EX10.3

PERFORMANCE ADJUSTED
RESTRICTED STOCK UNIT AWARD AGREEMENT

THIS AGREEMENT is entered into and effective as of March 29, 2019 (the “Date of
Grant”), by and between Sleep Number Corporation (the “Company”) and

(the “Grantee”).

The Company has adopted the Sleep Number Corporation Amended and Restated 2010
Omnibus Incentive Plan (the “Plan”) authorizing the grant of Restricted Stock
Unit Awards to employees, non-employee directors and consultants of the Company
and its Subsidiaries (as defined in the Plan).

The Company desires to give the Grantee a proprietary interest in the Company
and an added incentive to advance the interests of the Company by granting to
the Grantee a Restricted Stock Unit Award pursuant to the Plan.

Accordingly, the parties agree as follows:

1.Grant of Award Units and Performance Adjustments.

1.1Grant of Award Units  The Company hereby grants to the Grantee a Restricted
Stock Unit Award (the “Award”) consisting of _______ units (the “Award Units”)
that will be settled in shares of the Company’s common stock, par value $0.01
per share (the “Common Stock”), subject to the terms, conditions and
restrictions set forth below and in the Plan.  Reference in this Agreement to
the Award Units or the Adjusted Award Units (as defined in Section 1.2 of this
Agreement) will be deemed to include the Dividend Proceeds (as defined in
Section 3.3 of this Agreement) with respect to such Award Units or Adjusted
Award Units as provided in Section 3.3 of this Agreement.

1.2Performance Adjustments.  The number of Award Units granted hereunder is
subject to adjustment based on the Company’s level of achievement versus annual
Net Sales growth goals and annual NOP growth goals for the 2019, 2020 and 2021
fiscal years (the “Performance Period”).  (For purposes of this Agreement, “NOP”
will be defined as Net Operating Income). The Net Sales growth goals and NOP
growth goals will be equally weighted.

The annual Net Sales growth goals, the annual NOP growth goals and the
corresponding performance adjustment multiples are as follows:

 

Annual Growth Goals
over the Performance Period (2019 thru 2021 fiscal years)

Payout – as Multiple of Award Units to Vest

 

Net Sales (50%)

NOP (50%)

Threshold

3%

4%

0.5X

Target

5%

9%

1.0X

Maximum

12%

20%

2.0X

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The calculation of the “Adjusted Award Units” based on performance versus these
growth goals will be determined as follows:

(a)The Company’s actual annual growth will be measured for each of the two (2)
performance goals and for each of the three (3) fiscal years of the Performance
Period;

(b)A payout multiple will be determined for each performance goal and for each
fiscal year, based on interpolation between the performance goals in the
foregoing table (performance relative to a performance goal that is below the
threshold for a fiscal year will result in a payout multiple of zero (0) for
that performance goal for that fiscal year); and

(c)The mean, or average, of the resulting six (6) payout multiples will be
applied to the number of Award Units to determine the number of “Adjusted Award
Units.”

For example, if the annual Net Sales growth rate in 2019 is 5%, the multiple for
that performance goal for that year will be 1.0X; and if the annual NOP growth
rate in 2019 is 14.5%, the multiple for that performance goal for that year will
be 1.5X.  Similar multiples will be determined for each performance goal and for
each of the following fiscal years.  The resulting six (6) payout multiples will
then be averaged to determine the final payout multiple. This final payout
multiple times the number of Award Units originally granted results in the
number of Adjusted Award Units that would vest, subject to all of the other
proration and vesting provisions set forth in this Agreement.

In order to reduce the potential impact of volatility in NOP results, the annual
NOP percentage growth rate will not in any case be determined from a base NOP
level that is less than 50% of the 2018 NOP level.  For example, if 2019 NOP is
less than 50% of the 2018 NOP level, then the annual NOP percentage growth rate
for 2020 will be determined from a base of 50% of the 2018 NOP level, rather
than from the actual 2019 NOP level.

The “Adjusted Award Units” will be subject to reduction for failure to generate
Return on Invested Capital (ROIC) that exceeds Weighted Average Cost of Capital
by at least 300 basis points (“bps”), as outlined in the table below.  The
measurement will be based on an average of the basis points difference between
annual ROIC and WACC for the three fiscal years 2019, 2020, and 2021.

ROIC Basis Points difference versus WACC

(e.g., ROIC of 12% vs. WACC of 10% = +200 bps)

Reduction to Final Payout

0 bps or lower (i.e., ROIC at or below WACC)

-20% of target award

1 to 99 bps

-15% of target award

100 to 199 bps

-10% of target award

200 to 299 bps

-5% of target award

300 bps or greater

No reduction

 

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For the purpose of this calculation, ROIC shall be defined as detailed in the
annual 10-K disclosure.

For the purpose of this calculation, WACC shall be defined as detailed in
Attachment A.

The Company’s actual performance relative to the performance goals set forth
above and the calculation of the Adjusted Award Units shall be determined by the
Management Development and Compensation Committee (the “Committee”) of the Board
of Directors following the conclusion of the Performance Period.  The
Committee’s determination shall be final and conclusive for all purposes under
this Agreement.  The number of Award Units resulting after adjustment as
described above will be referred to herein as the “Adjusted Award Units.”

1.3Restrictive Covenant Agreement.  In consideration for the grant of this
Award, Grantee agrees to execute and be bound by the terms of the Employee
Inventions, Confidentiality, Non-Compete and Mutual Arbitration Agreement (the
“Non-Compete Agreement”) attached hereto and Grantee acknowledges that Grantee’s
failure to execute the Non-Compete Agreement will cause this Award to
automatically terminate and be forfeited without any further action.

2.Grant Restriction.

2.1Restriction and Forfeiture.  The Grantee’s right to the Award Units or the
Adjusted Award Units and the shares of Common Stock issuable under the Award
Units or Adjusted Award Units will be subject to the Grantee remaining in
continuous employment or service with the Company or any Subsidiary for a period
of three (3) years (the “Restriction Period”) following the Date of Grant;
provided, however, that such employment/service period restrictions (the
“Restrictions”) will lapse and terminate prior to end of the Restriction Period
as set forth in Section 2.2 below (or as otherwise set forth in the Plan for any
circumstance not contemplated by the terms of Section 2.2).

2.2Death, Disability or other Termination of Employment or Service.

(a)Death.  In the event of the Grantee’s death during the Restriction Period and
prior to the Grantee’s termination of employment or other service, the
Restrictions applicable to the Award Units or Adjusted Award Units will
immediately lapse and terminate and the shares of Common Stock to be issued in
settlement of the Award Units will be issued within 90 days of the Grantee’s
death, with the performance adjustment determination related to any incomplete
fiscal year(s) within the Performance Period deemed to be satisfied at the
target level, with no reduction based on ROIC performance.

(b)Disability.  In the event of the Grantee’s Disability (as defined by the
Plan) during the Restriction Period and prior to the Grantee’s termination of
employment or other service, the Grantee will become fully vested in the Award
Units pending completion of the Performance Period and final determination of
the Adjusted Award Units.  The shares of Common Stock to be issued in settlement
of the Adjusted Award Units will be retained and held by the Company pending the
final determination of the Adjusted Award Units and will be issued within 90
days of the end of the Restriction Period.

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(c)Termination Due to Retirement.

(i)In the event that the Grantee’s employment or other service with the Company
and all Subsidiaries is terminated by reason of the Grantee’s retirement at or
beyond age fifty-five (55) and the Grantee has five (5) or more years of service
with the Company prior to retirement, the Grantee will become vested in the
Award Units pro rata based on the number of calendar days elapsed in the
Restriction Period as of the date of retirement (e.g., If the Grantee was
granted 1,200 Award Units, and retirement occurs 730 calendar days into the
1,095 calendar days vesting period, then the Grantee will become vested with
respect to an aggregate of 800 Award Units and the remaining 400 Award Units
will terminate immediately without notice of any kind and will be forfeited)
pending completion of the Performance Period and final determination of the
Adjusted Award Units.

(ii)In the event that the Grantee’s employment or other service with the Company
and all Subsidiaries is terminated by reason of the Grantee’s retirement prior
to age fifty-five (55) or the Grantee has fewer than five (5) years of service
with the Company prior to retirement, all rights of the Grantee under the Plan
and this Agreement relating to all Award Units with respect to which the
Restrictions have not lapsed will terminate immediately without notice of any
kind and will be forfeited.

(iii)In the event that the Grantee’s employment or other service with the
Company and all Subsidiaries is terminated by reason of the Grantee’s retirement
at or beyond age sixty (60) and the Grantee has five (5) or more years of
service with the Company prior to retirement, the Grantee will become fully
vested in the Award Units pending completion of the Performance Period and final
determination of the Adjusted Award Units if the following criteria are met: a)
Grantee provides written notice of Grantee’s intention to retire one year before
Grantee’s actual retirement date, and b) Grantee’s actual retirement date is at
least one year after the Date of Grant.

(iv)The shares of Common Stock to be issued in settlement of the Adjusted Award
Units pursuant to paragraphs (i) or (iii) above will be retained and held by the
Company pending the final determination of the Adjusted Award Units and will be
issued within 90 days of the end of the Restriction Period.

(d)Termination for Reasons other than Death, Disability or Retirement.  In the
event the Grantee’s employment or other service with the Company and all
Subsidiaries is terminated for any reason other than death, Disability or
retirement as provided above, or the Grantee is in the employ or service of a
Subsidiary and the Subsidiary ceases to be a Subsidiary of the Company (unless
the Grantee continues in the employ or service of the Company or another
Subsidiary), all rights of the Grantee under this Agreement relating to Award
Units with respect to which the Restrictions have not lapsed will terminate
immediately without notice of any kind, and will be forfeited.

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3.Issuance of Shares.

3.1Timing.  Vested Award Units or Adjusted Award Units shall be converted to
shares of Common Stock on a one-for-one basis and such shares shall be issued as
soon as reasonably possible, but not more than 90 days, after the end of the
Restriction Period, subject to the provisions set forth above applicable to
vesting events that occur prior to the end of the Restriction Period.

3.2Limitations on Transfer.  Award Units or Adjusted Award Units will not be
assignable or transferable by the Grantee, either voluntarily or involuntarily,
and may not be subjected to any lien, directly or indirectly, by operation of
law or otherwise.  Any attempt to transfer, assign or encumber the Award Units
or Adjusted Award Units other than in accordance with this Agreement and the
Plan will be null and void and will void the Award, and all Award Units or
Adjusted Award Units for which the Restrictions have not lapsed will be
forfeited and immediately returned to the Company.

3.3Dividends and Other Distributions.  The Award Units are being granted with an
equal number of dividend equivalents.  Accordingly, the Grantee is entitled to
receive an additional Award Unit with a value equal to any dividends or
distributions (including, without limitation, any cash dividends, stock
dividends or dividends in kind, the proceeds of any stock split or the proceeds
resulting from any changes or exchanges described in Section 6 of this
Agreement, all of which are referred to herein collectively as the “Dividend
Proceeds”) that are paid or payable with respect to one share of Common Stock
for each Award Unit which will be subject to the same rights, restrictions and
performance adjustments under this Agreement as the Award Units to which such
dividends or distributions relate.  The number of additional Award Units to be
received as divided equivalents for each Award Unit shall be determined by
dividing the cash dividend per share by the Fair Market Value of one share of
Common Stock on the dividend or distribution payment date.  All such additional
Award Units received as dividend equivalents will be subject to the same
restrictions and performance adjustments as the Award Units to which such
Dividend Proceeds relate.

3.4Fractional Shares.  The Grantee acknowledges that the Company will not issue
or deliver fractional shares of Common Stock under this Agreement.  All
fractional shares will be rounded up to the nearest whole share.

4.Rights of Grantee.

4.1Employment or Service.  Nothing in this Agreement will interfere with or
limit in any way the right of the Company or any Subsidiary to terminate the
employment or service of the Grantee at any time, nor confer upon the Grantee
any right to continue in the employment or service with the Company or any
Subsidiary at any particular position or rate of pay or for any particular
period of time.

4.2Rights as a Shareholder.  The Grantee will have no rights as a shareholder
until the Grantee becomes the holder of record of shares of Common Stock issued
in settlement of the Adjusted Award Units. As soon as practicable after the
satisfaction of any conditions to the effective issuance of shares of Common
Stock in settlement of the Adjusted Award Units, the Grantee will be recorded on
the books of the Company as the owner of such shares, and the

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Company will issue one or more duly issued and executed stock certificates
evidencing the shares.

5.Withholding Taxes.  The Company is entitled to (a) withhold and deduct from
future wages of the Grantee (or from other amounts that may be due and owing to
the Grantee from the Company), or to withhold from the shares of Common Stock
that would otherwise be determined to be paid to the Company out of Dividend
Proceeds, or make other arrangements for the collection of all amounts the
Company reasonably determines are required to satisfy any federal, state or
local withholding and employment-related tax requirements attributable to the
receipt of the Award, the receipt of dividends or distributions on Award Units
or Adjusted Award Units, or the lapse or termination of the Restrictions
applicable to Award Units or Adjusted Award Units, or (b) require the Grantee
promptly to remit the amount of such withholding to the Company.  In the event
that the Company is unable to withhold such amounts, for whatever reason, the
Grantee agrees to pay to the Company an amount equal to the amount the Company
would otherwise be required to withhold under federal, state or local law.

6.Adjustments.  In the event of any reorganization, merger, consolidation,
recapitalization, liquidation, reclassification, stock dividend, stock split,
combination of shares, rights offering or divestiture (including a spin-off) or
any other change in the corporate structure or shares of the Company, the
Committee (or, if the Company is not the surviving corporation in any such
transaction, the board of directors of the surviving corporation), in order to
prevent dilution or enlargement of the rights of the Grantee, will make
appropriate adjustment (which determination will be conclusive) as to the number
and kind of securities or other property (including cash) subject to this Award.

7.Subject to Plan.  The Award and the Award Units granted pursuant to this
Agreement have been granted under, and are subject to the terms of, the
Plan.  The terms of the Plan are incorporated by reference in this Agreement in
their entirety. In addition, the Grantee, by execution hereof, acknowledges
having received a copy of the Plan.  The provisions of this Agreement will be
interpreted as to be consistent with the Plan and any ambiguities in this
Agreement will be interpreted by reference to the Plan.  In the event that any
provision of this Agreement is not authorized by or is inconsistent with the
terms of the Plan, the terms of the Plan will prevail.

8.Forfeiture, Clawback or Recoupment.  In addition to the other rights of the
Committee under the Plan, if Grantee is determined by the Committee, acting in
its sole discretion, to have taken any action that would constitute Adverse
Action or Cause as defined under the Plan, or that is subject to any other or
additional “clawback”, forfeiture or recoupment policy adopted by the Company,
either prior to or after the date of this Agreement, or to have violated the
Non-Compete Agreement, as defined in Section 1.3, (a) all of Grantee’s rights
under the Plan and any agreements evidencing an Award granted under the Plan,
including this Agreement evidencing this Award, then held by Grantee shall
terminate and be forfeited upon the effectiveness of such Committee action, and
without notice of any kind, and (b) the Committee in its sole discretion may
require Grantee to surrender and return, transfer or assign to the Company all
or any portion of the shares of Common Stock received, or to disgorge all or any
profits or any other economic value (however defined by the Committee) made or
realized by Grantee or Grantee’s affiliate, during the period beginning one (1)
year prior to your termination of employment or service with the Employer, in
connection with any Awards granted under the Plan, including this Award, or any
shares of Common Stock issued upon the exercise or vesting of any Awards,
including this

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Award.  This Section 8 shall not apply and shall automatically become void ab
initio following a Change of Control.

9.Miscellaneous.

9.1Binding Effect.  This Agreement will be binding upon the heirs, executors,
administrators and successors of the parties to this Agreement.

9.2Governing Law.  This Agreement and all rights and obligations under this
Agreement will be construed in accordance with the Plan and governed by the laws
of the State of Minnesota, without regard to conflicts of laws provisions.  Any
legal proceeding related to this Agreement will be brought in an appropriate
Minnesota court and the parties to this Agreement consent to the exclusive
jurisdiction of the court for this purpose.

9.3Entire Agreement.  This Agreement and the Plan set forth the entire agreement
and understanding of the parties to this Agreement with respect to the grant and
vesting of this Award and the administration of the Plan and supersede all prior
agreements, arrangements, plans and understandings relating to the grant and
vesting of this Award and the administration of the Plan.

9.4Amendment and Waiver.  Other than as provided in the Plan, this Agreement may
be amended, waived, modified or canceled only by a written instrument executed
by the parties to this Agreement or, in the case of a waiver, by the party
waiving compliance.

9.5Code Section 409A.  Payment of amounts under this Agreement are intended to
comply with the requirements of Code section 409A and this Agreement shall in
all respects be administered and construed to give effect to such intent.  The
Committee in its sole discretion may accelerate or delay distribution of any
shares in payment of amounts due under this Agreement if and to the extent
allowed under Code section 409A.

 

The parties hereto have executed this Agreement effective the day and year first
above written.

SLEEP NUMBER CORPORATION

[gvfplym3k1bb000001.jpg]
Shelly Ibach
President and CEO

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By execution of this Agreement,GRANTEE
the Grantee acknowledges having
received a copy of the Plan.
(Signature)

(Name and Address)

___________________________________

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