**Exhibit 10.3**
**Life Time Fitness, Inc.**
**2004 Long-Term Incentive Plan**
**(Effective as of April 30, 2004,**
**and Amended February 15, 2005)**
**1. Purposes.**
     The purposes of this Plan are to provide long-term incentives to those persons withresponsibility for the success and growth of Life Time Fitness, Inc. (the “Company”) and itssubsidiaries, divisions and affiliated businesses, to associate the interests of such persons withthose of the Company’s shareholders, to assist the Company in recruiting, retaining and motivatinga diverse group of employees, consultants, advisors and non-employee directors on a competitivebasis, and to ensure a pay-for-performance linkage for such employees and outside directors.
**2. Definitions**
     For purposes of this Plan:
     (a) “Affiliate” means any corporation that is a “parent corporation” or “subsidiarycorporation” of the Company, as those terms are defined in Code Sections 424(e) and 424(f), or anysuccessor provisions, and, for purposes other than the grant of Incentive Stock Options, any jointventure in which the Company or such “parent corporation” or “subsidiary corporation” owns anequity interest.
     (b) “Award” or “Awards” means a grant under this Plan in the form of Options, StockAppreciation Rights, Restricted Shares, Restricted Share Units, Performance Awards, or any or allof them.
     (c) “Award Agreement” means any written or electronic agreement contract or other instrumentor document evidencing the grant of an Award, which may but is not required to be signed by aParticipant, in such form and including such terms as the Committee in its sole discretion shalldetermine.
     (d) “Board” means the Board of Directors of the Company.
     (e) “Cause” means, unless otherwise defined in an Individual Agreement, (i) dishonesty orviolation of any duty owed to the Company; (ii) conviction of a felony crime; (iii) any materialact or omission involving willful malfeasance or gross negligence in the performance of duties tothe Company; (iv) willful damage to the Company’s business and/or relationships with customers orsuppliers; and, (v) failure, refusal or inability to perform duties in accordance with thedirections, policies, and practices of the Company. The Committee shall, unless otherwise providedin an Individual Agreement with the Participant have the sole discretion to determine whether“Cause” exists, and its determination shall be final.
     (f) “Change in Control” is defined in Section 11(b).
     (g) “Code” means the Internal Revenue Code of 1986, as amended.
     (h) “Committee” means the Compensation Committee of the Board.
 

 

     (i) “Common Stock” means the common stock, par value $.02 per share, of the Company.
     (j) “Effective Date” shall have the meaning set forth in Section 13.
     (k) “Eligible Participants” means any of the following individuals who is designated by theCommittee as eligible to receive Awards, subject to the conditions set forth in this Plan: anyofficer, employee, non-employee director, consultant or advisor of the Company or its Affiliates.The term employee does not include any individual who is not, as of the grant date of an Award,classified by the Company or any Affiliate as an employee on its corporate books and records evenif that individual is later reclassified (by the Company, such Affiliate, any court or anygovernmental or regulatory agency) as an employee as of the grant date. Except when referring toISOs, all references in this Plan to “employee,” “employment” or similar words shall, with respectto consultants or advisors, refer to the consulting or advisory services provided by suchconsultants or advisors to the Company and shall, with respect to Non-Employee Directors, refer toservice as a member of the Board.
     (l) “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to timeand any successor thereto.
     (m) “Fair Market Value” on any date means:
 (i)  the closing price of the stock as reported for compositetransactions, if the Company’s Common Stock is then traded on a nationalsecurities exchange;  (ii)  the average of the closing representative bid and asked prices of theCompany’s Common Stock as reported on NASDAQ on the date as of which fair marketvalue is being determined; or  (iii)  if the Common Stock of the Company is not publicly traded on thedate of grant of any Award under this Plan, the Committee shall make a good faithattempt to determine the fair market value of a share of Common Stock using suchcriteria as it shall determine, in its sole discretion, to be appropriate forvaluation.
     (n) “Individual Agreement” means an employment, consulting or similar written agreementbetween a Participant and the Company or any one of its Affiliates.
     (o) “ISO” means an Option satisfying the requirements of Section 422 of the Code anddesignated by the Committee as an ISO.
     (p) “Non-Employee Director” means a member of the Board who is not an employee of the Company.
     (q) “NQSO” or “Non-Qualified Stock Option” means any Option that is not designated as an ISOor even if so designated does not qualify as an ISO on or subsequent to its grant date.
     (r) “Options” means the right to purchase shares of Common Stock at a specified price for aspecified period of time.
     (s) “Option Exercise Price” means the purchase price per share of Common Stock covered by anOption granted pursuant to this Plan.
     (t) “Participant” means an individual who has received an Award under this Plan.
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     (u) “Performance Awards” means an Award of Performance Shares or Performance Units based onthe achievement of Performance Goals during a Performance Period.
     (v) “Performance Based Exception” means the performance-based exception set forth in CodeSection 162(m)(4)(C) from the deductibility limitations of Code Section 162(m).
     (w) “Performance Goals” means the goals established by the Committee under Section 7(d).
     (x) “Performance Measures” means the criteria set out in Section 7(d) that may be used by theCommittee as the basis for a Performance Goal.
     (y) “Performance Period” means the period established by the Committee during which theachievement of Performance Goals is assessed in order to determine whether and to what extent aPerformance Award has been earned.
     (z) “Performance Shares” means shares of Common Stock awarded to a Participant based on theachievement of Performance Goals during a Performance Period.
     (aa) “Performance Units” means an Award denominated in shares of Common Stock, cash or acombination thereof, as determined by the Committee, awarded to a Participant based on theachievement of Performance Goals during a Performance Period.
     (bb) “Plan” means the Life Time Fitness, Inc. 2004 Long-Term Incentive Plan, as amended andrestated from time to time.
     (cc) “Restriction Period” means, with respect to Restricted Shares or Restricted Share Units,the period during which any restrictions set by the Committee remain in place. Restrictions remainin place until such time as they have lapsed under the terms and conditions of the RestrictedShares or Restricted Share Units or as otherwise determined by the Committee.
     (dd) “Restricted Shares” means shares of Common Stock that may not be traded or sold until thedate that the restrictions on transferability imposed by the Committee with respect to such shareshave lapsed.
     (ee) “Restricted Share Units” means the right, as described in Section 7(c), to receive anamount, payable in either cash or shares of Common Stock, equal to the value of a specified numberof shares of Common Stock.
     (ff) “Retirement” with respect to a Non-Employee Director shall mean termination from theBoard after such Non-Employee Director shall have attained at least age 70 or after suchNon-Employee Director shall have satisfied the criteria for Retirement established by the Committeefrom time to time.
     (gg) “Stock Appreciation Rights” or “SARs” means the right to receive the difference betweenthe Fair Market Value of a share of Common Stock on the grant date and the Fair Market Value of ashare of Common Stock on the date the Stock Appreciation Right is exercised.
     (hh) “Total Disability” shall have the meaning set forth in the long-term disability programof the Company, unless otherwise defined in an Individual Agreement.
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**3. Administration of this Plan.**
     (a) Authority of Committee. This Plan shall be administered by the Committee, whichshall have all the powers vested in it by the terms of this Plan, such powers to include theauthority (within the limitations described herein):
 •  to select the persons to be granted Awards under this Plan,  •  to determine the type, size and terms of Awards to be made to each personselected,  •  to determine the time when Awards are to be made and any conditions which must besatisfied before an Award is made,  •  to establish objectives and conditions for earning Awards,  •  to determine whether an Award shall be evidenced by an agreement and, if so, todetermine the terms of such agreement (which shall not be inconsistent with thisPlan) and who must sign such agreement,  •  to determine whether the conditions for earning an Award have been met andwhether an Award will be paid at the end of the Performance Period,  •  to determine if and when an Award may be deferred,  •  to determine the guidelines and/or procedures for the payment or exercise ofAwards, and  •  to determine whether an Award should qualify, regardless of its amount, asdeductible in its entirety for federal income tax purposes, including whether anyAwards granted under this Plan comply with the Performance Based Exception underCode Section 162(m).
     (b) Interpretation of Plan. The Committee shall have full power and authority toadminister and interpret this Plan and to adopt or establish such rules, regulations, agreements,guidelines, procedures and instruments, which are not contrary to the terms of this Plan and which,in its opinion, may be necessary or advisable for the administration and operation of this Plan.The Committee’s interpretations of this Plan, and all actions taken and determinations made by theCommittee pursuant to the powers vested in it hereunder, shall be conclusive and binding on allparties concerned, including the Company, its shareholders and any person receiving an Award underthis Plan.
     (c) Delegation of Authority. To the extent not prohibited by law, the Committee may(i) delegate its authority and administrative powers hereunder to a subcommittee, (ii) delegate toone or more officers of the Company its authority to grant Awards to Eligible Participants who arenot subject to Section 16(b) of the Exchange Act, (iii) allocate all or any portion of itsresponsibilities and powers to any one or more of its members and, (iv) grant authority toemployees or designate employees of the Company to execute documents on behalf of the Committee orto otherwise assist the Committee in the administration and operation of this Plan, provided thatno such delegation may be made that would cause Awards or other transactions under this Plan tocease to be exempt from Section 16(b) of the Exchange Act or cause an Award intended to qualify forthe Performance Based Exception to case to qualify for such exception. Any such allocation ordelegation may be revoked by the Committee at any time.
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     (d) Section 162(m) and Rule 16b-3 Compliance. In the case of any grants made toinsiders or Awards that are intended to qualify for the Performance Based Exception, the Committeeshall delegate its authority to a subcommittee composed solely of two or more directors who qualifyas an “independent director” within the meaning of the applicable stock exchange, as an “outsidedirector” within the meaning of Section 162(m) of the Code, and as a “non-employee director” withinthe meaning of Rule 16b-3.
**4. Eligibility.**
     Awards may be granted under this Plan to Eligible Participants.
**5. Shares of Common Stock Subject to this Plan.**
     (a) Authorized Number of Shares. Unless otherwise authorized by the Company’sshareholders and subject to the provisions of this Section 5 and Section 10, the maximum aggregatenumber of shares of Common Stock available for issuance under this Plan shall be **3,500,000**.Subject to the provisions of this Section 5 and Section 10, the maximum number of shares of CommonStock that may be issued pursuant to Options intended to be ISO’s shall be 3,500,000 shares.
     (b) Share Counting. The following shall apply in determining the number of sharesremaining available for grant under this Plan:
 (i)  In connection with the granting of an Option or other Award (otherthan a Performance Unit denominated in dollars), the number of shares of CommonStock available for issuance under this Plan shall be reduced by the number ofshares in respect of which the Option or Award is granted or denominated;provided, however, that, in the case of Stock Appreciation Rights granted intandem with Options (so that only one may be exercised with the other terminatingupon such exercise), the number of shares of Common Stock shall only be taken intoaccount once (and not as to both Awards) for purposes of this Section 5 and thelimitations hereunder; and provided further where a SAR is settled in shares ofCommon Stock, the number of shares of Common Stock available for issuance underthis Plan shall be reduced only by the number of shares issued in such settlement.  (ii)  If any Option is exercised by tendering shares of Common Stock to theCompany as full or partial payment of the exercise price, the number of sharesavailable for issuance under this Plan shall be increased by the number of sharesso tendered.  (iii)  Whenever any outstanding Option or other Award (or portion thereof)expires, is cancelled, is settled in cash or is otherwise terminated for anyreason without having been exercised or payment having been made in respect of theentire Option or Award, the shares allocable to the expired, cancelled, settled orotherwise terminated portion of the Option or Award may again be the subject ofOptions or Awards granted under this Plan.  (iv)  Awards granted through the assumption of, or in substitution for,outstanding awards previously granted to individuals who become employees as aresult of a merger, consolidation, acquisition or other corporate transactioninvolving the Company as a result of an acquisition will not count against thereserve of available shares under this Plan. The terms and conditions of thesubstitute or assumed Awards may vary from the terms and conditions set forth inthis Plan to the extent the Committee at the time of the grant may deemappropriate to conform, in whole
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     or in part, to the provisions of the Awards in substitution for which they aregranted.
     (c) Shares to be Delivered. Shares of Common Stock to be delivered by the Companyunder this Plan shall be determined by the Committee and may consist in whole or in part ofauthorized but unissued shares or shares acquired on the open market.
     (d) Fractional Shares. No fractional shares of Common Stock may be issued under thisPlan; however, cash shall be paid in lieu of any fractional shares in settlement of an Award.
**6. Award Limitations.**
     The maximum number of Options, SARs and Restricted Shares that can be granted to any EligibleParticipant during a single calendar year cannot exceed 750,000. The maximum per EligibleParticipant, per calendar year amount of Awards other than Options, SARs and Restricted Sharesshall not exceed two (2) times the Eligible Participant’s base salary. The maximum Award that maybe granted to any Eligible Participant for a Performance Period greater than one year shall notexceed the foregoing annual maximum multiplied by the number of full years in the PerformancePeriod.
**7. Awards to Eligible Participants.**
     (a) Options.
 (i)  Grants. Subject to the terms and provisions of this Plan,Options may be granted to Eligible Participants. Options may consist of ISOs orNQSOs, as the Committee shall determine. Options may be granted alone or in tandemwith SARs. With respect to Options granted in tandem with SARs, the exercise ofeither such Options or such SARs will result in the simultaneous cancellation ofthe same number of tandem SARs or Options, as the case may be. The grant of anOption shall occur on the date the Committee by resolution selects a Participantto receive a grant of an Option, determines the number of shares of Common Stockto be subject to such Option to be granted to such Participant and specifies theterms and provisions of the Option. The Company shall notify a Participant of anygrant of an Option, and such Award shall be confirmed by, and subject to the termsof, an Award Agreement.  (ii)  Option Exercise Price. The Option Exercise Price shall beequal to or greater than the Fair Market Value on the date the Option is granted,unless the Option was granted through the assumption of, or in substitution for,outstanding awards previously granted to individuals who became employees of theCompany or any Affiliate as a result of a merger, consolidation, acquisition orother corporate transaction involving the Company or such Affiliate.  (iii)  ISO Limits. ISOs may only be granted to employees of theCompany and its Affiliates and may only be granted to an employee who, at the timethe Option is granted, does not own stock possessing more than ten percent (10%)of the total combined voting power of all classes of stock of the Company or anyAffiliate. The aggregate Fair Market Value of all shares with respect to whichISOs are exercisable by a Participant for the first time during any year shall notexceed $100,000; provided, however, that any Options or portions thereof thatexceed such limit shall be treated as NQSOs notwithstanding any other provisionsof the Award
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  Agreement, but only to the extent of such excess. The aggregate Fair Market Value ofsuch shares shall be determined at the time the Option is granted.
 (iv)  No Repricing. Except for adjustments made pursuant toSection 10, the Option Exercise Price for any outstanding Option granted underthis Plan may not be decreased after the date of grant nor may any outstandingOption granted under this Plan be surrendered to the Company as consideration forthe grant of a new Option with a lower Option Exercise Price or otherwise besubject to any action that would be treated, for accounting purposes, as a“repricing” of such Option without the approval of the Company’s shareholders.  (v)  Buy Out of Option Gains. In the event of a Change ofControl, the Committee shall have the right to elect, in its sole discretion andwithout the consent of the holder thereof, to cancel such Option and to cause theCompany to pay to the Participant the excess of the Fair Market Value of the shares of Common Stock covered by such Option over the Option Exercise Price ofsuch Option at the date the Committee provides written notice (the “Buy OutNotice”) of its intention to exercise such right. Buyouts pursuant to thisprovision shall be effected by the Company as promptly as possible after the dateof the Buy Out Notice. Payments of buy out amounts may be made in cash, in sharesof Common Stock, or partly in cash and partly in Common Stock, as the Committeedeems advisable. To the extent payment is made in shares of Common Stock, thenumber of shares shall be determined by dividing the amount of the payment to bemade by the Fair Market Value of a share of Common Stock at the date of the BuyOut Notice. Notwithstanding the foregoing, the Committee shall have the right toelect, in its sole discretion and without the consent of the holder thereof, tocancel vested but unexercised Options and to cause the Company to pay to theParticipant the excess of the Fair Market Value of the shares of Common Stockcovered by such Options over the Option Exercise Price of such Options at the datethe Committee provides the Buy Out Notice, so long as the Committee takes suchaction with respect to all vested but unexercised Options outstanding at the timethe Committee elects to exercises such right.
     (b) Stock Appreciation Rights.
 (i)  Grants. Subject to the terms and provisions of this Plan,SARs may be granted to Eligible Participants. SARs may be granted alone or intandem with Options. With respect to SARs granted in tandem with Options, theexercise of either such Options or such SARs will result in the simultaneouscancellation of the same number of tandem SARs or Options, as the case may be.  (ii)  Purchase Price. The purchase price per share of Common Stockcovered by a SAR granted pursuant to this Plan shall be equal to or greater thanFair Market Value on the date the SAR is granted, unless the SAR was grantedthrough the assumption of, or in substitution for, outstanding awards previouslygranted to individuals who became employees of the Company of any Affiliate as aresult of a merger, consolidation, acquisition or other corporate transactioninvolving the Company or such Affiliate.  (iii)  Form of Payment. The Committee may authorize payment of aSAR in the form of cash, Common Stock valued at its Fair Market Value on the dateof the exercise, a combination thereof, or by any other method as the Committeemay determine.
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 (iv)  No Repricing. Except for adjustments pursuant to Section 10,in no event may any Stock Appreciation Right granted under this Plan be amended todecrease the purchase price per share of Common Stock covered thereby, cancelledin conjunction with the grant of any new Stock Appreciation Right with a lowerpurchase price per share, or otherwise be subject to any action that would betreated, for accounting purposes, as a “repricing” of such Stock AppreciationRight, without the approval of the Company’s shareholders.
     (c) Restricted Shares / Restricted Share Units.
 (i)  Grants. Subject to the terms and provisions of this Plan,Restricted Shares or Restricted Share Units may be granted to EligibleParticipants.  (ii)  Restrictions. The Committee shall impose such terms,conditions and/or restrictions on any Restricted Shares or Restricted Share Unitsgranted pursuant to this Plan as it may deem advisable including, withoutlimitation: a requirement that Participants pay a stipulated purchase price foreach Restricted Share or each Restricted Share Unit; restrictions based upon theachievement of specific performance goals (Company-wide, divisional, and/orindividual); time-based restrictions on vesting; and/or restrictions underapplicable Federal or state securities laws. Unless otherwise determined by theCommittee at the time of grant, any time-based restriction period shall be for aminimum of three years. To the extent the Restricted Shares or Restricted ShareUnits are intended to be deductible under Code Section 162(m), the applicablerestrictions shall be based on the achievement of Performance Goals over aPerformance Period, as described in Section 7(d) below.  (iii)  Payment of Units. Restricted Share Units that becomepayable in accordance with their terms and conditions shall be settled in cash,shares of Common Stock, or a combination of cash and shares, as determined by theCommittee.  (iv)  No Disposition During Restriction Period. During theRestriction Period, Restricted Shares may not be sold, assigned, transferred orotherwise disposed of, or mortgaged, pledged or otherwise encumbered. In order toenforce the limitations imposed upon the Restricted Shares, the Committee may (a)cause a legend or legends to be placed on any certificates relating to suchRestricted Shares, and/or (b) issue “stop transfer” instructions, to its transferagent as it deems necessary or appropriate.  (v)  Dividend and Voting Rights. Unless otherwise determined bythe Committee, during the Restriction Period, Participants who hold RestrictedShares and Restricted Share Units shall have the right to receive dividends incash or other property or other distribution or rights in respect of such shares,and Participants who hold Restricted Shares shall have the right to vote suchshares as the record owner thereof. Unless otherwise determined by the Committee,any dividends payable to a Participant during the Restriction Period shall bedistributed to the Participant only if and when the restrictions imposed on theapplicable Restricted Shares or Restricted Share Units lapse.  (vi)  Share Certificates. Each certificate issued for RestrictedShares shall be registered in the name of the Participant and deposited with theCompany or its designee. At the end of the Restriction Period, a certificaterepresenting the number of shares to
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  which the Participant is then entitled shall be delivered to the Participant free andclear of the restrictions. No certificate shall be issued with respect to aRestricted Share Unit unless and until such unit is paid in shares of Common Stock.
     (d) Performance Awards.
 (i)  Grants. Subject to the provisions of this Plan, PerformanceAwards consisting of Performance Shares or Performance Units may be granted toEligible Participants. Performance Awards may be granted either alone or inaddition to other Awards made under this Plan.  (ii)  Performance Goals. Unless otherwise determined by theCommittee, Performance Awards shall be conditioned on the achievement ofPerformance Goals (which shall be based on one or more Performance Measures, asdetermined by the Committee) over a Performance Period. The Performance Periodshall be one year, unless otherwise determined by the Committee.  (iii)  Performance Measures. The Performance Measure(s) to be usedfor purposes of Performance Awards may be described in terms of objectives thatare related to the individual Participant or objectives that are Company-wide orrelated to a subsidiary, division, department, region, function, business unit orAffiliate of the Company in which the Participant is employed, and may consist ofone or more or any combination of the following criteria: stock price, marketshare, sales revenue, cash flow, sales volume, earnings per share, EBITDA, pre-taxincome, return on equity, return on assets, return on sales, return on investedcapital, economic value added, net earnings, total shareholder return, grossmargin, and/or costs. The Performance Goals based on these Performance Measuresmay be made relative to the performance of other corporations. The PerformanceMeasures to be used for Performance Awards that are not intended to satisfy theconditions for the Performance Based Exception under Code Section 162(m) mayconsist of other criteria determined by the Committee.  (iv)  Extraordinary Events. At, or at any time after, the time anAward is granted, and to the extent permitted under Code Section 162(m) and theregulations thereunder without adversely affecting the treatment of the Awardunder the Performance Based Exception, the Committee may provide for the manner inwhich performance will be measured against the Performance Goals (or may adjustthe Performance Goals) to reflect the impact of specific corporate transactions,accounting or tax law changes and other extraordinary and nonrecurring events.  (v)  Interpretation. With respect to any Award that is intendedto satisfy the conditions for the Performance Based Exception under Code Section162(m): (A) the Committee shall interpret this Plan and this Section 7 in light ofCode Section 162(m) and the regulations thereunder; (B) the Committee shall haveno discretion to amend the Award in any way that would adversely affect thetreatment of the Award under Code Section 162(m) and the regulations thereunder;and (C) such Award shall not be paid until the Committee shall first havecertified that the Performance Goals have been achieved.
     (e) Other Stock-Based Awards. The Committee is hereby authorized to grant toEligible Participants, subject to the terms of this Plan, such otherAwards that are denominated or payable in, valued in whole or in part byreference to, or otherwise based on or related to, shares of
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Common Stock (including, without limitation, securities convertible into shares of CommonStock), as are deemed by the Committee to be consistent with the purpose of this Plan. Shares ofCommon Stock or other securities delivered pursuant to a purchase right granted under this Section7(e) shall be purchased for such consideration, which may be paid by such method or methods and insuch form or forms (including, without limitation, cash, shares of Common Stock, other securities,other Awards or other property or any combination thereof), as the Committee shall determine, thevalue of which consideration, as established by the Committee, shall not be less than 100% of theFair Market Value of such shares of Common Stock or other securities as of the date such purchaseright is granted, unless otherwise determined by the Committee.
     (f) Dividend Equivalents. The Committee is hereby authorized to grant dividendequivalents to Eligible Participants under which the Participant shall be entitled to receivepayments (in cash, shares of Common Stock, other securities, other Awards or other property asdetermined in the discretion of the Committee) equivalent to the amount of cash dividends paid bythe Company to holders of shares of Common Stock with respect to a number of shares of Common Stockdetermined by the Committee. Subject to the terms of this Plan, such dividend equivalents may havesuch terms and conditions as the Committee shall determine.
     (g) Termination of Awards. Unless otherwise provided in an Award Agreement, Awardsshall terminate in accordance with this Section 7(g).
 (i)  Options and SARs Granted to Eligible Participants*.*EachOption and SAR granted to an Eligible Participant pursuant to this Section 7 shallterminate:
If the Participant is then living, at the earliest of the following times:
 (A)  ten (10) years after the date of grant of the Option or SAR,except in the event of death or Total Disability as provided below;  (B)  ninety (90) days after termination of employment with the Companyor any Affiliate other than termination because of death or Total Disability orthrough discharge for Cause; provided, however, that if any Option or SAR is notfully exercisable at the time of such termination of employment, such Option orSAR shall expire on the date of such termination of employment to the extent notthen exercisable;  (C)  immediately upon termination of Participant’s employment throughdischarge for Cause; or  (D)  any other time set forth in the Award Agreement describing andsetting the terms of the Award.     In the event of death or Total Disability of the Participant while employed bythe Company or any Affiliate, or if no longer so employed such Participant diesprior to termination of the entire Option or SAR under Section 7(g)(i)(B) or(D) hereof, the Participant’s Option or SAR shall become exercisable in full onthe date of such death or Total Disability and shall remain exercisable for aminimum period of one (1) year after the date of death or Total Disability,unless it terminates earlier pursuant to Section 7(g)(i)(A) or (D). To theextent an Option or SAR is exercisable after the death of the Participant, itmay be exercised by the person or persons to whom the Participant’s rightsunder the agreement have passed by will or by the applicable laws of descentand distribution and to the extent an Option or
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    SAR is exercisable after the Total Disability of the Participant who isincompetent, it may be exercised by the Participant’s legal representative.
 (ii)  Restricted Shares and Restricted Share Units*.*Unlessotherwise provided in the related Award Agreement, in the case of a Participant’sdeath or Total Disability, the Participant shall be entitled to receive a numberof shares of Common Stock under outstanding Restricted Shares, or in the case ofRestricted Share Units, an amount of cash or number of shares of Common Stock,that has been prorated for the portion of the term of the Award during which theParticipant was employed by the Company or any Affiliate, and, with respect to anyshares, all restrictions shall lapse. Any Restricted Shares or Restricted ShareUnits as to which the restrictions do not lapse under the preceding sentence shallterminate at the date of the Participant’s termination of employment and suchRestricted Shares or Restricted Share Units shall be forfeited to the Company;provided, however, that Awards of Restricted Shares or Restricted Share Unitssubject to Performance Measures shall be treated the same as Performance Awardsaccording to Section 7(g)(iii).  (iii)  Performance Awards*.*If a Participant’s employment or otherrelationship with the Company or any Affiliate terminates during a PerformancePeriod applicable to a Performance Award because of death or Total Disability, orunder other circumstances provided by the Committee in its discretion in therelated Award Agreement or otherwise, the Participant, unless the Committee shallotherwise provide in the Award Agreement, shall be entitled to a payment withrespect to such Performance Awards at the end of the Performance Period based uponthe extent to which achievement of the Performance Measures was satisfied at theend of such period (as determined at the end of the Performance Period) andprorated for the portion of the Performance Period during which the Participantwas employed by the Company or any Affiliate. Except as provided in thisparagraph, if a Participant’s employment with the Company or any Affiliateterminates during a Performance Period, then such Participant shall not beentitled to any payment with respect to that Performance Award.
**8.**  **Awards to Non-Employee Directors.**
     (a) Awards. Non-Employee Directors are eligible to receive any and all types ofAwards under this Plan other than ISOs. The Board must approve all Awards to Non-EmployeeDirectors. Any Award to a Non-Employee Director shall be subject to the terms of Section 7 of thisPlan, provided that to the extent the provisions of this Section 8 conflict with the terms ofSection 7, this Section 8 shall prevail with respect to Awards to Non-Employee Directors.
     (b) Death, Total Disability and Retirement. In the event of the death, TotalDisability or Retirement of a Non-Employee Director prior to the granting of an Award in respect ofthe fiscal year in which such event occurred, an Award may, in the discretion of the Board, begranted in respect of such fiscal year to the retired or disabled Non-Employee Director or his orher estate. If any Non-Employee Director ceases to be a member of the Board for any reason otherthan death, Total Disability or Retirement prior to the granting of an Award in respect of thefiscal year in which such event occurred, his or her rights to any Award in respect of the fiscalyear during which such cessation occurred will terminate unless the Board determines otherwise.
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     (c) Terms of Awards Granted to Non-Employee Directors.
 (i)  Each Option granted to a Non-Employee Director shall have an OptionExercise Price equal to the Fair Market Value on the grant date.  (ii)  Each Option granted to a Non-Employee Director shall vest inaccordance with the terms of an Award Agreement and shall have a term of tenyears.  (iii)  In the event a Non-Employee Director terminates membership on theBoard prior to the vesting date, or lapsing of any restrictions, of an Award, then(A) if such termination is the result of such Non-Employee Director’s death, TotalDisability or Retirement, such Award shall immediately vest or, as applicable, therestrictions shall lapse, and, in the case of Options, be exercisable, and (B) ifsuch termination is the result of an event other than death, Total Disability orRetirement, such Award shall immediately terminate and expire.  (iv)  No Options granted to a Non-Employee Director may be exercised afterhe or she ceases to be a member of the Board, except that: (A) if such cessationoccurs by reason of death, the Options then held by the Non-Employee Director maybe exercised by his or her designated beneficiary (or, if none, his or her legalrepresentative) until the expiration of such Options in accordance with the termshereof; (B) if such cessation occurs by reason of the Non-Employee Directorincurring a Total Disability, the Options then held by the Non-Employee Directormay be exercised by him or her until the expiration of such Options in accordancewith its terms; and (C) if such cessation occurs by reason of the Non-EmployeeDirector’s Retirement, the Options then held by the Non-Employee Director may beexercised by him or her until the expiration of such Options in accordance withthe terms hereof.
     (d) Exercise of Options Granted to Non-Employee Directors.
 (i)  To exercise an Option, a Non-Employee Director must provide to theCompany (A) a written notice specifying the number of Options to be exercised and(B) to the extent applicable, any required payments due upon exercise.  (ii)  Non-Employee Directors may exercise Options under either of thefollowing methods:
 (A)  Cashless Exercise. To the extent permitted by law, Non-EmployeeDirectors may exercise Options through a registered broker-dealer pursuant tocashless exercise procedures that are, from time to time, approved by theCommittee. Proceeds from any such exercise shall be used to pay the exercisecosts, which include the Option Exercise Price, applicable taxes and brokeragecommissions. Any remaining proceeds from the sale shall be delivered to theNon-Employee Director in cash or stock, as specified by the Non-EmployeeDirector.  (B)  Standard Exercise. Non-Employee Directors may exercise Options bypaying to the Company an amount in cash from his or her own funds equal to theOption Exercise Price and any taxes required at exercise. A certificaterepresenting the shares of Common Stock that the Non-Employee Director purchasedshall be delivered to him or her only after the Option Exercise Price and theapplicable taxes have been paid.
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**9.**  **Deferred Payments.**
     Subject to the terms of this Plan, the Committee may determine that all or a portion of anyAward to a Participant, whether it is to be paid in cash, shares of Common Stock or a combinationthereof, shall be deferred or may, in its sole discretion, approve deferral elections made byParticipants. Deferrals shall be for such periods and upon such terms as the Committee maydetermine in its sole discretion.
**10.**  **Dilution and Other Adjustments.**
     In the event of any merger, reorganization, consolidation, recapitalization, stock dividend,stock split, combination or exchange of shares or other change in corporate structure affecting anyclass of Common Stock, the Committee may, but shall not be required to, make such adjustments inthe class and aggregate number of shares which may be delivered under this Plan as described inSection 5, the individual award maximums under Section 6, the class, number, and Option ExercisePrice of outstanding Options and the class and number of shares subject to any other Awards grantedunder this Plan (provided the number of shares of any class subject to any Award shall always be awhole number), as may be determined to be appropriate by the Committee, and any such adjustmentmay, in the sole discretion of the Committee, take the form of Options covering more than one classof Common Stock. Such adjustment shall be conclusive and binding for all purposes of this Plan.
**11.**  **Change in Control.**
     (a) Impact of Change in Control. Notwithstanding any other provision of this Plan tothe contrary, unless otherwise provided by the Committee in any Award Agreement, in the event of aChange in Control:
 (i)  Any Options and SARs outstanding as of the date of such Change inControl, and which are not then exercisable and vested, shall become fullyexercisable and vested.  (ii)  The restrictions and deferral limitations applicable to anyRestricted Shares and Restricted Share Units shall lapse, and such RestrictedShares and Restricted Share Units shall become free of all restrictions and becomefully vested.  (iii)  All Performance Awards shall be considered to be earned and payablein full, and any deferral or other restriction shall lapse and such PerformanceAwards shall be settled in cash or shares of Common Stock, as determined by theCommittee, as promptly as is practicable.  (iv)  All restrictions on other Awards shall lapse and such Awards shallbecome free of all restrictions and become fully vested.
     (b) Definition. “Change in Control” means (i) a change in the composition of theBoard such that the individuals who, as of the Effective Date (as defined below), constitute theBoard (such Board shall be hereinafter referred to as the “Incumbent Board”) cease for any reasonto constitute at least a majority of the Board; *provided, however,*for purposes of thisdefinition, that any individual who becomes a member of the Board subsequent to the Effective Date,whose election, or nomination for election by the Company’s shareholders, was approved by a vote ofat least a majority of those individuals who are members of the Board and who were also members ofthe Incumbent Board (or deemed to be such pursuant to this proviso) shall be considered as thoughsuch individual were a member of the Incumbent Board; but, *provided*, *further*, that any
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such individual whose initial assumption of office occurs as a result of an actual orthreatened election contest with respect to the election or removal of directors or other actual orthreatened solicitation of proxies or consents by or on behalf of a person other than the Boardshall not be so considered as a member of the Incumbent Board; (ii) consummation of a merger,tender offer or consolidation of the Company with any other corporation, other than a merger orconsolidation that would result in the voting securities of the Company outstanding immediatelyprior thereto continuing to represent (either by remaining outstanding or by being converted intovoting securities of the surviving entity) at least 45% of the combined voting power of the votingsecurities of the Company or such surviving entity outstanding immediately after such merger orconsolidation; or (iii) consummation of a sale of all or substantially all of the assets of theCompany, other than in connection with the sale-leaseback of the Company’s real estate.
**12.**  **Miscellaneous Provisions.**
     (a) Misconduct. Except as otherwise provided in agreements covering Awards hereunder,a Participant shall forfeit all rights in his or her outstanding Awards under this Plan, whether ornot such Awards have been earned or are vested or remain unearned or unvested, and all suchoutstanding Awards shall automatically terminate and lapse, if the Committee determines that suchParticipant has (i) used for profit or disclosed to unauthorized persons, confidential informationor trade secrets of the Company, (ii) breached any contract with or violated any fiduciaryobligation to the Company, including, without limitation, a violation of any Company code ofconduct, (iii) engaged in unlawful trading in the securities of the Company or of another companybased on information gained as a result of that Participant’s employment or other relationship withthe Company, or (iv) committed a felony or other serious crime.
     (b) Rights as Shareholder. Except as otherwise provided herein, a Participant shallhave no rights as a holder of Common Stock with respect to Awards hereunder, unless and untilcertificates for shares of Common Stock are issued to the Participant.
     (c) No Loans. No loans from the Company to Participants shall be permitted under thisPlan.
     (d) Assignment or Transfer. Unless the Committee shall specifically determineotherwise, no Award under this Plan or any rights or interests therein shall be transferable otherthan by will or the laws of descent and distribution and shall be exercisable, during theParticipant’s lifetime, only by the Participant. Once awarded, the shares of Common Stock receivedby Participants may be freely transferred, assigned, pledged or otherwise subjected to lien,subject to the restrictions imposed by the Securities Act of 1933, Section 16 of the Exchange Actand the Company’s policy concerning insider trading, each as amended from time to time.
     (e) Withholding Taxes. The Company shall have the right to deduct from all Awardspaid in cash (and any other payment hereunder) any federal, state, local or foreign taxes requiredby law to be withheld with respect to such Awards and, with respect to Awards paid in stock or uponexercise of Options, to require the payment (through withholding from the Participant’s salary orotherwise) of any such taxes. The obligations of the Company to make delivery of Awards in cash orCommon Stock shall be subject to currency or other restrictions imposed by any government.
     (f) No Rights to Awards. Neither this Plan nor any action taken hereunder shall beconstrued as giving any employee any right to be retained in the employ of the Company or any ofits subsidiaries, divisions or Affiliates. Except as set forth herein, no employee or other personshall have any claim or right to be granted an Award under this Plan. By accepting an Award, the
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Participant acknowledges and agrees that (i) that the Award will be exclusively governed bythe terms of this Plan, including the right reserved by the Company to amend or cancel this Plan atany time without the Company incurring liability to the Participant (except for Awards alreadygranted under this Plan), (ii) Awards are not a constituent part of salary and that the Participantis not entitled, under the terms and conditions of employment, or by accepting or being grantedAwards under this Plan to require Awards to be granted to him or her in the future under this Plan,or any other plan, (iii) the value of Awards received under this Plan will be excluded from thecalculation of termination indemnities or other severance payments, and (iv) the Participant willseek all necessary approval under, make all required notifications under and comply with all laws,rules and regulations applicable to the ownership of Options and stock and the exercise of Options,including, without limitation, currency and exchange laws, rules and regulations.
     (g) Beneficiary Designation. To the extent allowed by the Committee, each Participantunder this Plan may, from time to time, name any beneficiary or beneficiaries (who may be named ona contingent or successive basis) to whom any benefit under this Plan is to be paid in case of hisor her death before he or she receives any or all of such benefit. Each such designation shallrevoke all prior designations by the same Participant, and unless the Committee determinesotherwise shall be in a form prescribed by the Committee, and will be effective only when filed bythe Participant in writing with the Company during the Participant’s lifetime. In the absence ofany such designation, benefits remaining unpaid at the Participant’s death shall be paid to theParticipant’s estate.
     (h) Costs and Expenses. The cost and expenses of administering this Plan shall beborne by the Company and not charged to any Award or to any Participant.
     (i) Fractional Shares. Fractional shares of Common Stock shall not be issued ortransferred under an Award, but the Committee may pay cash in lieu of a fraction or round thefraction, in its discretion.
     (j) Funding of Plan. The Company shall not be required to establish or fund anyspecial or separate account or to make any other segregation of assets to assure the payment of anyAward under this Plan.
     (k) Indemnification. Provisions for the indemnification of officers and directors ofthe Company in connection with the administration of this Plan shall be as set forth in theCompany’s articles of incorporation and bylaws as in effect from time to time.
     (l) Successors. All obligations of the Company under this Plan with respect to Awardsgranted hereunder shall be binding on any successor to the Company, whether the existence of suchsuccessor is the result of a direct or indirect purchase, by merger, consolidation, or otherwise,of all or substantially all of the business and/or assets of the Company.
     (m) Section 16 Compliance; Section 162(m) Administration. This Plan is intended tocomply in all respects with Rule 16b-3 or any successor provision, as in effect from time to time,and in all events this Plan shall be construed in accordance with the requirements of Rule 16b-3.If any Plan provision does not comply with Rule 16b-3 as hereafter amended or interpreted, theprovision shall be deemed inoperative. The Board, in its absolute discretion, may bifurcate thisPlan so as to restrict, limit or condition the use of any provision of this Plan with respect topersons who are officers or directors subject to Section 16 of the Exchange Act without sorestricting, limiting or conditioning this Plan with respect to other Eligible Participants. TheCompany intends that all Awards granted under this Plan to individuals who are or who the
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Committee believes will be “covered employees” (within the meaning of Section 162(m)(3) of theCode) will qualify for the Performance Based Exception.
**13.**  **Effective Date, Governing Law, Amendments and Termination.**
     (a) Effective Date. This Plan shall be effective as of April 30, 2004 (the “EffectiveDate”), *provided*that it is approved by the shareholders of the Company in accordance with allapplicable laws, regulations and stock exchange rules and listing standards.
     (b) Amendments. The Board may at any time terminate or from time to time amend thisPlan in whole or in part, but no such action shall adversely affect any rights or obligations withrespect to any Awards granted prior to the date of such termination or amendment. Notwithstandingthe foregoing, unless the Company’s shareholders shall have first approved the amendment, noamendment of this Plan shall be effective which would (i) increase the maximum number of shares ofCommon Stock which may be delivered under this Plan or to any one individual (except to the extentsuch amendment is made pursuant to Section 10 hereof), (ii) extend the maximum period during whichAwards may be granted under this Plan, (iii) add to the types of awards that can be made under thisPlan, (iv) change the Performance Measures pursuant to which Performance Awards are earned, (v)modify the requirements as to eligibility for participation in this Plan, or (vi) requireshareholder approval pursuant to this Plan, applicable law or applicable stock exchange standards,to be effective. With the consent of the Participant affected, the Committee may amend outstandingagreements evidencing Awards under this Plan in a manner not inconsistent with the terms of thisPlan.
     (c) Governing Law. All questions pertaining to the construction, interpretation,regulation, validity and effect of the provisions of this Plan shall be determined in accordancewith the laws of the State of Minnesota without giving effect to conflict of laws principles.
     (d) Termination. No Awards shall be made under this Plan after the tenth anniversaryof the Effective Date.
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