Publish Date:    21 December 2004
Destroy Date:   31 December 2005

ADC

Management Incentive Plan Document
Fiscal Year 2005

 

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MANAGEMENT INCENTIVE PLAN DOCUMENT
Fiscal Year 2005

Plan Name and Effective Date

The name of this Plan is the ADC Telecommunications, Inc. Management Incentive
Plan. The plan is effective from November 1, 2004 through October 31, 2005.

Purpose

The purpose of the Plan is to provide, with full regard to the protection of
shareholder’s investments, a direct financial incentive for eligible managers
and individual contributors to make a significant contribution to ADC’s
established goals.

Eligibility

Eligibility for Fiscal Year 2005 is limited to full or part-time regular
employees in the U.S. and in such other countries where ADC has specifically
notified employees of eligibility for participation in the Plan. Eligibility for
participation in this Plan is limited to such employees who hold executive,
certain management and higher-level individual contributor positions. Temporary
employees and independent contractors are not eligible for participation in this
plan. In order to be eligible, an employee cannot participate in any other ADC
incentive plan, except as approved by the Compensation and Organization
Committee of the Board of Directors or the CEO, and must be employed in an
eligible position on or before October 1, 2005.

Timing of Payment

Payments that become due under this Plan are made as soon as administratively
feasible following the close of ADC’s fiscal year, generally in late December or
early January. All payments are subject to appropriate withholdings.

Plan Goals

The Plan reinforces the key goals that support ADC’s long-term strategic plans.
The key factors in ADC’s FY 05 corporate and regional success are net sales and
pro forma operating income. For global business units, the key factors for FY05
are net sales and global contribution margin. These goals will be set at the
ADC, regional, and global business unit levels. Accounting methodology changes
may dictate corresponding goal modifications during the plan year.

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Following is a description of the plan components:

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Plan Goal

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Definition

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Net Sales   The amount ADC can recognize in accordance with GAAP for goods
shipped or services provided to third party customers, net of returns received.
 

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Pro Forma Operating Income  Net sales less the everyday expenses of doing
business, including cost of incentive payments. It does not take into account
interest income, interest expense, or other income/loss or income tax. It also
excludes restructuring and other one-time expenses that are not reflective of
the ongoing business. For FY05, any stock option expense will be excluded from
pro forma operating income for incentive calculation. 

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Business Unit Contribution Margin  Net sales less the cost to produce the
products or services sold and less certain costs directly associated with that
business unit including but not limited to engineering, product management, and
business-unit administration. It does not take into account operating expenses
deemed regional during the budgeting process, interest income, interest expense,
other income/loss or income tax. It also excludes restructuring and other
one-time expenses that are not reflective of the ongoing business. For FY05, any
stock option expense will be excluded from business unit contribution margin for
incentive calculation. 

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Goal Weightings

Employees serving multiple business units and multiple regions have 100% of
their incentive plan based on ADC goals and results. Employees dedicated to only
one business unit have a portion of their incentive based on ADC results and a
portion on global business unit results. Employees serving only one region have
a portion of their incentive based on ADC results and a portion on regional
results. Each participant will be notified of their applicable business unit or
region, if any. The weightings for business unit or regional participation are
as follows:

Grade

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ADC Weighting

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BU or Regional Weighting

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Grade 19+         50%     50% Grades 15-18         30%     70%

Individual Performance

Exceptional individual performance can be recognized in the MIP program. An
ADC-wide award pool is available to supplement the financial-based awards for
outstanding performers.

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ADC Performance Gate

To ensure protection of shareholder interest, an established level of ADC pro
forma operating income must be achieved before an incentive payment can be
generated.

Calculation of Payment

Prior to making any payment under this Plan, the Board of Directors must
determine that the claimed business performance levels have been achieved. The
Board of Directors has complete authority and discretion to determine whether
performance levels have been achieved, including without limitation the
authority and discretion to properly calculate pro forma operating income. The
size of an incentive award will be based on three factors:

1.  

Target Incentive Opportunity – Determined on the basis of the ADC salary grade
associated with an individual’s job and country of work. It is expressed as a
percentage of an individual’s FY 2005 eligible base salary earnings.

2.  

FY2005 Eligible Base Salary – This is the amount paid to the participant during
the fiscal year in Base Salary.

3.  

Business   Performance in comparison with the established goals.

While each goal has a threshold of 0% of target incentive opportunity, the
minimum individual payment is a total payment of 10% of an employee’s target. If
incentives earned total less than 10% of target, no payout will be made. The
maximum award attributable to each performance factor is 200% of its target. The
maximum total individual award is 200% of the target payout. This maximum
includes any MIP award also provided for exceptional individual performance.
Specific financial goals have been established for 0%, 100%, and 200% of target.
Results between these specific points are interpolated for each goal.

Here is an example of a hypothetical award calculation.

Assume a Regional Plan participant with the following facts, in a scenario where
the ADC performance gate has been met:

Target Opportunity: 15% of base salary earnings FY05 Eligible Base Salary:
70,000 EUR Business Performance
Percentages: Hypothetical ADC and
regional results shown in the
following table

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Metrics

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Measure Weighting

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Performance

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Wtd. Perf.

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ADC Level Metrics                    ADC Net Sales       50 %   107 %   53.5 %
   Pro Forma Operating Income    50 %  95 %  47.5 %

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                    101.0 %

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Regional Level Metrics      Regional Net Sales    50 %  110 %  55.0 %
   Regional Pro Forma Operating Income    50 %  95 %  47.5 %

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                    102.5 %

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 Overall Weighted Performance      ADC Metrics    30 %  101 .0%  30.3 %
   Regional Metrics    70 %  102 .5%  71.8 %

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                    102.1 %

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Payment Calculation:
70,000 (base salary) * 15% (incentive target) * 102.1% (business performance) =
10,721 EUR

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Effect of Change in Employment Status

Termination of Employment. If employment with ADC is terminated for any reason
other than death and if the Employment Termination Date occurs prior to the end
of the Fiscal Year, a participant will not receive an award under the Plan. For
purposes of this Plan, the “Employment Termination Date” is the date that the
participant ceases to be an employee of ADC (as determined by the company). In
the case of termination of employment by ADC, the Employment Termination Date
shall be determined without regard to whether such termination is with or
without cause or with or without reasonable notice.

Transfer, Promotion or Demotion to another position with a different ADC
incentive plan, target incentive opportunity or business goals. A participant,
who transfers, is promoted or demoted to another position with a different plan,
target incentive opportunity or business goals will receive a prorated
calculation of payment based upon the number of months served in each position.
The participant must be in the new position by the first of the month in order
to receive credit for that month under the new plan, target or goals. For
example, a participant transferring from Wireless to Connectivity on June 10
would receive eight months payment under the Wireless plan (November 1 — June
30) and four months under Connectivity (July 1 – October 31). In order to
receive payment under MIP, a participant must have completed one full month of
service under the plan during that plan year.

Death. If a participant dies during the fiscal year, a pro-rated payment will be
made to the participant’s estate after the end of the fiscal year. The payment
will be based upon the time the participant served in the eligible position
during the fiscal year.

Administration

A Management Incentive Plan Committee (“Committee”), appointed and authorized by
the Compensation Committee of the Company’s Board of Directors, will administer
this Plan. Subject to the complete and full discretion of the Compensation
Committee of the Board of Directors, the Committee is authorized to make all
decisions as required in administration of the Plan and to exercise its
discretion to define, interpret, construe, apply, approve, administer, withdraw
and make any exceptions to the terms of the Plan.

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Right to Modify

ADC reserves the right to modify or adjust the Plan at any time in its sole
discretion either in whole or with respect to a particular business unit. The
Participant explicitly agrees with this modification right of ADC.

Governing Law

The Plan is made and shall be construed in accordance with the laws of the State
of Minnesota, U.S.A. without regard to conflicts of law principles thereof, or
those of any other state of the U.S.A. or of any other country, province or
city.

Severability

If any provision of this Plan is held invalid, illegal or unenforceable by a
court or tribunal of a competent jurisdiction, this Plan shall be deemed
severable and such invalidity, illegality or unenforceability shall not affect
any other provision of this Plan which shall be enforced in accordance with the
intent of this Plan.

Assignment

The Company shall have the right to assign this Plan to its successors and
assigns and this Plan shall inure to the benefit of and be enforceable by said
successors and assigns. Participant may not assign this Plan or any rights
hereunder.

Entire Understanding

This Plan constitutes the entire understanding between the parties regarding the
payment of incentive compensation under this Plan, and it supercedes any and all
prior agreements or understandings, whether oral or written, express or implied,
on such subject matter.

No Acquired Rights or Entitlements/Plan Amendment or Termination

The Plan shall not entitle Participants to any future compensation. The Plan is
not an element of the employees’ salary or base compensation and shall not be
considered as part of such in the event of severance, redundancy, or
resignation. ADC has no obligation to offer incentive plans to Participants in
the future, and the plan shall be effective only for the time period specified
in the plan and shall not be deemed to renew year over year. The Participant
understands and accepts that the incentive payments made under the Plan are
entirely at the sole discretion of ADC. Specifically, ADC assumes no obligation
to the Participant under this Plan with respect to any doctrine or principle of
acquired rights or similar concept. Subject to the provisions of the Plan, ADC
may amend or terminate the Plan or discontinue the payment of incentives under
the Plan at any time, at its sole discretion and without advance notice.