ECOLAB INC.

 2002 STOCK INCENTIVE PLAN

 

 

1.             Purpose of Plan.

 

The purpose of the Ecolab Inc. 2002 Stock Incentive Plan (the “Plan”) is to
advance the interests of Ecolab Inc. (the “Company”) and its stockholders by
enabling the Company and its Subsidiaries to attract and retain qualified
individuals through opportunities for equity participation in the Company, and
to reward those individuals who contribute to the  achievement of the Company’
economic objectives.

 

2.             Definitions.

 

The following terms will have the meanings set forth below, unless the context
clearly otherwise requires:

 

2.1  “Board” means the Board of Directors of the Company.

 

2.2  “Broker Exercise Notice” means a written notice pursuant to which a
Participant, upon exercise of an Option, irrevocably instructs a broker or
dealer to sell a sufficient number of shares or loan a sufficient amount of
money to pay all or a portion of the exercise price of the Option and/or any
related withholding tax obligations and remit such sums to the Company and
directs the Company to deliver stock certificates to be issued upon such
exercise directly to such broker or dealer or their nominee.

 

                2.3  “Cause” means (i) dishonesty, fraud, misrepresentation,
embezzlement or deliberate injury or attempted injury, in each case related to
the Company or any Subsidiary, (ii) any unlawful or criminal activity of a
serious nature, (iii) any intentional and deliberate breach of a duty or duties
that, individually or in the aggregate, are material in relation to the
Participant’s overall duties, or (iv) any material breach of any confidentiality
or noncompete agreement entered into with the Company or any Subsidiary.

 

2.4  “Change in Control” means an event described in Section 11.1 of the Plan.

 

2.5  “Code” means the Internal Revenue Code of 1986, as amended.

 

2.6  “Committee” means the group of individuals administering the Plan, as
provided in Section 3 of the Plan.

 

2.7  “Common Stock” means the common stock of the Company, par value $1.00 per
share, or the number and kind of shares of stock or other securities into which
such Common Stock may be changed in accordance with Section 4.3 of the Plan.

 

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2.8  “Disability” means the disability of the Participant such as would entitle
the Participant to receive disability income benefits pursuant to the long–term
disability plan of the Company or Subsidiary then covering the Participant or,
if no such plan exists or is applicable to the Participant, the permanent and
total disability of the Participant within the meaning of Section 22(e)(3) of
the Code.

 

2.9  “Effective Date” means May 10, 2002 or such later date as the Plan is
initially approved by the Company’s stockholders.

 

2.10  “Eligible Recipients” means all employees (including, without limitation,
officers and directors who are also employees) of the Company or any Subsidiary.

 

2.11  “Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

2.12  “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) the mean between the
reported high and low sale prices of the Common Stock during the regular daily
trading session, as quoted in the WALL STREET JOURNAL reports of the New York
Stock Exchange – Composite Transactions.

 

2.13  “Incentive Award” means an Option, Restricted Stock Award or Performance
Stock Award granted to an Eligible Recipient pursuant to the Plan.

 

2.14  “Incentive Stock Option” means a right to purchase Common Stock granted to
an Eligible Recipient pursuant to Section 6 of the Plan that qualifies as an
“incentive stock option” within the meaning of Section 422 of the Code.

 

2.15  “Non-Statutory Stock Option” means a right to purchase Common Stock
granted to an Eligible Recipient pursuant to Section 6 of the Plan that does not
qualify as an Incentive Stock Option.

 

2.16  “Option” means an Incentive Stock Option or a Non–Statutory Stock Option.

 

2.17  “Participant” means an Eligible Recipient who receives one or more
Incentive Awards under the Plan.

 

2.18  “Performance Criteria” means the performance criteria that may be used by
the Committee in granting Performance Stock Awards contingent upon achievement
of performance goals, consisting of net sales, operating income, income before
income taxes, net income, net income per share (basic or diluted), profitability
as measured by return ratios (including return on assets, return on equity,
return on investment and return on sales), cash flows, market share, cost
reduction goals, margins (including one or more of gross, operating and net
income margins), stock price, total return to stockholders, economic value
added, working capital and strategic plan development and implementation.  The
Committee may select one criterion or multiple criteria for measuring
performance, and the measurement may be based upon Company,

 

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Subsidiary or business unit performance, either absolute or by relative
comparison to other companies or any other external measure of the selected
criteria.

 

2.19  “Performance Stock Award” means an award of a right to receive shares of
Common Stock granted to an Eligible Recipient pursuant to Section 8 of the Plan
contingent upon achievement of Performance Criteria or other objectives during a
specified period as provided in Section 8.

 

2.20  “Previously Acquired Shares” means shares of Common Stock that are already
owned by the Participant or, with respect to any Incentive Award, that are to be
issued upon the grant, exercise or vesting of such Incentive Award.

 

2.21  “Restricted Stock Award” means an award of Common Stock granted to an
Eligible Recipient pursuant to Section 7 of the Plan that is subject to the
restrictions on transferability and the risk of forfeiture imposed by the
provisions of such Section 7.

 

2.22  “Reload Option” means an Option granted under Section 6.6 with respect to
the exercise of an earlier granted option by using Previously Acquired Shares to
pay the exercise price and withholding obligation.

 

2.23  “Retirement” means termination of employment at an age and length of
service such that the Participant would be eligible to an immediate commencement
of benefit payments under the Company’s defined benefit pension plan available
generally to its employees, whether or not such individual actually elects to
commence such payments (provided that, if the Participant is not covered by the
Company’s defined benefit pension plan, attainment of the necessary age and
length of service for immediate benefit commencement shall, for purposes of the
Plan, be determined as to the Participant as if such Participant had been
covered by such plan and had been credited with continuous (vesting) service
pursuant to such plan rules (a) for the period of service such Participant was
in the employ of the Company and any Subsidiary, and (b) with respect to a
Participant who was in the employ of a corporation or other organization whose
business was acquired by the Company or any Subsidiary, if (and only to the
extent) specifically provided by the Committee, for the period of service such
Participant was in the employ of such corporation or other organization prior to
such acquisition).

 

2.24  “Securities Act” means the Securities Act of 1933, as amended.

 

2.25  “Subsidiary” means any entity that is directly or indirectly controlled by
the Company or any entity in which the Company has a significant equity
interest, as determined by the Committee.

 

2.26  “Tax Date” means the date any withholding tax obligation arises under the
Code for a Participant with respect to an Incentive Award.

 

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3.             Plan Administration.

 

3.1  The Committee.  The Plan will be administered by the Board or by a
committee of the Board.  So long as the Company has a class of its equity
securities registered under Section 12 of the Exchange Act, any committee
administering the Plan will consist solely of two or more members of the Board
who are “non–employee directors” within the meaning of Rule 16b–3 under the
Exchange Act and, if the Board so determines in its sole discretion, who are
“outside directors” within the meaning of Section 162(m) of the Code.  Such a
committee, if established, will act by majority approval of the members
(unanimous approval with respect to action by written consent), and a majority
of the members of such a committee will constitute a quorum.    As used in the
Plan, “Committee” will refer to the Board or to such a committee, if
established.  To the extent consistent with applicable corporate law of the
Company’s jurisdiction of incorporation, the Committee may delegate to any
officers of the Company the duties, power and authority of the Committee under
the Plan pursuant to such conditions or limitations as the Committee may
establish; provided, however, that only the Committee may exercise such duties,
power and authority with respect to Eligible Recipients who are subject to
Section 16 of the Exchange Act.  The Committee may exercise its duties, power
and authority under the Plan in its sole and absolute discretion without the
consent of any Participant or other party, unless the Plan specifically provides
otherwise.  Each determination, interpretation or other action made or taken by
the Committee pursuant to the provisions of the Plan will be conclusive and
binding for all purposes and on all persons, and no member of the Committee will
be liable for any action or determination made in good faith with respect to the
Plan or any Incentive Award granted under the Plan.

 

3.2  Authority of the Committee.

 

(a)  In accordance with and subject to the provisions of the Plan, the Committee
will have the authority to determine all provisions of Incentive Awards as the
Committee may deem necessary or desirable and as consistent with the terms of
the Plan, including, without limitation, the following:  (i) the Eligible
Recipients to be selected as Participants; (ii) the nature and extent of the
Incentive Awards to be made to each Participant (including the number of shares
of Common Stock to be subject to each Incentive Award, any exercise price, the
manner in which Incentive Awards will vest or become exercisable and whether
Incentive Awards will be granted in tandem with other Incentive Awards) and the
form of written agreement, if any, evidencing such Incentive Award; (iii) the
time or times when Incentive Awards will be granted; (iv) the duration of each
Incentive Award; and (v) the restrictions and other conditions to which the
payment or vesting of Incentive Awards may be subject.  In addition, the
Committee will have the authority under the Plan in its sole discretion to pay
the economic value of any Incentive Award in the form of cash, Common Stock or
any combination of both.

 

(b)  Subject to Section 3.2(d), below, the Committee will have the authority
under the Plan to amend or modify the terms of any outstanding Incentive Award
in any manner, including, without limitation, the authority to modify the number
of shares or other terms and conditions of an Incentive Award, extend the term
of an Incentive Award,

 

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accelerate the exercisability or vesting or otherwise terminate any restrictions
relating to an Incentive Award, accept the surrender of any outstanding
Incentive Award or, to the extent not previously exercised or vested, authorize
the grant of new Incentive Awards in substitution for surrendered Incentive
Awards; provided, however that the amended or modified terms are permitted by
the Plan as then in effect and that any Participant adversely affected by such
amended or modified terms has consented to such amendment or modification.

 

(c)  In the event of (i) any reorganization, merger, consolidation,
recapitalization, liquidation, reclassification, stock dividend, stock split,
combination of shares, rights offering, extraordinary dividend or divestiture
(including a spin–off) or any other change in corporate structure or shares;
(ii) any purchase, acquisition, sale, disposition or write-down of a significant
amount of assets or a significant business; (iii) any change in accounting
principles or practices, tax laws or other such laws or provisions affecting
reported results; (iv) any uninsured catastrophic losses or extraordinary
non-recurring items as described in Accounting Principles Board Opinion No. 30
or in management’s discussion and analysis of financial performance appearing in
the Company’s annual report to stockholders for the applicable year; or (v) any
other similar change, in each case with respect to the Company or any other
entity whose performance is relevant to the grant or vesting of an Incentive
Award, the Committee (or, if the Company is not the surviving corporation in any
such transaction, the board of directors of the surviving corporation) may,
without the consent of any affected Participant, amend or modify the vesting
criteria (including Performance Criteria) of any outstanding Incentive Award
that is based in whole or in part on the financial performance of the Company
(or any Subsidiary or division or other subunit thereof) or such other entity so
as equitably to reflect such event, with the desired result that the criteria
for evaluating such financial performance of the Company or such other entity
will be substantially the same (in the sole discretion of the Committee or the
board of directors of the surviving corporation) following such event as prior
to such event; provided, however, that the amended or modified terms are
permitted by the Plan as then in effect.

 

(d)           Notwithstanding any other provision of this Plan other than
Section 4.3, the Committee may not, without prior approval of the Company’s
stockholders, seek to effect any re-pricing of any previously granted,
“underwater” Option by:  (i) amending or modifying the terms of the Option to
lower the exercise price; (ii) canceling the underwater Option and granting
either (A) replacement Options having a lower exercise price; (B) Restricted
Stock Awards; or (C) Performance Stock Awards in exchange; or (iii) repurchasing
the underwater Options and granting new Incentive Awards under this Plan.  For
purposes of this Section 3.2(d), an Option will be deemed to be “underwater” at
any time when the Fair Market Value of the Common Stock is less than the
exercise price of the Option.

 

(e)  In addition to the authority of the Committee under Section 3.2(b) and
notwithstanding any other provision of the Plan, the Committee may, in its sole
discretion, amend the terms of the Plan or Incentive Awards with respect to
Participants

 

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resident outside of the United States or employed by a non-U.S. Subsidiary in
order to comply with local legal requirements, to otherwise protect the
Company’s or Subsidiary’s interests, or to meet objectives of the Plan, and may,
where appropriate, establish one or more sub-plans (including the adoption of
any required rules and regulations) for the purposes of qualifying for preferred
tax treatment under foreign tax laws.  The Committee shall have no authority,
however, to take action pursuant to this Section 3.2(e): (i) to reserve shares
or grant Incentive Awards in excess of the limitations provided in Section 4.1;
(ii) to effect any re-pricing in violation of Section 3.2(d); (iii) to grant
Options having an exercise price less than 100% of the Fair Market Value of one
share of Common Stock on the date of grant in violation of Section 6.2; or (iv)
for which stockholder approval would then be required pursuant to Section 422 of
the Code or the rules of the New York Stock Exchange.

 

4.             Shares Available for Issuance.

 

4.1  Maximum Number of Shares Available; Certain Restrictions on Awards. 
Subject to adjustment as provided in Section 4.3 of the Plan, the maximum number
of shares of Common Stock that will be available for issuance under the Plan
will be (x) 6,000,000 plus (y) any shares of Common Stock which, as of the
Effective Date, are reserved for issuance under the Company’s 1997 Stock
Incentive Plan, as amended, and are not thereafter issued and would otherwise
have been available under that plan.  The shares available for issuance under
the Plan may, at the election of the Committee, be either treasury shares or
shares authorized but unissued, and, if treasury shares are used, all references
in the Plan to the issuance of shares will, for corporate law purposes, be
deemed to mean the transfer of shares from treasury.  Notwithstanding any other
provisions of the Plan to the contrary, (i) no Participant in the Plan may be
granted any Incentive Awards relating to more than 3,000,000 shares of Common
Stock in the aggregate during any 48-month period; (ii) no more than 2,000,000
shares of Common Stock may be granted as Restricted Stock Awards or Performance
Stock Awards under the Plan; and (iii) no more than 6,000,000 shares of Common
Stock may be issued pursuant to the exercise of Incentive Stock Options granted
under the Plan, with the foregoing limits subject, in each case, to adjustment
as provided in Section 4.3 of the Plan.

 

4.2  Accounting for Incentive Awards.  Shares of Common Stock that are issued
under the Plan or that are subject to outstanding Incentive Awards will be
applied to reduce the maximum number of shares of Common Stock remaining
available for issuance under the Plan; provided, however, that shares subject to
an Incentive Award that lapses, expires, is forfeited (including issued shares
forfeited under a Restricted Stock Award) or for any reason is terminated
unexercised or unvested or is settled or paid in cash or any form other than
shares of Common Stock will automatically again become available for issuance
under the Plan.  To the extent that the exercise price of any Option and/or
associated tax withholding obligations are paid by tender or attestation as to
ownership of Previously Acquired Shares, or to the extent that such tax
withholding obligations are satisfied by withholding of shares otherwise
issuable upon exercise of the Option, only the number of shares of Common Stock
issued net of the number of shares tendered, attested to or withheld will be
applied to reduce the maximum number of shares of Common Stock remaining
available for issuance under the Plan.  Similarly, any shares of

 

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Common Stock that are repurchased by the Company on the open market or in
private transactions  may be added to the aggregate number of shares available
for issuance under the Plan, so long as the aggregate price paid for such
repurchased shares does not exceed the cumulative amount received in cash by the
Company upon the exercise of Options or issuance of Incentive Awards granted
under the Plan.

 

4.3  Adjustments to Shares and Incentive Awards.  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) available for issuance or payment
under the Plan and, in order to prevent dilution or enlargement of the rights of
Participants, (a) the number and kind of securities or other property (including
cash) subject to outstanding Incentive Awards, and (b) the exercise price of
outstanding Options.

 

5.             Participation.

 

Participants in the Plan will be those Eligible Recipients who, in the judgment
of the Committee, have contributed, are contributing or are expected to
contribute to the achievement of economic objectives of the Company or its
Subsidiaries.  Eligible Recipients may be granted from time to time one or more
Incentive Awards, singly or in combination or in tandem with other Incentive
Awards, as may be determined by the Committee in its sole discretion.  Incentive
Awards will be deemed to be granted as of the date specified in the grant
resolution of the Committee, which date will be the date of any related
agreement with the Participant.

 

6.             Options.

 

6.1  Grant.  An Eligible Recipient may be granted one or more Options under the
Plan, and such Options will be subject to such terms and conditions, consistent
with the other provisions of the Plan, as may be determined by the Committee in
its sole discretion.  The Committee may designate whether an Option is to be
considered an Incentive Stock Option or a Non–Statutory Stock Option.  To the
extent that any Incentive Stock Option granted under the Plan ceases for any
reason to qualify as an “incentive stock option” for purposes of Section 422 of
the Code, such Incentive Stock Option will continue to be outstanding for
purposes of the Plan but will thereafter be deemed to be a Non–Statutory Stock
Option.

 

6.2  Exercise Price.  The per share price to be paid by a Participant upon
exercise of an Option will be determined by the Committee in its discretion at
the time of the Option grant, provided that such price will not be less than
100% of the Fair Market Value of one share of Common Stock on the date of grant.

 

6.3  Exercisability and Duration.  An Option will become exercisable at such
times and in such installments and upon such terms and conditions as may be
determined by the Committee in

 

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its sole discretion at the time of grant (including without limitation (i) the
achievement of one or more of the Performance Criteria; and/or that (ii) the
Participant remain in the continuous employ or service of the Company or a
Subsidiary for a certain period; provided, however, that no Option may be
exercisable prior to six months from its date of grant (other than as provided
in Section 9.1 of the Plan) or after (i) 10 years and one month from its date of
grant, in the case of any Non-Statutory Option, or (ii) 10 years from its date
of grant, in the case of any Incentive Stock Option.

 

6.4  Payment of Exercise Price.  The total purchase price of the shares to be
purchased upon exercise of an Option will be paid entirely in cash (including
check, bank draft or money order); provided, however, that the Committee, in its
sole discretion and upon terms and conditions established by the Committee, may
allow such payments to be made, in whole or in part, by tender of a Broker
Exercise Notice, by tender, or attestation as to ownership, of Previously
Acquired Shares that have been held for the period of time necessary to avoid a
charge to the Company’s earnings for financial reporting purposes and that are
otherwise acceptable to the Committee, or by a combination of such methods. For
purposes of such payment, Previously Acquired Shares tendered or covered by an
attestation will be valued at their Fair Market Value on the exercise date.

 

6.5  Manner of Exercise.  An Option may be exercised by a Participant in whole
or in part from time to time, subject to the conditions contained in the Plan
and in the agreement evidencing such Option, by delivery in person, by facsimile
or electronic transmission or through the mail of written notice of exercise to
the Company at its principal executive office in St. Paul, Minnesota and by
paying in full the total exercise price for the shares of Common Stock to be
purchased in accordance with Section 6.4 of the Plan.

 

6.6  Reload Options.  In connection with the grant of an Option hereunder, the
Committee may provide for the automatic grant of a Reload Option when the
original underlying Option is exercised in whole or in part during the term of
the Participant’s employment with the Company or any subsidiary and some or all
of the exercise price is satisfied by tender or attestation of ownership of
Previously Acquired Shares.  Such Reload Option will be granted effective as of
the date of exercise of the underlying Option, will provide the Participant the
right to purchase the number of shares of Common Stock tendered or attested to
in exercising the underlying Option and the number of shares tendered, attested
to or withheld to satisfy tax obligations associated with that portion of the
underlying Option exercised by such tender or attestation, will have an exercise
price equal to the Fair Market Value on the date of grant, and will vest and
become exercisable and will be subject to such other terms and conditions as the
Committee may determine.

 

7.             Restricted Stock Awards.

 

7.1  Grant.  An Eligible Recipient may be granted one or more Restricted Stock
Awards under the Plan, and such Restricted Stock Awards will be subject to such
terms and conditions, consistent with the other provisions of the Plan, as may
be determined by the Committee in its sole discretion.  The Committee may impose
such restrictions or conditions, not inconsistent with the provisions of the
Plan, to the vesting of such Restricted Stock Awards as it deems

 

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appropriate, including, without limitation, (i) the achievement of one or more
of the Performance Criteria; and/or that (ii) the Participant remain in the
continuous employ or service of the Company or a Subsidiary for a certain
period; provided, however, that other than as provided in Section 9.1 of the
Plan, no Restricted Stock Award may vest prior to six months from its date of
grant.

 

7.2  Rights as a Stockholder; Transferability.  Except as provided in Sections
7.1, 7.3, 7.4 and 12.3 of the Plan, a Participant will have all voting,
dividend, liquidation and other rights with respect to shares of Common Stock
issued to the Participant as a Restricted Stock Award under this Section 7 upon
the Participant becoming the holder of record of such shares as if such
Participant were a holder of record of shares of unrestricted Common Stock.

 

7.3  Dividends and Distributions.  Unless the Committee determines otherwise in
its sole discretion (either in the agreement evidencing the Restricted Stock
Award at the time of grant or at any time after the grant of the Restricted
Stock Award), any dividends or distributions (other than regular quarterly cash
dividends) 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.  The Committee will
determine in its sole discretion whether any interest will be paid on such
dividends or distributions.

 

7.4  Enforcement of Restrictions.  To enforce the restrictions referred to in
this Section 7, the Committee may place a legend on the stock certificates
referring to such restrictions and may require the Participant, until the
restrictions have lapsed, to keep the stock certificates, together with duly
endorsed stock powers, in the custody of the Company or its transfer agent, or
to maintain evidence of stock ownership, together with duly endorsed stock
powers, in a certificateless book–entry stock account with the Company’s
transfer agent.

 

8.             Performance Stock Awards.

 

An Eligible Recipient may be granted one or more Performance Stock Awards under
the Plan, and the issuance of shares of Common Stock pursuant to such
Performance Stock Awards will be subject to such terms and conditions, if any,
consistent with the other provisions of the Plan, as may be determined by the
Committee in its sole discretion, including, but not limited to, the achievement
of one or more of the Performance Criteria; provided, however, that other than
as provided in Section 9.1 of the Plan, no Performance Stock Award may vest
prior to six months from its date of grant.

 

9.             Effect of Termination of Employment.

 

9.1  Termination of Employment Due to Death or Disability.  In the event a
Participant’s employment with the Company and all Subsidiaries is terminated by
reason of death or Disability:

 

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(a)  All outstanding Options then held by the Participant will become
immediately exercisable in full and will remain exercisable for a period of five
years after such termination (but in no event after the expiration date of any
such Option);

 

(b)  All Restricted Stock Awards then held by the Participant will become fully
vested; and

 

(c)  Any conditions with respect to the issuance of shares of Common Stock
pursuant to Performance Stock Awards will lapse.

 

9.2    Termination of Employment Due to Retirement.  Subject to Section 9.5 of
the Plan, in the event a Participant’s employment with the Company and all
Subsidiaries is terminated by reason of Retirement:

 

(a)  All outstanding Options then held by the Participant will, to the extent
exercisable as of such termination, remain exercisable in full for a period of
five years after such termination (but in no event after the expiration date of
any such  Option).  Options not exercisable as of such Retirement will be
forfeited and terminate.

 

(b)  All Restricted Stock Awards then held by the Participant that have not
vested as of such termination will be terminated and forfeited; and

 

(c)  All outstanding Performance Stock Awards then held by the Participant will
be terminated and forfeited.

 

9.3       Termination of Employment for Reasons Other than Death, Disability or
Retirement. Subject to Section 9.5 of the Plan, in the event a Participant’s
employment is terminated with the Company and all Subsidiaries for any reason
other than death, Disability or Retirement, or a Participant is in the employ of
a Subsidiary and the Subsidiary ceases to be a Subsidiary of the Company (unless
the Participant continues in the employ of the Company or another Subsidiary):

 

(a)   All outstanding Options then held by the Participant will, to the extent
exercisable as of such termination, remain exercisable in full for a period of
three months after such termination (but in no event after the expiration date
of any such Option).  Options not exercisable as of such termination will be
forfeited and terminate.

 

                (b)  All Restricted Stock Awards then held by the Participant
that have not vested as of such termination will be terminated and forfeited;
and

 

(c)  All outstanding Performance Stock Awards then held by the Participant will
be terminated and forfeited.

 

9.4  Modification of Rights Upon Termination.  Notwithstanding the other
provisions of this Section 9, upon a Participant’s termination of employment
with the Company and all

 

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Subsidiaries, the Committee may, in its sole discretion (which may be exercised
at any time on or after the date of grant, including following such
termination), cause Options (or any part thereof) then held by such Participant
to become or continue to become exercisable and/or remain exercisable following
such termination of employment, and Restricted Stock Awards and Performance
Stock Awards then held by such Participant to vest and/or continue to vest or
become free of restrictions and conditions to issuance, as the case may be,
following such termination of employment, in each case in the manner determined
by the Committee; provided, however, that (a) no Option will become exercisable
or vest prior to six months from its date of grant (unless such exercisability
or vesting is by reason of death or Disability), (b) no Restricted Stock Award
will vest or be issued nor will shares of Common Stock be issued pursuant to a
Performance Stock Award prior to six months from its date of grant (unless such
vesting or issuance is by reason of death or Disability) and (c) no Incentive
Award may remain exercisable or continue to vest for more than two years beyond
the date such Incentive Award would have terminated if not for the provisions of
this Section 9.4 but in no event beyond its expiration date.

 

9.5  Effects of Actions Constituting Cause.  Notwithstanding anything in the
Plan to the contrary, in the event that a Participant is determined by the
Committee, acting in its sole discretion, to have committed any action which
would constitute Cause as defined in Section 2.3, irrespective of whether such
action or the Committee’s determination occurs before or after termination of
such Participant’s employment with the Company or any Subsidiary, all rights of
the Participant under the Plan and any agreements evidencing an Incentive Award
then held by the Participant shall terminate and be forfeited without notice of
any kind.  The Company may defer the exercise of any Option, the vesting of any
Restricted Stock Award or the issuance of any shares of Common Stock pursuant to
any Performance Stock Award for a period of up to forty-five (45) days in order
for the Committee to make any determination as to the existence of Cause.

 

9.6  Determination of Termination of Employment.  Unless the Committee otherwise
determines in its sole discretion, a Participant’s employment will, for purposes
of the Plan, be deemed to have terminated on the date recorded on the personnel
or other records of the Company or the Subsidiary for which the Participant
provides employment, as determined by the Committee in its sole discretion based
upon such records.

 

10.           Payment of Withholding Taxes.

 

10.1  General Rules.  The Company is entitled to (a) withhold and deduct from
future wages of the Participant (or from other amounts that may be due and owing
to the Participant from the Company or a Subsidiary), or make other arrangements
for the collection of, all legally required amounts necessary to satisfy any and
all federal, foreign, state and local withholding and employment–related tax
requirements attributable to an Incentive Award, including, without limitation,
the grant, exercise or vesting of, or payment of dividends with respect to, an
Incentive Award or a disqualifying disposition of stock received upon exercise
of an Incentive Stock Option, or (b) require the Participant promptly to remit
the amount of such withholding to the Company before taking any action,
including issuing any shares of Common Stock, with respect to an Incentive
Award.

 

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10.2  Special Rules.  The Committee may, in its sole discretion and upon terms
and conditions established by the Committee, permit or require a Participant to
satisfy, in whole or in part, any withholding or employment–related tax
obligation described in Section 10.1 of the Plan by electing to tender, or by
attestation as to ownership of, Previously Acquired Shares that have been held
for the period of time necessary to avoid a charge to the Company’s earnings for
financial reporting purposes and that are otherwise acceptable to the Committee,
by delivery of a Broker Exercise Notice or a combination of such methods.  For
purposes of satisfying a Participant’s withholding or employment-related tax
obligation, Previously Acquired Shares tendered or covered by an attestation
will be valued at their Fair Market Value.

 

11.           Change in Control.

 

                11.1         A “Change in Control” shall be deemed to have
occurred if the event set forth in any one of the following paragraphs shall
have occurred:

 

(a)           any “person” as such term is used in Sections 13(d) and 14(d) of
the Exchange Act (other than the Company, any trustee or other fiduciary holding
securities under any employee benefit plan of the Company, or any corporation
owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company),
is or becomes, including pursuant to a tender or exchange offer for shares of
Common Stock pursuant to which purchases are made, the “beneficial owner” (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 25% or more of the combined voting power
of the Company’s then outstanding securities, other than in a transaction
arranged or approved by the Board prior to its occurrence; provided, however,
that if any such person will become the beneficial owner, directly or
indirectly, of securities of the Company representing 34% or more of the
combined voting power of the Company’s then outstanding securities, a Change in
Control will be deemed to occur whether or not any or all of such beneficial
ownership is obtained in a transaction arranged or approved by the Board prior
to its occurrence, and other than in a transaction in which such person will
have executed a written agreement with the Company (and approved by the Board)
on or prior to the date on which such person becomes the beneficial owner of 25%
or more of the combined voting power of the Company’s then outstanding
securities, which agreement imposes one or more limitations on the amount of
such person’s beneficial ownership of shares of Common Stock, if, and so long
as, such agreement (or any amendment thereto approved by the Board provided that
no such amendment will cure any prior breach of such agreement or any amendment
thereto) continues to be binding on such person and such person is in compliance
(as determined by the Board in its sole discretion) with the terms of such
agreement (including such amendment); provided, however, that if any such person
will become the beneficial owner, directly or indirectly, of securities of the
Company representing 50% or more of the combined voting power of the Company’s
then outstanding securities, a Change in Control will be deemed to occur whether
or not such beneficial ownership was held in compliance with such a binding
agreement, and provided further that the provisions of this subparagraph (a)
shall not be

 

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applicable to a transaction in which a corporation becomes the owner of all the
Company’s outstanding securities in a transaction which complies with the
provisions of subparagraph (c) of this Section 11.1 (e.g., a reverse triangular
merger); or

 

(b)           during any thirty-six consecutive calendar months, the individuals
who constitute the Board on the first day of such period or any new director
(other than a director whose initial assumption of office is in connection with
an actual or threatened election contest, including but not limited to a consent
solicitation, relating to the election of directors of the Company) whose
appointment or election by the Board or nomination for election by the Company’s
stockholders was approved or recommended by a vote of at least two-thirds (2/3)
of the directors then still in office who either were directors on the first day
of such period, or whose appointment, election or nomination for election was
previously so approved or recommended shall for any reason cease to constitute
at least a majority thereof; or

 

(c)           there is consummated a merger or consolidation of the Company or
any direct or indirect subsidiary of the Company with any other corporation,
other than a merger or consolidation which would result in the voting securities
of the Company outstanding immediately prior to such merger or consolidation
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity or any parent thereof) more than
50% of the combined voting power of the securities of the Company or such
surviving entity or any parent thereof outstanding immediately after such merger
or consolidation, and in which no “person” (as defined under subparagraph (a)
above) acquires 50% or more of the combined voting power of the securities of
the Company or such surviving entity or parent thereof outstanding immediately
after such merger or consolidation; or

 

(d)           the stockholders of the Company approve a plan of complete
liquidation or dissolution of the Company or there is consummated an agreement
for the sale or disposition by the Company of all or substantially all of the
Company’s assets, other than a sale or disposition by the Company of all or
substantially all of the Company’s assets to an entity, more than 50% of the
combined voting power of the voting securities of which are owned by
stockholders of the Company in substantially the same proportions as their
ownership of the Company immediately prior to such sale.

 

11.2  Acceleration of Vesting.  Without limiting the authority of the Committee
under Sections 3.2 and 4.3 of the Plan, if a Change in Control of the Company
occurs, then, if approved by the Committee in its sole discretion either in an
agreement evidencing an Incentive Award at the time of grant or at any time
after the grant of an Incentive Award: (a) all Options that have been
outstanding for at least six months will become immediately exercisable in full
and will remain exercisable in accordance with their terms; (b) all Restricted
Stock Awards that have been outstanding for at least six months will become
immediately fully vested and non–forfeitable; and (c) any conditions to the
issuance of shares of Common Stock pursuant to Performance Stock Awards that
have been outstanding for at least six months will lapse.

 

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11.3  Cash Payment.  If a Change in Control of the Company occurs, then the
Committee, if approved by the Committee in its sole discretion either in an
agreement evidencing an Incentive Award at the time of grant or at any time
after the grant of an Incentive Award, and without the consent of any
Participant affected thereby, may determine that: (i) some or all Participants
holding outstanding Options will receive, with respect to some or all of the
shares of Common Stock subject to such Options, as of the effective date of any
such Change in Control of the Company, cash in an amount equal to the excess of
the Fair Market Value of such shares immediately prior to the effective date of
such Change in Control of the Company over the exercise price per share of such
Options (or, in the event that there is no excess, that such Options will be
terminated); and (ii) some or all Participants holding Performance Stock Awards
will receive, with respect to some or all of the shares of Common Stock subject
to such Performance Stock Awards, as of the effective date of any such Change in
Control of the Company, cash in an amount equal the Fair Market Value of such
shares immediately prior to the effective date of such Change in Control.

 

12.           Rights of Eligible Recipients and Participants; Transferability.

 

12.1  Employment.  Nothing in the Plan will interfere with or limit in any way
the right of the Company or any Subsidiary to terminate the employment  of any
Eligible Recipient or Participant at any time, nor confer upon any Eligible
Recipient or Participant any right to continue in the employ of the Company or
any Subsidiary.

 

12.2  Rights as a Stockholder.  As a holder of Incentive Awards (other than
Restricted Stock Awards), a Participant will have no rights as a stockholder
unless and until such Incentive Awards are exercised for, or paid in the form
of, shares of Common Stock and the Participant becomes the holder of record of
such shares.  Except as otherwise provided in the Plan, no adjustment will be
made for dividends or distributions with respect to such Incentive Awards as to
which there is a record date preceding the date the Participant becomes the
holder of record of such shares, except as the Committee may determine in its
discretion.

 

12.3               Restrictions on Transfer.

 

(a)  Except pursuant to testamentary will or the laws of descent and
distribution or as otherwise expressly permitted by subsections (b) and (c)
below, no right or interest of any Participant in an Incentive Award prior to
the exercise (in the case of Options) or vesting or issuance (in the case of
Restricted Stock Awards and Performance Stock Awards) of such Incentive Award
will be assignable or transferable, or subjected to any lien, during the
lifetime of the Participant, either voluntarily or involuntarily, directly or
indirectly, by operation of law or otherwise.

 

(b)  A Participant will be entitled to designate a beneficiary to receive an
Incentive Award upon such Participant’s death, and in the event of such
Participant’s death, payment of any amounts due under the Plan will be made to,
and exercise of any Options (to the extent permitted pursuant to Section 9 of
the Plan) may be made by,  such beneficiary.  If a deceased Participant has
failed to designate a beneficiary, or if a

 

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beneficiary designated by the Participant fails to survive the Participant,
payment of any amounts due under the Plan will be made to, and exercise of any
Options (to the extent permitted pursuant to Section 9 of the Plan) may be made
by, the Participant’s legal representatives, heirs and legatees.  If a deceased
Participant has designated a beneficiary and such beneficiary survives the
Participant but dies before complete payment of all amounts due under the Plan
or exercise of all exercisable Options, then such payments will be made to, and
the exercise of such Options may be made by, the legal representatives, heirs
and legatees of the beneficiary.

 

(c)  Upon a Participant’s request, the Committee may, in its sole discretion,
permit a transfer of all or a portion of a Non-Statutory Stock Option, other
than for value, to such Participant’s child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, former spouse, sibling, niece, nephew,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law, any person sharing such Participant’s household (other than a
tenant or employee), a trust in which any of the foregoing have more than fifty
percent of the beneficial interests, a foundation in which any of the foregoing
(or the Participant) control the management of assets, and any other entity in
which these persons (or the Participant) own more than fifty percent of the
voting interests.  Any permitted transferee will remain subject to all the terms
and conditions applicable to the Participant prior to the transfer except that a
transferee will have no rights to receive a grant of Reload Options under
Section 6.6 of the Plan.  A permitted transfer may be conditioned upon such
requirements as the Committee may, in its sole discretion, determine, including,
but not limited to execution and/or delivery of appropriate acknowledgements,
opinion of counsel, or other documents by the transferee.

 

12.4  Non-Exclusivity of the Plan.  Nothing contained in the Plan is intended to
modify or rescind any previously approved compensation plans or programs of the
Company or create any limitations on the power or authority of the Board to
adopt such additional or other compensation arrangements as the Board may deem
necessary or desirable.

 

13.           Securities Law and Other Restrictions.

 

Notwithstanding any other provision of the Plan or any agreements entered into
pursuant to the Plan, the Company will not be required to issue any shares of
Common Stock under this Plan, and a Participant may not sell, assign, transfer
or otherwise dispose of shares of Common Stock issued pursuant to Incentive
Awards granted under 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 such
issuance, sale or transfer 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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14.           Performance-Based Compensation Provisions.

 

                The Committee, when it is comprised solely of two or more
outside directors meeting the requirements of Section 162(m) of the Code
(“Section 162(m)”), in its sole discretion, may designate whether any Incentive
Awards are intended to be “performance-based compensation” within the meaning of
Section 162(m).  Any Incentive Awards so designated will, to the extent required
by Section 162(m), be conditioned upon the achievement of one or more
Performance Criteria, and such Performance Criteria will be established by the
Committee within the time period prescribed by, and will otherwise comply with
the requirements of, Section 162(m) giving due regard to the disparate treatment
under Section 162(m) of Options (where compensation is determined based solely
on an increase in the value of the underlying stock after the date of grant or
award), as compared to other forms of compensation, including Restricted Stock
Awards and Performance Stock Awards.  The Committee shall also certify in
writing that such Performance Criteria have been met prior to payment of
compensation to the extent required by Section 162(m).

 

15.           Plan Amendment, Modification and Termination.

 

The Board may suspend or terminate the Plan or any portion thereof at any time. 
In addition to the authority of the Committee to amend the Plan under Section
3.2(e), the Board may amend the Plan from time to time in such respects as the
Board may deem advisable in order that Incentive Awards under the Plan will
conform to any change in applicable laws or regulations or in any other respect
the Board may deem to be in the best interests of the Company; provided,
however, that no such amendments to the Plan will be effective without approval
of the Company’s stockholders if: (i) stockholder approval of the amendment is
then required pursuant to Section 422 of the Code or the rules of the New York
Stock Exchange; or (ii) such amendment seeks to modify Section 3.2(d) hereof. 
No termination, suspension or amendment of the Plan may adversely affect any
outstanding Incentive Award without the consent of the affected Participant;
provided, however, that this sentence will not impair the right of the Committee
to take whatever action it deems appropriate under Sections 3.2(c), 4.3 and 11
of the Plan.

 

16.           Effective Date and Duration of the Plan.

 

The Plan is effective as of the Effective Date.  The Plan will terminate at
midnight on June 30, 2007, and may be terminated prior to such time by Board
action.  No Incentive Award will be granted after termination of the Plan, other
than Reload Options provided for under the terms of an agreement evidencing an
Option granted prior to termination of the Plan.  Incentive Awards outstanding
upon termination of the Plan may continue to be exercised, or become free of
restrictions, according to their terms.

 

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17.           Miscellaneous.

 

17.1  Governing Law.  Except to the extent expressly provided herein or in
connection with other matters of corporate governance and authority (all of
which shall be governed by the laws of the Company’s jurisdiction of
incorporation), the validity, construction, interpretation, administration and
effect of the Plan and any rules, regulations and actions relating to the Plan
will be governed by and construed exclusively in accordance with the laws of the
State of Minnesota, notwithstanding the conflicts of laws principles of any
jurisdictions.

 

17.2  Successors and Assigns.  The Plan will be binding upon and inure to the
benefit of the successors and permitted assigns of the Company and the
Participants.

 

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