BANDAG INCORPORATED
                           RESTRICTED STOCK GRANT PLAN
                          (As Amended August 24, 1999)

     1. PURPOSE.  The purpose of the Bandag Incorporated  Restricted Stock Grant
Plan (the "Plan") of BANDAG,  INCORPORATED and its subsidiaries  (the "Company")
is to promote the  long-term  financial  interest of the Company,  including its
growth,  through  the award of  Restricted  Stock by the Board of  Directors  of
Bandag,  Incorporated  (the "Board") in accordance with the terms and conditions
of the Plan, by (i)  attracting  and retaining  executive  personnel  possessing
outstanding  ability;   (ii)  motivating   executive  personnel,   by  means  of
growth-related   incentives,   to  achieve  long-range  goals;  (iii)  providing
incentive  compensation  opportunities which are competitive with those of other
major   corporations;   and  (iv)   furthering  the  identity  of  interests  of
Participants with those of the Company's  stockholders through opportunities for
increased  stock  ownership.

     2. DEFINITIONS. The following definitions are applicable to this Plan:

          (a)  "Change  in  Control"  of the  Company  shall be  deemed  to have
     occurred  as of the  first  day  that  any  one or  more  of the  following
     conditions shall have been satisfied:

               (i)  A sale,  exchange,  transfer,  or other  disposition  of any
                    ownership  interest  in the  Company  which  results  in the
                    "Carver  Family" as defined  in  Section  4.(f).(iv)  of the
                    Restated  Articles of Incorporation of the Company,  owning,
                    in the  aggregate,  directly  or  indirectly,  less than 51%
                    voting control of the Company;  provided that the conversion
                    of  Class B Common  Stock  into  Common  Stock  pursuant  to
                    Section  4.(f)  of  Article  IV of  the  Company's  Restated
                    Articles of Incorporation shall not be deemed to be a "sale,
                    exchange,  transfer or other  disposition"  for  purposes of
                    this Section 2.(a);

               (ii) The  consummation  of a transaction  that results in a sale,
                    exchange,   transfer,   or  other  disposition  of  all,  or
                    substantially all, of the assets of the Company; or

               (iii)The  consummation  of a  transaction  that  results  in  the
                    merger  or  consolidation  of the  Company  with or into any
                    other corporation under circumstances where the shareholders
                    of  the  Company   immediately   prior  to  such  merger  or
                    consolidation,  will own, directly or

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                    indirectly,  after such merger or consolidation,  securities
                    representing less than 51% voting control of the corporation
                    surviving any such merger or consolidation.

          (b) The term "Common Stock" means the Common Stock of the Company.

          (c) The term "Non-Employee  Director" means a person who is so defined
     for purposes of Rule 16b-3 under the  Securities  Exchange Act of 1934,  as
     amended.

          (d) The term  "Disability"  shall mean a physical or mental  condition
     which in the judgment of the Committee,  based on medical  examination by a
     doctor  or clinic  appointed  by the  Committee,  totally  and  permanently
     prevents a Participant from engaging in any substantial gainful activity.

          (e) The term  "Participant"  means any employee who is selected by the
     board to participate in the Plan.

          (f) The term "Plan Year" means the  Company's  fiscal year,  beginning
     with its 1984 fiscal year.

          (g) The term  "Restricted  Period" has the  meaning  ascribed to it in
     Section 5 hereof.

          (h) The term  "Restricted  Stock" has the  meaning  ascribed  to it in
     Section 5 hereof.

          (i) The term  "Subsidiary"  means  any  corporation  of which  Bandag,
     Incorporated  owns,  directly  or  indirectly,  50% or  more  of the  total
     combined voting power of all classes of stock entitled to vote.

     3.  ADMINISTRATION.  The Plan  shall be  administered  by the Stock  Option
Committee (the "Committee")  which shall consist of not less than two directors,
each of whom shall qualify as a  Non-Employee  Director.  The  Committee  shall,
subject to the express  provisions of the Plan, have sole and complete authority
to (i) select the  Participants,  (ii)  determine the number of shares of Common
Stock (subject to the  limitations of Section 6 hereof) to be awarded to each of
the  Participants  in the  Plan  and  (iii)  interpret  the  Plan  and  make all
determinations deemed necessary or advisable for the administration of the Plan.


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<PAGE>

         A majority of the Committee shall constitute a quorum,  and the acts of
a majority of the  members  present at any meeting at which a quorum is present,
or acts  approved in writing by a majority of the  Committee  without a meeting,
shall be the acts of the Committee.

     4. PARTICIPATION. After the end of the third quarter of each Plan Year, and
no later than the end of November of the Plan Year involved, the Committee shall
select the persons who are to be Participants in the Plan for that Plan Year and
shall  determine the number of shares of Restricted  Stock to be awarded to each
participant in the Plan for that Plan Year. Participants are to be selected from
those  employees of the Company who, in the opinion of the  Committee,  have the
capacity for contributing in a substantial measure to the successful performance
of the Company.  No director who is not also a full-time employee of the Company
shall be selected to be a  Participant.  The date that the Committee  makes such
selections  and  determinations  shall be deemed to be the effective date of the
awards of Restricted Stock for such Plan Year.

     5. TERMS AND  CONDITIONS  OF AWARDS.  All shares of Common Stock awarded to
Participants  under the Plan (the  "Restricted  Stock")  shall be subject to the
following  terms and  conditions  and to such other  terms and  conditions,  not
inconsistent  with the Plan,  as may be  prescribed by the Committee in its sole
discretion:

          (a)  Restricted  Stock  awarded  to a  Participant  may  not be  sold,
     assigned,  transferred,  pledged or otherwise  encumbered for a period (the
     "Restricted  Period") ending as of the earlier of (i) seven (7) years after
     the  effective  date of the award of such  stock or (ii) the  Participant's
     termination of employment for any reason after attainment of age sixty (60)
     or (iii) the death or disability of the Participant. So long as such shares
     are  subject to such  restrictions,  they shall be held by a nominee of the
     Committee.  The nominee shall have no obligation to solicit proxies or vote
     shares.

          (b) Upon the  occurrence  of a Change  in  Control,  unless  otherwise
     specifically   prohibited  under  applicable  laws  or  by  the  rules  and
     regulations of any governing  governmental  agencies or national securities
     exchanges,  the Restricted Period shall end and restrictions imposed on the
     Restricted   Stock   which   are   not   performance-based   shall   lapse.
     Notwithstanding  any other  provision of this Plan,  the provisions of this
     Section  5(b) may not be  terminated,  amended or  modified on or after the
     date of a Change in Control to affect adversely any award granted under the
     Plan without the prior written consent of the  Participant  with respect to
     said Participant's  outstanding awards;  provided,  however,  the Board may
     terminate, amend, or modify this Section 5(b) at any time prior to the date
     of a Change in Control.

          (c) Within  thirty (30) days after the  effective  date of an award of
     Restricted  Stock,  a Participant  may file an election  pursuant to and in
     accordance

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<PAGE>

     with Section  83(b) of the Internal  Revenue Code of 1986,  as amended,  to
     have the  appropriate  value of such award included in gross income for the
     taxable year in which that award  occurs.  In the event such an election is
     made, the Company shall,  prior to the end of such taxable year, pay to the
     Participant  the  amount  determined  by  the  Committee  to be  sufficient
     remuneration for the resultant income tax consequences.  Any dividends paid
     on shares of  Restricted  Stock  subject as to which an  election  has been
     made, shall be distributed to the Participant at such times as dividends on
     the  Company's  Common  Stock  are  generally  payable.  In the  event  the
     Participant  does not exercise the Section  83(b)  election,  all dividends
     attributable to such shares shall be held by the nominee until  distributed
     or forfeited as hereinafter provided.  The account in which these dividends
     are held need not be interest bearing.

          (d) At the end of the  Restricted  Period as to any  given  Restricted
     Stock  award,  the  shares  constituting  such  award  shall  cease  to  be
     Restricted  Stock,  and shall be delivered free of all  restrictions to the
     Participant  or, in the event such  Restricted  Period  ends as a result of
     death, the  Participant's  legal  representative,  beneficiary or heir. The
     Committee  shall deliver to the  Participant a certificate or  certificates
     for such shares and a check for all undistributed  dividends accumulated on
     such shares during the Restricted Period.

          (e) In the  event of the death or  disability  of a  Participant,  the
     Restricted  Period shall end as to any shares already awarded,  but neither
     the Participant nor the legal representative of his estate, his beneficiary
     or his heir shall have any  interest in awards of stock made after the date
     of death or disability.

          (f) A Participant  whose  employment  with the Company is  terminated,
     whether  voluntarily or  involuntarily,  for any reason other than death or
     disability,   shall  forfeit  all  shares  of  Restricted   Stock  and  any
     undistributed dividends thereon then being held, and any other rights under
     the  Plan,  upon such  termination  of  employment.  Such  shares  shall be
     forfeited to the Company and may be awarded  again to  Participants  in the
     Plan.

          (g) The Participant  shall enter into an Agreement with the Company in
     a form  specified by the Committee  agreeing to the terms and conditions of
     the  award  and  such  other  matters  as the  Committee  shall in its sole
     discretion determine.

     6. SHARES SUBJECT TO THE PLAN;  REGISTRATION  UNDER THE SECURITIES ACT. The
shares to be awarded  under the Plan shall be shares of Common  Stock and may be
authorized but unissued  shares,  or shares  acquired by the Company and held in
its  treasury,  as the  Committee  may from time to time  determine.  Subject to
adjustment  in the  number and kind of shares as  provided


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<PAGE>

in Section 7 hereof,  fifty  thousand  (50,000)*  shares of Common  Stock may be
awarded to Participants pursuant to the Plan. All shares to be awarded under the
Plan will be listed on such stock  exchanges  as the Common Stock of the Company
is listed from time to time.

     7.  CHANGES IN  CAPITALIZATION  AND  SIMILAR  CHANGES.  In the event of any
change in the outstanding shares of Common Stock by reason of any stock dividend
or split,  recapitalization,  merger, consolidation,  combination or exchange of
shares or other similar corporate change, the maximum aggregate number and class
of shares as to which  awards may be granted  under the Plan shall be  equitably
adjusted by the Committee. Any shares of stock or other securities distributable
or  deliverable  with  respect to  Restricted  Stock will be subject to the same
restrictions as such Restricted Stock.

     If the Company shall be  consolidated  or merged with another  corporation,
any stock,  securities or other property  (including  cash)  distributable  with
respect to Restricted Stock or into which any share of Restricted Stock shall be
converted,  shall also be subject to the same  restrictions  as such  Restricted
Stock.

     If any person  files a  statement  under  Section  14(d) of the  Securities
Exchange Act of 1934, as amended  ("Exchange  Act") in connection  with a tender
offer within the meaning of Section 14(d) of the Exchange Act or the Regulations
thereunder for Common stock, the Participant  shall have the right to direct the
nominee which holds Restricted  Stock awarded to the Participant  whether or not
to tender such Restricted  Stock pursuant to the Offer,  including  tendering in
whole or in part or  conditionally or  unconditionally;  provided,  however,  no
Participant  shall have the foregoing right if counsel to the Company advises it
that tendering such Restricted Stock would be prohibited by any provision of the
Exchange Act or any Regulation  thereunder,  including  without  limitation Rule
10b-4.  Any  consideration  received with respect to  Restricted  Stock which is
tendered shall be subject to the same restrictions as such Restricted Stock.

     In the event any cash is  received in  connection  with the  conversion  or
disposition  of  Restricted  Stock,  the  Committee  shall direct its nominee to
invest  such  cash and any  earnings  thereon  in such  investment  media as the
Committee deems  appropriate.  All earnings from such  investments (and any loss
thereon  or  diminution  in the value  there)  shall be for the  account  of the
Participant.

     If any of the events referred to in this Section occurs or is pending,  and
the  Committee  is  advised  by  counsel  to the  Company  that  disposition  of
Restricted

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* Due to issuance of the Class B Stock  dividend and the Class A Stock  dividend
in 1987 and 1992,  respectively,  the number of shares authorized under the Plan
consists of 100,000  shares of Common Stock and 100,000 shares of Class A Common
Stock.

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Stock  will  result in the  recognition  of  taxable  income to the  Participant
awarded such Restricted Stock, the Committee shall have discretion to enter into
such  arrangements  as  it  deems  appropriate  to  minimize  or  eliminate  the
recognition of such taxable income,  provided that any property  substituted for
Restricted Stock pursuant to any such  arrangement  shall be subject to the same
restrictions as Restricted Stock.

     8. WITHHOLDING TAX. With respect to any payments made to Participants under
the Plan,  the Company  shall have the right to withhold  any taxes  required by
law.

     9.  EMPLOYEE  RIGHTS UNDER THE PLAN. No employee or other person shall have
any claim or right to be granted  Common  Stock  under the Plan  except as shall
have been  conferred in  accordance  with the terms and  conditions of the Plan.
Neither the Plan nor any action  taken  thereunder  shall be construed as giving
any employee any right to be retained in the employ of the Company.

     10. AMENDMENT OR TERMINATION. The Board may amend, suspend or terminate the
Plan or any portion  thereof at any time, but no amendment shall be made without
stockholder  approval  which shall (i) increase the total number of shares which
may be awarded under Section 6 of the Plan (subject to Section 7 hereof) or (ii)
withdraw the  administration  of the Plan from the  Committee;  provided that no
amendment, suspension or termination shall impair the rights of any Participant,
without his consent,  in any Restricted Stock awarded pursuant to the Plan prior
to such action by the Board.

     11.  EFFECTIVE  DATE OF THE PLAN.  The Plan shall  become  effective  as of
January  1,  1984,  if and  only if  approved  by the  stockholders  of  Bandag,
Incorporated  and shall continue in effect until the last expiration date of any
Restricted Period operative under the Plan; provided, however, that no awards of
Restricted Stock shall be made after the Company's fiscal year ending in 2000 or
such earlier date as the Board may specify pursuant to Section 10 hereof.

         The Plan was adopted by the Board of Directors of Bandag,  Incorporated
on March 1, 1984.


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