
withholding is made. At the time of a subsequent sale or disposition of any
shares of common stock issued in connection with a restricted stock award as to
which the restrictions have lapsed, any gain or loss will be treated as
long-term or short-term capital gain or loss, depending on the holding period
from the date the restrictions lapse.

PERFORMANCE UNITS. A participant who receives a performance unit will not
recognize any taxable income at the time of the grant. Upon settlement of the
performance unit, the participant will realize ordinary income in an amount
equal to the cash and the fair market value of any shares of common stock
received by the participant. Provided that proper withholding is made, the
Company would be entitled to a compensation expense deduction for any amounts
includable by the participant as ordinary income.

STOCK BONUSES. With respect to shares issued pursuant to a stock bonus, a
participant will include as ordinary income in the year of receipt an amount
equal to the fair market value of the shares received as of the date of receipt.
The Company will receive a corresponding tax deduction, provided that proper
withholding is made. At the time of a subsequent sale or disposition of any
shares of common stock

issued in connection with a stock bonus, any gain or loss will be treated as
long-term or short-term capital gain or loss, depending on the holding period
from the date the shares were received.

EXCISE TAX ON PARACHUTE PAYMENTS. The Internal Revenue Code also imposes a 20%
excise tax on the recipient of "excess parachute payments," as defined in the
Internal Revenue Code and denies tax deductibility to the Company on excess
parachute payments. Generally, parachute payments are payments in the nature of
compensation to employees of a company who are officers, shareholders or highly
compensated individuals, which payments are contingent upon a change in
ownership or effective control of the company, or in the ownership of a
substantial portion of the assets of the company. For example, acceleration of
the exercisability of options, or the vesting of restricted stock awards, upon a
change in control of the Company may constitute parachute payments, and in
certain cases, "excess parachute payments."

SECTION 162(m). Under Section 162(m) of the Internal Revenue Code, the
deductibility of certain compensation paid to the chief executive officer and
each of the four other most highly compensated executives of a publicly held
corporation is limited to $1,000,000. Compensation for this purpose generally
includes any items of compensation expense described above in connection with
incentive awards under the 1997 Plan. However, certain types of compensation are
excepted from this limit, including compensation that qualifies as
"performance-based compensation." As a result of the amendment of the 1997 Plan
on March 2, 2000 to impose an annual limit on the number of options granted to
any individual, any compensation expense resulting from the exercise of options
granted on or subsequent to March 2, 2000 under the 1997 Plan with exercise
prices equal to (or greater than) the fair market value of the common stock on
the date of grant should qualify as "performance-based compensation" excepted
from the limit of Section 162(m). However, compensation expense in connection
with any other incentive awards under the 1997 Plan will be subject to this
limit.

INCENTIVE AWARDS GRANTED UNDER THE 1997 PLAN

Information about options granted in fiscal 2000 under the 1997 Plan to the
Chief Executive Officer of Select Comfort and the four other most highly
compensated executive officers of Select Comfort during fiscal 2000 can be found
in the table under the heading "Option Grants in Last Fiscal Year" on page 15 of
this proxy statement. In fiscal 2000, options to purchase an aggregate of
846,000 shares were granted to all current executive officers as a group,
options to purchase 84,000 shares were granted to current directors who are not
executive officers, and options to purchase an aggregate of 337,700 shares were
granted to all employees (excluding current executive officers) as a group under
the 1997 Plan.

No information can be provided with respect to options or awards that may be
granted in the future under the 1997 Plan. Such awards are within the discretion
of the Compensation Committee and the Board of Directors. The Compensation
Committee has not determined future awards or who might receive them.

VOTE REQUIRED

Approval of the amendment of the 1997 Plan to increase the number of shares of
common stock reserved for issuance by 3,000,000 shares, from 3,500,000 shares to
6,500,000 shares, requires the affirmative vote of the holders of a majority of
the shares of common stock present and entitled to vote in person or by proxy on
this matter at the Annual Meeting, and the affirmative vote of at least a
majority of the minimum number of votes necessary for a quorum.

BOARD RECOMMENDATION

The Board of Directors recommends that the shareholders vote FOR approval of the
amendment to the 1997 Plan. Unless a contrary choice is specified, proxies
solicited by the Board will be voted FOR approval of the amendment to the 1997
Plan.

PROPOSAL TO AMEND THE
1999 EMPLOYEE STOCK PURCHASE PLAN

(PROPOSAL 5)

-------------------------

PROPOSED AMENDMENT

On June 10, 1999, the Board of Directors adopted the 1999 Employee Stock
Purchase Plan (the "Purchase Plan"), which was approved by our shareholders on
May 18, 2000. On February 13, 2001, the Board amended the Purchase Plan to
increase the number of shares reserved for issuance under the Purchase Plan by
500,000 shares, from 500,000 shares to a total of 1,000,000 shares. You are
being asked to approve this amendment at the Annual Meeting.

PURPOSE OF THE AMENDMENT

The Purchase Plan allows eligible employees of Select Comfort and its
subsidiaries to purchase shares of common stock on favorable terms through
payroll deductions. Under the Purchase Plan, Select Comfort conducts a series of
offerings of its common stock, each continuing for a period of three months (the
"Offering Period") and each beginning on January 1, April 1, July 1 and October
1 of each year, as the case may be (the "Offering Commencement Date"), and
ending on the following March 31, June 30, September 30 and December 31, as the
case may be (the "Offering Termination Date"). On each Offering Commencement
Date, each eligible participating employee (the "Participant") in the Purchase
Plan will be granted, by operation of the Purchase Plan, an option (a "Purchase
Plan Option") to purchase as many full shares of common stock as can be
purchased with payroll deductions authorized by the Participant and credited to
the Participant's account during that Offering Period.

The purpose of the Purchase Plan is to advance the interests of Select Comfort
and its shareholders by allowing employees of Select Comfort and its
subsidiaries the opportunity to acquire an ownership interest in Select Comfort
through these purchases.

At the time that the Purchase Plan was originally approved by the Board and the
shareholders, 500,000 shares were reserved for issuance under the plan. Through
the end of the 2000 fiscal year, the Company had issued an aggregate of 222,632
shares under the Purchase Plan. Based on current participation levels in the
plan and the current trading price of the Company's common stock, the originally
reserved shares would be depleted during the second quarter of fiscal 2001.
Without approval of the increase in the number of shares available under the
Purchase Plan, the Company may be forced to terminate the plan, removing an
important benefit to our employees that is designed to align the interests of
our employees with those of our shareholders.

The major features of the Purchase Plan are summarized below, which summary is
qualified in its entirety by reference to the actual text of the Purchase Plan,
a copy of

which may be obtained from Select Comfort.

SUMMARY OF THE PURCHASE PLAN

GENERAL. Any employee (including any executive officer) of Select Comfort or any
participating subsidiary, other than an employee whose customary employment is
five months or less per calendar year, who has been continuously employed by
Select Comfort or a subsidiary prior to the Offering Commencement Date for an
Offering Period will be eligible to participate in that Offering Period.

Subject to approval by the shareholders of the proposed amendment of the
Purchase Plan, the maximum number of shares of common stock available for
issuance under the Purchase Plan is 1,000,000 shares. Any shares of common stock
that are subject to a Purchase Plan Option that terminates unexercised will
automatically become available again for issuance under the Purchase Plan. The
number and type of securities subject to outstanding Purchase Plan Options and
the exercise price of outstanding Purchase Plan Options will be appropriately
adjusted by the Company in the event of any common stock dividend, stock split,
recapitalization, merger, consolidation, combination or exchange or other change
in the corporate structure or shares of Select Comfort. If the total number of
shares that would otherwise be issuable on any Offering Termination Date exceeds
the number of shares then available under the Purchase Plan (after deduction of
all shares for which Purchase Plan Options have been exercised or are then
outstanding), Select Comfort will make a pro rata allocation of the shares
remaining available for Purchase Plan Option grants in as uniform and equitable
a manner as it deems appropriate.

The Compensation Committee (the "Committee") of the Board administers the
Purchase Plan. Members of the Committee are appointed from time to time by the
Board, serve at the pleasure of the Board, and may resign at any time upon
written notice to the Board. The Committee has the authority to make, administer
and interpret such rules and regulations as it deems necessary to administer the
Purchase Plan.

PARTICIPATION. An eligible employee may become a Participant in the Purchase
Plan by completing an enrollment form authorizing payroll deductions on the form
provided by Select Comfort and filing it with the Human Resources Department not
later than the 15th day of the month immediately preceding the Offering
Commencement Date of the first Offering Period in which the Participant wishes
to participate. Payroll deductions for a Participant will begin with the first
payroll following the applicable Offering Commencement Date and will continue
until the termination of the Purchase Plan, subject to withdrawal by the
Participant at any time as described below. An otherwise eligible employee will
not be granted a Purchase Plan Option under the Purchase Plan if, immediately
after the grant, the Participant would own shares of common stock and/or hold
outstanding options to purchase shares of common stock possessing 5% or more of
the total combined voting power or value of all classes of stock of Select
Comfort or of any subsidiary. As of May 1, 2001, approximately 1,600 persons
were eligible to participate in the Purchase Plan.

PAYROLL DEDUCTIONS. By completing and filing a participation form, a Participant
elects to have payroll deductions made from the Participant's total compensation
on each payday during the Offering Period at a rate equal to a whole percentage
from 1% to 15%

of the total compensation that he or she would have received on the payday (or
such other minimum or maximum percentages as the Committee may from time to time
establish). No increases or decreases in the amount of payroll deductions for a
Participant may be made during an Offering Period. A Participant may increase or
decrease the rate of the Participant's payroll deductions under the Purchase
Plan for subsequent Offering Periods by completing an amended enrollment form
and filing it no later than the 15th day of the month immediately preceding the
Offering Commencement Date of the Offering Period for which the increase or
decrease is to become effective. A Participant may discontinue participation in
the Purchase Plan at any time as described below.

The funds accumulated through a Participant's payroll deductions under the
Purchase Plan are credited to an account established under the Purchase Plan for
the Participant. These funds are held by Select Comfort as part of its general
assets, usable for any corporate purpose, and Select Comfort is not obligated to
keep these funds separate from its other corporate funds. Participants will not
receive any interest from Select Comfort for the funds accumulated from their
payroll deductions under the Purchase Plan and may not make any separate cash
payment or contribution to such account.

PURCHASE OF SHARES. On each Offering Commencement Date, each Participant is
granted, by operation of the Purchase Plan, a Purchase Plan Option to purchase
as many full shares of common stock as he or she will be able to purchase with
the payroll deductions credited to the Participant's account during the Offering
Period plus the balance (if any) carried forward from the preceding Offering
Period. Unless a Participant withdraws from the Purchase Plan as described
below, the Participant's Purchase Plan Option will be exercised automatically on
the Offering Termination Date for the purchase of the number full of shares of
common stock that the accumulated payroll deductions in the Participant's
account on the Offering Termination Date will purchase at the applicable price,
determined in the manner described below. The number of shares of common stock
that may be purchased under the Purchase Plan, however, will be limited as
follows: (i) no Participant may purchase more than 2,000 shares of common stock
under the Purchase Plan in any given Offering Period; and (ii) no Participant
may be granted a Purchase Plan Option that permits such Participant's rights to
purchase common stock under the Purchase Plan and any other "employee stock
purchase plans" of Select Comfort and its subsidiaries to become exercisable at
a rate that exceeds $25,000 of fair market value of such shares of common stock
(determined at the time such Purchase Plan Option is granted) for each calendar
year in which such Purchase Plan Option is outstanding at any time.

The per share purchase price of the shares offered in a given Offering Period
will be 85% of the fair market value of one share of common stock on the
Offering Termination Date. For this purpose, the fair market value of the common
stock will be the average of the reported high and low sale prices of the common
stock as reported by the Nasdaq National Market on the applicable date or, if no
shares were traded on such day, as of the next preceding day on which there was
such a trade. On May 1, 2001 the average of the reported high and low sale
prices of the common stock on the Nasdaq National Market was $0.85 per share.

Shares purchased in an Offering Period will be issued as soon as practicable
after each Offering Termination Date. The Committee may determine, in its sole
discretion, the manner of delivery of shares of common stock purchased under the
Purchase Plan. No Participant will have any interest in any shares of common
stock subject to a Purchase Plan Option under the Purchase Plan until the
Purchase Plan Option has been exercised.

NON-TRANSFERABILITY OF PURCHASE PLAN OPTIONS. Neither payroll deductions
credited to a Participant's account nor any rights with regard to the exercise
of a Purchase Plan Option or to receive shares of common stock under the
Purchase Plan may be assigned, transferred, pledged or otherwise disposed of in
any way (other than by will, the laws of descent and distribution, or by
designation of a beneficiary as provided in the Purchase Plan). Any such attempt
at assignment, transfer, pledge or other disposition will have no effect, except
that Select Comfort may treat such act as an election to withdraw from the
Purchase Plan, in which case the provisions described below will apply.

WITHDRAWAL AND TERMINATION OF EMPLOYMENT. A Participant may terminate
participation in the Purchase Plan and withdraw all, but not less than all, of
the payroll deductions credited to the Participant's account under the Purchase
Plan prior to the Offering Termination Date of an Offering Period by giving
written notice to Select Comfort no later than the 15th day of the last month of
the Offering Period. The notice must state the Participant's desire to terminate
involvement in the Purchase Plan, specify a termination date and request the
withdrawal of all of the Participant's payroll deductions held under the
Purchase Plan. All of the Participant's payroll deductions credited to the
Participant's account will be paid to such Participant as soon as practicable
after the termination date specified in the notice (or, if no date is specified,
as soon as practicable after receipt of the notice of termination and
withdrawal), the Purchase Plan Option for the Offering Period will automatically
be canceled, and no further payroll deductions for the purchase of shares of
common stock will be made during the Offering Period or for any subsequent
Offering Period unless a new enrollment form is filed. A Participant's
withdrawal from an Offering Period will not have any effect upon the
Participant's eligibility to participate in a succeeding Offering Period or in
any similar plan that Select Comfort may adopt.

Upon termination of a Participant's employment for any reason, including
retirement, death or disability, the payroll deductions credited to such
Participant's account will be returned as soon as practicable after the
effective date of termination (or, in the case of the Participant's death, to
the person or persons entitled to such funds according to the provisions
described above under the section "Non-Transferability of Purchase Plan
Options") and the Participant's Purchase Plan Option will automatically be
canceled. A transfer of employment between Select Comfort and a subsidiary or
between subsidiaries and absences or leaves approved by Select Comfort are not
considered termination of employment under the Purchase Plan.

FEDERAL INCOME TAX CONSEQUENCES

The following general description of federal income tax consequences is based
upon current statutes, regulations and interpretations. This description is not
intended to address specific tax consequences applicable to an individual
participant who receives a Purchase Plan Option and does not address special
rules that may be applicable to directors, officers and greater-than-10%
stockholders of Select Comfort.

The Purchase Plan is intended to qualify as an "employee stock purchase plan"
under Section 423 of the Code. If the Purchase Plan so qualifies, the amount
withheld from a Participant's compensation under the Purchase Plan will
constitute ordinary income for federal income tax purposes in the year in which
such amounts would otherwise have been paid to the Participant. However, a
Participant will generally not recognize any income for federal income tax
purposes either on the grant of a Purchase Plan Option or upon the issuance of
any shares of common stock under the Purchase Plan.

The federal income tax consequences of disposing of shares of common stock
acquired under the Purchase Plan depend upon how long a Participant holds the
shares. If a Participant disposes of shares acquired under the Purchase Plan
(other than a transfer by reason of death) within a period of two years from the
Offering Commencement Date of the Offering Period in which the shares were
acquired, an amount equal to the difference between the purchase price and the
fair market value of the shares on the last day of the Offering Period will be
treated as ordinary income for federal income tax purposes in the taxable year
in which the disposition takes place.

Such amount may be subject to wage withholding. The difference between the
amount realized upon such disposition of the shares and their fair market value
on the last day of the Offering Period will constitute capital gain or loss.
Whether the gain (or loss) constitutes long-term or short-term capital gain (or
loss) will depend upon the length of time the Participant held the stock prior
to its disposition. Participants should consult their tax advisors to determine
whether any specific gain (or loss) constitutes long-term or short-term capital
gain (or loss).

If a Participant disposes of any shares acquired under the Purchase Plan more
than two years after the Offering Commencement Date of the Offering Period in
which such shares were acquired (or if no disposition has occurred by the time
of Participant's death) an amount equal to the lesser of (a) the excess of the
fair market value of the shares at the time of disposition (or death) over the
purchase price, or (b) the excess of the fair market value of the shares on the
Offering Commencement Date of the Offering Period in which the shares were
acquired over the purchase price will be recognized as ordinary income and may
be subject to wage withholding. With respect to a disposition of such shares,
any remaining gain on such disposition will be taxed as long-term capital gain.
With respect to a transfer of such shares upon death, any remaining gain or loss
will not be recognized. However, a subsequent sale or exchange of such shares by
a Participant's estate or the person receiving such shares by reason of the
Participant's death may result in capital gain or loss.

No income tax deduction ordinarily is allowed to Select Comfort with respect to
the grant of any Purchase Plan Option, the issuance of any shares of common
stock

under the Purchase Plan or the disposition of any shares acquired under the
Purchase Plan and held for two years. However, if a Participant disposes of
shares purchased under the Purchase Plan within two years after the Offering
Commencement Date of the Offering Period in which the shares were acquired,
Select Comfort will receive an income tax deduction in the year of such
disposition in an amount equal to the amount constituting ordinary income to the
Participant, provided that Select Comfort complies with the applicable wage
withholding requirements.

VOTE REQUIRED

Approval of the amendment of the 1999 Employee Stock Purchase Plan to increase
the number of shares reserved for issuance by 500,000 shares, from 500,000
shares to 1,000,000 shares, requires the affirmative vote of the holders of a
majority of the shares of common stock present and entitled to vote in person or
by proxy on the matter at the Annual Meeting, and the affirmative vote of at
least a majority of the minimum number of votes necessary for a quorum.

BOARD OF DIRECTORS RECOMMENDATION

The Board of Directors recommends that the shareholders vote FOR approval of the
amendment of the 1999 Employee Stock Purchase Plan. Unless a contrary choice is
specified, proxies solicited by the Board of Directors will be voted FOR
approval of the amendment of the 1999 Employee Stock Purchase Plan.

APPROVAL OF THE MATERIAL TERMS OF THE
PERFORMANCE GOALS UNDER THE SELECT COMFORT CORPORATION
EXECUTIVE AND KEY EMPLOYEE INCENTIVE PLAN

(PROPOSAL 6)

------------------------

PROPOSAL

At the Annual Meeting, shareholders will be requested to consider and act upon a
proposal to approve the material terms of the performance goals under the Select
Comfort Corporation Executive and Key Employee Incentive Plan (the "Incentive
Plan"). On February 13, 2001, the Board of Directors approved the Incentive
Plan, subject to approval by shareholders of the material terms of the objective
performance goals under the Incentive Plan (the "Performance Goals"). The
purposes of the Incentive Plan are to:

o Enable the Company to attract and retain high caliber executives and key
employees;

o Provide incentive compensation for such executives and key employees that
is linked to the growth and profitability of the Company and increases in
shareholder value; and

o Further the identity of interests of such executives and key employees with
the interests of our shareholders.

Although no shareholder approval is required for the Company to enact and
maintain the Incentive Plan, shareholder approval of the Performance Goals is
required to obtain tax deductibility by the Company of awards payable under the
Incentive Plan.

The principal features of the Incentive Plan are summarized below, which summary
is qualified in its entirety by reference to the actual text of the Incentive
Plan, a copy of which may be obtained from Select Comfort.

DESCRIPTION OF THE INCENTIVE PLAN

Below is a summary of certain important features of the Incentive Plan and a
description of the Performance Goals under the Incentive Plan that shareholders
are being asked to approve.

ADMINISTRATION. The Compensation Committee will administer the Incentive Plan.
Under the terms of the Incentive Plan, at the beginning of each fiscal year, the
Compensation Committee determines:

o The employees of the Company by grade level that will be eligible to
participate in the Incentive Plan for the fiscal year;

o The quarterly and/or annual specific measures and goals for the fiscal year
from among the objective Company-wide Performance Goals described below;
and

o For each level of employee: (i) the target incentive compensation award as
a percentage of base compensation, (ii) the portion of the target award to
be based on the objective Company-wide Performance Goals, and (iii) the
portion of the target award, if any, to be based on objective individual
performance goals.

Notwithstanding the foregoing, for the senior executive officers of the Company,
at least 75% of any award under the Incentive Plan must be based on objective
Company-wide Performance Goals and not more than 25% of any award may be based
on objective individual performance goals.

The Compensation Committee has full authority to make all decisions necessary to
administer the Incentive Plan, to interpret and enforce the terms and conditions
of the Incentive Plan and to determine the amounts payable to participants under
the Incentive Plan. The Compensation Committee has full authority to reduce or
eliminate the amount payable to any participant with respect to any award under
the Incentive Plan as may be necessary or appropriate in the discretion of the
Compensation Committee. All decisions of the Compensation Committee with respect
to any aspect of the Incentive Plan will be final, conclusive and binding for
all purposes.

PERFORMANCE GOALS. At the beginning of each fiscal year, the Compensation
Committee will determine the quarterly and/or annual specific measures and goals
that incentive compensation will be based upon from among the following possible
Performance Goals (all of which are determined on a consolidated Company-wide
basis):

o Sales growth or volume;

o Net operating profit before tax;

o Cash flow;

o Earnings per share;

o Return on capital; and

o Return on assets.

The foregoing Performance Goals are submitted for approval by the shareholders
at the Annual Meeting.

LIMITATION ON AWARDS. The maximum award payable to any participant under the
Incentive Plan shall not exceed either 200% of the participant's base salary or
$1,000,000.

PAYMENT OF AWARDS. Unless otherwise specified by the Compensation Committee,
awards under the Incentive Plan are payable in cash. No participant shall have a
right to an award under the Incentive Plan until the Compensation Committee
shall have taken final action granting the award. Awards shall be paid as soon
as practical following the period for which the award is payable, and in any
event within 45 days after the end of the quarter for quarterly awards and
within 90 days after the end of the year for annual awards.

The Compensation Committee has selected net operating profit before tax and cash
flow as the Performance Goals for the 2001 fiscal year. Approximately 100
employees in various management positions within the Company are potentially
eligible to participate in the Incentive Plan. The actual awards to be paid
under the Incentive Plan to executive officers or key employees cannot be
determined at this time since the awards

are dependent on the level of achievement against the Performance Goals.

REASON FOR SHAREHOLDER APPROVAL

The Incentive Plan has been designed to address certain limits on the ability of
a public corporation to claim tax deductions for compensation paid to certain
highly compensated executive officers. Section162(m) of the Internal Revenue
Code generally denies a corporate tax deduction for annual compensation
exceeding $1 million paid to the chief executive officer or to any of the four
other most highly compensated officers of a public corporation. See
"Compensation Committee Report on Executive Compensation - Section 162(m)."
However, "Qualified Incentive Plan compensation" is exempt from this limitation.
Qualified Incentive Plan compensation is compensation paid solely on the basis
of achievement of objective Performance Goals, the material terms of which are
approved by the shareholders of the public corporation. The shareholders of the
Company are thus being asked to approve the material terms of the objective
Performance Goals under the Incentive Plan, as described above.

VOTE REQUIRED

Approval of the Performance Goals under the Incentive Plan requires the
affirmative vote of the holders of a majority of the shares of common stock
present and entitled to vote in person or by proxy on this matter at the Annual
Meeting, and the affirmative vote of at least a majority of the minimum number
of votes necessary for a quorum.

BOARD RECOMMENDATION

The Board of Directors recommends that the shareholders vote FOR approval of the
Performance Goals under the Incentive Plan. Unless a contrary choice is
specified, proxies solicited by the Board will be voted FOR approval of the
Performance Goals under the Incentive Plan.

RATIFICATION OF SELECTION OF
INDEPENDENT AUDITORS

(PROPOSAL 7)

-------------------------

APPOINTMENT OF AUDITORS

The Board of Directors has appointed KPMG LLP, independent certified public
accountants, as our auditors for the year ending December 29, 2001. KPMG LLP has
acted as our independent auditors since 1993.

Although it is not required to do so, the Board wishes to submit the selection
of KPMG LLP to the shareholders for ratification. If you do not ratify the
appointment of KPMG LLP, the Board will consider another firm of independent
auditors.

Representatives of KPMG LLP will be present at the Annual Meeting, will have an
opportunity to make a statement if they so desire and will be available to
respond to appropriate questions.

AUDIT FEES

The aggregate fees billed to the Company by KPMG LLP for professional services
rendered for the audit of the Company's annual financial statements for fiscal
2000 and for review of the financial statements included in the Company's
quarterly reports on Form 10-Q for fiscal 2000 were $104,000.

ALL OTHER FEES

Other than audit fees described above, the aggregate fees billed to the Company
by KPMG LLP for all services, none of which were financial information systems
design or implementation fees, for fiscal 2000 were $14,000. The Audit Committee
has considered as a general matter the independence of KPMG, and has concluded
that the provision of the services described above is not incompatible with
maintaining KPMG LLP's independence.

VOTE REQUIRED

Ratification of the appointment of KPMG LLP as our auditors for the year ending
December 29, 2001 requires the affirmative vote of the holders of a majority of
the shares of common stock present and entitled to vote in person or by proxy on
this matter at the Annual Meeting, and the affirmative vote of at least a
majority of the minimum number of votes necessary for a quorum.

BOARD RECOMMENDATION

The Board recommends a vote FOR ratification of the appointment of KPMG LLP as
our auditors for the year ending December 29, 2001. Unless a contrary choice is
specified, proxies solicited by the Board will be voted FOR the ratification of
KPMG LLP.

OTHER MATTERS
---------------------------

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires our directors and
executive officers and all persons who beneficially own more than 10% of the
outstanding shares of our common stock to file with the Securities and Exchange
Commission initial reports of ownership and reports of changes in ownership of
our common stock.

Executive officers, directors and greater than 10% beneficial owners are also
required to furnish us with copies of all Section 16(a) forms they file.

To our knowledge, based upon a review of the copies of such reports furnished to
us during the fiscal year ended December 30, 2000 and written representations by
such persons, one report on Form 4 relating to the purchase by William R.
McLaughlin of 2,000 shares in October, 2000 was inadvertently not timely filed
during 2000. All other transactions were reported on a timely basis.

SHAREHOLDER PROPOSALS FOR 2002 ANNUAL MEETING

Any shareholder proposal to be included in the proxy materials for the 2002
Annual Meeting of Shareholders must be received by the Company on or before
February 18, 2002.

Our Bylaws require advance written notice to the Company of shareholder-proposed
business or of a shareholder's intention to make a nomination for director at an
annual meeting of shareholders. They also limit the business, which may be
conducted at any special meeting of shareholders to business brought by the
Board.

Specifically, the Bylaws provide that business may be brought before an annual
meeting by a shareholder only if the shareholder provides written notice to the
Secretary of the Company not less than 120 days prior to the first anniversary
of the date that the Company first released or mailed its proxy statement to
shareholders in connection with the preceding year's annual meeting. In the
event, however, that the date of the annual meeting is advanced by more than 30
days or delayed by more than 60 days from the anniversary of the preceding
year's annual meeting date, notice by the shareholder to be timely must be so
delivered not later than the close of business on the later of the 120th day
prior to such annual meeting or the 10th day following the day on which public
announcement of the date of such meeting is first made.

A shareholder's notice must set forth:

o a description of the proposed business and the reasons for it,

o the name and address of the shareholder making the proposal,

o the class and number of shares of common stock owned by the shareholder,
and

o a description of any material interest of the shareholder in the proposed
business.

Our Bylaws also provide that a shareholder may nominate a director at an annual
meeting only after providing advance written notice to the Secretary of the
Company within the time limits described above. The shareholder's notice must
set forth all information about each nominee that would be required under SEC
rules in a proxy statement soliciting proxies for the election of such nominee,
as well as the nominee's business and residence address. The notice must also
set forth the name and record address of the shareholder making the nomination
and the class and number of shares of common stock owned by that shareholder.

OTHER BUSINESS

The management of the Company does not intend to present other items of business
and knows of no items of business that are likely to be brought before the
Annual Meeting except those described in this proxy statement.

However, if any other matters should properly come before the Annual Meeting,
the persons named in the enclosed proxy will have discretionary authority to
vote such proxy in accordance with the best judgment on such matters.

COPIES OF 2000 ANNUAL REPORT

We will furnish to our shareholders without charge a copy of our Annual Report
on Form 10-K (without exhibits) for the fiscal year ended December 30, 2000 upon
receipt from any such person of a written request for such an Annual Report.

Such request should be sent to:

Select Comfort Corporation
6105 Trenton Lane North
Minneapolis, Minnesota 55442
Attn: Shareholder Information

INCORPORATION OF INFORMATION BY REFERENCE

The information contained in the Company's Annual Report to Shareholders and in
the Company's quarterly report on Form 10-Q for the first quarter ended March
31, 2001, copies of which have been mailed to shareholders together with this
Proxy Statement, is hereby incorporated in this Proxy Statement by reference.

- --------------------------------------------------------------------------------

Your vote is important. Whether or not you plan to attend the Annual Meeting,
please vote your shares of common stock by marking, signing, dating and promptly
returning the enclosed proxy card in the envelope provided. No postage is
required for mailing in the United States.

By Order Of the Board of Directors

/s/Mark A. Kimball

SENIOR VICE PRESIDENT,
GENERAL COUNSEL AND SECRETARY

June 18, 2001
Minneapolis, Minnesota

APPENDIX A

SELECT COMFORT CORPORATION

AUDIT COMMITTEE OF THE BOARD OF DIRECTORS CHARTER

(Effective March 2, 2000)

I. PURPOSE

The primary function of the Audit Committee is to assist the Board of
Directors in fulfilling its oversight responsibilities by reviewing: the
financial reports and other financial information provided by Select Comfort
Corporation (the "Company") to any governmental body or the public; the
Company's systems of internal controls regarding finance, accounting, legal
compliance and ethics that management and the Board have established; and the
Company's auditing, accounting and financial reporting processes generally.
Consistent with this function, the Audit Committee should encourage continuous
improvement of, and should foster adherence to, the Company's policies,
procedures and practices at all levels. The Audit Committee's primary duties and
responsibilities are to:

- - Serve as an independent and objective party to monitor the Company's
financial reporting process and internal control system.

- - Review and appraise the audit efforts of the Company's independent
auditors, KPMG LLP.

- - Provide an open avenue of communication among the independent auditors,
financial and senior management, and the Board of Directors.

The Audit Committee will primarily fulfill these responsibilities by
carrying out the activities enumerated in Section IV of this Charter.

II. COMPOSITION

The Audit Committee shall be comprised of three directors as determined by
the Board, each of whom shall be independent directors, and free from any
relationship that, in the opinion of the Board, would interfere with the
exercise of his or her independent judgment as a member of the Committee. A
director is not independent if the director:

- - is an employee of the company or an affiliate, or former employee within
three years, or an immediate family member of a current or former (within
three years) executive officer;

- - has received non-director compensation exceeding $60,000 during the prior
year (excluding benefits under a tax-qualified retirement plan);

- - is an affiliate of an entity that received payments in any of the past
three years exceeding the greater of $200,000 or five percent of either the
paying or receiving company's annual gross revenues; or

- - is an executive of another entity and any of the company's executives serve
on that entity's compensation committee.

All members of the Committee shall have a working familiarity with basic
finance and accounting practices, and at least one member of the Committee shall
have accounting or related financial management expertise (including prior
experience as CEO of an unrelated entity).

The members of the Committee shall be elected by the Board at the annual
organizational meeting of the Board or until their successors shall be duly
elected and qualified. Unless a Chair is elected by the full Board, the members
of the Committee may designate a Chair by majority vote of the full Committee
membership.

Page 2

III. MEETINGS

The Committee shall meet at least two times annually, or more frequently as
circumstances dictate. As part of its job to foster open communication, the
Committee should meet at least annually with management and the independent
auditors in separate executive sessions to discuss any matters that the
Committee or each of these groups believe should be discussed privately. In
addition, the Committee or at least its Chair should meet with the independent
auditors and management quarterly to review the Company's financials consistent
with IV.4. below.

IV. RESPONSIBILITIES AND DUTIES

To fulfill its responsibilities and duties the Audit Committee shall:

DOCUMENTS/REPORTS REVIEW
1. Review and update this Charter periodically, at least annually, as
conditions dictate.

2. Review the Company's annual financial statements and any reports or other
financial information submitted to any governmental body, or the public,
including any certification, report, opinion, or review rendered by the
independent auditors.

3. Review the annual management recommendations to management prepared by the
independent auditors and management's response.

4. Review with financial management and the independent auditors the 10-Q
prior to its filing or prior to the release of earnings. The Chair of the
Committee may represent the entire Committee for purposes of this review.

Page 3

INDEPENDENT AUDITORS
5. Recommend to the Board of Directors the selection of the independent
auditors, considering independence and effectiveness and approve the fees
and other compensation to be paid to the independent auditors. On an annual
basis, the Committee should review and discuss with the auditors all
significant relationships the auditors have with the Company to determine
the auditors' independence.

6. Review the performance of the independent auditors and approve any proposed
discharge of the independent auditors when circumstances warrant.

7. Periodically consult with the independent auditors out of the presence of
management about internal controls and the fullness and accuracy of the
Company's financial statements.

FINANCIAL REPORTING PROCESSES
8. In consultation with the independent auditors, review the integrity of the
Company's financial reporting processes, both internal and external.

9. Consider the independent auditors' judgments about the quality and
appropriateness of the Company's accounting principles as applied in its
financial reporting.

10. Consider and approve, if appropriate, major changes to the Company's
accounting principles and practices as suggested by the independent
auditors and management.

PROCESS IMPROVEMENT
11. Establish regular and separate systems of reporting to the Audit Committee
by each of management and the independent auditors regarding any
significant judgments made in management's preparation of the financial
statements and the view of each as to appropriateness of such judgments.

Page 4

12. Following completion of the annual audit, review separately with each of
management and the independent auditors any significant difficulties
encountered during the course of the audit, including any restrictions on
the scope of work or access to required information.

13. Review any significant disagreement among management and the independent
auditors in connection with the preparation of the financial statements.

14. Review with the independent auditors and management the extent to which
changes or improvements in financial or accounting practices, as approved
by the Audit Committee, have been implemented. (This review should be
conducted at an appropriate time subsequent to implementation of changes or
improvements, as decided by the Committee.)

ETHICAL AND LEGAL COMPLIANCE
15. Establish, review and update periodically a Code of Ethical Conduct and
ensure that management has established a system to enforce this Code.

16. Review management's monitoring of the Company's compliance with the
Company's Ethical Code, and ensure that management has the proper review
system in place to ensure that Company's financial statements, reports and
other financial information disseminated to governmental organizations, and
the public satisfy legal requirements.

17. Review, with the Company's counsel, legal compliance matters including
corporate securities trading policies.

18. Review, with the Company's counsel, any legal matter that could have a
significant impact on the Company's financial statements.

19. Review Travel and Entertainment expenditures of President and CEO of the
Company.

Page 5

20. Perform any other activities consistent with this charter, the Company's
By-laws and governing law, as the Committee or the Board deems necessary or
appropriate.

WHILE THE AUDIT COMMITTEE HAS THE RESPONSIBILITIES AND POWERS SET FORTH IN THIS
CHARTER, IT IS NOT THE DUTY OF THE AUDIT COMMITTEE TO DETERMINE THAT THE
COMPANY'S FINANCIAL STATEMENTS ARE COMPLETE AND ACCURATE AND ARE IN ACCORDANCE
WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. THIS IS THE RESPONSIBILITY OF
MANAGEMENT. THE INDEPENDENT AUDITOR IS RESPONSIBLE TO PLAN AND CONDUCT THIS
AUDIT IN ACCORDANCE WITH GAAS. NOR IS IT THE DUTY OF THE AUDIT COMMITTEE TO
CONDUCT INVESTIGATIONS, TO RESOLVE DISAGREEMENTS, IF ANY, BETWEEN MANAGEMENT AND
THE INDEPENDENT AUDITOR OR TO ASSURE COMPLIANCE WITH LAWS AND REGULATIONS AND
THE COMPANY'S CODE OF CONDUCT.

Page 6

APPENDIX B

MINNESOTA CONTROL SHARE ACQUISITION ACT

SECTION 302A.671. CONTROL SHARE ACQUISITIONS.

SUBDIVISION 1. APPLICATION. (a) Unless otherwise expressly provided in the
articles or in bylaws approved by the shareholders of an issuing public
corporation, this section applies to a control share acquisition. A
shareholder's proposal to amend the corporation's articles or bylaws to cause
this section to be inapplicable to the corporation requires the vote set forth
in subdivision 4a, paragraph (b), in order for it to be effective, unless it is
approved by a committee of the board comprised solely of directors who:

(1) are neither officers nor employees of, nor were during the five years
preceding the formation of the committee officers or employees of, the
corporation or a related organization;

(2) are neither acquiring persons nor affiliates or associates of an
acquiring person;

(3) were not nominated for election as directors by an acquiring person or
an affiliate or associate of an acquiring person; and

(4) were directors at the time an acquiring person became an acquiring
person or were nominated, elected, or recommended for election as
directors by a majority of those directors.

(b) The shares of an issuing public corporation acquired by an acquiring person
in a control share acquisition that exceed the threshold of voting power of any
of the ranges specified in subdivision 2, paragraph (d), shall have only the
voting rights as shall be accorded to them pursuant to subdivision 4a.

SUBD. 2. INFORMATION STATEMENT. An acquiring person shall deliver to the issuing
public corporation at its principal executive office an information statement
containing all of the following:

(a) the identity and background of the acquiring person, including the identity
and background of each member of any partnership, limited partnership,
syndicate, or other group constituting the acquiring person, and the identity
and background of each affiliate and associate of the acquiring person,
including the identity and background of each affiliate and associate of each
member of such partnership, syndicate, or other group; provided, however, that
with respect to a limited partnership, the information need only be given with
respect to a partner who is denominated or functions as a general partner and
each affiliate and associate of the general partner;

(b) a reference that the information statement is made under this section;

(c) the number and class or series of shares of the issuing public corporation
beneficially owned, directly or indirectly, before the control share acquisition
by each of the persons identified pursuant to paragraph (a);

(d) the number and class or series of shares of the issuing public corporation
acquired or proposed to be acquired pursuant to the control share acquisition by
each of the persons identified pursuant to paragraph (a) and specification of
which of the following ranges of voting power in the election of directors that,
except for this section, resulted or would result from consummation of the
control share acquisition:

(1) at least 20 percent but less than 33-1/3 percent;

(2) at least 33-1/3 percent but less than or equal to 50 percent;

(3) over 50 percent; and

(e) the terms of the control share acquisition or proposed control share
acquisition, including, but not limited to, the source of funds or other
consideration and the material terms of the financial arrangements for the
control share acquisition; plans or proposals of the acquiring person (including
plans or proposals under consideration) to (1) liquidate or dissolve the issuing
public corporation, (2) sell all or a substantial part of its assets, or merge
it or exchange its shares with any other person, (3) change the location of its
principal place of business or its principal executive office or a material
portion of its business activities, (4) change materially its management or
policies of employment, (5) change materially its charitable or community
contributions or its policies, programs, or practices relating thereto, (6)
change materially its relationship with suppliers or customers or the
communities in which it operates, or (7) make any other material change in its
business, corporate structure, management or personnel; and other objective
facts as would be substantially likely to affect the decision of a shareholder
with respect to voting on the control share acquisition.

If any material change occurs in the facts set forth in the information
statement, including but not limited to any material increase or decrease in the
number of shares of the issuing public corporation acquired or proposed to be
acquired by the persons identified pursuant to paragraph (a), the acquiring
person shall promptly deliver to the issuing public corporation at its principal
executive office an amendment to the information statement containing
information relating to the material change. An increase or decrease or proposed
increase or decrease equal, in the aggregate for all persons identified pursuant
to paragraph (a), to one percent or more of the total number of outstanding
shares of any class or series of the issuing public corporation shall be deemed
"material" for purposes of this paragraph; an increase or decrease or proposed
increase or decrease of less than this amount may be material, depending upon
the facts and circumstances.

SUBD. 3. MEETING OF SHAREHOLDERS. If the acquiring person so requests in writing
at the time of delivery of an information statement pursuant to subdivision 2,
and has made, or has made a bona fide written offer to make, a control share
acquisition and gives a written undertaking to pay or reimburse the issuing
public corporation's expenses of a special meeting, except the expenses of the
issuing public corporation in opposing according voting rights with respect to
shares acquired or to be acquired in the control share acquisition, within ten
days after receipt by the issuing public corporation of the information
statement, a special meeting of the shareholders

of the issuing public corporation shall be called pursuant to section 302A.433,
subdivision 1, for the sole purpose of considering the voting rights to be
accorded to shares referred to in subdivision 1, paragraph (b), acquired or to
be acquired pursuant to the control share acquisition. The special meeting shall
be held no later than 55 days after receipt of the information statement and
written undertaking to pay or reimburse the issuing public corporation's
expenses of the special meeting, unless the acquiring person agrees to a later
date. If the acquiring person so requests in writing at the time of delivery of
the information statement, (1) the special meeting shall not be held sooner than
30 days after receipt by the issuing public corporation of the information
statement and (2) the record date for the meeting must be at least 30 days prior
to the date of the meeting. If no request for a special meeting is made,
consideration of the voting rights to be accorded to shares referred to in
subdivision 1, paragraph (b), acquired or to be acquired pursuant to the control
share acquisition shall be presented at the next special or annual meeting of
the shareholders of which notice has not been given, unless prior thereto the
matter of the voting rights becomes moot. The issuing public corporation is not
required to have the voting rights to be accorded to shares acquired or to be
acquired according to a control share acquisition considered at the next special
or annual meeting of the shareholders unless it has received the information
statement and documents required by subdivision 4 at least 55 days before the
meeting. The notice of the meeting shall at a minimum be accompanied by a copy
of the information statement (and a copy of any amendment to the information
statement previously delivered to the issuing public corporation) and a
statement disclosing that the board of the issuing public corporation recommends
approval of, expresses no opinion and is remaining neutral toward, recommends
rejection of, or is unable to take a position with respect to according voting
rights to shares referred to in subdivision 1, paragraph (b), acquired or to be
acquired in the control share acquisition. The notice of meeting shall be given
at least ten days prior to the meeting. Any amendments to the information
statement received after mailing of the notice of the meeting must be mailed
promptly to the shareholders by the issuing public corporation.

SUBD. 4. FINANCING. Notwithstanding anything to the contrary contained in this
chapter, no call of a special meeting of the shareholders of the issuing public
corporation shall be made pursuant to subdivision 3 and no consideration of the
voting rights to be accorded to shares referred to in subdivision 1, paragraph
(b), acquired or to be acquired pursuant to a control share acquisition shall be
presented at any special or annual meeting of the shareholders of the issuing
public corporation unless at the time of delivery of the information statement
pursuant to subdivision 2, the acquiring person shall have entered into, and
shall deliver to the issuing public corporation a copy or copies of, a
definitive financing agreement or definitive financing agreements, with one or
more responsible financial institutions or other entities having the necessary
financial capacity, for any financing of the control share acquisition not to be
provided by funds of the acquiring person. A financing agreement is not deemed
not definitive for purposes of this subdivision solely because it contains
conditions or contingencies customarily contained in term loan agreements with
financial institutions.

SUBD. 4A. VOTING RIGHTS. (a) Shares referred to in subdivision 1, paragraph (b),
acquired in a control share acquisition shall have the same voting rights as
other shares of the same class or series only if approved by resolution of
shareholders of the issuing public corporation at a special or annual meeting of
shareholders pursuant to subdivision 3.

(b) The resolution of shareholders must be approved by (1) the affirmative vote
of the holders of a majority of the voting power of all shares entitled to vote
including all shares held by the acquiring person, and (2) the affirmative vote
of the holders of a majority of the voting power of all shares entitled to vote
excluding all interested shares. A class or series of shares of the issuing
public corporation is entitled to vote separately as a class or series if any
provision of the control share acquisition would, if contained in a proposed
amendment to the articles, entitle the class or series to vote separately as a
class or series.

(c) To have the voting rights accorded by approval of a resolution of
shareholders, any proposed control share acquisition not consummated prior to
the time of the shareholder approval must be consummated within 180 days after
the shareholder approval.

(d) Any shares referred to in subdivision 1, paragraph (b), acquired in a
control share acquisition that do not have voting rights accorded to them by
approval of a resolution of shareholders shall regain their voting rights upon
transfer to a person other than the acquiring person or any affiliate or
associate of the acquiring person unless the acquisition of the shares by the
other person constitutes a control share acquisition, in which case the voting
rights of the shares are subject to the provisions of this section.

SUBD. 5. RIGHTS OF ACTION. An acquiring person, an issuing public corporation,
and shareholders of an issuing public corporation may sue at law or in equity to
enforce the provisions of this section and section 302A.449, subdivision 7.

SUBD. 6. REDEMPTION. Unless otherwise expressly provided in the articles or in
bylaws approved by the shareholders of an issuing public corporation, the
issuing public corporation shall have the option to call for redemption all but
not less than all shares referred to in subdivision 1, paragraph (b), acquired
in a control share acquisition, at a redemption price equal to the market value
of the shares at the time the call for redemption is given, in the event (1) an
information statement has not been delivered to the issuing public corporation
by the acquiring person by the tenth day after the control share acquisition, or
(2) an information statement has been delivered but the shareholders have voted
not to accord voting rights to such shares pursuant to subdivision 4a, paragraph
(b). The call for redemption shall be given by the issuing public corporation
within 30 days after the event giving the issuing public corporation the option
to call the shares for redemption and the shares shall be redeemed within 60
days after the call is given.

SECTION 302A.011. DEFINITIONS.

SUBD. 37. ACQUIRING PERSON. "Acquiring person" means a person that makes or
proposes to make a control share acquisition. When two or more persons act as a
partnership, limited partnership, syndicate, or other group pursuant to any
written or oral agreement, arrangement, relationship, understanding, or
otherwise for the purposes of acquiring, owning, or voting shares of an issuing
public corporation, all members of the partnership, syndicate, or other group
constitute a "person."

"Acquiring person" does not include (a) a licensed broker/dealer or licensed
underwriter who (1) purchases shares of an issuing public corporation solely for
purposes of resale to the public and (2) is not acting in concert with an
acquiring person, or (b) a person who becomes entitled to exercise or direct the
exercise of a new range of voting power within any of the ranges specified in
section 302A.671, subdivision 2, paragraph (d), solely as a result of a
repurchase of shares by, or recapitalization of, the issuing public corporation
or similar action unless (1) the repurchase, recapitalization, or similar action
was proposed by or on behalf of, or pursuant to any written or oral agreement,
arrangement, relationship, understanding, or otherwise with, the person or any
affiliate or associate of the person or (2) the person thereafter acquires
beneficial ownership, directly or indirectly, of outstanding shares entitled to
vote of the issuing public corporation and, immediately after the acquisition,
is entitled to exercise or direct the exercise of the same or a higher range of
voting power under section 302A.671, subdivision 2, paragraph (d), as the person
became entitled to exercise as a result of the repurchase, recapitalization, or
similar action.

SUBD. 38. CONTROL SHARE ACQUISITION. "Control share acquisition" means an
acquisition, directly or indirectly, by an acquiring person of beneficial
ownership of shares of an issuing public corporation that, except for section
302A.671, would, when added to all other shares of the issuing public
corporation beneficially owned by the acquiring person, entitle the acquiring
person, immediately after the acquisition, to exercise or direct the exercise of
a new range of voting power within any of the ranges specified in section
302A.671, subdivision 2, paragraph (d), but does not include any of the
following:

(a) an acquisition before, or pursuant to an agreement entered into before,
August 1, 1984;

(b) an acquisition by a donee pursuant to an inter vivos gift not made to avoid
section 302A.671 or by a distributee as defined in section 524.1-201, clause
(10);

(d) an acquisition under sections 302A.601 to 302A.661, if the issuing public
corporation is a party to the transaction;

(e) an acquisition from the issuing public corporation;

(f) an acquisition for the benefit of others by a person acting in good faith
and not made to avoid section 302A.671, to the extent that the person may not
exercise or direct the exercise of the voting power or disposition of the shares
except upon the instruction of others;

(g) an acquisition pursuant to a savings, employee stock ownership, or other
employee benefit plan of the issuing public corporation or any of its
subsidiaries, or by a fiduciary of the plan acting in a fiduciary capacity
pursuant to the plan; or

(h) an acquisition subsequent to January 1, 1991, pursuant to an offer to
purchase for cash pursuant to a tender offer all shares of the voting stock of
the issuing public corporation:

(i) which has been approved by a majority vote of the members of a committee
comprised of the disinterested members of the board of the issuing public
corporation formed pursuant to section 302A.673, subdivision 1, paragraph (d),
before the commencement of, or the public announcement of the intent to
commence, the tender offer; and

(ii) pursuant to which the acquiring person will become the owner of over 50
percent of the voting stock of the issuing public corporation outstanding at the
time of the transaction.

For purposes of this subdivision, shares beneficially owned by a plan described
in clause (g), or by a fiduciary of a plan described in clause (g) pursuant to
the plan, are not deemed to be beneficially owned by a person who is a fiduciary
of the plan.

SUBD. 39. ISSUING PUBLIC CORPORATION. "Issuing public corporation" means either:
(1) a publicly held corporation that has at least 50 shareholders; or (2) any
other corporation that has at least 100 shareholders, provided that if, before
January 1, 1998, a corporation that has at least 50 shareholders elects to be an
issuing public corporation by express amendment contained in the articles or
bylaws, including bylaws approved by the board, that corporation is an issuing
public corporation if it has at least 50 shareholders.

SUBD. 40. PUBLICLY HELD CORPORATION. "Publicly held corporation" means a
corporation that has a class of equity securities registered pursuant to section
12, or is subject to section 15(d), of the Securities Exchange Act of 1934.

SUBD. 41. BENEFICIAL OWNER; BENEFICIAL OWNERSHIP. (a) "Beneficial owner," when
used with respect to shares or other securities, includes, but is not limited
to, any person who, directly or indirectly through any written or oral
agreement, arrangement, relationship, understanding, or otherwise, has or shares
the power to vote, or direct the voting of, the shares or securities or has or
shares the power to dispose of, or direct the disposition of, the shares or
securities, except that:

(1) a person shall not be deemed the beneficial owner of shares or securities
tendered pursuant to a tender or exchange offer made by the person or any of the
person's affiliates or associates until the tendered shares or securities are
accepted for purchase or exchange; and

(2) a person shall not be deemed the beneficial owner of shares or securities
with respect to which the person has the power to vote or direct the voting
arising solely from a revocable proxy given in response to a proxy solicitation
required to be made and made in accordance with the applicable rules and
regulations under the Securities Exchange Act of 1934 and is not then reportable
under that act on a Schedule 13D or comparable report, or, if the corporation is
not subject to the rules and regulations under the Securities Exchange Act of
1934, would have been required to be made and would not have been reportable if
the corporation had been subject to the rules and regulations.

(b) "Beneficial ownership" includes, but is not limited to, the right to acquire
shares or securities through the exercise of options, warrants, or rights, or
the conversion of convertible securities, or otherwise. The shares or securities
subject to the options, warrants, rights, or conversion privileges held by a
person shall be deemed to be outstanding for the purpose of computing the
percentage of outstanding shares or securities of the class or series owned by
the person, but shall not be deemed to be outstanding for the purpose of
computing the

percentage of the class or series owned by any other person. A person shall be
deemed the beneficial owner of shares and securities beneficially owned by any
relative or spouse of the person or any relative of the spouse, residing in the
home of the person, any trust or estate in which the person owns ten percent or
more of the total beneficial interest or serves as trustee or executor or in a
similar fiduciary capacity, any corporation or entity in which the person owns
ten percent or more of the equity, and any affiliate of the person.

(c) When two or more persons act or agree to act as a partnership, limited
partnership, syndicate, or other group for the purposes of acquiring, owning, or
voting shares or other securities of a corporation, all members of the
partnership, syndicate, or other group are deemed to constitute a "person" and
to have acquired beneficial ownership, as of the date they first so act or agree
to act together, of all shares or securities of the corporation beneficially
owned by the person.

SUBD. 42. INTERESTED SHARES. "Interested shares" means the shares of an issuing
public corporation beneficially owned by any of the following persons: (1) the
acquiring person; (2) any officer of the issuing public corporation; or (3) any
employee of the issuing public corporation who is also a director of the issuing
public corporation.

SUBD. 43. AFFILIATE. "Affiliate" means a person that directly or indirectly
controls, is controlled by, or is under common control with, a specified person.

APPENDIX C

AMENDED AND RESTATED
INFORMATION STATEMENT

March 13, 2001

Board of Directors
Select Comfort Corporation
10400 Viking Drive, Suite 400
Eden Prairie, Minnesota

Ladies and Gentlemen:

This letter amends and restates the information contained in the
Information Statement dated September 18, 2000 and the Supplement to Information
Statement dated November 16, 2000 that was provided to Select Comfort
Corporation, a Minnesota corporation ("Select Comfort"), by The St. Paul
Companies, Inc. ("The St. Paul"), St. Paul Fire and Marine Insurance Company
("F&M"), St. Paul Venture Capital V, LLC ("SPVC V") and St. Paul Venture Capital
IV, LLC ("SPVC IV") (collectively, the "Parties"), in connection with the
acquisition by SPVC V of 305,000 additional shares of Select Comfort common
stock (the "Control Share Acquisition").

A. IDENTITY AND BACKGROUND.

The St. Paul is the parent company of F&M. F&M is the 99% owner of SPVC V
and SPVC IV. The principal executive offices of each of The St. Paul and F&M is
located at 385 Washington Street, St. Paul, Minnesota 55102. Each of The St.
Paul and F&M is a Minnesota corporation and is principally engaged in the
insurance business.

Information concerning the directors and executive officers of each of The
St. Paul and F&M is set forth in Exhibit A attached to this Information
Statement and incorporated herein by reference.

B. REFERENCE TO STATUTORY SECTION.

This Information Statement is made pursuant to the requirements of the
Minnesota Control Share Acquisition Act contained in Section 302A.671 of the
Minnesota Business Corporation Act.

C. NUMBER AND CLASS OR SERIES OF SHARES OF SELECT COMFORT BENEFICIALLY OWNED,
DIRECTLY OR INDIRECTLY, BEFORE THE CONTROL SHARE ACQUISITION.

Prior to the consummation of the Control Share Acquisition, the amount of
shares of common stock of Select Comfort beneficially owned, directly or
indirectly, by each Party was as

follows: The St. Paul: 5,972,495 shares; F&M: 5,972,495 shares; SPVC V: 775,039
shares; and SPVC IV: 331,665 shares. Based on 17,824,764 shares of common stock
reported as outstanding on July 1, 2000 in Select Comfort's Form 10-Q for the
quarter ended July 1, 2000, such ownership by The St. Paul and F&M represents
33.1% of the total issued and outstanding shares of Select Comfort.

Information concerning the amount of shares of common stock of Select
Comfort beneficially owned by directors and executive officers of each of The
St. Paul and F&M before the Control Share Acquisition is set forth in Exhibit A
attached to this Information Statement and incorporated herein by reference.

D. NUMBER AND CLASS OR SERIES OF SHARES OF SELECT COMFORT ACQUIRED PURSUANT TO
THE CONTROL SHARE ACQUISITION AND SPECIFICATION OF THE RANGE OF VOTING
POWER IN THE ELECTION OF DIRECTORS THAT, EXCEPT FOR SECTION 302A.671,
RESULTS FROM THE CONSUMMATION OF THE CONTROL SHARE ACQUISITION.

Immediately following the acquisition by SPVC V of the 305,000 shares in
the Control Share Acquisition, the amount of shares of common stock of Select
Comfort beneficially owned, directly or indirectly, by each of the Parties is
follows: The St. Paul: 6,277,495 shares; F&M: 6,277,495 shares; SPVC V:
1,080,039 shares; and SPVC IV: 331,665 shares. Based on 17,824,764 shares of
common stock reported as outstanding on July 1, 2000 in Select Comfort's Form
10-Q for the quarter ended July 1, 2000, such ownership by The St. Paul and F&M
represents 34.8% of the total issued and outstanding shares of Select Comfort.
As a result of the Control Share Acquisition, each of The St. Paul and F&M have
voting power in the election of directors that, except for the application of
the Minnesota Control Share Act, would be in the 33 1/3% to 50% range, within
the meaning of Section 302A.671, subd. 2(d) of the Minnesota Business
Corporation Act.

Information concerning the amount of shares of common stock of Select
Comfort beneficially owned by directors and executive officers of each of The
St. Paul and F&M after the Control Share Acquisition is set forth in Exhibit A
attached to this Information Statement and incorporated herein by reference.

E. TERMS OF THE CONTROL SHARE ACQUISITION.

In a series of transactions between September 8, 2000 and September 18,
2000, SPVC V purchased 305,000 shares of Select Comfort common stock in open
market brokerage transactions at an average purchase price of $2.87 per share
(including brokers' commissions), for an aggregate purchase price of
$876,417.50. Corporate funds of SPVC V were used to purchase these shares. Each
individual purchase by SPVC V during the period between September 8, 2000 and
September 18, 2000 is detailed below.

NUMBER OF PRICE PER SHARE AGGREGATE PURCHASE
DATE SHARES (INCLUDING BROKERS' COMMISSIONS) PRICE
- ----------------------- --------------- ----------------------------------- ---------------------

September 8, 2000 225,000 $2.91 $653,917.50

September 13, 2000 50,000 $2.69 $134,375.00

September 18, 2000 30,000 $2.94 $88,125.00
- ----------------------- --------------- ----------------------------------- ---------------------

At the present time, the Parties do not have any definitive plans or
proposals to:

1. liquidate or dissolve Select Comfort,

2. sell all or a substantial part of its assets or merge it or exchange its
shares with any other person,

3. change the location of its principal place of business or its principal
executive office or of a material portion of its business activities,

4. change materially its management or policies of employment,

5. change materially its charitable or community contributions or its
policies, programs, or practices relating thereto,

6. change materially its relationship with suppliers or customers or the
communities in which it operates, or

7. make any other material change in its business, corporate structure,
management or personnel.

F. TRANSACTIONS AFTER THE CONTROL SHARE ACQUISITION.

On November 15, 2000, SleepTec, Inc., a Delaware corporation ("SleepTec"),
SPVC IV, SPVC V, St. Paul Venture Capital VI, LLC ("SPVC VI") and Select Comfort
entered into an Asset Purchase Agreement, dated effective as of November 10,
2000, pursuant to which SleepTec agreed to sell certain assets to Select
Comfort. As part of the purchase price, Select Comfort issued SleepTec a
five-year convertible debenture in the principal amount of $4,000,000. This
debenture is convertible at the election of the holder at any time into shares
of common stock of Select Comfort based on an initial conversion price of $5.50
per share.

The St. Paul, F&M, SPVC V and SPVC IV are majority stockholders of
SleepTec. SPVC V loaned $4,540,000 to SleepTec in the form of convertible
promissory notes. SleepTec transferred the debenture to SPVC V as repayment of
these notes. As a result of this transaction, The St. Paul, F&M and SPVC V may
be deemed to beneficially own 727,273 shares of common stock of Select Comfort
with respect to the debenture.

We would be pleased to answer any questions you may have concerning the
matters discussed above.

Sincerely,

THE ST PAUL COMPANIES, INC. ST. PAUL FIRE AND MARINE INSURANCE COMPANY

By: /s/ Bruce A. Backberg By: /s/ Bruce A. Backberg
---------------------------- -------------------------------
Bruce A. Backberg Bruce A. Backberg

Its: Senior Vice President Its: Senior Vice President

ST. PAUL VENTURE CAPITAL V, LLC ST. PAUL VENTURE CAPITAL IV, LLC

By: By:
--------------------------- -------------------------------

Its: Its:
---------------------------- -------------------------------

EXHIBIT A

DIRECTORS AND EXECUTIVE OFFICERS OF
THE ST. PAUL COMPANIES, INC. AND
ST. PAUL FIRE AND MARINE INSURANCE COMPANY

The names and present principal occupations of the directors and executive
officers of The St. Paul Companies, Inc. and St. Paul Fire and Marine Insurance
Company are set forth below. All of the individuals listed below are citizens of
the United States except Douglas West Leatherdale, who is a citizen of Canada,
and David John, who is a citizen of the United Kingdom.

THE ST. PAUL COMPANIES, INC.

PRESENT SHARES OF DESCRIPTION OF ANY CONTRACT,
PRINCIPAL SELECT COMFORT ARRANGEMENT, UNDERSTANDING OR
POSITION WITH OCCUPATION BENEFICIALLY RELATIONSHIP WITH RESPECT TO
NAME THE ST. PAUL OR EMPLOYMENT BUSINESS ADDRESS OWNED ANY SECURITIES OF SELECT COMFORT
- ------------------ ------------ -------------- ------------------ ----------- --------------------------------

H. Furlong Baldwin Director Chairman, Mercantile 0 None
Mercantile Bankshares
Bankshares Corporation
Corporation 2 Hopkins Plaza
Baltimore, MD 21201

John H. Dasburg Director President Northwest 0 None
and Chief Airlines, Inc.
Executive Northwest Drive
Officer, St. Paul, MN 55111-3034
Northwest
Airlines,
Inc.

W. John Driscoll Director Former Rock Island 0 None
Chairman and Company
Chief 332 Minnesota St.
Execute Suite 2090
Officer, St. Paul, MN 55101-1308
Rock Island
Company

Kenneth Marc Director Chairman and The Duberstein Group 0 None
Duberstein Chief 2100 Pennsylvania Ave. NW
Executive Suite 500
Officer, The Washington, DC 20037
Duberstein
Group

Pierson Director Retired 4900 IDS Center 0 None
MacDonald Grieve Chairman and 80 South 8th Street
Chief Minneapolis, MN 55402
Executive
Officer,
Ecolab, Inc.

Thomas R. Hodgson Director Former 225 E. Deerpath 0 None
President Suite 222
and Chief Lake Forest, IL 60045
Operating
Officer,
Abbott
Laboratories

Sir David G. Director Chairman, The BOC Group 0 None
John, KCMG The BOC Chertsey Road
Group PLC Windlesham
Surrey GU20 6HG
England

William Hugh Director President, Minnesota Public Radio 1000 None
Kling Minnesota 45 E. 7th Street
Public St. Paul, MN 55105
Radio,
President,
Minnesota
Communications
Group and
President,
Greenspring
Company

Douglas West Chairman, Chairman, 385 Washington Street 0 None
Leatherdale President, President, St. Paul, MN 55102
CEO and CEO and
Director Director of
The St. Paul

Bruce King Director President 5109 Yuma Place, NW 0 None
MacLaury Emeritus, Washington, DC 20016
The
Brookings
Institution

Glen D. Nelson Director Vice Medtronic, Inc. 0 None
Chairman, 710 Medtronic Pkwy. NE
Medtronic, Minneapolis, MN 55432
Inc.

Anita Marie Director President, The Bush Foundation 0 None
Pampusch The Bush E-900 First National
Foundation Bank Building
332 Minnesota Street
St. Paul, MN 55101

Gordon M. Director President Allina Health 0 None
Sprenger and Chief Systems, Inc.
Executive P.O. Box 9310
Officer, Minneapolis, MN 55440-9310
Allina
Health
Systems, Inc.

Bruce Allen Sr. Vice Sr. Vice 385 Washington Street 0 None
Backberg President President & St. Paul, MN 55102
& Corporate
Corporate Secretary of
Secretary The St. Paul

Karen L. Himle Sr. Vice Sr. Vice 385 Washington Street 0 None
President- President- St. Paul, MN 55102
Corporate Corporate
Affairs Affairs of
The St. Paul

Thomas Andrew Sr. Vice Sr. Vice 385 Washington Street 0 None
Bradley President- President- St. Paul, MN 55102
Corporate Corporate
Controller Controller
of The St.
Paul

Laura L. Gagnon Vice Vice 385 Washington Street 0 None
President- President- St. Paul, MN 55102
Finanace Finanace
& & Investor
Investor Relations of
Relations The St. Paul

Paul James Liska Executive Executive 385 Washington Street 0 None
Vice Vice St. Paul, MN 55102
President President
and Chief and Chief
Financial Financial
Officer Officer of
The St. Paul

John A. MacColl Executive Executive 385 Washington Street 0 None
Vice Vice St. Paul, MN 55102
President President
and and General
General Counsel of
Counsel The St. Paul

David Nachbar Sr. Vice Sr. Vice 385 Washington Street 0 None
President- President St. Paul, MN 55102
Human Human
Resources Resources of
The St. Paul

Mark Lindell Sr. Vice Sr. Vice St. Paul Syndicate 0 None
Pabst President President of Management
The St. Paul 60 Gracechurch Street
London EC3V 0HR
England

ST. PAUL FIRE AND MARINE INSURANCE COMPANY

Bruce Allen Sr. Vice Sr. Vice 385 Washington Street 0 None
Backberg President President & St. Paul, MN 55102
& Corporate
Corporate Secretary of
Secretary F&M

Thomas Andrew Sr. Vice Sr. Vice 385 Washington Street 0 None
Bradley President- President- St. Paul, MN 55102
Finance & Finance &
Corporate Corporate
Planning Planning &
& Development
Development of F&M

Michael James Executive Executive 385 Washington 0 None
Conroy Vice Vice St. Paul, MN 55102
President, President,
Chief Chief
Administrative Administrative
Officer and Officer and
Director Director of
F&M

James Francis Sr. Vice Sr. Vice St. Paul Re, Inc. 0 None
Duffy President President of 195 Broadway
F&M New York, NY 10007

Karen L. Himle Sr. Vice Sr. Vice 385 Washington Street 0 None
President- President- St. Paul, MN 55102
Corporate Corporate
Affairs Affairs of
F&M

Robert Jule Sr. Vice Sr. Vice 385 Washington Street 0 None
Lamendola President President of St. Paul, MN 55102
F&M

Douglas West Chairman, Chairman, 385 Washington Street 0 None
Leatherdale President, President, St. Paul, MN 55102
CEO and CEO and
Director Director of
The St. Paul

Stephen Wright Executive Executive 385 Washington Street 600 None
Lilienthal Vice Vice St. Paul, MN 55102
President President
and and Director
Director of F&M

Paul James Liska Executive Executive 385 Washington Street 0 None
Vice Vice St. Paul, MN 55102
President, President,
Chief Chief
Financial Financial
Officer Officer and
and Director of
Director F&M

John A. MacColl Executive Executive 385 Washington Street 0 None
Vice Vice St. Paul, MN 55102
President President
and and General
General Counsel of
Counsel F&M

T. Michael Miller Sr. Vice Sr. Vice 385 Washington Street 0 None
President- President St. Paul, MN 55102
Global Global
Products, Products,
and and Director
Director of F&M

Janet Rajala Sr. Vice Sr. Vice 385 Washington Street 0 None
Nelson President President & St. Paul, MN 55102
& Chief Chief Risk
Risk Officer of
Officer F&M

Mark Lindell Sr. Vice Sr. Vice St. Paul Syndicate 0 None
Pabst President President of Management
The St. Paul 60 Gracechurch Street
London EC3V 0HR
England

Kent D. Urness Sr. Vice Sr. Vice 385 Washington Street 0 None
President- President- St. Paul, MN 55102
Global Global
Products Products and
and Director of
Director F&M

APPENDIX D

[Letterhead of Duff & Phelps, LLC]

June 5, 2001

Board of Directors
Select Comfort Corporation
6105 Trenton Lane North
Minneapolis, MN 55442

Gentlemen:

Duff & Phelps, LLC ("Duff & Phelps") has been retained to serve as financial
advisor to Select Comfort Corp. ("Select Comfort" or the "Company") to provide
an opinion as to whether the terms of a proposed sale ("Proposed Transaction")
of between $8.0 million and $12.0 million of newly issued convertible debentures
with associated warrants is fair to the Company from a financial point of view.

Duff & Phelps had previously been retained in connection with assessing the
fairness, from a financial point of view, of the terms of a guaranty related to
a financing of senior debt which was ultimately unsuccessful. Duff & Phelps
Securities, LLC, a subsidiary of Duff & Phelps, had assisted Select Comfort in
pursuing such financing.

DESCRIPTION OF PROPOSED TRANSACTION

In the Proposed Transaction, the Company will sell between $8.0 million and
$12.0 million of Senior Secured Convertible Debentures ("Debentures") with
associated warrants to a group of investors for the equivalent dollar proceeds.
Proceeds of the sale will be used for working capital and operating purposes.
The major terms of the Debentures include:

o 8% coupon, payable annually.
o Convertible into Select Comfort common stock at a conversion price
("Conversion Price") of $1.00 per share, subject to anti-dilution
provisions.
o 5-year term.
o Secured by the Company's tangible and intangible assets; however, the
Company has the right to grant a senior position to a lender to Select
Comfort of up to $5 million, subject to certain approvals.
o Automatically convertible into shares of common stock anytime after
the first year if the closing price of the common stock equals or
exceeds $4.00 per share (subject to certain anti-dilution adjustments)
for at least ten out of twenty consecutive trading days, or

Select Comfort Corporation
Page 2 of 4
June 5, 2001

should holders of at least 67% of the then outstanding principal
amount of the Debentures consent.
o Reset of Conversion Price (which will result in an increase of the
number of shares of common stock issuable upon conversion of the
Debentures) if (i) the average closing price for the Company's common
stock for the ten consecutive trading days ending on October 31, 2001
("Ten Day Average") is below the then Conversion Price or (ii) in the
event of a sale of the Company's securities for less than the then
current Conversion Price. In the event of (i) the Conversion Price
would be adjusted on October 31, 2001 to the Ten Day Average, and in
the event of (ii) the Conversion Price would be adjusted to the price
at which the Company's securities are sold.
o Optional prepayment with the consent of holders of at least 67% of the
then outstanding principal amount of the Debentures.

Investors in the Debentures will also receive 400.00 warrants to purchase common
stock ("Warrants") per $1,000 invested. The major terms of the Warrants include:

o Each Warrant is exercisable into one share of the common stock of
Select Comfort, subject to adjustment.
o Exercise price of $1.00, subject to anti-dilution provisions.
o 5 year term.
o Reset of exercise price in the event the Conversion Price of the
Debentures is reset; upon such event, the exercise price will be reset
to the new Conversion Price of the Debentures. In such event, the
number of shares of common stock into which the common stock is
exercisable will also be adjusted.

The Debentures, Warrants and common stock to be received upon conversion of
Debentures or exercise of Warrants are not registered under the Securities Act
and are legended. Common stock issued upon conversion of the Debentures or
exercise of Warrants has certain registration rights.

SCOPE OF ANALYSIS

As background for our analysis, we discussed the Company's history, current
operations, and future outlook with senior management of Select Comfort and Pat
Hopf, chairman of the Board of Directors of Select Comfort and president of St.
Paul Venture Capital, Inc. Our financial analysis was based on Select Comforts's
filings on Form 10-K for the years ended December 31, 1998-2000; registration
statement on Form S-1 dated December 3, 1998 (including audited financial
statements for the year ended December 31, 1997); press release including
unaudited financial statements for the three months ended March 31, 2001;
preliminary results for the month ended April 30, 2001; internal monthly
financial statements for the year ended December 31, 2000 and the four months
ended April 30, 2001; other publicly available SEC filings for the Company;
management monthly operating and financial projections for the year ending
December 31, 2001; and other internal data provided by management. We reviewed
documents related to the Proposed Transaction, including drafts of the
following: term sheet (dated 5/1/01);

Select Comfort Corporation
Page 3 of 4
June 5, 2001

form of Senior Secured Convertible Note (dated 5/30/01); Note Purchase Agreement
(dated 5/30/01); Warrant Agreement (dated 5/30/01); Registration Rights
Agreement (dated 5/31/01); Guaranty (dated 5/15/01); Pledge Agreement (dated
5/15/01); Patent and Trademark Security Agreement-Parent (dated 5/18/01); and
Security Agreement-Parent and Securities Agreement-Subsidiaries (dated 5/21/01).

In performing our analysis and rendering our opinion, we relied upon the
accuracy and completeness of all information provided to us, whether obtained
from public or private sources, including Company management, and did not
attempt to independently verify such information. We note that nothing has come
to our attention in the course of our analysis to make us believe that it is not
reasonable to rely on the information described above, including projections and
reports of Select Comfort management. Our opinion further assumes that
information supplied and representations made by the Company and management are
substantially accurate regarding the Company and the background and terms of the
Proposed Transaction. Additional financial information and data on similar
transactions used in our analysis were obtained from regularly published
financial and investment sources. We did not independently verify the
information obtained from management nor that obtained from investment sources.
Duff & Phelps has not undertaken an independent appraisal of the assets of the
Company. Our opinion is necessarily based upon market, economic, financial and
other conditions as they exist and can be evaluated as of this date.

In arriving at our conclusions of the fairness of the Proposed Transaction, we
reviewed the Company's historical and projected financial statements and its
need for capital, as well as the Company's prior efforts to raise funding. We
compared the fair market value of the Debentures and Warrants to the funds
received for the securities. The fair market value of Debentures and Warrants
were determined using generally accepted option pricing and other financial
models. Duff & Phelps also compared the terms of the Proposed Transaction to the
terms of recent transactions deemed comparable, in whole or in part, to the
Proposed Transaction.

It is understood that this letter is only for the information of the Board of
Directors of the Company. Except as required under the disclosure requirements
of the securities laws and other applicable laws or legal process, this letter
may not be quoted or referred to, in whole or in part, in any written document
or used for any other purpose without the prior consent of Duff & Phelps.

Select Comfort Corporation
Page 4 of 4
June 5, 2001

CONCLUSION

Based upon and subject to the foregoing, it is our opinion as of the date hereof
that the terms of the Proposed Transaction are fair, from a financial point of
view, to the Company and its shareholders.

Respectfully submitted,

/s/ Duff & Phelps, LLC

Duff & Phelps, LLC

ESB/lah

SELECT COMFORT CORPORATION
[LOGO]
ANNUAL MEETING OF SHAREHOLDERS

TUESDAY, JULY 17, 2001
3:00 P.M. CENTRAL DAYLIGHT TIME

HILTON HOTEL MINNEAPOLIS NORTH
2200 FREEWAY BLVD.
BROOKLYN CENTER, MINNESOTA 55430

[LOGO] SELECT COMFORT CORPORATION
6105 TRENTON LANE NORTH
MINNEAPOLIS, MINNESOTA 55442 PROXY
- --------------------------------------------------------------------------------

THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF
SELECT COMFORT CORPORATION FOR USE AT THE
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON JULY 17, 2001.

The undersigned hereby appoints William R. McLaughlin and Mark A. Kimball
(collectively, the "Proxies"), and each of them, with full power of
substitution, as proxies to vote the shares which the undersigned is entitled to
vote at the Annual Meeting of Shareholders of Select Comfort Corporation to be
held on July 17, 2001 and at any adjournment or postponement thereof. Such
shares will be voted as directed with respect to the proposals listed on the
reverse side hereof and in the Proxies' discretion as to any other matter that
may properly come before the meeting or at any adjournment or postponement
thereof.

YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES ON
THE REVERSE SIDE. WHEN PROPERLY SIGNED, THIS PROXY WILL BE VOTED IN THE MANNER
DIRECTED. IF NO DIRECTION IS GIVEN, THIS PROXY WILL VOTED FOR ITEMS 1, 2, 3, 4,
5, 6 and 7.

SEE REVERSE FOR VOTING INSTRUCTIONS.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2, 3, 4, 5, 6 AND 7.

1. Election of directors: 01 Thomas J. Albani 02 David T. Kollat [ ] Vote FOR all nominees [ ] Vote WITHHELD
03 William R. McLaughlin (except as marked) from all nominees

(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDICATED NOMINEE, ----------------------------------------------------
WRITE THE NUMBER(S) OF THE NOMINEE(S) IN THE BOX PROVIDED TO THE RIGHT.) | |
----------------------------------------------------

PLEASE FOLD HERE
- ------------------------------------------------------------------------------------------------------------------------------------

2. Proposal to grant voting rights to The St. Paul Companies, Inc. and
its affiliates under the Minnesota Control Share Acquisition Act. [ ] For [ ] Against [ ] Abstain

3. Proposal to approve the issuance of up to $12 million of Senior Secured
Convertible Notes and related warrants. [ ] For [ ] Against [ ] Abstain

4. Proposal to amend the 1997 Employee Stock Purchase Plan. [ ] For [ ] Against [ ] Abstain

5. Proposal to amend the 1999 Employee Stock Purchase Plan. [ ] For [ ] Against [ ] Abstain

6. Proposal to approve the performance goals under the Select Comfort
Corporation Executive and Key Employee Incentive Plan. [ ] For [ ] Against [ ] Abstain

7. Proposal to ratify the appointment of KPMG LLP, certified public
accountants, as independent auditors for the fiscal year ending
December 29, 2001. [ ] For [ ] Against [ ] Abstain

WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION
IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL.

Address Change? Mark Box [ ]
Indicate changes below: Date
---------------------------

-------------------------------
| |
-------------------------------

Signature(s) in Box
Please sign exactly as your name(s) appear on Proxy. If held
in joint tenancy, all persons must sign. Trustees,
administrators, etc., should include title and authority.
Corporations should provide full name of corporation and
title of authorized officer signing the proxy.