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Exhibit 10.34
 

 
SELECT COMFORT COPRORATION
NON-EMPLOYEE DIRECTOR EQUITY PLAN
 
 
1. Establishment and Purposes of the Plan
 
1.1 Establishment of the Plan. Select Comfort Corporation (the “Company”) hereby
establishes the Select Comfort Corporation Non-Employee Director Equity Plan
(the “Plan”). The Plan shall be an unfunded nonqualified deferred compensation
plan within the meaning of Section 409A the Internal Revenue Code of 1986, as
amended (including regulations and rulings issued thereunder) (the “Code”). The
Plan does not cover employees and is therefore not subject to the Employee
Retirement Income Security Act of 1974, as amended.
 
1.2 Purposes of the Plan. The purposes of the Plan are to enable the Company to
attract and retain qualified individuals to serve as Non-Employee Directors of
the Company, to provide Non-Employee Directors with the opportunity to increase
their equity interest in the Company through the receipt of all or a portion of
the Non-Employee Director’s fees in the form of stock and to thereby increase
the personal interest of the Non-Employee Directors in the Company’s continued
success, and to provide Non-Employee Directors the opportunity to defer the
receipt of compensation that would otherwise be paid to those directors.
 
1.3 Effective Date. The Plan shall be effective as of November 17, 2005,
provided that no shares of Common Stock shall be issued under the Plan prior to
approval by the shareholders of the Company of the issuance of such shares. If
any benefits are required to be paid to any Participant under the Plan prior to
the date the issuance of shares under the Plan has been approved by shareholders
of the Company, such benefits shall be paid in the form of cash in an amount
equal to the Fair Market Value of the shares of Common Stock otherwise payable
hereunder.
 
2. Definitions
 
2.1 Beneficiary. “Beneficiary” means the individual, trust or other entity
designated by the Participant to receive any benefits to be distributed under
the Plan after the Participant’s death. A Participant may designate more than
one Beneficiary with specification of the percentage of any benefits to be paid
to each designated Beneficiary. A Participant may designate or change a
Beneficiary by filing a signed designation with the Company in a form approved
by the Company. If a designation has not been properly completed and filed with
the Company or is ineffective for any other reason, the Beneficiary shall be the
Participant’s surviving spouse.
 
2.2 Board. “Board” means the Board of Directors of the Company.
 
2.3 Change in Control. A “Change in Control” of the Company shall mean any of
the following, provided, however, that such event constitutes a “change in
control event” under Section 409A of the Code: (a) the sale, lease, exchange or
other transfer of all or substantially all of the assets of the Company (in one
transaction or in a series of related transactions) to a corporation that is not
controlled by the Company; (b) the approval by the shareholders of the Company
of any plan or proposal for the liquidation or dissolution of the Company; or
(c) a change in control of a nature that would be required to be reported
(assuming such event has not
 

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been “previously reported”) in response to Item 5.01 of the Current Report on
Form 8-K, as in effect on the effective date of the Plan, pursuant to Section 13
or 15(d) of the Exchange Act, whether or not the Company is then subject to such
reporting requirement; provided that, without limitation, such a Change in
Control shall be deemed to have occurred at such time as (x) any Person becomes
the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act)
directly or indirectly, of 50% or more of the combined voting power of the
Company’s outstanding securities ordinarily having the right to vote at
elections of directors or (y) individuals who constitute the Board of Directors
on the effective date of the Plan cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequent to the
effective date of the Plan whose election, or nomination for election by the
Company’s shareholders, was approved by a vote of at least a majority of the
directors comprising the Board of Directors on the effective date of the Plan
(either by a specific vote or by approval of the proxy statement of the Company
in which such person is named as a nominee for director, without objection to
such nomination) shall be, for purposes of this clause (y), considered as though
such person were a member of the Board of Directors on the effective date of the
Plan.
 
2.4 Committee. “Committee” means the Management Development and Compensation
Committee of the Board or such other committee as the Board shall designate to
administer the Plan.
 
2.5 Common Stock. “Common Stock” means the common stock, par value $0.01 per
share, of the Company.
 
2.6 Director’s Fees. “Director’s Fees” means any compensation payable by the
Company in the form of cash to a Non-Employee Director for service as a
Non-Employee Director on the Board or any committee of the Board as may be
approved from time to time by the Board, excluding expense allowances,
reimbursements and insurance premiums paid to or on behalf of such Non-Employee
Directors.
 
2.7 Fair Market Value. “Fair Market Value” means, with respect to the Common
Stock, as of any date (or, if no shares were traded or quoted on such date, as
of the next preceding date on which there was such a trade or quote): (a) the
mean between the reported high and low sale prices of the Common Stock if the
Common Stock is listed, admitted to unlisted trading privileges or reported on
any foreign or national securities exchange or on the Nasdaq National Market or
an equivalent foreign market on which sale prices are reported; (b) if the
Common Stock is not so listed, admitted to unlisted trading privileges or
reported, the closing bid price as reported by the Nasdaq SmallCap Market, OTC
Bulletin Board or the National Quotation Bureau, Inc. or other comparable
service; or (c) if the Common Stock is not so listed or reported, such price as
the Committee determines in good faith in the exercise of its reasonable
discretion, and in accordance with the requirements of Section 409A of the Code,
to be the fair market value of such Common Stock. If determined by the
Committee, such determination will be final, conclusive and binding for all
purposes and on all persons, including, without limitation, the Company, the
shareholders of the Company, the Participants and their respective
successors-in-interest. No member of the Committee will be liable for any
determination regarding the fair market value of the Common Stock that is made
in good faith.
 
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2.8 Non-Employee Director. “Non-Employee Director” means any individual who
serves as a member of the Board and who is not an employee of the Company or any
of its subsidiaries; provided, that the Committee may exclude any Non-Employee
Director from participating in the Plan at any time or from time to time
pursuant to an individual agreement or arrangement with such Non-Employee
Director.
 
2.9 Participant. “Participant” means any Non-Employee Director who elects to
participate in the Plan.
 
2.10 Plan. “Plan” means this Select Comfort Corporation Non-Employee Director
Equity Plan.
 
2.11 Plan Year. “Plan Year” means the 12-month period beginning each January 1,
commencing January 1, 2006.
 
2.12 Separation from Service. “Separation from Service” means the Participant’s
separation from service as a director and independent contractor with the
Company (and all entities with whom the Company would be considered a single
employer under Sections 414(b) and 414(c) of the Code), voluntarily or
involuntarily, for any reason, provided such Separation from Service constitutes
a “separation from service” within the meaning of Section 409A of the Code.
 
2.13 Unforeseeable Emergency. An “Unforeseeable Emergency” is a severe financial
hardship of a Participant resulting from an illness or accident of the
Participant, his or her spouse, his or her dependent (as defined in Code section
152(a)); the loss of the Participant’s property due to casualty; or other
similar extraordinary and unforeseeable circumstances arising as a result of
events beyond the control of the Participant.
 
3. Administration
 
3.1 Power and Authority. The Committee shall administer the Plan and shall have
full power and authority to interpret the provisions of the Plan and to
supervise the administration of the Plan. All determinations, interpretations
and selections made by the Committee regarding the Plan shall be final and
conclusive.
 
3.2 Delegation of Powers; Employment of Advisers. The Committee may delegate to
any person or entity such duties and powers, both administrative and
discretionary, as it deems appropriate, except for such duties that may not be
delegated by law or regulation. In administering the Plan, the Committee may
employ attorneys, consultants, accountants or other persons, and the Company and
the Committee shall be entitled to rely upon the advice or opinions of any such
persons. All ordinary and reasonable expenses of the Committee shall be paid by
the Company.
 
4. Election to Receive Director’s Fees in the Form of Common Stock
 
4.1 Election. A Non-Employee Director may elect to receive all or any portion of
any Director’s Fees in the form of Common Stock by giving notice of such
election to the Company in a form approved by the Committee. Such an election
shall be effective with respect to Director’s Fees payable commencing with the
next Plan Year following the date of the election.
 
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4.2 Revocation of Election. An election to receive payment of Director’s Fees in
the form of Common Stock may be revoked only by a subsequent election to receive
payment of Director’s Fees in cash or to defer such Director’s Fees pursuant to
Section 5 below. Such an election shall be effective with respect to Director’s
Fees payable commencing with the next Plan Year following the date of the
election.
 
43. Determination of Number of Shares. The number of shares of Common Stock to
be paid to a Participant shall be determined by dividing the amount of
Director’s Fees payable by the Fair Market Value of the Common Stock on the date
such Director’s Fees would have been paid in cash but for the Participant’s
election to receive payment of such Director’s Fees in the form of Common Stock.
The amount of any fractional share shall be paid in cash.
 
4.4 Issuance and Delivery of Shares. If a Participant has elected to receive his
or her Director’s Fees in the form of Common Stock, a certificate for the number
of shares of Common Stock to which the Participant is entitled shall be issued
as soon as reasonably practicable following the date the Participant otherwise
would have received the Director’s Fees or, alternatively, the shares may be
issued in non-certificated form and delivered via electronic means to a
brokerage account designated by the Participant.
 
5. Election to Defer Receipt of Director’s Fees and to Receive Director’s Fees
in the Form of Common Stock
 
5.1 Election. A Non-Employee Director may elect to defer receipt of all or any
portion of any Director’s Fees and to receive such deferred Director’s Fees in
the form of Common Stock by giving notice of such election to the Company in a
form approved by the Committee (a “Deferral Election”). A Deferral Election
shall be effective with respect to Director’s Fees payable commencing with the
next Plan Year following the date of the Deferral Election. A new Non-Employee
Director who first becomes eligible to participate in the Plan may make an
initial irrevocable Deferral Election during the first 30 days of eligibility to
participate and such election shall apply only to Director’s Fees earned for
performance of services following the date of the election. If a new Participant
does not make an election during this 30-day period, the Participant may not
make a Deferral Election to be effective earlier than the beginning of the next
Plan Year. An election becomes irrevocable after the last day on which such
election can be made and remains so for the Plan Year.
 
5.2 Revocation of Election; Change in Distribution Date for Subsequent Plan
Years.
 
(a) Except as provided in Section 5.9, a Deferral Election may be revoked only
by a subsequent election to receive payment of Director’s Fees in cash or to
receive such Director’s Fees in the form of Common Stock pursuant to Section 4
above. Such an election shall be effective with respect to Director’s Fees
payable for services commencing with the next Plan Year following the date of
the election.
 
(b) For each succeeding Plan Year in which a Deferral Election is in effect, a
Participant may change the distribution date for purposes of Section 5.4 for
amounts deferred in the succeeding Plan Year(s) by timely delivering a new
Deferral Election to the Company, specifying the distribution date for the
amounts to be deferred in the succeeding Plan Year(s).
 
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5.3 Establishment of Deferred Stock Unit Account. As of any date that Director’s
Fees would have been paid in cash to a Participant but for the Deferral
Election, any amounts deferred pursuant to this Section 5 shall be credited to a
bookkeeping reserve account (“Account”) maintained by the Company in stock units
(“Stock Units”). The number of Stock Units credited to a Participant’s Account
shall be determined by dividing the amount of Director’s Fees to be deferred by
the Fair Market Value of the Common Stock on the date such Director’s Fees would
have been paid in cash to a Participant but for the Deferral Election, and shall
include fractions of a Stock Unit. All Stock Units credited to a Participant’s
Account pursuant to the Plan shall at all times be fully vested and
non-forfeitable.
 
5.4 Payment of Deferred Stock Unit Account.
 
(a) Except as otherwise provided in Sections 7.1 and 7.2 below, Stock Units
Credited to a Participant’s Account shall be payable in either a single
distribution or in a series of annual installments over a period of two (2) to
ten (10) years, as specified by the Participant in the applicable Deferral
Election. The amount of the annual installment shall be determined by dividing
the number of Stock Units in the Participant’s Account by the number of
remaining installments to be made (including the payment being determined).
 
(b) Except as otherwise provided in Sections 7.1 and 7.2 below, distribution of
Stock Units shall be made or shall commence at such time or times as may be
specified by the Participant in the applicable Deferral Election; provided that
the designated payment date or dates with respect to any Deferral Election must
be no earlier than the first day of the calendar year after the calendar year in
which the Director’s Fees would have been paid but for the Deferral Election. A
Participant may elect to receive distribution either upon a fixed, predetermined
date (but not an event), or upon the Participant’s Separation from Service.
 
(c) Stock Units shall be payable in a number of shares of Common Stock equal to
the number of Stock Units in the Account. The amount of any fractional shares
shall be paid in cash.
 
5.5 Issuance and Delivery of Shares. The Company shall issue and deliver to the
Participant a certificate for the number of shares of Common Stock due such
Participant as payment for Stock Units as soon as practicable following the date
on which Stock Units are payable or, alternatively, the shares may be issued in
non-certificated form and delivered via electronic means to a brokerage account
designated by the Participant.
 
5.6 Unfunded Nature of Accounts. The Plan shall be unfunded with respect to the
Company’s obligation to pay any amount of Stock Units in any Account, and a
Participant’s rights to receive any payment of cash or shares of Common Stock
for Stock Units in any Account shall be no greater than the rights of an
unsecured general creditor of the Company.
 
5.7 Designation of Beneficiary. A Non-Employee Director may designate a
Beneficiary or Beneficiaries to receive any distributions under the Plan upon
his or her death.
 
5.8 Dividends. In the event a cash dividend is declared with respect to the
Common Stock, the Account of each Participant shall be credited with a number of
Stock Units determined
 
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by first calculating the product of (a) the cash dividend payable with respect
to each share of Common Stock and (b) the total number of Stock Units credited
to the Account as of the record date for such dividend; and second, by dividing
such product by the Fair Market Value of the Common Stock on the payment date
for such dividend.
 
5.9 Unforeseeable Emergency. A Participant may receive a distribution from his
or her Account if the Committee determines that such distribution is on account
of an Unforeseeable Emergency. The amount that may be distributed with respect
to a Participant’s Unforeseeable Emergency may not exceed the amounts necessary
to satisfy the emergency plus amounts necessary to pay taxes reasonably
anticipated as a result of the distribution, after taking into account the
extent to which such Unforeseeable Emergency is or may be relieved through
reimbursement or compensation by insurance or otherwise or by liquidation of the
Participant’s assets (to the extent the liquidation of such assets would not
itself cause severe financial hardship), and the cancellation of the
Participant’s deferral election for the balance of the Plan Year, provided the
determination of such limitation is consistent with the requirements of Section
409A(2)(B)(ii) of the Code. To receive such a distribution, the Participant must
request a distribution by filing an application with the Committee and
furnishing such supporting documentation as the Committee may require. In the
application, the Participant shall specify the basis for the distribution and
the dollar amount to be distributed. If such request is approved by the
Committee, distribution shall be made in a lump sum payment as soon as
administratively practicable following the approval of the completed application
by the Committee.
 
6. Compliance with Rule 16b-3
 
Notwithstanding the above, no election otherwise permitted under Section 4 or 5
above shall be effective if such election would cause the payment of Director’s
Fees in the form of Common Stock to be a non-exempt purchase under Rule 16b-3
promulgated under the Securities Exchange Act of 1934 or would terminate the
Non-Employee Director’s status as a non-employee director under Rule 16b-3,
unless approved by the Board or the Committee.
 
7. Distribution upon Change in Control or upon Death of a Participant
 
7.1 Distribution upon Change in Control. Notwithstanding anything in the Plan to
the contrary (including Section 5.4 above), in the event of a Change in Control,
all Stock Units credited to an Account for a Participant shall, as of the date
of the occurrence of a Change in Control, be immediately payable to such
Participant in the form of shares of Common Stock equal in number to the Stock
Units held as of the date of the Change in Control. In the event that the Change
in Control shall have resulted in the payment of cash, securities or other
consideration for outstanding shares of Common Stock, then the Participants
shall be entitled to receive the amount of such cash, securities or other
consideration as would have been payable in connection with such Change in
Control in respect of the shares of Common Stock otherwise payable to the
Participants hereunder. The amount of any fractional shares shall be paid in
cash.
 
7.2 Distribution upon Death. Notwithstanding anything in the Plan to the
contrary (including Section 5.4 above), in the event of the death of a
Participant, all Stock Units credited to an Account for the deceased Participant
shall, as of the date of the Participant's death, be immediately payable to the
Participant's Beneficiary or Beneficiaries in the form of shares of Common Stock
equal in number to the Stock Units held in the deceased Participant's
 
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Account as of the date of the Participant's death. If there is no Beneficiary,
as that term is defined under this Plan, the remaining benefits shall be
distributed to the Participant's estate. The amount of any fractional shares
shall be paid in cash.

 
7.3 Tax Withholding. Notwithstanding anything in the Plan to the contrary, the
Company may withhold from any distribution the amount of any federal, state or
local tax that the Company reasonably determines is required by law to be
withheld. Any benefits withheld and determined not to be required to be withheld
shall be distributed as soon as there is a final determination of the applicable
withholding. No interest shall be payable to any Participant or any Beneficiary
for any period that any amount is withheld pursuant to this Section 7.3.
 
8. General Provisions
 
8.1 Adjustments to Shares of Common Stock Upon Certain Events. In the event of
any reorganization, merger, consolidation, recapitalization, liquidation,
reclassification, stock dividend, stock split, combination of shares, rights
offering, divestiture or extraordinary dividend (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) will make appropriate
adjustment (which determination will be conclusive) as to the number and kind of
securities or other property (including cash) payable with respect to Accounts
under the Plan in order to prevent dilution or enlargement of the rights of
Participants.
 
8.2 Amendment; Termination. The Company reserves the right to amend the Plan
prospectively or retroactively, in whole or in part, or to terminate the Plan,
provided that no amendment or termination may reduce or revoke any Participant’s
rights under the Plan accrued and existing as of the later of the date of
adoption of the amendment or termination or the effective date of the amendment
or termination. Upon termination of the Plan, the Accounts of affected
Participants shall be administered and distributed in accordance with the
provisions of the Plan. The Company may, to the extent it complies with the
requirements of Section 409A of the Code, accelerate distribution of the
Participant’s Accounts following termination of the Plan.
 
8.3 Rights Not Assignable. Except for designation of a Beneficiary,
Participants’ Accounts or other rights under the Plan shall not be subject to
assignment, conveyance, transfer, anticipation, pledge, alienation, sale,
encumbrance or charge, whether voluntary or involuntary, by the Participant or
any Beneficiary of the Participant. An interest in an Account or the amount
represented thereby shall not provide collateral or security for a debt of a
Participant or Beneficiary or be subject to garnishment, execution, assignment,
levy or to another form of judicial or administrative process or to the claim of
a creditor of a Participant or Beneficiary, through legal process or otherwise.
Any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber,
charge or to otherwise dispose of benefits, before actual receipt of the
benefits, or a right to receive benefits, shall be void and shall not be
recognized.
 
8.4 Unsecured Creditor Status. A Participant shall be an unsecured general
creditor of the Company as to the distribution of any benefits under the Plan.
The right of any Participant or Beneficiary to receive any distribution under
the Plan shall be no greater than the right of any other general, unsecured
creditor of the Company.
 
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8.5 No Trust or Fiduciary Relationship. Nothing contained in the Plan shall be
deemed to create a trust or fiduciary relationship of any kind for the benefit
of any Participant or Beneficiary.
 
8.6 Rights as a Stockholder. A Participant will have no rights as a shareholder
unless and until shares of Common Stock are issued hereunder and the Participant
becomes the holder of record of such shares.
 
8.7 Construction. The singular includes the plural, and the plural includes the
singular, unless the context clearly indicates the contrary. Capitalized terms
(except those at the beginning of a sentence or part of a heading) have the
meaning specified in the Plan. If a capitalized term is not defined in the Plan,
the term shall have the general, accepted meaning of the term.
 
8.8 Disputes. The Committee shall be the final arbiter of any dispute related to
any matter under the Plan. If the Participant involved in a dispute is a member
of the Committee, such Participant shall not participate in the Committee’s
deliberations or decision related to the dispute. The determination by the
Committee with respect to any such dispute shall be final and binding on all
parties.
 
8.9 Unfunded Plan. This Plan is intended to be an unfunded nonqualified deferred
compensation plan within the meaning of Section 409A of the Code and shall be
interpreted accordingly. Benefits provided in the Plan constitute only an
unsecured contractual promise to distribute Common Stock (and cash in lieu of
fractional shares) in accordance with the terms of the Plan by the Company.
 
8.10 Self-Employment Taxes. To the extent that amounts distributed or deferred
under the Plan are deemed to be net earnings from self-employment, each
Participant shall be responsible for any taxes payable under federal, state or
local law.
 
8.11 Right of Company to Replace Directors. Neither the action of the Company in
establishing the Plan, nor any provision of the Plan, shall be construed as
giving any Non-Employee Director the right to be retained as a director, or any
right to any payment whatsoever except to the extent of the benefits provided
for by the Plan. The Company expressly reserves the right at any time to replace
or fail to renominate any Non-Employee Director without any liability for any
claim against the Company for any payment or distribution whatsoever except to
the extent provided for in the Plan.
 
8.12 Governing Law; Severability. The Plan shall be construed, regulated and
administered under the laws of the State of Minnesota. If any provisions of the
Plan shall be held invalid or unenforceable for any reason, such invalidity or
unenforceability shall not affect the remaining provisions of the Plan, and the
Plan shall be deemed to be modified to the least extent possible to make it
valid and enforceable in its entirety.
 
8.13 Trust Fund. The Company shall be responsible for the distribution of all
benefits provided under the Plan. At its discretion, the Company may establish
one or more trust, with such trustees as the Board or the Committee may approve,
for the purpose of providing for the distribution of such benefits. Such trust
or trusts may be irrevocable, but the assets thereof shall
 
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be subject to the claims of the Company’s creditors. To the extent any benefits
provided under the Plan are actually distributed from any such trust, the
Company shall have no further obligation with respect thereto, but to the extent
not so distributed, such benefits shall remain the obligation of, and shall be
distributed by, the Company.
 
8.14 Securities Law and Other Restrictions. Notwithstanding any other provision
of the Plan or any agreements entered into pursuant to the Plan, the Company
may, to the extent permitted under Section 409A of the Code, delay the
distribution of any shares of Common Stock under this Plan if the Company
reasonably anticipates that the making of the payment will violate federal
securities laws or other applicable law, provided payment will be made at the
earliest date at which the Company reasonably anticipates that the distribution
will not cause such violation. A Participant may not sell, assign, transfer or
otherwise dispose of shares of Common Stock issued pursuant to the Plan, unless
(a) there is in effect with respect to such shares a registration statement
under the Securities Act and any applicable securities laws of a state or
foreign jurisdiction or an exemption from such registration under the Securities
Act and applicable state or foreign securities laws, and (b) there has been
obtained any other consent, approval or permit from any other U.S. or foreign
regulatory body which the Committee, in its sole discretion, deems necessary or
advisable. The Company may condition the issuance, sale or transfer of shares of
Common Stock upon the receipt of any representations or agreements from the
parties involved, and the placement of any legends on certificates representing
shares of Common Stock, as may be deemed necessary or advisable by the Company
in order to comply with such securities law or other restrictions.
 
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