exv10w7






Exhibit 10.7




BLUESTEM BRANDS, INC.

2011 LONG-TERM INCENTIVE PLAN



1. Purpose. The purpose of the Bluestem Brands, Inc. 2011 Long-Term Incentive Plan
(the “Plan”) is to help attract and retain the best available people for positions of
responsibility with the Company, to provide additional incentives to them and align their interests
with those of the Company’s shareholders, and to thereby promote the Company’s long-term business
success.



2. Definitions. In this Plan, the following definitions will apply.




     (a) “Affiliate” means any corporation that is a Subsidiary or Parent of the Company.



     (b) “Agreement” means the written or electronic agreement containing the terms and conditions
applicable to an Award granted under the Plan. An Agreement is subject to the terms and conditions
of the Plan.



     (c) “Award” means the grant of a compensatory award under the Plan in the form of an Option,
Stock Appreciation Rights, Restricted Stock, Stock Units, an Other Stock-Based Award or a Cash
Incentive Award.



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



     (e) “Cash Incentive Award” means an Award described in Section 11 of the Plan.



     (f) “Cause” means what the term is expressly defined to mean in a then-effective written
agreement (including an Agreement) between a Participant and the Company or any Affiliate or, in
the absence of any such then-effective agreement or definition, means a Participant’s (i) failure
or refusal to perform satisfactorily the duties reasonably required of the Participant by the
Company (other than by reason of Disability); (ii) material violation of any law, rule, regulation,
court order or regulatory directive (other than traffic violations, misdemeanors or other minor
offenses); (iii) material breach of any Company code of conduct, of any agreement with the Company
or any Affiliate or of any nondisclosure, non-solicitation, non-competition or similar obligation
owed to the Company or any Affiliate; (iv) engaging in any act or practice that involves personal
dishonesty on the part of the Participant or demonstrates a willful and continuing disregard for
the best interests of the Company and its Affiliates; or (v) engaging in conduct that would be
reasonably expected to harm or bring disrepute to the Company, any of its Affiliates, or any of
their customers, employees or vendors.



     (g) “Change in Control” means one of the following:



          (1) An Exchange Act Person becomes the beneficial owner (within the meaning of Rule 13d-3
under the Exchange Act) of securities of the Company representing more than 50% of the combined
voting power of the Company’s then outstanding Voting Securities, except that the following will
not constitute a Change in Control:




               (A) any acquisition of securities of the Company by an Exchange Act Person directly or
indirectly from the Company for the purpose of providing financing to the Company;



               (B) any formation of a Group consisting solely of beneficial owners of the Company’s Voting
Securities as of the effective date of this Plan; or













 





               (C) any Exchange Act Person becomes the beneficial owner of more than 50% of the combined
voting power of the Company’s outstanding Voting Securities as the result of any repurchase or
other acquisition by the Company of its Voting Securities;


If, however, an Exchange Act Person or Group referenced in clause (A), (B) or (C) above acquires
beneficial ownership of additional Company Voting Securities after initially becoming the
beneficial owner of more than 50% of the combined voting power of the Company’s outstanding Voting
Securities by one of the means described in those clauses, then a Change in Control shall be deemed
to have occurred.




          (2) Individuals who are Continuing Directors cease for any reason to constitute a majority of
the members of the Board.




          (3) The consummation of a Corporate Transaction unless, immediately following such Corporate
Transaction, all or substantially all of the individuals and entities who were the beneficial
owners of the outstanding Company Voting Securities immediately prior to such Corporate Transaction
beneficially own, directly or indirectly, more than 50% of the combined voting power of the then
outstanding Voting Securities of the of the surviving or acquiring entity (or its Parent) resulting
from such Corporate Transaction in substantially the same proportions as their ownership,
immediately before such Corporate Transaction, of the outstanding Company Voting Securities.



Notwithstanding the foregoing, to the extent that any Award constitutes a deferral of compensation
subject to Code Section 409A, and if that Award provides for a change in the time or form of
payment upon a Change in Control, then no Change in Control shall be deemed to have occurred upon
an event described in Section 2(g) unless the event would also constitute a change in ownership or
effective control of, or a change in the ownership of a substantial portion of the assets of, the
Company under Code Section 409A.




     (h) “Code” means the Internal Revenue Code of 1986, as amended and in effect from time to
time, and the regulations promulgated thereunder.



     (i) “Committee” means two or more Non-Employee Directors designated by the Board to administer
the Plan under Section 3, each member of which shall (i) satisfy the independence requirements for
independent directors and members of compensation committees as set forth from time to time in the
Listing Rules of the Nasdaq Stock Market, (ii) be a non-employee director within the meaning of
Exchange Act Rule 16b-3, and (iii) be an outside director for purposes of Code Section 162(m).



     (j) “Company” means Bluestem Brands, Inc., a Delaware corporation, or any successor thereto.



     (k) “Continuing Director” means an individual (A) who is, as of the effective date of the
Plan, a director of the Company, or (B) who is elected as a director of the Company subsequent to
the effective date of the Plan and whose initial election, or nomination for initial election by
the Company’s shareholders, was approved by at least a majority of the then Continuing Directors,
but excluding, for purposes of this clause (B), any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest.



     (l) “Corporate Transaction” means a reorganization, merger or consolidation of the Company, or
a sale or other disposition (in one or a series of transactions) of all or substantially all of the
assets of the Company.



2









 





     (m) “Disability” means “total and permanent disability” within the meaning of Code Section
22(e)(3).



     (n) “Employee” means an employee of the Company or an Affiliate.



     (o) “Exchange Act” means the Securities Exchange Act of 1934, as amended and in effect from
time to time.



     (p) “Exchange Act Person” means any natural person, entity or Group other than (i) the Company
or any Subsidiary of the Company; (ii) any employee benefit plan (or related trust) sponsored or
maintained by the Company or any Affiliate; (iii) an underwriter temporarily holding securities in
connection with a registered public offering of such securities; or (iv) an entity whose Voting
Securities are beneficially owned by the beneficial owners of the Company’s Voting securities in
substantially the same proportions as their beneficial ownership of the Company’s Voting
Securities.



     (q) “Fair Market Value” means the fair market value of a Share determined as follows:



          (1) If the Shares are readily tradable on an established securities market (as determined
under Code Section 409A), then Fair Market Value will be the closing sales price for a Share on the
principal securities market on which it trades on the date for which it is being determined, or if
no sale of Shares occurred on that date, on the next preceding date on which a sale of Shares
occurred, as reported in The Wall Street Journal or such other source as the Committee deems
reliable; or




          (2) If the Shares are not then readily tradable on an established securities market (as
determined under Code Section 409A), then Fair Market Value will be determined by the Committee as
the result of a reasonable application of a reasonable valuation method that satisfies the
requirements of Code Section 409A.




     (r) “Full Value Award” means an Award other than an Option Award, Stock Appreciation Rights
Award or Cash Incentive Award.



     (s) “Good Reason” means what the term is expressly defined to mean in a then-effective written
agreement (including an Agreement) between a Participant and the Company or any Affiliate or, in
the absence of any such then-effective agreement or definition and subject to the last sentence of
this definition, means with respect to any Participant any of the following events that has not
been consented to by the Participant:



          (1) A material reduction or diminution in the Participant’s job responsibilities, authority or
duties, or in the job responsibilities, authority or duties of the supervisor to whom the
Participant is required to report, but a mere change in title alone or reassignment to a
substantially similar position will not constitute Good Reason;




          (2) A material reduction in the Participant’s base compensation in the absence of a similar
general reduction of the base compensation of similarly situated Service Providers; or




          (3) The relocation of the Participant’s primary work location, on a permanent basis, to a
location that is more than 50 miles from the Participant’s primary work location immediately prior
to such change.







3









 







The foregoing events will only be considered “Good Reason” for a Participant to voluntarily resign
from his or her position as Service Provider if, following the occurrence of one or more of the
foregoing events, the Participant (i) provides written notice to the Company or its applicable
Affiliate of the event(s) constituting Good Reason within 30 days after the first occurrence of
such event(s), (ii) the Company or its applicable Affiliate fails to reasonably cure such event(s)
within 30 days after receiving such notice, and (iii) the Participant’s termination of his or her
status as a Service Provider is effective not later than 30 days after the end of the period in
which the event(s) may be cured.




     (t) “Grant Date” means the date on which the Committee approves the grant of an Award under
the Plan, or such later date as may be specified by the Committee on the date the Committee
approves the Award.



     (u) “Group” means two or more persons acting as a partnership, limited partnership, syndicate
or other group for the purpose of acquiring, holding or disposing of securities of an entity.



     (v) “Non-Employee Director” means a member of the Board who is not an Employee.



     (w) “Option” means a right granted under the Plan to purchase a specified number of Shares at
a specified price during a specified period of time. An “Incentive Stock Option” or “ISO” means
any Option designated as such and granted in accordance with the requirements of Code Section 422.
A “Non-Statutory Stock Option” means an Option other than an Incentive Stock Option.



     (x) “Other Stock-Based Award” means an Award described in Section 11 of this Plan.



     (y) “Parent” means a “parent corporation,” as defined in Code Section 424(e).



     (z) “Participant” means a person to whom an Award is or has been made in accordance with the
Plan.



     (aa) “Performance-Based Compensation” means an Award to a person who is, or is determined by
the Committee to likely become, a “covered employee” (as defined in Code Section 162(m)(3)) and
that is intended to constitute “performance-based compensation” within the meaning of Code Section
162(m)(4)(C).



     (bb) “Plan” means this Bluestem Brands, Inc. 2011 Long-Term Incentive Plan, as amended and in
effect from time to time.



     (cc) “Prior Plan” means the Fingerhut Direct Marketing, Inc. 2008 Equity and Incentive Plan.



     (dd) “Restricted Stock” means Shares issued to a Participant that are subject to such
restrictions on transfer, vesting conditions and other restrictions or limitations as may be set
forth in this Plan and the applicable Agreement.



     (ee) “Retirement” means any termination, other than for Cause or due to death or Disability,
of a Participant’s Service with the Company and all of its Affiliates at or after age 65, or at or
after age 60 with five or more years of continuous Service.



     (ff) “Service” means the provision of services by a Participant to the Company or any
Affiliate in any Service Provider capacity. A Service Provider’s Service shall be deemed to have
terminated either upon an actual cessation of providing services or upon the entity for which the
Service Provider provides services ceasing to be an Affiliate. Except as otherwise provided in
this Plan or any Agreement, Service shall



4









 




not be deemed terminated in the case of (i) any approved leave of absence; (ii) transfers
among the Company and any Affiliates in any Service Provider capacity; or (iii) any change in
status so long as the individual remains in the service of the Company or any Affiliate in any
Service Provider capacity.




     (gg) “Service Provider” means an Employee, a Non-Employee Director, or any consultant or
advisor who is a natural person and who provides services (other than in connection with (i) a
capital-raising transaction or (ii) promoting or maintaining a market in Company securities) to the
Company or any Affiliate.



     (hh) “Share” means a share of Stock.



     (ii) “Stock” means the common stock, par value $0.01 per share, of the Company.



     (jj) “Stock Appreciation Right” or “SAR” means a right granted under the Plan to receive, in
cash and/or Shares as determined by the Committee, an amount equal to the appreciation in value of
a specified number of Shares between the Grant Date of the SAR and its exercise date.



     (kk) “Stock Unit” means a right granted under the Plan to receive, in cash and/or Shares as
determined by the Committee, the Fair Market Value of a Share, subject to such restrictions on
transfer, vesting conditions and other restrictions or limitations as may be set forth in this Plan
and the applicable Agreement.



     (ll) “Subsidiary” means a “subsidiary corporation,” as defined in Code Section 424(f), of the
Company.



     (mm) “Substitute Award” means an Award granted upon the assumption of, or in substitution or
exchange for, outstanding awards granted by a company or other entity acquired by the Company or
any Affiliate or with which the Company or any Affiliate combines.



     (nn) “Voting Securities” of an entity means the outstanding securities entitled to vote
generally in the election of directors (or comparable equity interests) of such entity.


3. Administration of the Plan.




     (a) Administration. The authority to control and manage the operations and
administration of the Plan shall be vested in the Committee in accordance with this Section 3.



     (b) Scope of Authority. Subject to the terms of the Plan, the Committee shall have
the authority, in its discretion, to take such actions as it deems necessary or advisable to
administer the Plan, including:



          (1) determining the Service Providers to whom Awards will be granted, the timing of each such
Award, the types of Awards and the number of Shares covered by each Award, the terms, conditions,
performance criteria, restrictions and other provisions of Awards, and the manner in which Awards
are paid or settled;




          (2) cancelling or suspending an Award or the exercisability of an Award, accelerating the
vesting or extending the exercise period of an Award, or otherwise amending the terms and
conditions of any outstanding Award, subject to the requirements of Sections 15(d) and 15(e);







5









 








          (3) establishing, amending or rescinding rules to administer the Plan, interpreting the Plan
and any Award or Agreement made under the Plan, and making all other determinations necessary or
desirable for the administration of the Plan; and




          (4) taking such actions as are described in Section 3(c) with respect to Awards to foreign
Service Providers.




     (c) Awards to Foreign Service Providers. The Committee may grant Awards to Service
Providers who are foreign nationals, who are located outside of the United States or who are not
compensated from a payroll maintained in the United States, or who are otherwise subject to (or
could cause the Company to be subject to) legal or regulatory requirements of countries outside of
the United States, on such terms and conditions different from those specified in the Plan as may,
in the judgment of the Committee, be necessary or desirable to comply with applicable foreign laws
and regulatory requirements and to promote achievement of the purposes of the Plan. In connection
therewith, the Committee may establish such subplans and modify exercise procedures and other Plan
rules and procedures to the extent such actions are deemed necessary or desirable, and may take any
other action that it deems advisable to obtain local regulatory approvals or to comply with any
necessary local governmental regulatory exemptions.



     (d) Acts of the Committee; Delegation. A majority of the members of the Committee
shall constitute a quorum for any meeting of the Committee, and any act of a majority of the
members present at any meeting at which a quorum is present or any act unanimously approved in
writing by all members of the Committee shall be the act of the Committee. Any such action of the
Committee shall be valid and effective even if the members of the Committee at the time of such
action are later determined not to have satisfied all of the criteria for membership in clauses
(i), (ii) and (iii) of Section 2(i). To the extent not inconsistent with applicable law or stock
exchange rules, the Committee may delegate all or any portion of its authority under the Plan to
any one or more of its members or, as to Awards to Participants who are not subject to Section 16
of the Exchange Act, to one or more executive officers of the Company. The Committee may also
delegate non-discretionary administrative responsibilities in connection with the Plan to such
other persons as it deems advisable.



     (e) Finality of Decisions. The Committee’s interpretation of the Plan and of any
Award or Agreement made under the Plan and all related decisions or resolutions of the Board or
Committee shall be final and binding on all parties with an interest therein.



     (f) Indemnification. Each person who is or has been a member of the Committee or of
the Board, and any other person to whom the Committee delegates authority under the Plan, shall be
indemnified by the Company, to the maximum extent permitted by law, against liabilities and
expenses imposed upon or reasonably incurred by such person in connection with or resulting from
any claims against such person by reason of the performance of the individual’s duties under the
Plan. This right to indemnification is conditioned upon such person providing the Company an
opportunity, at the Company’s expense, to handle and defend the claims before such person
undertakes to handle and defend them on such person’s own behalf. The Company will not be required
to indemnify any person for any amount paid in settlement of a claim unless the Company has first
consented in writing to the settlement. The foregoing right of indemnification shall not be
exclusive of any other rights of indemnification to which such person or persons may be entitled
under the Company’s Articles of Incorporation or Bylaws, as a matter of law, or otherwise.



6









 




4. Shares Available Under the Plan.




     (a) Maximum Shares Available. Subject to Section 4(b) and to adjustment as provided
in Section 12(a), the number of Shares that may be the subject of Awards and issued under the Plan
shall be 5,500,000, plus any Shares remaining available for future grants under the Prior Plan on
the effective date of this Plan. After the effective date of the Plan, no additional awards may be
granted under the Prior Plan. Shares to be issued under the Plan shall either be authorized and
unissued Shares or treasury Shares. In determining the number of Shares to be counted against this
share reserve in connection with any Award, the following rules shall apply:



          (1) Where the number of Shares subject to an Award is variable on the Grant Date, the number
of Shares to be counted against the share reserve prior to the settlement of the Award shall be the
maximum number of Shares that could be received under that particular Award.




          (2) Where two or more types of Awards are granted to a Participant in tandem with each other,
such that the exercise of one type of Award with respect to a number of Shares cancels at least an
equal number of Shares of the other, the number of Shares to be counted against the share reserve
shall be the largest number of Shares that would be counted against the share reserve under either
of the Awards.




          (3) Substitute Awards shall not be counted against the share reserve, nor shall they reduce
the Shares authorized for grant to a Participant in any calendar year.




     (b) Effect of Forfeitures and Other Actions. Any Shares subject to an Award, or to an
award granted under the Prior Plan that is outstanding on the effective date of this Plan (a “Prior
Plan Award”), that is forfeited, expires, is settled for cash or otherwise does not result in the
issuance of all or a portion of the Shares subject to such Award or Prior Plan Award shall, to the
extent of such forfeiture, expiration, cash settlement or non-issuance, again become available for
Awards under this Plan and correspondingly increase the total number of Shares available for grant
and issuance under Section 4(a). For avoidance of doubt, if payment by the Company upon the
exercise of a Stock Appreciation Right is made in Shares, then the Plan’s share reserve shall be
increased in an amount equal to the difference between the number of Shares as to which the Stock
Appreciation Right was exercised and the number of Shares actually delivered to the Participant.
If (i) any Award or prior Plan Award is exercised through the tendering of Shares (either actually
or by attestation) or by the withholding of Shares by the Company in payment of an applicable
exercise price, or (ii) any tax withholding obligations arising from such Award or Prior Plan Award
are satisfied by the tendering of Shares (either actually or by attestation) or by the withholding
of Shares by the Company, then the Shares so tendered or withheld shall again become available for
Awards under this Plan and correspondingly increase the total number of Shares available for grant
and issuance under Section 4(a).



     (c) Effect of Plans Operated by Acquired Companies. If a company acquired by the
Company or any Subsidiary or with which the Company or any Subsidiary combines has shares available
under a pre-existing plan approved by shareholders and not adopted in contemplation of such
acquisition or combination, the shares available for grant pursuant to the terms of such
pre-existing plan (as adjusted, to the extent appropriate, using the exchange ratio or other
adjustment or valuation ratio or formula used in such acquisition or combination to determine the
consideration payable to the holders of common stock of the entities party to such acquisition or
combination) may be used for Awards under the Plan and shall not reduce the Shares authorized for
grant under the Plan. Awards using such available shares shall not be made after the date awards
or grants could have been made under the terms of the pre-existing plan, absent the acquisition or
combination, and shall only be made to individuals who were not Employees or Non-Employee Directors
prior to such acquisition or combination.



7









 





     (d) No Fractional Shares. Unless otherwise determined by the Committee, the number of
Shares subject to an Award shall always be a whole number. No fractional Shares may be issued
under the Plan, and in connection with any calculation under the Plan that would otherwise result
in the issuance or withholding of a fractional Share, the number of Shares shall be rounded down to
the nearest whole Share.



     (e) Individual Option and SAR Limit. The aggregate number of Shares subject to
Options and/or Stock Appreciation Rights granted during any calendar year to any one Participant
shall not exceed 1,000,000 Shares.


5. Eligibility. Participation in the Plan is limited to Service Providers. Incentive
Stock Options may only be granted to Employees.



6. General Terms of Awards.




     (a) Award Agreement. Except for any Award that involves only the immediate issuance
of unrestricted Shares, each Award shall be evidenced by an Agreement setting forth the number of
Shares subject to the Award together with such other terms and conditions applicable to the Award
(and not inconsistent with the Plan) as determined by the Committee. An Award will not become
effective unless acceptance of the Agreement in a manner permitted by the Committee is received by
the Company within 30 days of the date the Agreement is delivered to the Participant. An Award to
a Participant may be made singly or in combination with any form of Award. Two types of Awards may
be made in tandem with each other such that the exercise of one type of Award with respect to a
number of Shares reduces the number of Shares subject to the related Award by at least an equal
amount.



     (b) Vesting and Term. Each Agreement shall set forth the period until the applicable
Award is scheduled to expire (which shall not be more than ten years from the Grant Date), and any
applicable performance period. The Committee may provide in an Agreement for such vesting
conditions as it may determine, subject to the following limitations:



          (1) A Full Value Award that vests solely as the result of the passage of time and continued
Service by the Participant shall be subject to a vesting period of not less than three years from
the applicable Grant Date (but permitting pro rata vesting over such vesting period); and




          (2) A Full Value Award whose vesting is subject to the satisfaction of performance goals over
a performance period shall be subject to a performance period of not less than one year.



The minimum vesting periods specified in clauses (1) and (2) above will not, however, apply (i) to
Awards involving an aggregate number of Shares not in excess of 10% of the number of Shares
available for Awards under Section 4(a); (ii) to Awards made in payment of or exchange for other
earned compensation (including performance-based Awards); (iii) upon a Change in Control; (iv) to
termination of Service due to death or Disability; (v) to a Substitute Award that does not reduce
the vesting period of the award being replaced; and (vi) to termination of Service due to
Retirement.




     (c) Transferability. Except as provided in this Section 6(c), (i) during the lifetime
of a Participant, only the Participant or the Participant’s guardian or legal representative may
exercise an Option or SAR, or receive payment with respect to any other Award; and (ii) no Award
may be sold, assigned, transferred, exchanged or encumbered other than by will or the laws of
descent and distribution. Any attempted transfer in violation of this Section 6(c) shall be of no
effect. The Committee may, however, provide in an Agreement or otherwise that an Award (other than
an Incentive Stock Option)



8









 




may be transferred pursuant to a qualified domestic relations order or may be transferable by
gift to any “family member” (as defined in General Instruction A(5) to Form S-8 under the
Securities Act of 1933) of the Participant. Any Award held by a transferee shall continue to
be subject to the same terms and conditions that were applicable to that Award immediately before
the transfer thereof. For purposes of any provision of the Plan relating to notice to a
Participant or to acceleration or termination of an Award upon the death or termination of
employment of a Participant, the references to “Participant” shall mean the original grantee of an
Award and not any transferee.




     (d) Designation of Beneficiary. Each Participant may designate a beneficiary or
beneficiaries to exercise any Award or receive a payment under any Award payable on or after the
Participant’s death. Any such designation shall be on a written or electronic form approved by the
Committee and shall be effective upon its receipt by the Company or an agent selected by the
Company.



     (e) Termination of Service. Unless otherwise provided in an Agreement, and subject to
Section 12 of this Plan, if a Participant’s Service with the Company and all of its Affiliates
terminates, the following provisions shall apply (in all cases subject to the originally scheduled
expiration of an Option or Stock Appreciation Right, as applicable):



          (1) Upon termination of Service for Cause, all unexercised Options and SARs and all unvested
portions of any other outstanding Awards shall be immediately forfeited without consideration.




          (2) Upon an involuntary termination of Service by the Company or any Affiliate without Cause
that does not constitute a Retirement, any portion of an Award scheduled to vest within six months
after the date of termination shall immediately become vested (and exercisable, if applicable), and
the vested and exercisable portions of Options or SARs may be exercised for a period of six months
after the date of such termination and shall terminate upon the expiration of such period.




          (3) Upon a voluntary termination of Service by the Participant that does not constitute
Retirement, the currently vested and exercisable portions of Options and SARs may be exercised for
a period of three months after the date of such termination and shall terminate upon the expiration
of such period.




          (4) Upon termination of Service due to death or Disability, any portion of an Award scheduled
to vest within twelve months after the date of termination shall immediately become vested (and
exercisable, if applicable), and the vested and exercisable portions of Options or SARs may be
exercised for a period of twelve months after the date of such termination and shall terminate upon
the expiration of such period.




          (5) Upon a termination of Service that constitutes a Retirement, an Award will continue to
vest for a period of twelve months after the date of termination and any portion of the Award
scheduled to vest during that twelve month period shall vest (and become exercisable, if
applicable) at its scheduled time, and the vested and exercisable portions of Options or SARs may
be exercised during a period of fifteen months after the date of such termination and shall
terminate upon the expiration of such period.




          (6) Upon a termination of Service for any reason, all unvested and unexercisable portions of
any outstanding Awards (after giving effect to any accelerated vesting specified under Subsections
(2) and (4) of this Section 6(e)) shall be immediately forfeited without consideration, except to
the extent provided in Subsection (5) of the Section 6(e).







9









 








          (7) If a Participant dies during the six-month post-termination exercise period specified in
Subsection (2) or (3) of this Section 6(e), then the applicable post-termination exercise period
shall be extended to twelve months after the date of such termination.




     (f) Rights as Shareholder. No Participant shall have any rights as a shareholder with
respect to any securities covered by an Award unless and until the date the Participant becomes the
holder of record of the Shares, if any, to which the Award relates.



     (g) Performance-Based Awards. Any Award may be granted as a performance-based Award
if the Committee establishes one or more measures of corporate, Subsidiary, business unit or
individual performance which must be attained, and the performance period over which the specified
performance is to be attained, as a condition to the vesting, exercisability, lapse of restrictions
and/or settlement in cash or Shares of such Award. In connection with any such Award, the
Committee shall determine the extent to which performance measures have been attained and other
applicable terms and conditions have been satisfied, and the degree to which vesting,
exercisability, lapse of restrictions and/or settlement in cash or Shares of such Award has been
earned. Any performance-based Award that is intended by the Committee to qualify as
Performance-Based Compensation shall additionally be subject to the requirements of Section 17 of
this Plan. Except as provided in Section 17 with respect to Performance-Based Compensation, the
Committee shall also have the authority to provide, in an Agreement or otherwise, for the
modification of a performance period and/or an adjustment or waiver of the achievement of
performance goals upon the occurrence of certain events, which may include a Change of Control, a
Corporate Transaction, a recapitalization, a change in the accounting practices of the Company, or
the Participant’s death or Disability.



     (h) Dividends and Dividend Equivalents. Any dividends or distributions paid with
respect to Shares that are subject to the unvested portion of a Restricted Stock Award will be
subject to the same restrictions as the Shares to which such dividends or distributions relate,
except for regular cash dividends on Shares subject to the unvested portion of a Restricted Stock
Award that is subject only to service-based vesting conditions. In its discretion, the Committee
may provide in an Award Agreement for a Stock Unit Award or an Other Stock-Based Award that the
Participant will be entitled to receive dividend equivalents on the units or other Share
equivalents subject to the Award based on dividends actually declared on outstanding Shares. The
terms of any dividend equivalents will be as set forth in the applicable Award Agreement, including
the time and form of payment and whether such dividend equivalents will be credited with interest
or deemed to be reinvested in additional units or Share equivalents. Dividend equivalents paid
with respect to units or Share equivalents that are subject to the unvested portion of a Stock Unit
Award or an Other Stock-Based Award whose vesting is subject to the satisfaction of specified
performance objectives will be subject to the same restrictions as the units or Share equivalents
to which such dividend equivalents relate. The Committee may, in its discretion, provide in Award
Agreements for restrictions on dividends and dividend equivalents in addition to those specified in
this Section 6(h).


7. Stock Option Awards.




     (a) Type and Exercise Price. The Agreement pursuant to which an Option is granted
shall specify whether the Option is an Incentive Stock Option or a Non-Statutory Stock Option. The
exercise price at which each Share subject to an Option may be purchased shall be determined by the
Committee and set forth in the Agreement, and shall not be less than the Fair Market Value of a
Share on the Grant Date, except in the case of Substitute Awards (to the extent consistent with
Code Section 409A).



     (b) Payment of Exercise Price. The purchase price of the Shares with respect to which
an Option is exercised shall be payable in full at the time of exercise. The purchase price may be
paid in cash



10









 




or in such other manner as the Committee may permit, including payment under a broker-assisted
sale and remittance program acceptable to the Committee or by withholding Shares otherwise issuable
to the Participant upon exercise of the Option or by delivery to the Company of Shares (by actual
delivery or attestation) already owned by the Participant (in each case, such Shares having a Fair
Market Value as of the date the Option is exercised equal to the purchase price of the Shares being
purchased).




     (c) Exercisability and Expiration. Each Option shall be exercisable in whole or in
part on the terms provided in the Agreement. No Option shall be exercisable at any time after its
scheduled expiration. When an Option is no longer exercisable, it shall be deemed to have
terminated.



     (d) Incentive Stock Options.



          (1) An Option will constitute an Incentive Stock Option only if the Participant receiving the
Option is an Employee, and only to the extent that (i) it is so designated in the applicable
Agreement and (ii) the aggregate Fair Market Value (determined as of the Option’s Grant Date) of
the Shares with respect to which Incentive Stock Options held by the Participant first become
exercisable in any calendar year (under the Plan and all other plans of the Company and its
Affiliates) does not exceed $100,000. To the extent an Option granted to a Participant exceeds
this limit, the Option shall be treated as a Non-Statutory Stock Option. The maximum number of
Shares that may be issued upon the exercise of Incentive Stock Options shall equal the maximum
number of Shares that may be the subject of Awards and issued under the Plan as provided in the
first sentence of Section 4(a).




          (2) No Participant may receive an Incentive Stock Option under the Plan if, immediately after
the grant of such Award, the Participant would own (after application of the rules contained in
Code Section 424(d)) Shares possessing more than 10% of the total combined voting power of all
classes of stock of the Company or an Affiliate, unless (i) the option price for that Incentive
Stock Option is at least 110% of the Fair Market Value of the Shares subject to that Incentive
Stock Option on the Grant Date and (ii) that Option will expire no later than five years after its
Grant Date.




          (3) For purposes of continued Service by a Participant who has been granted an Incentive Stock
Option, no approved leave of absence may exceed three months unless reemployment upon expiration of
such leave is provided by statute or contract. If reemployment is not so provided, then on the
date six months following the first day of such leave, any Incentive Stock Option held by the
Participant shall cease to be treated as an Incentive Stock Option and shall be treated for tax
purposes as a Non-Statutory Stock Option.




          (4) If an Incentive Stock Option is exercised after the expiration of the exercise periods
that apply for purposes of Code Section 422, such Option shall thereafter be treated as a
Non-Statutory Stock Option.




          (5) The Agreement covering an Incentive Stock Option shall contain such other terms and
provisions that the Committee determines necessary to qualify the Option as an Incentive Stock
Option.



8. Stock Appreciation Rights.




     (a) Nature of Award. An Award of Stock Appreciation Rights shall be subject to such
terms and conditions as are determined by the Committee, and shall provide a Participant the right
to receive upon exercise of the SAR all or a portion of the excess of (i) the Fair Market Value as
of the date of exercise of the SAR of the number of Shares as to which the SAR is being exercised,
over (ii) the aggregate exercise price for such number of Shares. The per Share exercise price for
any SAR Award



11









 




shall be determined by the Committee and set forth in the applicable Agreement, and shall not be
less than the Fair Market Value of a Share on the Grant Date, except in the case of Substitute
Awards (to the extent consistent with Code Section 409A).




     (b) Exercise of SAR. Each SAR may be exercisable in whole or in part at the times, on
the terms and in the manner provided in the Agreement. No SAR shall be exercisable at any time
after its scheduled expiration. When a SAR is no longer exercisable, it shall be deemed to have
terminated. Upon exercise of a SAR, payment to the Participant shall be made at such time or times
as shall be provided in the Agreement in the form of cash, Shares or a combination of cash and
Shares as determined by the Committee. The Agreement may provide for a limitation upon the amount
or percentage of the total appreciation on which payment (whether in cash and/or Shares) may be
made in the event of the exercise of a SAR.


9. Restricted Stock Awards.




     (a) Vesting and Consideration. Shares subject to a Restricted Stock Award shall be
subject to vesting conditions, and the corresponding lapse of forfeiture conditions and other
restrictions, based on such factors and occurring over such period of time as the Committee may
determine in its discretion. The Committee may provide whether any consideration other than
Services must be received by the Company or any Affiliate as a condition precedent to the grant of
a Restricted Stock Award, and may correspondingly provide for Company reacquisition or repurchase
rights if such additional consideration has been required and some or all of a Restricted Stock
Award does not vest.



     (b) Shares Subject to Restricted Stock Awards. Unvested Shares subject to a
Restricted Stock Award shall be evidenced by a book-entry in the name of the Participant with the
Company’s transfer agent or by one or more Stock certificates issued in the name of the
Participant. Any such Stock certificate shall be deposited with the Company or its designee,
together with an assignment separate from the certificate, in blank, signed by the Participant, and
bear an appropriate legend referring to the restricted nature of the Restricted Stock evidenced
thereby. Any book-entry shall be subject to transfer restrictions and accompanied by a similar
legend. Upon the vesting of Shares of Restricted Stock and the corresponding lapse of the
restrictions and forfeiture conditions, the corresponding transfer restrictions and restrictive
legend will be removed from the book-entry evidencing such Shares or the certificate evidencing
such Shares, and any such certificate shall be delivered to the Participant. Such vested Shares
may, however, remain subject to additional restrictions as provided in Section 18(c). Except as
otherwise provided in the Plan or an applicable Agreement, a Participant with a Restricted Stock
Award shall have all the rights of a shareholder, including the right to vote the Shares of
Restricted Stock.


10. Stock Unit Awards.




     (a) Vesting and Consideration. A Stock Unit Award shall be subject to vesting
conditions, and the corresponding lapse of forfeiture conditions and other restrictions, based on
such factors and occurring over such period of time as the Committee may determine in its
discretion. The Committee may provide whether any consideration other than Services must be
received by the Company or any Affiliate as a condition precedent to the settlement of a Stock Unit
Award.



     (b) Payment of Award. Following the vesting of a Stock Unit Award, settlement of the
Award and payment to the Participant shall be made at such time or times in the form of cash,
Shares (which may themselves be considered Restricted Stock under the Plan subject to restrictions
on transfer and forfeiture conditions) or a combination of cash and Shares as determined by the
Committee. If the Stock Unit Award is not by its terms exempt from the requirements of Code
Section 409A, then the



12









 




applicable Agreement shall contain terms and conditions intended to avoid adverse tax
consequences specified in Code Section 409A.



11. Cash-Based and Other Stock-Based Awards.




     (a) Cash Incentive Awards. A Cash Incentive Award shall be considered a
performance-based Award for purposes of, and subject to, Section 6(g), the payment of which shall
be contingent upon the degree to which one or more specified performance goals have been achieved
over the specified performance period. Cash Incentive Awards may be granted to any Participant in
such amounts and upon such terms and at such times as shall be determined by the Committee, and may
be denominated in units that have a dollar value established by the Committee as of the Grant Date.
Following the completion of the applicable performance period and the vesting of a Cash Incentive
Award, payment of the settlement amount of the Award to the Participant shall be made at such time
or times in the form of cash, Shares or other forms of Awards under the Plan (valued for these
purposes at their grant date fair value) or a combination of cash, Shares and other forms of Awards
as determined by the Committee and specified in the applicable Agreement. If a Cash Incentive
Award is not by its terms exempt from the requirements of Code Section 409A, then the applicable
Agreement shall contain terms and conditions intended to avoid adverse tax consequences specified
in Code Section 409A.



     (b) Other Stock-Based Awards. The Committee may from time to time grant Stock and
other Awards that are valued by reference to and/or payable in whole or in part in Shares under the
Plan. The Committee, in its sole discretion, shall determine the terms and conditions of such
Awards, which shall be consistent with the terms and purposes of the Plan. The Committee may, in
its sole discretion, direct the Company to issue Shares subject to restrictive legends and/or stop
transfer instructions that are consistent with the terms and conditions of the Award to which the
Shares relate.


12. Changes in Capitalization, Corporate Transactions, Change in Control.




     (a) Adjustments for Changes in Capitalization. In the event of any equity
restructuring (within the meaning of FASB ASC Topic 718 — Stock Compensation) that causes the per
share value of Shares to change, such as a stock dividend, stock split, spinoff, rights offering or
recapitalization through an extraordinary dividend, the Committee shall make such adjustments as it
deems equitable and appropriate to (i) the aggregate number and kind of Shares or other securities
issued or reserved for issuance under the Plan, (ii) the number and kind of Shares or other
securities subject to outstanding Awards, (iii) the exercise price of outstanding Options and SARs,
and (iv) any maximum limitations prescribed by the Plan with respect to certain types of Awards or
the grants to individuals of certain types of Awards. In the event of any other change in
corporate capitalization, including a merger, consolidation, reorganization, or partial or complete
liquidation of the Company, such equitable adjustments described in the foregoing sentence may be
made as determined to be appropriate and equitable by the Committee to prevent dilution or
enlargement of rights of Participants. In either case, any such adjustment shall be conclusive and
binding for all purposes of the Plan. No adjustment shall be made pursuant to this Section 12(a)
in connection with the conversion of any convertible securities of the Company, or in a manner that
would cause Incentive Stock Options to violate Section 422(b) of the Code or cause an Award to be
subject to adverse tax consequences under Section 409A of the Code.



     (b) Corporate Transactions. Unless otherwise provided in an applicable Agreement, the
following provisions shall apply to outstanding Awards in the event of a Change in Control that
involves a Corporate Transaction.



          (1) Continuation, Assumption or Replacement of Awards. In the event of a Corporate
Transaction, then the surviving or successor entity (or its Parent) may continue, assume or






13









 







replace Awards outstanding as of the date of the Corporate Transaction (with such adjustments
as may be required or permitted by Sections 12(a) and 6(g)), and such Awards or replacements
therefor shall remain outstanding and be governed by their respective terms, subject to Section
12(b)(4) below. A surviving or successor entity may elect to continue, assume or replace only some
Awards or portions of Awards. For purposes of this Section 12(b)(1), an Award shall be considered
assumed or replaced if, in connection with the Corporate Transaction and in a manner consistent
with Code Sections 409A and 424, either (i) the contractual obligations represented by the Award
are expressly assumed by the surviving or successor entity (or its Parent) with appropriate
adjustments to the number and type of securities subject to the Award and the exercise price
thereof that preserves the intrinsic value of the Award existing at the time of the Corporate
Transaction, or (ii) the Participant has received a comparable equity-based award that preserves
the intrinsic value of the Award existing at the time of the Corporate Transaction and provides for
a vesting or exercisability schedule that is the same as or more favorable to the Participant.




          (2) Acceleration. If and to the extent that outstanding Awards under the Plan are not
continued, assumed or replaced in connection with a Corporate Transaction, then (i) all outstanding
Options and SARs shall become fully exercisable for such period of time prior to the effective time
of the Corporate Transaction as is deemed fair and equitable by the Committee, and shall terminate
at the effective time of the Corporate Transaction, and (ii) all outstanding Full Value Awards
shall fully vest immediately prior to the effective time of the Corporate Transaction. The
Committee shall provide written notice of the period of accelerated exercisability of Options and
SARs to all affected Participants. The accelerated exercisability of any Option or SAR pursuant to
this Section 12(b)(2) and the exercise of any Option or SAR whose exercisability is so accelerated
shall be conditioned upon the consummation of the Corporate Transaction, and any such exercise
shall be effective only immediately before such consummation.




          (3) Payment for Awards. If and to the extent that outstanding Awards under the Plan
are not continued, assumed or replaced in connection with a Corporate Transaction, then the
Committee may provide that some or all of such outstanding Awards shall be canceled at or
immediately prior to the effective time of the Corporate Transaction in exchange for payments to
the holders as provided in this Section 12(b)(3). The Committee will not be required to treat all
Awards similarly for purposes of this Section 12(b)(3). The payment for any Award canceled shall
be in an amount equal to the difference, if any, between (i) the fair market value (as determined
in good faith by the Committee) of the consideration that would otherwise be received in the
Corporate Transaction for the number of Shares remaining subject to the Award, and (ii) the
aggregate exercise price (if any) for the number of Shares remaining subject to such Award. If the
amount determined pursuant to clause (i) of the preceding sentence is less than or equal to the
amount determined pursuant to clause (ii) of the preceding sentence with respect to any Award, such
Award may be canceled pursuant to this Section 12(b)(3) without payment of any kind to the affected
Participant. Payment of any amount under this Section 12(b)(3) shall be made in such form, on such
terms and subject to such conditions as the Committee determines in its discretion, which may or
may not be the same as the form, terms and conditions applicable to payments to the Company’s
shareholders in connection with the Corporate Transaction, and may, in the Committee’s discretion,
include subjecting such payments to vesting conditions comparable to those of the Award
surrendered, subjecting such payments to escrow or holdback terms comparable to those imposed upon
the Company’s shareholders under the Corporate Transaction, or calculating and paying the present
value of payments that would otherwise be subject to escrow or holdback terms.




          (4) Termination After a Corporate Transaction. If and to the extent that Awards are
continued, assumed or replaced under the circumstances described in Section 12(b)(1), and if within
18 months after the Corporate Transaction a Participant experiences an involuntary termination of
Service for reasons other than Cause, or voluntarily terminates his or her Service for Good Reason,
then (i) outstanding Options and SARs issued to the Participant that are not yet fully exercisable
shall






14









 







immediately become exercisable in full and shall remain exercisable for one year following the
Participant’s termination of Service, and (ii) any Full Value Awards that are not yet fully vested
shall immediately vest in full.




     (c) Change in Control. In connection with a Change in Control that does not involve a
Corporate Transaction, the Committee may provide (in the applicable Agreement or otherwise) for one
or more of the following: (i) that any Award shall become fully vested and exercisable upon the
occurrence of the Change in Control or upon the involuntary termination of the Participant without
Cause or the Participant’s voluntary termination for Good Reason within 18 months of the Change in
Control, (ii) that any Option or SAR shall remain exercisable during all or some specified portion
of its remaining term, or (iii) that Awards shall be canceled in exchange for payments in a manner
similar to that provided in Section 12(b)(3). The Committee will not be required to treat all
Awards similarly in such circumstances.



     (d) Dissolution or Liquidation. Unless otherwise provided in an applicable Agreement,
in the event the shareholders of the Company approve the complete dissolution or liquidation of the
Company, all outstanding Awards shall vest and become fully exercisable, and will terminate
immediately prior to the consummation of any such proposed action. The Committee will notify each
Participant as soon as practicable of such accelerated vesting and exercisability and pending
termination.


13. Plan Participation and Service Provider Status. Status as a Service Provider shall not
be construed as a commitment that any Award will be made under the Plan to that Service Provider or
to eligible Service Providers generally. Nothing in the Plan or in any Agreement or related
documents shall confer upon any Service Provider or Participant any right to continued Service with
the Company or any Affiliate, nor shall it interfere with or limit in any way any right of the
Company or any Affiliate to terminate the person’s Service at any time with or without Cause or
change such person’s compensation, other benefits, job responsibilities or title.



14. Tax Withholding. The Company or any Affiliate, as applicable, shall have the right to
(i) withhold from any cash payment under the Plan or any other compensation owed to a Participant
an amount sufficient to cover any required withholding taxes related to the grant, vesting,
exercise or settlement of an Award, and (ii) require a Participant or other person receiving Shares
under the Plan to pay a cash amount sufficient to cover any required withholding taxes before
actual receipt of those Shares. In lieu of all or any part of a cash payment from a person
receiving Shares under the Plan, the Committee may permit the individual to cover all or any part
of the required withholdings (up to the Participant’s minimum required tax withholding rate)
through a reduction in the number of Shares delivered or a delivery or tender to the Company of
Shares held by the Participant or other person, in each case valued in the same manner as used in
computing the withholding taxes under applicable laws.



15. Effective Date, Duration, Amendment and Termination of the Plan.




     (a) Effective Date. The Plan shall become effective on the date it is approved by the
Company’s shareholders, which shall be considered the date of its adoption for purposes of Treasury
Regulation §1.422-2(b)(2)(i). No Awards shall be made under the Plan prior to its effective date.
If the Company’s shareholders fail to approve the Plan within 12 months of its approval by the
Board, the Plan shall be of no further force or effect.



     (b) Duration of the Plan. The Plan shall remain in effect until all Shares subject to
it shall be distributed, the Plan is terminated pursuant to Section 15(c), or the tenth
anniversary of the effective date of the Plan, whichever occurs first (the “Termination Date”).
Awards made before the Termination Date shall continue to be outstanding in accordance with their
terms unless limited in the applicable Agreements.



15









 





     (c) Amendment and Termination of the Plan. The Board may at any time terminate,
suspend or amend the Plan. The Company shall submit any amendment of the Plan to its shareholders
for approval only to the extent required by applicable laws or regulations or the rules of any
securities exchange on which the Shares may then be listed. No termination, suspension, or
amendment of the Plan may materially impair the rights of any Participant under a previously
granted Award without the Participant’s consent, unless such action is necessary to comply with
applicable law or stock exchange rules.



     (d) Amendment of Awards. Subject to Section 15(e), the Committee may unilaterally
amend the terms of any Agreement previously granted, except that no such amendment may materially
impair the rights of any Participant under the applicable Award without the Participant’s consent,
unless such amendment is necessary to comply with applicable law or stock exchange rules or any
compensation recovery policy as provided in Section 18(i)(3).



     (e) No Option or SAR Repricing. Except as provided in Section 12(a), no Option or
Stock Appreciation Right granted under the Plan may be amended to decrease the exercise price
thereof, be cancelled in exchange for the grant of any new Option or Stock Appreciation Right with
a lower exercise price or any new Full Value Award, be repurchased by the Company or any Affiliate,
or otherwise be subject to any action that would be treated under accounting rules or otherwise as
a “repricing” of such Option or Stock Appreciation Right, unless such action is first approved by
the Company’s shareholders.


16. Substitute Awards. The Committee may also grant Awards under the Plan in substitution
for, or in connection with the assumption of, existing awards granted or issued by another
corporation and assumed or otherwise agreed to be provided for by the Company pursuant to or by
reason of a transaction involving a merger, consolidation, acquisition of property or stock,
separation, reorganization or liquidation to which the Company or an Affiliate is a party. The
terms and conditions of the Substitute Awards may vary from the terms and conditions set forth in
the Plan to the extent that the Committee at the time of the grant may deem appropriate to conform,
in whole or in part, to the provisions of the awards in substitution for which they are granted.



17. Performance-Based Compensation.




     (a) Designation of Awards. If the Committee determines at the time a Full Value Award
or a Cash Incentive Award is granted to a Participant that such Participant is, or is likely to be,
a “covered employee” for purposes of Code Section 162(m) as of the end of the tax year in which the
Company would ordinarily claim a tax deduction in connection with such Award, then the Committee
may provide that this Section 17 will be applicable to such Award, which shall be considered
Performance-Based Compensation.



     (b) Compliance with Code Section 162(m). If an Award is subject to this Section 17,
then the lapsing of restrictions thereon and the distribution of cash, Shares or other property
pursuant thereto, as applicable, shall be subject to the achievement over the applicable
performance period of one or more performance goals based on one or more of the performance
measures specified in Section 17(d). The Committee will select the applicable performance
measure(s) and specify the performance goal(s) based on those performance measures for any
performance period, specify in terms of an objective formula or standard the method for calculating
the amount payable to a Participant if the performance goal(s) are satisfied, and certify the
degree to which applicable performance goals have been satisfied and any amount payable in
connection with an Award subject to this Section 17, all within the time periods prescribed by and
consistent with the other requirements of Code Section 162(m). In specifying the performance goals
applicable to any performance period, the Committee may provide that one or more objectively
determinable adjustments shall be made to the performance measures on which the



16









 




performance goals are based, which may include adjustments that would cause such measures to
be considered “non-GAAP financial measures” within the meaning of Rule 101 under Regulation G
promulgated by the Securities and Exchange Commission. The Committee may also adjust performance
measures for a performance period to the extent permitted by Code Section 162(m) in connection with
an event described in Section 12(a) to prevent the dilution or enlargement of a Participant’s
rights with respect to Performance-Based Compensation. The Committee may adjust downward, but not
upward, any amount determined to be otherwise payable in connection with such an Award. The
Committee may also provide, in an Agreement or otherwise, that the achievement of specified
performance goals in connection with an Award subject to this Section 17 may be waived upon the
death or Disability of the Participant or under any other circumstance with respect to which the
existence of such possible waiver will not cause the Award to fail to qualify as “performance-based
compensation” under Code Section 162(m).




     (c) Limitations. With respect to Awards of Performance-Based Compensation, the
maximum number of Shares that may be the subject of any Full Value Awards that are denominated in
Shares or Share equivalents and that are granted to any one Participant during any calendar year
shall not exceed 1,000,000 Shares (subject to adjustment as provided in Section 12(a)). The
maximum amount payable with respect to any Cash Incentive Awards and Full Value Awards that are
denominated other than in Shares or Share equivalents and that are granted to any one Participant
during any calendar year shall not exceed $10,000,000 multiplied by the number of full or partial
years in the applicable performance period.



     (d) Performance Measures. For purposes of any Full Value Award considered
Performance-Based Compensation subject to this Section 17, the performance measures to be utilized
shall be limited to one or a combination of two or more of the following: revenue or net sales;
gross profit; operating profit; net income; earnings before income taxes; earnings before one or
more of interest, taxes, depreciation, amortization and other adjustments; profitability as
measured by return ratios (including, but not limited to, return on assets, return on equity,
return on investment and return on revenues or gross profit) or by the degree to which any of the
foregoing earnings measures exceed a percentage of revenues or gross profit; cash flow; market
share; margins (including one or more of gross, operating and net earnings margins); stock price;
total stockholder return; asset quality; non-performing assets; operating assets; operating
expenses; balance of cash, cash equivalents and marketable securities; improvement in or attainment
of expense levels or cost savings; inventory levels; inventory or operating asset turnover;
accounts receivable levels (including measured in terms of days sales outstanding); economic value
added; improvement in or attainment of working capital levels; employee retention; customer
satisfaction; and implementation or completion of critical projects; and growth in customer base.
Any performance goal based on one or more of the foregoing performance measures may, in the
Committee’s discretion, be expressed in absolute amounts, on a per share basis (basic or diluted),
relative to one or more other performance measures, as a growth rate or change from preceding
periods, or as a comparison to the performance of specified companies or a published or special
index (including stock market indices) or other external measures, and may relate to one or any
combination of Company, Affiliate or business unit performance.


18. Other Provisions.




     (a) Unfunded Plan. The Plan shall be unfunded and the Company shall not be required
to segregate any assets that may at any time be represented by Awards under the Plan. Neither the
Company, its Affiliates, the Committee, nor the Board shall be deemed to be a trustee of any
amounts to be paid under the Plan nor shall anything contained in the Plan or any action taken
pursuant to its provisions create or be construed to create a fiduciary relationship between the
Company and/or its Affiliates, and a Participant. To the extent any person has or acquires a
right to receive a payment in



17









 




connection with an Award under the Plan, this right shall be no greater than the right of an
unsecured general creditor of the Company.




     (b) Limits of Liability. Except as may be required by law, neither the Company nor
any member of the Board or of the Committee, nor any other person participating (including
participation pursuant to a delegation of authority under Section 3(c) of the Plan) in any
determination of any question under the Plan, or in the interpretation, administration or
application of the Plan, shall have any liability to any party for any action taken, or not taken,
in good faith under the Plan.



     (c) Compliance with Applicable Legal Requirements. No Shares distributable pursuant
to the Plan shall be issued and delivered unless the issuance of the Shares complies with all
applicable legal requirements, including compliance with the provisions of applicable state and
federal securities laws, and the requirements of any securities exchanges on which the Company’s
Shares may, at the time, be listed. During any period in which the offering and issuance of Shares
under the Plan are not registered under federal or state securities laws, Participants shall
acknowledge that they are acquiring Shares under the Plan for investment purposes and not for
resale, and that Shares may not be transferred except pursuant to an effective registration
statement under, or an exemption from the registration requirements of, such securities laws. Any
book-entry or stock certificate evidencing Shares issued under the Plan that are subject to such
securities law restrictions shall be accompanied by or bear an appropriate restrictive legend.



     (d) Other Benefit and Compensation Programs. Payments and other benefits received by
a Participant under an Award made pursuant to the Plan shall not be deemed a part of a
Participant’s regular, recurring compensation for purposes of the termination, indemnity or
severance pay laws of any country or state 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 unless the Committee expressly determines that an Award or
portion of an Award should be included to accurately reflect competitive compensation practices or
to recognize that an Award has been made in lieu of a portion of competitive cash compensation.



     (e) Governing Law. To the extent that federal laws do not otherwise control, the Plan
and all determinations made and actions taken pursuant to the Plan shall be governed by the laws of
the State of Minnesota without regard to its conflicts-of-law principles and shall be construed
accordingly.



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



     (g) Code Section 409A. It is intended that (i) all Awards of Options, SARs and
Restricted Stock under the Plan will not provide for the deferral of compensation within the
meaning of Code Section 409A and thereby be exempt from Code Section 409A, and (ii) all other
Awards under the Plan will either not provide for the deferral of compensation within the meaning
of Code Section 409A, or will comply with the requirements of Code Section 409A, and the Committee
shall endeavor to structure Awards and administer and interpret the Plan in accordance with this
intent. The Plan and any Agreement may be unilaterally amended by the Company in any manner deemed
necessary or advisable by the Committee or Board in order to maintain such exemption from or
compliance with Code Section 409A, and any such amendment shall conclusively be presumed to be
necessary to comply with applicable law. Notwithstanding anything to the contrary in the Plan or
any Agreement, with respect to any Award that constitutes a deferral of compensation subject to
Code Section 409A:



18









 





          (1) If any amount is payable under such Award upon a termination of Service, a termination of
Service will be deemed to have occurred only at such time as the Participant has experienced a
“separation from service” as such term is defined for purposes of Code Section 409A; and




          (2) If any amount shall be payable with respect to any such Award as a result of a
Participant’s “separation from service” at such time as the Participant is a “specified employee”
within the meaning of Code Section 409A, then no payment shall be made, except as permitted under
Code Section 409A, prior to the first business day after the earlier of (i) the date that is six
months after the Participant’s separation from Service or (ii) the Participant’s death. Unless the
Committee has adopted a specified employee identification policy as contemplated by Code Section
409A, specified employees will be identified in accordance with the default provisions specified
under Code Section 409A.



Neither the Company, the Committee or any other person involved with the administration of this
Plan shall in any way be responsible for ensuring the exemption of any Award from, or compliance by
any Award with, the requirements of Code Section 409A. By accepting an Award under this Plan, each
Participant acknowledges that the Company has no duty or obligation to design or administer the
Plan or Awards granted thereunder in a manner that minimizes a Participant’s tax liabilities,
including the avoidance of any additional tax liabilities under Code Section 409A.




     (h) Rule 16b-3. It is intended that the Plan and all Awards granted pursuant to it
shall be administered by the Committee so as to permit the Plan and Awards to comply with Exchange
Act Rule 16b-3. If any provision of the Plan or of any Award would otherwise frustrate or conflict
with the intent expressed in this Section 18(h), that provision to the extent possible shall be
interpreted and deemed amended in the manner determined by the Committee so as to avoid the
conflict. To the extent of any remaining irreconcilable conflict with this intent, the provision
shall be deemed void as applied to Participants subject to Section 16 of the Exchange Act to the
extent permitted by law and in the manner deemed advisable by the Committee.



     (i) Forfeiture and Compensation Recovery.



          (1) The Committee may specify in an Agreement that the Participant’s rights, payments, and
benefits with respect to an Award will be subject to reduction, cancellation, forfeiture or
recovery by the Company upon the occurrence of certain specified events, in addition to any
otherwise applicable vesting or performance conditions of an Award. Such events may include
termination of Service for Cause, violation of any material Company or Affiliate policy, breach of
noncompetition, non-solicitation or confidentiality provisions that apply to the Participant, a
determination that the payment of the Award was based on an incorrect determination that financial
or other criteria were met or other conduct by the Participant that is detrimental to the business
or reputation of the Company or its Affiliates.




          (2) Awards and any compensation associated therewith may be made subject to forfeiture,
recovery by the Company or other action pursuant to any compensation recovery policy adopted by the
Board or the Committee at any time, including in response to the requirements of Section 10D of the
Exchange Act and any implementing rules and regulations thereunder, or as otherwise required by
law. Any Agreement may be unilaterally amended by the Committee to comply with any such
compensation recovery policy.






19