Exhibit
10.19


VITAL IMAGES, INC.

2006 LONG-TERM INCENTIVE PLAN


Effective Date: 
March 9, 2006


 


















VITAL IMAGES, INC.

2006 LONG-TERM INCENTIVE PLAN


Table of Contents


	
  Section

  	
   

  	
   

  	
   

  	
  Page

  	
   

  
	
  1.

  	
   

  	
  Purpose
  of the Plan

  	
   

  	
  1

  	
   

  
	
  2.

  	
   

  	
  Definitions

  	
   

  	
  1

  	
   

  
	
  3.

  	
   

  	
  Shares
  Subject to the Plan

  	
   

  	
  3

  	
   

  
	
  4.

  	
   

  	
  Administration

  	
   

  	
  4

  	
   

  
	
  5.

  	
   

  	
  Term of
  Plan

  	
   

  	
  6

  	
   

  
	
  6.

  	
   

  	
  Terms
  and Conditions of Qualified Options

  	
   

  	
  6

  	
   

  
	
  7.

  	
   

  	
  Terms
  and Conditions of Non-Qualified Options

  	
   

  	
  10

  	
   

  
	
  8.

  	
   

  	
  Automatic
  Grants of Director Options to Non-employee Directors

  	
   

  	
  13

  	
   

  
	
  9.

  	
   

  	
  Terms
  and Conditions of Stock Appreciation Rights

  	
   

  	
  17

  	
   

  
	
  10.

  	
   

  	
  Awards
  of Restricted Stock

  	
   

  	
  19

  	
   

  
	
  11.

  	
   

  	
  Other
  Awards

  	
   

  	
  21

  	
   

  
	
  12.

  	
   

  	
  Performance-Based
  Awards

  	
   

  	
  22

  	
   

  
	
  13.

  	
   

  	
  Adjustments
  Upon Certain Events

  	
   

  	
  23

  	
   

  
	
  14.

  	
   

  	
  Shares
  Acquired for Investment

  	
   

  	
  26

  	
   

  
	
  15.

  	
   

  	
  No
  Right to Employment, Service as a Director or Awards

  	
   

  	
  26

  	
   

  
	
  16.

  	
   

  	
  Other
  Benefit and Compensation Programs

  	
   

  	
  27

  	
   

  
	
  17.

  	
   

  	
  Successors
  and Assigns

  	
   

  	
  27

  	
   

  
	
  18.

  	
   

  	
  Nontransferability
  of Awards; Designation of Beneficiary

  	
   

  	
  27

  	
   

  
	
  19.

  	
   

  	
  Amendments
  or Termination

  	
   

  	
  27

  	
   

  
	
  20.

  	
   

  	
  International
  Participants

  	
   

  	
  28

  	
   

  
	
  21.

  	
   

  	
  General

  	
   

  	
  28

  	
   

  
	
  22.

  	
   

  	
  Effective Date

  	
   

  	
  29

  	
   

  



 



 ii















Vital Images, Inc.

2006 LONG-TERM INCENTIVE PLAN


1.                                      Purpose of the Plan


The purpose of the Plan
is to aid the Company and its Affiliates in recruiting and retaining employees,
directors, independent contractors and other service providers to the Company
and to motivate such employees, directors, independent contractors and other
service providers to exert their best efforts on behalf of the Company and its
Affiliates by providing incentives through the granting of Awards.  The Company expects that it will benefit from
the stock ownership opportunities and other benefits provided to such
Participants under this Plan to encourage alignment of their interest in the
Company’s success with that of other stakeholders.


2.                                       Definitions


The following capitalized
terms used in the Plan have the respective meanings set forth in this Section;
other terms are defined elsewhere in the Plan:


(a)                                  “Affiliate” means a
Parent or Subsidiary.


(b)                                 “Award” means an
Option, Stock Appreciation Right, Share of Restricted Stock, Other Stock-Based
Award or Other Cash-Based Award granted pursuant to the Plan.


(c)                                  “Board” means the
Board of Directors of the Company.


(d)                                 “Cause” (as determined by the Committee) means “cause”
(or a similar term) as defined in any employment or other agreement or policy
applicable to the Participant or, if no such agreement or policy exists, means
(i) dishonesty, fraud, misrepresentation, embezzlement or deliberate
injury or attempted injury, in each case related to the Company or any
Affiliate, (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 employment, service,
confidentiality or non-compete agreement entered into with the Company or any
Affiliate.


(e)                                  “Code” means the
Internal Revenue Code of 1986, as amended, or any successor thereto.


(f)                                    “Committee” means the
Compensation Committee of the Board or, if the Board has not appointed a
separate Compensation Committee, the entire Board.


(g)                                 “Common Stock” means
the Company’s common stock, $0.01 par value per share.


(h)                                 “Company” means Vital
Images, Inc., a Minnesota corporation.


(i)                                     “Continuous Status as a Director”
means the absence of any interruption or termination of service as a
Director.  If the leave of absence is
approved by the 













Committee, Continuous Status as a Director shall not be considered as
interrupted in the case of sick leave, military leave, or any other leave of
absence.


(j)                                     “Director” means a
member of the Board of Directors of the Company.


(k)                                  “Director Option”
means a Non-Qualified Option granted to a Director pursuant to
Section 8.


(l)                                     “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 any Affiliate 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.


(m)                               “Employee” means any
person, including officers and Directors, employed by the Company or any
Subsidiary.  The payment to a Director by
the Company of directors’ fees shall not be sufficient to constitute employment
by the Company.


(n)                                 “Exchange Act” means
the Securities Exchange Act of 1934, as amended.


(o)                                 “Exercise Price”  means the purchase price per Share under
the terms of an Option.


(p)                                 “Fair Market Value” means,
on a given date, (i) if the Common Stock is
listed or admitted to unlisted trading privileges on any national securities
exchange, the average of the closing sales prices of the Common Stock on the
end of any day on all national securities exchanges on which the Common Stock
may at the time be listed or, if there have been no sales on any such exchange
on any day, the average of the highest bid and lowest asked prices on all such
exchanges at the end of such day or, (ii) if the Common Stock is not so listed
or admitted but transactions in the Common Stock are reported on The Nasdaq
Stock Market, the closing price quoted on The Nasdaq Stock Market on such day,
or (iii) if the Common Stock is not so listed or admitted to unlisted trading
privileges or quoted on The Nasdaq Stock Market, and bid and asked prices
therefor in the domestic over-the-counter market are reported by Pink Sheets
LLC (or any comparable reporting service), the average of the closing bid and
asked prices on such day as reported by Pink Sheets LLC (or any comparable
reporting service), or (iv) if the Common Stock is not listed on any national
securities exchange or quoted on The Nasdaq Stock Market or in the domestic
over-the-counter market, the fair value of the Common Stock determined by the
Committee in good faith in the exercise of its reasonable discretion.


(q)                                 “Non-employee
Director” means a Director
who is not an Employee of the Company.


(r)                                    “Non-Qualified Option”
means a stock option granted pursuant to Section 7 that does not qualify
as an incentive stock option as defined in Section 422 of the Code.


(s)                                  “Option” means a
Qualified Option or a Non-Qualified Option (including a Director Option).



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(t)                                    “Other Stock-Based Awards” means
Awards granted pursuant to Section 11(a) or Section 12.


(u)                                 “Other Cash-Based
Awards” means Awards granted pursuant to Section 11(b) or
Section 12.


(v)                                 “Parent” means any “parent
corporation” of the Company, as such term is defined in Section 424(e) of the
Code or any successor provision.  The
term shall include any Parent which becomes such after adoption of the Plan.


(w)                               “Participant” means
an employee of the Company or an Affiliate who is selected by the Committee to
participate in the Plan; a Director of the Company who receives Director
Options or other Awards under the Plan; or any consultant, agent, advisor or
independent contractor who is selected by the Committee to participate in the
Plan and who renders bona fide services to the Company or an Affiliate that
(i) are not in connection with the offer and sale of the Company’s
securities in a capital-raising transaction and (ii) do not directly or
indirectly promote or maintain a market for the Company’s securities.  Except where the context otherwise requires,
references in this Plan to “employment” and related terms shall apply to
services in any such capacity.


(x)                                   “Performance-Based Awards” means
Options, Awards of Restricted Stock, Other Stock-Based Awards and Other
Cash-Based Awards granted pursuant to Section 12.


(y)                                 “Plan”  means this Vital Images, Inc. 2006
Long-Term Incentive Plan, as amended or supplemented from time to time.


(z)                                   “Qualified Option”
means a stock option granted pursuant to Section 6 that is intended to
qualify as an incentive stock option under Section 422 of the Code.


(aa)                            “Restricted Stock” means
any shares of Common Stock granted under Section 10.


(bb)                          “Stock Appreciation Right” means
a stock appreciation right granted pursuant to Section 9.


(cc)                            “Subsidiary”  means any “subsidiary corporation” of the
Company, as such term is defined in Section 424(f) of the Code.  The term shall include any Subsidiary which
becomes such after adoption of the Plan.


3.                                      Shares  Subject to
the Plan


(a)                                  Number of Shares.  The total number of shares of Common Stock
which may be issued under the Plan is 900,000 shares.  The full number of shares of Common Stock
available under the Plan may be used for any Option or other type of
Award.  The aggregate number of shares of
Common Stock available under the Plan shall be subject to adjustment upon the
occurrence of any of the events and in the manner set forth in Section 13.  Any shares of Common Stock subject to Awards,
other than Awards of Restricted Stock, shall be counted against the numerical
limits of this Section 3(a) as one share of Common Stock for every share of
Common Stock subject to such Award.  However, any share of Common 



 3
 









Stock subject to an Award of Restricted Stock shall be counted against
the numerical limits of this Section 3(a) as two shares of Common Stock for
every one share of Common Stock subject to the Award of Restricted Stock. 
To the extent that a share of Common Stock that was subject to an Award of
Restricted Stock that counted as two shares of Common Stock against the
numerical limits of this Section 3(a) pursuant to the preceding sentence is
recycled back into the Plan under Section 3(b), the Plan shall be credited with
two shares of Common Stock.


(b)                                 Treatment of Reacquired and Other
Shares.  If all or any
portion of an Option or Stock Appreciation Right expires or is terminated,
surrendered or cancelled without having been fully exercised, if all or any
portion of an Award of Restricted Stock is forfeited to or repurchased by the
Company, or if any other grant of an Award results in any shares of Common
Stock not being issued or being forfeited to or repurchased by the Company, the
unpurchased, forfeited, repurchased or reacquired shares of Common Stock
covered by such Award shall again be available for the grant of Awards under
the Plan.  With respect to Stock
Appreciation Rights, when a stock-settled Stock Appreciation Right is
exercised, the shares of Common Stock subject to the Stock Appreciation Right
grant agreement shall be counted against the numerical limits of Section 3(a)
above as one share for every share subject thereto, regardless of the number of
shares of Common Stock used to settle the Stock Appreciation Right upon
exercise.  Shares of Common Stock that
have actually been issued under the Plan under any Award shall not be returned
to the Plan and shall not become available for future distribution under the
Plan; provided, however, that if shares of Common Stock subject to an Award of
Restricted Stock or any other Award are repurchased by the Company at their
original purchase price or are forfeited to the Company, such shares shall
become available for future grant under the Plan.  Shares of Common Stock
used to pay the exercise price of an Option shall not become available for
future grant or sale under the Plan.  Shares used to satisfy tax withholding
obligations shall not become available for future grant or sale under the
Plan.  To the extent an Award under the Plan is paid out in cash rather
than shares of Common Stock, such cash payment shall not reduce the number of
Shares available for issuance under the Plan.  Any payout of dividends or
dividend equivalents with respect to an Award, because they are payable only in
cash, shall not reduce the number of shares of Common Stock available under
Section 3(a) for issuance under the Plan, and any forfeiture of dividend or
dividend equivalents shall not increase the number of shares available under
Section 3(a) for issuance under the Plan. 
No fractional shares of Common Stock will be issued under the Plan, but
instead any fractional Share will be rounded downward to the next lowest whole
Share.


4.                                      Administration


(a)                                  Delegation of Authority.  The Plan shall be administered by the
Committee.  The Committee shall consist
of the Board, unless the Board appoints a Committee consisting of at least
three but fewer than all the members of the Board.  If the Committee does not consist of the
entire Board, the Committee’s members shall serve at the pleasure of the Board,
which may from time to time appoint members 



 4
 









in substitution for members previously appointed and fill vacancies,
however caused, in the Committee.  The
Committee may select one of its members as its Chairperson and shall hold its
meetings at such times and places as it may determine.  A majority of the Committee’s members shall
constitute a quorum.  All determinations
of the Committee made at a meeting in which a quorum is present shall be made
by a majority of its members present at the meeting.  Any decision or determination of the
Committee reduced to writing and signed by a majority of the members shall be
fully as effective as if it had been made by a majority vote at a meeting duly
called and held.


(b)                                 Authority of Committee.  The Committee shall have exclusive power to
make Awards and to determine when and to whom Awards shall be granted, and the
form, amount and other terms and conditions of each Award, subject to the
provisions of this Plan and any applicable law or regulation.  The Committee may determine whether, to what
extent and under what circumstances Awards may be settled, paid or exercised in
cash, shares of Common Stock or other Awards or other property, or cancelled,
forfeited or suspended.  The Committee
shall have the authority to interpret this Plan and any Award or agreement made
under this Plan, to establish, amend, waive and rescind any rules and
regulations relating to the administration of this Plan, to determine the terms
and provisions of any agreements entered into hereunder (not inconsistent with
this Plan), and to make all other determinations necessary or advisable for the
administration of this Plan.  The
Committee may correct any defect, supply any omission or reconcile any
inconsistency in this Plan or in any Award or agreement in the manner and to
the extent it shall deem desirable.  The
determinations of the Committee in the administration of this Plan, as
described herein, shall be final, binding and conclusive.


(c)                                  Indemnification.  To the full extent permitted by law, each
member and former member of the Committee and each person to whom the Committee
delegates or has delegated authority under this Plan shall be entitled to
indemnification by the Company against and from any loss, liability, judgment,
damages, cost and reasonable expense incurred by such member, former member or
other person by reason of any action taken, failure to act or determination
made in good faith under or with respect to this Plan.


(d)                                 Tax Withholding.  The Committee shall have the right to require
payment by a Participant of any amount it may determine to be necessary to
withhold for federal, state, local, non-U.S. income, payroll or other taxes
(collectively, the “Taxes”) as a result of the exercise, grant or vesting of an
Award.  The Participant may pay a portion
or all of such Taxes by delivering shares of Common Stock to the Company or
having the Company withhold shares of Common Stock, including shares of
Restricted Stock, with a Fair Market Value or cash equal to the amount of such
Taxes that would have otherwise been payable by the Participant.  If a Participant does not notify the Company
before the date of exercise, grant or vesting of an Award that will result in
Taxes being due from the Participant as to how the Participant intends to pay
such Taxes, the Company may, in its sole discretion, (i) withhold shares of
Common Stock subject to the Award with a Fair Market Value sufficient to pay
such Taxes and/or (ii) require 



 5
 









the payment by the Participant of such Taxes in cash before delivering
to the Participant the shares of Common Stock subject to the Award.


(e)                                  Deferral.  In the discretion of the Committee, in
accordance with any procedures established by the Committee and consistent with
the provisions of Section 162(m) of the Code when applied to Participants
who may be “covered employees” thereunder, a Participant may be permitted to
defer the issuance of shares of Common Stock or cash deliverable upon the
exercise of an Option or Stock Appreciation Right, vesting of Restricted Stock,
or satisfaction of Other Stock-Based Awards or Other Cash-Based Awards, for a
specified period or until a specified date, but not beyond the expiration of
the term of such Option, Stock Appreciation Right, Restricted Stock grant, or
other Award.


(f)                                    Dividends or Dividend Equivalents.  If the Committee so determines, any Award
granted under the Plan may be credited with dividends or dividend equivalents
paid with respect to any underlying shares of Common Stock.  The Committee may apply any restrictions to
the dividends or dividend equivalents that the Committee deems appropriate and
may determine the form of payment, including cash, shares of Common Stock,
Restricted Stock or otherwise.


5.                                      Term of Plan


This Plan shall commence on March 9, 2006 (the “Effective Date”) and
shall terminate on March 9, 2016 or at such earlier date as the Board of
Directors shall determine.  The
termination of this Plan shall not affect any Awards then outstanding under the
Plan.  No Award may be granted under the
Plan after March 9, 2016.


6.                                      Terms
and Conditions of Qualified Options


Options granted under the Plan may be Qualified Options.  When the Committee approves a grant of a
Qualified Option to a Participant, it shall prepare or cause to be prepared an
option agreement (“Qualified Option Agreement”) setting forth the terms of the
Qualified Option, and such Qualified Option Agreement shall be signed on behalf
of the Company and by the Participant. 
Qualified Options granted under this Plan shall be subject to the
foregoing and to the following terms and conditions and to such other terms and
conditions, not inconsistent therewith, as the Committee shall determine:


(a)                                  Number of Shares and Exercise Price.  The Qualified Option Agreement shall state
the total number of shares of Common Stock subject to the Qualified Option it
evidences, the Exercise Price per share of Common Stock, and the other terms of
the Qualified Option.  The Exercise Price
of any Qualified Option shall be equal to or greater than Fair Market
Value.  The number of shares of Common
Stock subject to the Qualified Option and the Exercise Price shall be
adjustable as provided in Section 12(a) of this Plan.  Qualified Option Agreements may be
electronically delivered by the Company to the Participant under this
provision.


(b)                                 Exercisability; Term.  Qualified Options granted under the Plan
shall be exercisable at such time(s) and upon such terms and conditions as may
be determined by the Committee.  However,
subject to Section 6(n), a Qualified Option shall not be exercisable more than
five (5) years after the date it is granted. 




 6
 









The period during which a Qualified Option may be exercised once it is
granted may not be reduced, except as provided in Sections 6(e), (f) and (g) of
this Plan.


(c)                                  Exercise of Qualified Options.  Except as otherwise provided in the
applicable Qualified Option Agreement, a Qualified Option may be exercised for
all, or from time to time any part, of the shares of Common Stock for which it
is then exercisable.  For purposes of
this Section 6, the exercise date of a Qualified Option shall be the date a
written or electronic notice of exercise and full payment of the purchase price
are received by the Company in accordance with this Section 6(c) and Section
6(d) below.  The purchase price for the
shares of Common Stock as to which a Qualified Option is exercised shall be
paid to the Company in cash or its equivalent, such as by check or wire
transfer, or, if provided in the Qualified Option Agreement or with the consent
of the Committee:  (i) in shares of
Common Stock having a Fair Market Value equal to the aggregate Exercise Price
of the shares of Common Stock being purchased and satisfying such other
requirements as may be imposed by the Committee; provided, that such shares
were then purchased on the open market or have been held by the Participant for
at least six months (or such other period as established from time to time by
the Committee in order to avoid adverse accounting treatment under generally
accepted accounting principles); (ii) partly in cash and partly in such shares;
or (iii) if there is a public market for the shares of Common Stock at such
time, through the delivery of irrevocable instructions to a broker to sell
shares of Common Stock obtained upon the exercise of the Qualified Option and
to deliver promptly to the Company an amount out of the proceeds of such sale
equal to the aggregate Exercise Price for the shares being purchased.


(d)                                 Manner of Exercise of Qualified
Options.  A Qualified
Option shall be exercised only by the Participant (i) delivering a completed
and signed written or electronic notice of exercise to the Company in the form
prescribed by the Company specifying the number of shares of Common Stock as to
which the Qualified Option is being exercised; (ii) delivering the original
Qualified Option Agreement to the Company; and (iii) paying to the Company the
full amount of the Exercise Price for the number of shares of Common Stock with
respect to which the Qualified Option is being exercised as provided in Section
6(c) above.  When shares of Common Stock
are issued to the Participant upon the exercise of that Participant’s Qualified
Option, the fact of such issuance shall be noted on the Qualified Option
Agreement by the Company before the Qualified Option Agreement is returned to
the Participant.  When all shares of
Common Stock covered by the Qualified Option Agreement have been issued by the
Company to the Participant or when the Qualified Option expires, the
Participant shall deliver the Qualified Option Agreement to the Company, which
shall cancel it.  After the receipt by
the Company of the written or electronic notice of exercise and payment in full
of the Exercise Price in accordance with Sections 6(c) and 6(d), the Company
shall deliver or cause to be delivered to the Participant exercising the
Qualified Option stock certificates evidencing the number of shares with
respect to which the Qualified Option has been exercised, issued in the
Participant’s name; provided, however, that such delivery shall be deemed
effective for all purposes when the Company or its stock transfer agent (if
any) has deposited such stock certificates in the United States mail, postage
prepaid, 



 7
 









addressed to the Participant at the address specified in the written or
electronic notice of exercise.  Qualified
Option Agreements may be electronically delivered by the Participant to the
Company under this provision.


(e)                                  Termination of Employment or
Service.  If a Participant
who holds a Qualified Option shall cease to be employed by or performing
services for the Company or any Affiliate for any reason other than death or
Disability, unless the applicable Qualified Option Agreement provides
otherwise, such Qualified Option shall immediately and automatically terminate
and be forfeited, whether or not exercisable, and neither such Participant nor
any of the Participant’s heirs, personal representatives, successors or assigns
shall have any rights with respect to such Qualified Option; provided, however, that if such termination is
due to any reason other than termination by the Company or any Affiliate for
Cause, all outstanding Qualified Options then held by such Participant will
remain exercisable to the extent they were exercisable as of such termination
for a period of three (3) months after such termination (but in no event after
the expiration date of any such Qualified Option).  Unless the applicable Qualified Option
Agreement provides otherwise, if an independent contractor or other
non-employment relationship between the Participant and the Company or an
Affiliate is terminated due to the commencement of an employment relationship
with the Company or an Affiliate, or if an employment relationship between the
Participant and the Company or an Affiliate is terminated due to the
commencement of an independent contractor or other non-employment relationship
with the Company or an Affiliate, such change in status shall be a termination
of employment or service under this Section 6(e).


(f)                                    Death or Disability of Participant.  Unless otherwise provided in the applicable
Qualified Option Agreement, if a Participant who is a natural person shall
cease to be employed by or performing services for the Company or any Affiliate
as a result of the Participant’s death or Disability, any Qualified Option held
by such Participant will become immediately exercisable in full and will remain
exercisable for a period of one (1) year after the date of termination, but in
no case later than the expiration date of such Qualified Option.  Upon the death of a Participant, and
Qualified Option held by such Participant may be exercised pursuant to Sections
6(c) and (d) of this Plan only by the person or persons to whom the Participant’s
rights under the Qualified Option shall pass by will or the laws of descent and
distribution.


(g)                                 Modification
of Rights Upon Termination.  Notwithstanding the other provisions of this
Section 6, upon a Participant’s termination of employment or other service
with the Company and all Affiliates, 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 Qualified 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 or service, in each
case in the manner determined by the Committee; provided, however, that no
Qualified Option may remain exercisable beyond its expiration date.


(h)                                 Breach of
Confidentiality or Non-compete Agreements. 
Notwithstanding anything in the Plan to the contrary, if a Participant
materially breaches the terms of any 



 8
 









confidentiality or non-compete agreement entered
into with the Company or any Affiliate, whether such breach occurs before or
after termination of such Participant’s employment or other service with the
Company or any Affiliate, the Committee, in its sole discretion, may
immediately terminate all rights of the Participant under the Plan and any
agreements evidencing a Qualified Option then held by the Participant without
notice of any kind.


(i)                                     Date of
Termination of Employment or Other Service.  Unless the
Committee otherwise determines in its sole discretion, a Participant’s
employment or other service 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 Affiliate for which the Participant provides employment or other
service, as determined by the Committee in its sole discretion based upon such
records.


(j)                                     No Obligation to Exercise Qualified
Option.  The grant of a
Qualified Option under the Plan shall impose no obligation on the Participant
to exercise such Qualified Option.


(k)                                  Eligible Recipients.  Qualified Options may be granted only to
persons who are employees of the Company or an Affiliate.


(l)                                     Exercise Price.  Subject to the provisions of Section 6(n),
the exercise price of shares of Common Stock that are subject to a Qualified
Option shall not be less than 100% of the Fair Market Value of such shares at
the time the Qualified Option is granted, as determined in good faith by the
Committee.


(m)                               Limit on Exercisability.  The aggregate Fair Market Value (determined
at the time the Qualified Option is granted) of the shares of Common Stock with
respect to which Qualified Options are exercisable by the Participant for the
first time during any calendar year, under this Plan or any other plan of the
Company or any Affiliate, shall not exceed $100,000.  To the extent a Qualified Option exceeds this
$100,000 limit, the portion of the Qualified Option in excess of such limit
shall be deemed a Non-Qualified Option.


(n)                                 Restrictions for Certain
Shareholders.  The
purchase price of shares of Common Stock that are subject to a Qualified Option
granted to an employee of the Company or any Affiliate who, at the time such
Qualified Option is granted, owns 10% or more of the total combined voting
power of all classes of stock of the Company or of any Affiliate, shall not be
less than 110% of the Fair Market Value of such shares on the date such
Qualified Option is granted, and such Qualified Option may not be exercisable
more than five (5) years after the date on which it is granted.  For the purposes of this subparagraph, the
rules of Section 424(d) of the Code shall apply in determining the stock
ownership of any employee of the Company or any Affiliate.


(o)                                 Limits on Transferability and
Exercise of Qualified Options. 
In addition to any other restriction or limitations on transfer set
forth in this Plan or in the applicable Qualified Option Agreement, Qualified
Options shall not be transferable except by will or the laws of descent and
distribution, and Qualified Options shall be exercisable during a Participant’s
lifetime only by such Participant.



 9















(p)                                 Effect of Not Meeting Qualified
Option Requirements. 
Subject to the discretion of the Committee to provide otherwise, if the
terms of a Qualified Option do not meet any requirements of this Plan or the
Code necessary to be treated as a Qualified Option under the Code, such
Qualified Option shall not terminate but shall be a Non-Qualified Option
granted under this Plan.


7.                                      Terms and Conditions of
Non-Qualified Options


Options granted
under the Plan may be Non-Qualified Options. 
When the Committee approves a grant of a Non-Qualified Option to a
Participant, it shall prepare or cause to be prepared an option agreement (“Non-Qualified
Option Agreement”) setting forth the terms of the Non-Qualified Option, and
such Non-Qualified Option Agreement shall be signed on behalf of the
Company and by the Participant. 
Non-Qualified Options granted under this Plan shall be subject to the
foregoing and to the following terms and conditions and to such other terms and
conditions, not inconsistent therewith, as the Committee shall determine;
provided, however, that Non-Qualified Options that are Director Options
shall be governed by the provisions of Section 8 to the extent that they
are inconsistent with the provisions of this Section 7.


(a)                                  Number of Shares and Exercise Price.  The Non-Qualified Option Agreement
shall state the total number of shares of Common Stock subject to the
Non-Qualified Option it evidences, the Exercise Price per share of Common
Stock, and the other terms of the Non-Qualified Option.  The Exercise Price of any Non-Qualified
Option shall be equal to or greater than Fair Market Value.  The number of shares of Common Stock subject
to the Non-Qualified Option and the Exercise Price shall be adjustable as
provided in Section 13(a) of this Plan. 
Non-Qualified Option Agreements may be electronically delivered by the
Company to a Participant under this provision.


(b)                                 Exercisability; Term.  Non-Qualified Options granted under the Plan
shall be exercisable at such time(s) and upon such terms and conditions as may
be determined by the Committee, but in no event shall a Non-Qualified Option be
exercisable more than eight (8) years after the date it is granted, except as
the Committee may determine under Section 13(e) of the Plan.  The period during which a Non-Qualified
Option may be exercised once it is granted may not be reduced, except as
provided in Sections 7(e), (f) and (g) of this Plan.


(c)                                  Exercise of Non-Qualified Options.  Except as otherwise provided in the
applicable Non-Qualified Option Agreement, a Non-Qualified Option may be
exercised for all, or from time to time any part, of the shares of Common Stock
for which it is then exercisable.  For
purposes of this Section 7, the exercise date of a Non-Qualified Option
shall be the date a written or electronic notice of exercise and full payment
of the purchase price are received by the Company in accordance with this
Section 7(c) and Section 7(d) below.  The
purchase price for the shares of Common Stock as to which a Non-Qualified
Option is exercised shall be paid to the Company in cash or its equivalent,
such as by check or wire transfer or, if provided in the Non-Qualified
Option Agreement or with the consent of the Committee:  (i) in shares of Common Stock having a Fair
Market Value equal to the aggregate Exercise Price of the shares of Common
Stock being purchased and satisfying such other requirements as may be imposed
by the Committee; provided, that such shares were then purchased on the open
market or



 10
 









have been held by the Participant for at least six months (or such
other period as established from time to time by the Committee in order to
avoid adverse accounting treatment under generally accepted accounting
principles); (ii) partly in cash and partly in such shares; or (iii) if there
is a public market for the shares of Common Stock at such time, through the
delivery of irrevocable instructions to a broker to sell shares of Common Stock
obtained upon the exercise of the Non-Qualified Option and to deliver
promptly to the Company an amount out of the proceeds of such sale equal to the
aggregate Exercise Price for the shares being purchased.


(d)                                 Manner of Exercise of Non-Qualified
Options.  A Non-Qualified
Option shall be exercised only by the Participant (i) delivering a completed
and signed written or electronic notice of exercise to the Company in the form
prescribed by the Company specifying the number of shares of Common Stock as to
which the Non-Qualified Option is being exercised; (ii) delivering the original
Non-Qualified Option Agreement to the Company; and (iii) paying to the
Company the full amount of the Exercise Price for the number of shares of
Common Stock with respect to which the Non-Qualified Option is being exercised
as provided in Section 7(c) above.  When
shares of Common Stock are issued to the Participant upon the exercise of that
Participant’s Non-Qualified Option, the fact of such issuance shall be noted on
the Non-Qualified Option Agreement by the Company before the Non-Qualified
Option Agreement is returned to the Participant.  When all shares of Common Stock covered by
the Non-Qualified Option Agreement have been issued by the Company to the
Participant or when the Non-Qualified Option expires, the Participant
shall deliver the Non-Qualified Option Agreement to the Company, which
shall cancel it.  After the receipt by
the Company of the written or electronic notice of exercise and payment in full
of the Exercise Price in accordance with Sections 7(c) and 7(d), the Company
shall deliver or cause to be delivered to the Participant exercising the
Non-Qualified Option stock certificates evidencing the number of shares with
respect to which the Non-Qualified Option has been exercised, issued in the
Participant’s name; provided, however, that such delivery shall be deemed
effective for all purposes when the Company or its stock transfer agent (if
any) has deposited such stock certificates in the United States mail, postage
prepaid, addressed to the Participant at the address specified in the written
or electronic notice of exercise.  Non-Qualified Option Agreements may be
electronically delivered by the Participant to the Company under this
provision.


(e)                                  Termination of Employment or
Service.  If a Participant
who holds a Non-Qualified Option shall cease to be employed by or
performing services for the Company or any Affiliate for any reason other than
death or Disability, unless the applicable Non-Qualified Option Agreement
provides otherwise, such Non-Qualified Option shall immediately and
automatically terminate and be forfeited, whether or not exercisable, and
neither such Participant nor any of the Participant’s heirs, personal
representatives, successors or assigns shall have any rights with respect to
such Non-Qualified Option; provided,
however, that if such termination is due to any reason other than termination
by the Company or any Affiliate for Cause, all outstanding Non-Qualified
Options then held by such Participant will remain exercisable to the extent
they were exercisable as of such



 11
 









termination for a period of three (3) months
after such termination (but in no event after the expiration date of any such
Non-Qualified Option).  Unless the
applicable Qualified Option Agreement provides otherwise, if an independent
contractor or other non-employment relationship between the Participant and the
Company or an Affiliate is terminated due to the commencement of an employment
relationship with the Company or an Affiliate, or if an employment relationship
between the Participant and the Company or an Affiliate is terminated due to
the commencement of an independent contractor or other non-employment
relationship with the Company or an Affiliate, such change in status shall be a
termination of employment or service under this Section 7(e).


(f)                                    Death or Disability of Participant.  Unless otherwise provided in the applicable
Non-Qualified Option Agreement, if a Participant who is a natural person
shall cease to be employed by or performing services for the Company or any
Affiliate as a result of the Participant’s death or Disability, any Non-Qualified
Option held by such Participant will become
immediately exercisable in full and will remain exercisable for a period
of one (1) year after the date of termination, but in no case later than
the expiration date of such Non-Qualified Option.  Upon the death of a Participant, any Non-Qualified
Option held by such Participant may be exercised pursuant to Sections 7(c) and
(d) of this Plan only by the person or persons to whom the Participant’s rights
under the Non-Qualified Option shall pass by will or the laws of descent
and distribution.


(g)                                 Modification
of Rights Upon Termination.  Notwithstanding the other provisions of this
Section 7, upon a Participant’s termination of employment or other service
with the Company and all Affiliates, 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 Non-Qualified 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 or service,
in each case in the manner determined by the Committee; provided, however, that
no Non-Qualified Option may remain exercisable beyond its expiration date.


(h)                                 Breach of
Confidentiality or Non-compete Agreements. 
Notwithstanding anything in the Plan to the contrary, if a Participant
materially breaches the terms of any confidentiality or non-compete agreement
entered into with the Company or any Affiliate, whether such breach occurs
before or after termination of such Participant’s employment or other service
with the Company or any Affiliate, the Committee, in its sole discretion, may
immediately terminate all rights of the Participant under the Plan and any
agreements evidencing a Non-Qualified Option then held by the Participant
without notice of any kind.


(i)                                     Date of
Termination of Employment or Other Service.  A
Participant’s employment or other service will, for purposes of the Plan, be
deemed to have terminated as provided in Section 6(i) of the Plan.


(j)                                     No Obligation to Exercise
Non-Qualified Option.  The
grant of a Non-Qualified Option under the Plan shall impose no obligation on
the Participant to exercise such Non-Qualified Option.



 12
 









8.                                      Automatic
Grants of Director Options to Non-employee Directors


(a)                                  Automatic Grants of Director
Options.  Under the Plan,
each Non-employee Director shall automatically be granted Director Options to
purchase shares of Common Stock as follows:


(i)                                     Initial
Grants of Director Options.  Each person who is first elected
or appointed to serve as a Non-employee Director after the termination date of
the Vital Images, Inc. 1997 Director Stock Option Plan (the “Director Plan”),
and who did not serve as an employee Director immediately before serving as a
Non-employee Director, shall automatically be granted a Director Option on the
date of his or her initial election or appointment to the Company’s Board of
Directors to purchase a number of shares of Common Stock equal to 9,000
multiplied by a fraction, the numerator of which is the expected number of
months until the next annual meeting of the Company’s shareholders and the
denominator of which is twelve.


(ii)                                  Additional
Grants of Director Options.  On the
day after the date of each annual meeting of shareholders of the Company,
beginning with the annual meeting of shareholders to be held in 2008, each
Non-employee Director will automatically be granted an additional Director
Option to purchase 9,000 shares of Common Stock, but only if such person is a
Non-employee Director on such date; provided, however, that only in 2008, any
Non-employee Director who has been serving as such since the Effective Date and
who received a Director Option to purchase at least 18,000 shares of Common
Stock during the period from December 1, 2006 through February 28, 2007 shall
automatically be granted a Director Option on the day after the date of the
annual meeting of shareholders held in 2008 to purchase 5,000 shares of Common
Stock.


(iii)                               Vesting, Exercisability
and Expiration.  All Director Options
granted under Section 8(a) shall vest and become exercisable as to all of the
shares of Common Stock subject to such Director Options one year after the date
of grant of such Director Option.  All
Director Options granted under this Section 8(a) shall expire five (5) years
after the date of grant.


(iv)                              Exercise
Price.  The exercise price of
Director Options granted under this Section 8 shall be equal to 100% of
the Fair Market Value of one share of Common Stock on the date of grant of the
Director Option.


(v)                                 Effect
of Limited Number of Shares Under Plan. 
Notwithstanding the provisions of this Section 8(a), if an automatic
grant of a Director Option under this Section 8(a) would cause the number
of shares subject to outstanding Options and other Awards granted under this
Plan plus shares of Common Stock previously purchased upon exercise of Options
and other Awards to exceed the number of shares set forth in Section 3, then
each such automatic grant shall be for that number of shares determined by
dividing the total number of shares of Common Stock remaining available for
grant under Section 3 of this Plan by the number of Directors on an automatic
grant date.  Any further grants shall
then be deferred until



 13
 









such time, if any, as additional shares of Common
Stock become available for grant under the Plan through action of the
shareholders to increase the number of shares which may be issued under the
Plan or through cancellation or expiration of Options and other Awards
previously granted under this Plan.


(b)                                 Discretionary Grants.  In addition to the Director Options granted
pursuant to Section 8(a), a Director may be granted one or more Options or
other Awards under the Plan, and such Options or other 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; provided,
however, that any Director Option shall be subject to the following conditions:


(i)                                     Exercise
Price.  The per share price to be
paid by a Director upon exercise of a Director Option granted pursuant to this
Section 8(b) will be determined by the Committee in its discretion at the time
of the grant of the Director Option; provided, however, that such price shall
not be less than 100% of the Fair Market Value of one share of Common Stock on
the date of grant.


(ii)                                  Exercisability
and Duration.  A Director Option
granted pursuant to this Section 8(b) will become exercisable at such times and
in such installments as may be determined by the Committee in its sole
discretion at the time of grant; provided, however, that no Director Option
shall be exercisable after five (5) years from its date of grant.


(c)                                  Director Option Agreements.  When a Director Option is automatically
granted under Section 8(a), or when the Committee approves a grant of a
Director Option, the Committee shall prepare or cause to be prepared an option
agreement (“Director Option Agreement”) setting forth the terms of the Director
Option, and such Director Option Agreement shall be signed on behalf of the
Company and by the Participant.


(d)                                 Exercise of Director Options.  Except as otherwise provided in the
applicable Director Option Agreement, a Director Option may be exercised for
all, or from time to time any part, of the shares of Common Stock for which it
is then exercisable.  For purposes of
this Section 8, the exercise date of a Director Option shall be the date a
written or electronic notice of exercise and full payment of the purchase price
are received by the Company in accordance with this Section 8(d) and Section
8(e) below.  The purchase price for the
shares of Common Stock as to which a Director Option is exercised shall be paid
to the Company in cash or its equivalent, such as by check or wire transfer or,
if provided in the Director Option Agreement or with the consent of the
Committee:  (i) in shares of Common Stock
having a Fair Market Value equal to the aggregate Exercise Price of the shares
of Common Stock being purchased and satisfying such other requirements as may
be imposed by the Committee; provided, that such shares were then purchased on
the open market or have been held by the Participant for at least six months
(or such other period as established from time to time by the Committee in
order to avoid adverse accounting treatment under generally accepted accounting
principles); (ii) partly in cash and partly in such shares; or (iii) if there
is a public market for the



 14
 









shares of Common Stock at such time, through the delivery
of irrevocable instructions to a broker to sell shares of Common Stock obtained
upon the exercise of the Director Option and to deliver promptly to the Company
an amount out of the proceeds of such sale equal to the aggregate Exercise
Price for the shares being purchased.


(e)                                  Manner of Exercise of Director
Options.  A Director
Option shall be exercised only by the Participant (i) delivering a completed
and signed written or electronic notice of exercise to the Company in the form
prescribed by the Company specifying the number of shares of Common Stock as to
which the Director Option is being exercised; (ii) delivering the original
Director Option Agreement to the Company; and (iii) paying to the Company the
full amount of the Exercise Price for the number of shares of Common Stock with
respect to which the Director Option is being exercised as provided in Section
8(d) above.  When shares of Common Stock
are issued to the Participant upon the exercise of that Participant’s Director
Option, the fact of such issuance shall be noted on the Director Option
Agreement by the Company before the Director Option Agreement is returned to
the Participant.  When all shares of
Common Stock covered by the Director Option Agreement have been issued by the
Company to the Participant or when the Director Option expires, the Participant
shall deliver the Director Option Agreement to the Company, which shall cancel
it.  After the receipt by the Company of
the written or electronic notice of exercise and payment in full of the
Exercise Price in accordance with Sections 8(d) and 8(e), the Company shall
deliver or cause to be delivered to the Participant exercising the Director
Option stock certificates evidencing the number of shares with respect to which
the Director Option has been exercised, issued in the Participant’s name;
provided, however, that such delivery shall be deemed effective for all
purposes when the Company or its stock transfer agent (if any) has deposited
such stock certificates in the United States mail, postage prepaid, addressed
to the Participant at the address specified in the written or electronic notice
of exercise.  Director Option Agreements
may be electronically delivered by the Participant to the Company under this
provision.


(f)                                    Termination of Status as a Director.  Subject to the provisions of
Sections 8(g) and 8(h), if a Director ceases to serve as a Director, he or
she may, but only within three (3) months after the date he or she ceases to be
a Director of the Company, exercise his or her Director Option to the extent
that he or she was entitled to exercise it at the date of such
termination.  Any portion of a Director
Option that is not exercisable on the date a Director ceases to be a Director
of the Company, and any portion of a Director Option which the Director was
entitled to exercise that is not exercised within the time specified herein,
shall immediately and automatically terminate and be forfeited, and neither
such Director nor any of the Director’s heirs, personal representatives, successors
or assigns shall have any rights with respect to such Director Option.


(g)                                 Disability of Director.  Notwithstanding the provisions of Section
8(f) above, if a Director is unable to continue his or her service as a
Director with the Company as a result of his or her Disability, he or she may,
but only within one (1) year after the date of termination of such service,
exercise his or her Director Option to



 15
 









the extent he or she was entitled to exercise it at
the date of such termination.  Any
portion of a Director Option that is not exercisable on the date a Director
ceases to be a Director of the Company, and any portion of a Director Option
which the Director was entitled to exercise that is not exercised within the
time specified herein, shall immediately and automatically terminate and be
forfeited, and neither such Director nor any of the Director’s heirs, personal
representatives, successors or assigns shall have any rights with respect to
such Director Option.


(h)                                 Death of Director.  Upon the death of a Director holding a
Director Option:


(i)                                     during
the term of the Director Option when such Director was, at the time of his or
her death, a Director of the Company and who shall have been in Continuous
Status as a Director since the date of grant of the Director Option, the
Director Option may be exercised, at any time within one (1) year following the
date of death, by the person who acquired the right to exercise such Director
Option by bequest or inheritance, but only to the extent of the right to exercise
that existed at the date of death;


(ii)                                  within
three (3) months after the termination of Continuous Status as a Director, the
Director Option may be exercised, at any time within three (3) months following
the date of death, by such Director’s estate or by a person who acquired the
right to exercise the Director Option by bequest or inheritance, but only to
the extent of the right to exercise that had accrued at the date of termination
of Continuous Status as a Director; and


(iii)                               any portion of a Director
Option that is not exercisable on the date of a Director’s death, and any
portion of a Director Option which the Director was entitled to exercise that
is not exercised within the time specified in Section 8(h)(i) or
Section 8(h)(ii), shall immediately and automatically terminate and be
forfeited, and neither such Director nor any of the Director’s heirs, personal
representatives, successors or assigns shall have any rights with respect to
such Director Option.



 16
 









9.                                      Terms and Conditions of
Stock Appreciation Rights


(a)                                  Grants.  The Committee may grant a Stock Appreciation
Right independent of an Option or in connection with an Option or a portion
thereof.  Any grant of a Stock
Appreciation Right under the Plan shall be evidenced by an Award agreement in
such form as the Committee shall from time to time approve and which shall set
forth the terms and conditions of the Stock Appreciation Right.  The Committee may impose such terms and
conditions upon any Stock Appreciation Right as it deems fit.  A Stock Appreciation Right granted in
connection with an Option or a portion thereof (i) may be granted at the time
the related Option is granted or at any time before the exercise or
cancellation of the related Option, (ii) shall cover the same number of shares
of Common Stock covered by the Option (or such fewer number of shares of Common
Stock as the Committee may determine), and (iii) shall be subject to the same
terms and conditions as such Option except for such additional limitations as
are contemplated by this Section 9 (or such additional limitations as may be
included in the Award agreement evidencing such Stock Appreciation Right).


(b)                                 Terms.  The exercise price per share of Common Stock
of a Stock Appreciation Right shall be an amount determined by the Committee
but in no event shall such amount be less than the Fair Market Value of a share
of Common Stock on the date the Stock Appreciation Right is granted.  In addition, in the case of a Stock
Appreciation Right granted in conjunction with an Option or a portion thereof,
the exercise price shall not be less than the Exercise Price of the related
Option.  Each Stock Appreciation Right
granted independent of an Option shall entitle a Participant upon exercise to
an amount equal to (i) the excess of (A) the Fair Market Value on the exercise
date of one share of Common Stock over (B) the exercise price per share, times
(ii) the number of shares of Common Stock covered by the Stock Appreciation
Right.  Each Stock Appreciation Right
granted in conjunction with an Option or a portion thereof shall entitle a
Participant to surrender to the Company the unexercised Option or any portion
thereof and to receive from the Company in exchange therefor an amount equal to
(I) the excess of (x) the Fair Market Value on the exercise date of one share
of Common Stock over (y) the Exercise Price per share of Common Stock, times
(II) the number of shares of Common Stock covered by the Option, or portion
thereof, which is surrendered.  Payment
shall be made in shares of Common Stock or in cash, or partly in shares and
partly in cash (any such shares of Common Stock valued at such Fair Market
Value), all as set forth in the Award agreement evidencing such Stock
Appreciation Right or as otherwise determined in the discretion of the Committee.  Stock Appreciation Rights may be exercised
from time to time upon actual receipt by the Company of a written or electronic
notice of exercise stating the number of shares of Common Stock with respect to
which the Stock Appreciation Right is being exercised.  The date a notice of exercise is received by
the Company shall be the exercise date. 
No Stock Appreciation Right shall be exercisable after five (5) years
from its date of grant.


(c)                                  Termination of Employment or
Service.  If a Participant
who holds a Stock Appreciation Right shall cease to be employed by or
performing services for the Company or any Affiliate for any reason other than death
or Disability, unless the



 17
 









applicable Award agreement provides otherwise, such Stock Appreciation
Right shall immediately and automatically terminate and be forfeited, whether
or not exercisable, and neither such Participant nor any of the Participant’s
heirs, personal representatives, successors or assigns shall have any rights
with respect to such Stock Appreciation Right; provided, however, that if such
termination is due to any reason other than termination by the Company or any
Affiliate for Cause, all Stock Appreciation Rights then held by such
Participant will remain exercisable to the extent they were exercisable as of
such termination for a period of three (3) months after such termination (but
in no event after the expiration date of any such Stock Appreciation
Right).  Unless the applicable Award
agreement provides otherwise, if an independent contractor or other
non-employment relationship between the Participant and the Company or an
Affiliate is terminated due to the commencement of an employment relationship
with the Company or an Affiliate, or if an employment relationship between the
Participant and the Company or an Affiliate is terminated due to the
commencement of an independent contractor or other non-employment relationship
with the Company or an Affiliate, such change in status shall be a termination
of employment or service under this Section 9(c).


(d)                                 Death or Disability of Participant.  Unless otherwise provided in the applicable
Award agreement, if a Participant who is a natural person shall cease to be
employed by or performing services for the Company or any Affiliate as a result
of the Participant’s death or Disability, any Stock Appreciation Right held by
such Participant will become immediately
exercisable in full and will remain exercisable for a period of
one (1) year after the date of termination, but in no case later than the
expiration date of such Stock Appreciation Right.  Upon the death of a Participant, any Stock
Appreciation Right may be exercised pursuant to Section 9(b) of this Plan only
by the person or persons to whom the Participant’s rights under the Stock
Appreciation Right shall pass by will or the laws of descent and distribution.


(e)                                  Modification
of Rights Upon Termination.  Notwithstanding the other provisions of this
Section 9, upon a Participant’s termination of employment or other service
with the Company and all Affiliates, 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 Stock Appreciation Rights (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
or service, in each case in the manner determined by the Committee; provided,
however, that no Stock Appreciation Right may remain exercisable beyond its
expiration date.


(f)                                    Breach of
Confidentiality or Non-compete Agreements. 
Notwithstanding anything in the Plan to the contrary, if a Participant
materially breaches the terms of any confidentiality or non-compete agreement
entered into with the Company or any Affiliate, whether such breach occurs
before or after termination of such Participant’s employment or other service
with the Company or any Affiliate, the Committee, in its sole discretion, may
immediately terminate all rights of the Participant under the Plan and any
agreements evidencing a Stock Appreciation Right then held by the Participant
without notice of any kind.



 18















 


(g)                                 Date of
Termination of Employment or Other Service.  A
Participant’s employment or other service will, for purposes of the Plan, be
deemed to have terminated as provided in Section 6(i) of the Plan.


(h)                                 No Obligation
to Exercise Stock Appreciation Right.  The grant of a Stock
Appreciation Right under the Plan shall impose no obligation on the Participant
to exercise such Stock Appreciation Right.


10.                               Awards of Restricted Stock


(a)                                  Grant.  Awards of Restricted Stock subject to
forfeiture and transfer restrictions may be granted by the Committee under the
Plan.  Any Awards of Restricted Stock
shall be evidenced by an Award agreement in such form as the Committee shall
from time to time approve and which shall set forth the terms and conditions of
the Award of Restricted Stock.  Subject
to the provisions of the Plan, the Committee shall determine the number of
shares of Restricted Stock to be granted to each Participant; the duration of
any period during which, and the conditions, if any, under which, the Restricted
Stock may be forfeited to the Company; and the other terms and conditions of
such Awards.  The Committee may determine
a period of time during which the Participant receiving the Award of Restricted
Stock must remain in the continuous employment of the Company in order for the
forfeiture and transfer restrictions to lapse. 
If the Committee so determines, the restrictions may lapse during any
such restricted period in installments with respect to specified portions of
the shares of Restricted Stock covered by the Award of Restricted Stock.  The Committee may also impose performance or
other conditions that will subject the shares subject to the Award of
Restricted Stock to forfeiture and transfer restrictions.  The Committee may, at any time, in its
discretion, waive all or any part of any restrictions applicable to any or all
outstanding Awards of Restricted Stock.


(b)                                 Transfer Restrictions.  Shares of Restricted Stock may not be sold,
assigned, transferred, pledged or otherwise encumbered, except as provided in
the Plan or the applicable Award agreement. 
At the time of the grant of an Award of Restricted Stock, a stock
certificate representing the number of shares of Restricted Stock awarded
thereunder shall be registered in the name of the Participant and held by the
Company.  Such stock certificate may bear
a legend describing the conditions of the Restricted Stock Award.  Unless the Award agreement evidencing an
Award of Restricted Stock or the Committee provides otherwise, the Participant
receiving the Award of Restricted Stock shall have all rights of a shareholder
with respect to the shares of Restricted Stock subject to such Award, including
the right to receive any dividends and the right to vote such shares, subject
to the following restrictions:  (i) the
Participant receiving the Award of Restricted Stock shall not be entitled to
delivery of the stock certificate until the expiration of the restricted period
and the fulfillment of any other restrictive conditions set forth in the
applicable Award agreement; (ii) none of the shares of Common Stock subject to
the Award of Restricted Stock may be sold, assigned, transferred, pledged,
hypothecated or otherwise encumbered or disposed of during such restricted
period or until after the fulfillment of any such other restrictive condition;
and (iii) all of the shares of Restricted Stock shall be forfeited and all
rights of the Participant to such shares shall terminate, without 



 19
 









any further obligation on the part of the Company, unless the Participant
remains in the continuous employment of the Company for the entire restricted
period.  Any shares of Common Stock, any
other securities of the Company and any other property (except for cash
dividends) distributed with respect to the shares subject to an Award of
Restricted Stock shall be subject to the same restrictions, terms and
conditions as such shares.  After the
lapse or termination of the restrictions of an Award of Restricted Stock, or at
such earlier time as otherwise determined by the Committee, a stock certificate
evidencing the shares of Common Stock subject to the Award of Restricted Stock
that bears no legend describing the conditions of an Award of Restricted Stock
shall be delivered to the Participant or his or her beneficiary or estate, as
the case may be.


(c)                                  Dividends.  Dividends or dividend equivalents paid on any
shares of Restricted Stock may be paid directly to the Participant, withheld by
the Company subject to vesting of the Restricted Stock pursuant to the terms of
the applicable Award agreement, or may be reinvested in additional Awards of
Restricted Stock, as determined by the Committee in its discretion.


(d)                                 Termination of Employment or
Service.  If a Participant
who holds a Restricted Stock Award shall cease to be employed by or performing
services for the Company or any Affiliate for any reason other than death or
Disability prior to the vesting of shares of Restricted Stock granted to such
Participant, unless the applicable Award agreement provides otherwise, such
Restricted Stock Award shall immediately and automatically terminate and be
forfeited and neither such Participant nor any of the Participant’s heirs,
personal representatives, successors or assigns shall have any rights with
respect to such unvested Restricted Stock Award.  Unless the applicable Award agreement
provides otherwise, if an independent contractor or other non-employment
relationship between the Participant and the Company or an Affiliate is
terminated due to the commencement of an employment relationship with the
Company or an Affiliate, or if an employment relationship between the
Participant and the Company or an Affiliate is terminated due to the
commencement of an independent contractor or other non-employment relationship
with the Company or an Affiliate, such change in status shall be a termination
of employment or service under this Section 10(d).


(e)                                  Death or Disability of Participant.  Unless otherwise provided in the applicable
Award agreement, if a Participant who is a natural person shall cease to be
employed by or performing services for the Company or any Affiliate as a result
of the Participant’s death or Disability prior to the vesting of shares subject
to the Restricted Stock Award granted to such Participant, all of such shares
shall become fully vested.  Upon the
death of a Participant, the person entitled to any such shares of Restricted
Stock shall be the person or persons to whom the Participant’s rights under the
Restricted Stock Award shall pass by will or the laws of descent and distribution.


(f)                                    Modification
of Rights Upon Termination.  Notwithstanding the other provisions of this
Section 10, upon a Participant’s termination of employment or other
service with the Company and all Affiliates, the Committee may, in its sole
discretion (which may be exercised at any time on or after the date of grant,
including 



 20
 









following such termination), cause Restricted
Stock Awards (or any part thereof) then held by such Participant to become or
continue to become vested and following such termination of employment or
service, in each case in the manner determined by the Committee.


(g)                                 Breach of
Confidentiality or Non-compete Agreements. 
Notwithstanding anything in the Plan to the contrary, if a Participant
materially breaches the terms of any confidentiality or non-compete agreement
entered into with the Company or any Affiliate, whether such breach occurs
before or after termination of such Participant’s employment or other service
with the Company or any Affiliate, the Committee, in its sole discretion, may
immediately terminate all rights of the Participant under the Plan and any
agreements evidencing a Restricted Stock Award then held by the Participant
without notice of any kind.


(h)                                 Date of
Termination of Employment or Other Service.  A Participant’s
employment or other service will, for purposes of the Plan, be deemed to have
terminated as provided in Section 6(i) of the Plan.


(i)                                     Other Provisions.  Each Award agreement relating to an Award of
Restricted Stock authorized under this Section 10 may contain such other
provisions as the Committee shall deem advisable including, but not limited to,
a requirement that shares of Common Stock acquired under an Award of Restricted
Stock be subject to a restriction on the Participant’s ability to transfer the
shares to third parties without the consent of the Company.


11.                               Other Awards


(a)                                  Other Stock-Based Awards.  The Committee, in its sole discretion, may
grant Awards of shares of Common Stock and Awards that are valued in whole or
in part by reference to, or are otherwise based on, shares of Common Stock or
on the Fair Market Value thereof (“Other Stock-Based Awards”).  Such Other Stock-Based Awards shall be in
such form, and dependent on such conditions, as the Committee shall determine
including, without limitation, the right to receive, or vest with respect to,
one or more shares of Common Stock (or the equivalent cash value of such
shares) upon the completion of a specified period of service, the occurrence of
an event and/or the attainment of performance objectives.  Other Stock-Based Awards may be granted alone
or in addition to any other Awards granted under the Plan.  Subject to the provisions of the Plan, the
Committee shall determine the number of shares of Common Stock to be awarded to
a Participant under (or otherwise related to) such Other Stock-Based Awards;
whether such Other Stock-Based Awards shall be settled in cash, shares of
Common Stock or a combination of cash and such shares; and all other terms and
conditions of such Awards (including, without limitation, the vesting
provisions thereof and provisions ensuring that all shares so awarded and
issued shall be fully paid and non-assessable). 
Any Other Stock-Based Awards shall be evidenced by an Award agreement in
such form as the Committee shall from time to time approve and which shall set
forth the terms and conditions of the Other Stock-Based Award.  Unless the applicable Award agreement
provides otherwise, if a Participant who holds an Other Stock-Based Award shall
cease to be employed by or performing services for the Company or an Affiliate
for any reason, such Other Stock-Based 



 21
 









Award shall be treated by the Committee as though it is either a
Non-Qualified Option or a Restricted Stock Award, as the Committee shall
determine in its discretion.


(b)                                 Other Cash-Based Awards.  In addition to the Awards described above,
and subject to the terms of the Plan, the Committee may grant such other
incentives denominated in cash and payable in cash under the Plan as the
Committee determines to be in the best interests of the Company and subject to
such other terms and conditions as it deems appropriate (“Other Cash-Based
Awards”).  Any Other Cash-Based Awards
shall be evidenced by an Award agreement in such form as the Committee shall
from time to time approve and which shall set forth the terms and conditions of
the Other Cash-Based Award.  Unless the
applicable Award agreement provides otherwise, if a Participant who holds an
Other Cash-Based Award shall cease to be employed by or performing services for
the Company or an Affiliate for any reason, such Other Cash-Based Award shall
be treated as though it is a Stock Appreciate Right or otherwise as the
Committee shall determine in its discretion.


12.                               Performance-Based
Awards.


(a)                                  Performance-Based Awards.  Notwithstanding anything to the contrary
herein, the Committee may grant performance-based Options, Awards of Restricted
Stock, Other Stock-Based Awards and Other Cash-Based Awards to Participants (“Performance-Based
Awards”).  Any such Awards granted to
Participants who may be “covered employees” under Section 162(m) of the Code or
any successor section thereto shall be consistent with the provisions
thereof.  In such cases, a Participant’s
Performance-Based Award shall be determined based on the attainment of written
performance goals approved by the Committee for a performance period
established by the Committee (i) when the outcome for that performance period
is substantially uncertain and (ii) by the earlier of (A) three (3) months
after the commencement of the performance period to which the performance goal
relates or (B) the number of days which is equal to twenty-five percent (25%)
of the relevant performance period.


(b)                                 Performance Goals.  The performance goals referred to in Section
12(a) must be objective and shall be based upon one or more of the following
criteria:  (i) consolidated earnings
before or after taxes (including earnings before interest, taxes, depreciation
and amortization); (ii) net income; (iii) operating income;
(iv) earnings per share; (v) book value per share of Common Stock;
(vi) return on shareholders’ equity; (vii) expense management;
(viii) return on investment; (ix) improvements in capital structure;
(x) profitability of an identifiable business unit or product; (xi) maintenance
or improvements of profit margins; (xii) stock price; (xiii) market
share; (xiv) revenues or sales; (xv) costs; (xvi) cash flow;
(xvii) working capital; (xviii) return on assets; (xix) asset
turnover; (xx) inventory turnover; (xxi) economic value added
(economic profit); and (xxii) total shareholder return.  The foregoing criteria may relate to the
Company, one or more of its Parents or Subsidiaries or one or more of its
divisions or units, or any combination of the foregoing, and may be applied on
an absolute basis and/or be relative to one or more peer group companies or
indices, or any combination thereof, all as the Committee shall determine.  In addition, to the degree consistent 



 22
 









with Section 162(m) of the Code (or any successor section
thereto), the performance goals may be calculated without regard to the
negative effect of unusual or nonrecurring items, extraordinary items,
discontinued operations or cumulative effects of accounting changes.  The Committee shall determine whether, with
respect to a performance period, the applicable performance goals have been met
with respect to a given Participant who may be a covered employee and, if they
have, shall so certify and ascertain the amount of the applicable
Performance-Based Award.  No Performance-Based
Awards will be paid for such performance period until such certification is
made by the Committee.  The amount of the
Performance-Based Award actually paid to a given Participant may be less than
the amount determined by the applicable performance goal formula, at the
discretion of the Committee.  The amount
of the Performance-Based Award determined by the Committee for a performance
period shall be paid to the Participant at such time as determined by the
Committee in its sole discretion after the end of such performance period.


13.                               Adjustments Upon Certain
Events


Notwithstanding any other
provisions in the Plan to the contrary, the following provisions shall apply to
all Awards granted under the Plan:


(a)                                  Generally.  Upon any change in the outstanding shares of
Common Stock after the Effective Date by reason of any stock dividend, stock
split, reverse stock split, reclassification, combination, exchange of shares
or other similar recapitalization of the Company, there shall be an appropriate
adjustment to (i) the number or kind of shares of Common Stock or other
securities issued or reserved for issuance pursuant to the Plan or pursuant to
outstanding Awards, (ii) the Exercise Price of any Option or the exercise
price of any Stock Appreciation Right, and/or (iii) any other affected
terms of such Awards.  Notwithstanding
the foregoing, no fractional shares shall be issued or paid for.  No adjustment shall be made under this
Section 13(a) upon the issuance by the Company of any warrants, rights or
options to acquire additional Common Stock or of securities convertible into
Common Stock unless such warrants, rights, options or convertible securities
are issued to all shareholders of the Company on a proportionate basis.


(b)                                 Change in Control.  Unless otherwise provided by the Committee
either in the applicable Award agreement at the time of grant or at any time
after the grant of an Award under the Plan (including pursuant to
Section 13(e) before the occurrence of a sale, merger, consolidation, reorganization,
liquidation, dissolution or other “Change in Control” (as defined below)), in
the event of a Change in Control, the following shall occur immediately as of
the effective date of such Change in Control with respect to any and all Awards
outstanding as of the effective date of such Change in Control:  (i) any and all Awards granted hereunder
will be, as nearly as may reasonably be, automatically converted into the same
type of Award to acquire the kind and amount of shares of stock or other securities
or property (including cash) which the Participant would have owned or have
been entitled to receive as of the effective date of the Change in Control had
the Awards been exercised or realized in full immediately before the effective
date of the Change in Control; (ii) all Options will become immediately
exercisable in full and will remain exercisable for the remainder of their
terms, 



 23
 









regardless of whether the Participants to whom such Options have been
granted remain in the employ or service of the Company or any Affiliate; (iii)
all outstanding Awards of Restricted Stock will become immediately fully vested
regardless of whether the Participants to whom such Awards have been granted
remain in the employ or service of the Company or any Affiliate; (iv) all other
outstanding Awards will vest and/or continue to vest in the manner determined
by the Committee and set forth in the applicable Award agreement evidencing
such Awards; and (v) appropriate adjustment shall be made in the application of
the provisions of all outstanding Awards with respect to the rights and
interests thereafter of each Participant, to the end that the provisions set
forth in each Award shall thereafter correspondingly be made applicable, as
nearly as may reasonably be, in relation to any shares of stock or other
securities or property (including cash) thereafter deliverable under the Award.


(c)                                  Definition of Change of Control.  For purposes of this Section 13, “Change in
Control” means:


(i)                                     the
sale, lease, exchange or other transfer, directly or indirectly, of all or
substantially all of the assets of the Company (in one transaction or in a
series of related transactions) to a person or entity that is not controlled by
the Company;


(ii)                                  the
approval by the Company’s shareholders of any plan or proposal for the
liquidation or dissolution of the Company;


(iii)                               a merger or
consolidation to which the Company is a party if the shareholders of the
Company immediately prior to the effective date of such merger or consolidation
have, solely on account of ownership of securities of the Company at such time,
“beneficial ownership” (as defined in Rule 13d-3 under the Exchange Act)
immediately following the effective date of such merger or consolidation of
securities of the surviving company representing (A) more than 50%, but
not more than 80%, of the combined voting power of the surviving corporation’s
then outstanding securities ordinarily having the right to vote at elections of
directors, unless such merger or consolidation has been approved in advance by
the Incumbent Directors (as defined in Section 7(d) below), or (B) fifty
percent (50%) or less of the combined voting power of the surviving corporation’s
then outstanding securities ordinarily having the right to vote at elections of
directors (regardless of any approval by the Incumbent Directors);


(iv)                              any
person becomes after the Effective Date of the Plan the “beneficial owner” (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of (A)
twenty percent (20%) or more, but not fifty percent (50%) or more, of the
combined voting power of the Company’s outstanding securities ordinarily having
the right to vote at elections of directors, unless the transaction resulting
in such ownership has been approved in advance by the Incumbent Directors, or
(B) fifty percent (50%) or more of the combined voting power of the Company’s 



 24
 









outstanding securities ordinarily having the right to vote at elections
of directors (regardless of any approval by the Incumbent Directors);


(v)                                 the
Incumbent Directors cease for any reason to constitute at least a majority of
the Board; or


(vi)                              any
other change in control of the Company of a nature that would be required to be
reported pursuant to Section 13 or 15(d) of the Exchange Act, whether or not
the Company is then subject to such reporting requirements.


The provisions of this Section shall similarly apply to successive
transactions of the types described in Sections 13(c)(i) through (vi).


(d)                                 Incumbent Directors.  For purposes of this Section 13, “Incumbent
Directors” of the Company means the individuals who are members of the Board on
the Effective Date of the Plan and any individual who subsequently becomes a
member of the Board whose election or nomination for election by the Company’s
shareholders was approved by a vote of at least a majority of the Incumbent
Directors (either by specific vote or by approval of the Company’s proxy
statement in which such individual is named as a nominee for director without
objection to such nomination).


(e)                                  Additional Adjustments of Awards.  The Committee shall have the discretion,
exercisable without the consent of any Participant affected thereby if not
prohibited by the applicable Award Agreement, at any time before a sale,
merger, consolidation, reorganization, liquidation, dissolution or other Change
in Control transaction, to take such further action as it determines to be
necessary or advisable with respect to Awards. 
Such authorized action may include (but shall not be limited to)
establishing, amending or waiving the type, terms, conditions or duration of,
or restrictions on, Awards so as to provide for earlier, later, extended or
additional time for exercise; paying cash or other consideration in exchange
for all or part of such Awards; and lifting restrictions and other
modifications.  The Committee may take
such actions with respect to all Participants, to certain categories of
Participants or to only individual Participants.  The Committee may take such action before or
after granting Awards to which the action relates and before or after any
public announcement with respect to such sale, merger, consolidation,
reorganization, liquidation, dissolution or Change in Control that is the
reason for such action.  The grant of an
Award under the Plan shall not affect in any way the right or power of the
Company to make adjustments, reclassifications, reorganizations or changes of
its capital or business structure or to merge or to consolidate or to dissolve,
liquidate or sell, or transfer all or any part of its business or assets.


(f)                                    Limitation on Change in Control
Payments.  Notwithstanding
anything in this Plan to the contrary, if, with respect to a Participant, the
acceleration of the vesting of an Award as provided in Section 13(e), the
payment of cash in exchange for all or part of an Award as provided in Section
13(e) or any other adjustment to an Award pursuant to Section 13(e) (which
acceleration, payment or adjustment could be deemed a “payment” within the
meaning of 



 25
 









Section 280G(b)(2) of the Code), together with any other “payments”
which such Participant has the right to receive from the Company or any
corporation that is a member of an “affiliated group” (as defined in
Section 1504(a) of the Code without regard to Section 1504(b) of the
Code) of which the Company is a member, would constitute a “parachute payment”
(as defined in Section 280G(b)(2) of the Code), then the “payments” to
such Participant pursuant to Section 13(e) of the Plan will be reduced to the
largest amount as will result in no portion of such “payments” being subject to
the excise tax imposed by Section 4999 of the Code; provided, however, that if
a Participant is subject to a separate agreement with the Company or an
Affiliate that expressly addresses the potential application of
Section 280G or Section 4999 of the Code (including, without
limitation, that “payments” under such agreement or otherwise will not be
reduced or that the Participant will have the discretion to determine which “payments”
will be reduced), then the limitations of this Section 13(f) will not apply,
and any “payments” to a Participant pursuant to Section 13(e) of the Plan will
be treated as “payments” arising under such separate agreement.


14.                               Shares
Acquired for Investment


Shares of Common Stock acquired by a Participant under
this Plan shall be acquired by the Participant for investment and without
intention of resale unless, in the opinion of counsel to the Company, such
shares may be purchased without any investment representation.  Where an investment representation is deemed
necessary, the Committee may require a written representation to that effect by
the Participant as a condition of a Participant exercising an Option or
otherwise obtaining shares of Common Stock pursuant an Award granted under this
Plan, and the Committee may place an appropriate legend on the stock
certificates evidencing the shares of Common Stock so issued indicating that
such shares have not been registered under federal or state securities laws and
describing the restrictions on transfer. 
Each Award shall be subject to the requirement that if, at any time, the
Committee shall determine in its discretion that the listing, registration or
qualification of the shares of Common Stock subject to the Award upon any
securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body, if necessary or desirable as a
condition of, or in connection with, the granting of such Award or the issuance
or purchase of shares of Common Stock thereunder, then such Award shall not be
granted or exercised in whole or in part unless such listing, registration,
qualification, consent or approval shall have been effected or obtained free of
any conditions not acceptable to the Committee.


15.                               No Right to Employment,
Service as a Director or Awards


The granting of an Award under the Plan shall impose
no obligation on the Company or any Affiliate to continue the employment of a
Participant and shall not lessen or affect the Company’s or the Affiliate’s right
to terminate the employment of such Participant.  Nothing in the Plan will interfere with or
limit in any way the right of the Company, the Board or the Company’s
shareholders to terminate the directorship of any Director at any time, nor
confer upon any Director any right to continue to serve as a director of the
Company.  No Participant or other person
shall have any claim to be granted any Award, and there is no obligation for
uniform treatment of Participants or holders or beneficiaries of Awards.  The terms and conditions of Awards and the
Committee’s determinations and interpretations with respect thereto need not be
the same with respect to each Participant.



 26
 









16.                               Other
Benefit and Compensation Programs


Payments and other benefits received by a Participant
under an Award shall not be deemed a part of a Participant’s regular, recurring
compensation for purposes of any termination, indemnity or severance pay laws
and shall not be included in, nor have any effect on, the determination of
benefits under any other employee benefit plan, contract or similar arrangement
provided by the Company or an Affiliate, unless expressly so provided by such
other plan, contract or arrangement or the Committee determines that an Award
or portion of an Award should be included to reflect competitive compensation
practices or to recognize that an Award has been made in lieu of a portion of
competitive cash compensation.


17.                               Successors and Assigns


The Plan shall be binding on all successors and
assigns of the Company and a Participant including, without limitation, the
estate of such Participant and the executor, administrator or trustee of such
estate, or any receiver or trustee in bankruptcy or representative of the
Participant’s creditors.


18.                               Nontransferability of Awards;
Designation of Beneficiary


(a)                                  Nontransferability.  No Award or interest in an Award may be sold,
assigned, pledged (as collateral for a loan or as security for the performance
of an obligation or for any other purpose) or transferred by the Participant or
made subject to attachment or similar proceedings otherwise than by will or by
the applicable laws of descent and distribution, except to the extent a
Participant designates one or more beneficiaries on a Company-approved form, as
set forth in Section 18(b) of this Plan, who may exercise the Award or
receive payment under the Award after the Participant’s death.  During a Participant’s lifetime, an Award may
be exercised only by the Participant.


(b)                                 Designation of Beneficiary.  A Participant may designate a beneficiary to
succeed to the Participant’s Awards under the Plan in the event of the
Participant’s death by filing a beneficiary form with the Company and, upon the
death of the Participant, such beneficiary shall succeed to the rights of the
Participant to the extent permitted by law and the terms of this Plan and the
applicable Award agreement.  In the
absence of a validly designated beneficiary who is living at the time of the
Participant’s death, the Participant’s executor or administrator of the Participant’s
estate shall succeed to the Awards, which shall be transferable by will or
pursuant to laws of descent and distribution.


19.                               Amendments or Termination


The Board may amend,
alter or discontinue the Plan, but no amendment, alteration or discontinuation
shall be made without the consent of a Participant if such action would
diminish any of the rights of the Participant under any Award theretofore
granted to such Participant under the Plan; provided,
however, that the Committee may amend the Plan in such manner as it
deems necessary to permit the granting of Awards meeting the requirements of
the Code or other applicable laws.



 27
 









20.                               International Participants


With respect to
Participants who reside or work outside the United States of America, the Committee
may, in its sole discretion, amend the terms of the Plan or adopt such
modifications, procedures or subplans with respect to such Participants as are
necessary or desirable to ensure the viability of the benefits of the Plan,
comply with applicable foreign laws or obtain more favorable tax or other
treatment for a Participant, the Company or an Affiliate; provided, however,
that no such changes shall apply to the Awards to Participants who may be “covered
employees” under Section 162(m) of the Code or any successor thereto unless
consistent with the provisions thereof.


21.                               General


(a)                                  Issuance of Shares of Common Stock. 
Notwithstanding any other provision of the Plan, the Company shall have
no obligation to issue or deliver any shares of Common Stock under an Award
granted under the Plan or make any other distribution of benefits under the
Plan unless, in the opinion of the Company’s counsel, such issuance, delivery
or distribution would comply with all applicable laws (including, without
limitation, the requirements of the Securities Act of 1933, as amended, or any
successor thereto (the “Securities Act”) or the laws of any state or foreign
jurisdiction) and the applicable requirements of any securities exchange or
similar entity.  The Company shall be
under no obligation to any Participant to register for offering or resale or to
qualify for an exemption from registration under the Securities Act, or to
register or qualify under the laws of any state or foreign jurisdiction, any
Awards, shares of Common Stock, security or interest in a security paid or
issued under, or created by, the Plan, or to continue in effect any such
registrations or qualifications if made. 
The Company may issue stock certificates evidencing shares of Common
Stock with such legends and subject to such restrictions on transfer and stop
transfer instructions as counsel for the Company deems necessary or desirable
for compliance by the Company with federal, state and foreign securities
laws.  The Company may also require such
other action or agreement by the Participants as may from time to time be
necessary to comply with applicable securities laws.


(b)                                 Stock Certificates.  To the extent this Plan or any applicable
Award agreement provides for the issuance of stock certificates to reflect the
issuance of shares of Common Stock, the issuance may be effected on a
noncertificated basis, to the extent not prohibited by applicable law or the
applicable rules of any stock exchange or market on which such shares are
quoted.


(c)                                  No Rights as a Shareholder.  Unless otherwise provided by the Committee or
in the Plan or an Award agreement evidencing an Award or in any other written
agreement between a Participant and the Company or an Affiliate, no Award shall
entitle the Participant to any cash dividend, voting or other right of a
shareholder unless and until the date of issuance under the Plan of any shares
of Common Stock that are subject to such Award.


(d)                                 No Trust or Fund.  The Plan is intended to constitute an “unfunded”
plan.  Nothing contained herein shall
require the Company to segregate any monies, other property, or shares of
Common Stock, or to create any trusts, or to make any 



 28
 









special deposits for any immediate or deferred amounts payable to any
Participant, and no Participant shall have any rights that are greater than
those of a general unsecured creditor of the Company.


(e)                                  Severability.  If any provision of the Plan or any Award
agreement shall be held illegal or invalid for any reason, the illegality or
invalidity shall not affect the remaining parts of the Plan or Award agreement,
and such Plan or Award agreement shall be construed and enforced as if the
illegal or invalid provision had not been included.


(f)                                    Choice of Law.  The validity, construction, interpretation,
administration and effect of the Plan, and rights relating to the Plan and to
Awards granted under the Plan, shall be governed by the substantive laws, but
not the choice of law rules, of the State of Minnesota.


22.                               Effective Date


The Plan shall be effective on March 9, 2006 (the “Effective
Date”), which is the date it was approved by the Board.  The Plan was approved by the Company’s
shareholders on May 4, 2006.  It was
amended by the Board of Directors on February 2, 2007.



 29