Document:

EXHIBIT 10.9

                        STOCK OPTION REPLACEMENT PROGRAM

In keeping with the company's philosophy of encouraging stock ownership by
officers and employees, the company offers several programs which allow officers
and key employees to elect to receive stock options in lieu of some or all of
the compensation earned as base salary, sales commissions or under certain
incentive plans. By foregoing such compensation for stock options, the variable
"at risk" component of each officer's or employee's compensation package is
increased, motivating them to perform to enhance shareholder value over the long
term. Under the program, the amount of the stock option grants are determined by
the Compensation Committee of the Board of Directors and to date have primarily
been on the basis of $4 in fair market value of stock options for each $1 of
compensation foregone.EXHIBIT 10.10

                                 MEDTRONIC, INC.
                  1998 OUTSIDE DIRECTOR STOCK COMPENSATION PLAN
                      (AS AMENDED THROUGH OCTOBER 28, 1999)

         1. PURPOSE. The purpose of this Plan is to facilitate recruiting and
retaining non-employee directors of outstanding ability.

         2. DEFINITIONS. The capitalized terms used in this Plan have the
meanings set forth below.

         (a) "Account" means a bookkeeping account maintained for a Participant
to which Deferred Stock Units are credited pursuant to Section 6.

         (b) "Affiliate" means any corporation that is a "parent corporation" or
"subsidiary corporation" of the Company, as those terms are defined in Sections
424(e) and (f) of the Code, or any successor provision, and any joint venture in
which the Company or any such "parent corporation" or "subsidiary corporation"
owns an equity interest.

         (c) "Agreement" means a written contract entered into between the
Company or an Affiliate and a Participant containing the terms and conditions of
an Option granted hereunder (not inconsistent with this Plan).

         (d) "Annual Option" means an Option granted pursuant to Section 5(c) of
this Plan.

         (e) "Annual Retainer" of a Participant means the fixed annual fee for
such Participant in effect on the first day of the year for which such Annual
Retainer is payable for services to be rendered as a Non-Employee Director of
the Company, including any committee chair fee.

         (f) "Award" means an Option granted pursuant to Section 5 of this Plan
or a credit of Deferred Stock Units pursuant to Section 6 of this Plan.

         (g) "Board" means the Board of Directors of the Company.

         (h) "Change in Control" means:

                  (i) acquisition by any individual, entity or group (within the
meaning of Section 13(d) (3) or 14(d) (2) of the Exchange Act) of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 30% or more of either (A) the then outstanding Shares of Stock (the
"Outstanding Company Common Stock") or (B) the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting Securities"); provided,
however, that the following acquisitions shall not constitute a

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Change of Control: (A) any acquisition directly from the Company, (B) any
acquisition by the Company or any Subsidiary, (C) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any Subsidiary or (D) any acquisition by any corporation with respect to
which, following such acquisition, more than 55% of, respectively, the then
outstanding shares of common stock of such corporation and the combined voting
power of the then outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then beneficially owned, directly
or indirectly, by all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to such
acquisition in substantially the same proportions as their ownership,
immediately prior to such acquisition, of the Outstanding Company Common Stock
and Outstanding Company Voting Securities, as the case may be; or

                  (ii) individuals who, as of the effective date of this Plan
provided in Section 7(a) of this Plan, constitute the Board (the "Incumbent
Board") cease for any reason to constitute at least a majority of the Board;
provided, however, that any individual becoming a director subsequent to the
date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or
other actual or threatened solicitation of proxies or consents; or

                  (iii) approval by the shareholders of the Company of a
reorganization, merger, consolidation or statutory exchange of Outstanding
Company Voting Securities, in each case, with respect to which all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such reorganization, merger,
consolidation or exchange do not, following such reorganization, merger,
consolidation or exchange, beneficially own, directly or indirectly, more than
55% of, respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such reorganization, merger, consolidation or exchange in
substantially the same proportions as their ownership, immediately prior to such
reorganization, merger, consolidation or exchange of the Outstanding Company
Common Stock and Outstanding Company Voting Securities, as the case may be; or

                  (iv) approval by the shareholders of the Company of (A) a
complete liquidation or dissolution of the Company or (B) the sale or other
disposition of all or substantially all of the assets of the Company, other than
to a corporation with respect to which, following such sale or other
disposition, more than 55% of, respectively, the then outstanding shares of
common stock of such corporation and the combined voting power

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of the then outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and entities who were
the beneficial owners, respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such sale or other
disposition in substantially the same proportion as their ownership, immediately
prior to such sale or other disposition, of the Outstanding Company Common Stock
and Outstanding Company Voting Securities, as the case may be.

         Notwithstanding the foregoing provisions of this definition, a Change
of Control shall not be deemed to occur with respect to a Participant if the
acquisition of the 30% or greater interest referred to in subparagraph (i) of
this definition is by a group, acting in concert, that includes the Participant
or if at least 40% of the then outstanding common stock or combined voting power
of the then outstanding voting securities (or voting equity interests) of the
surviving corporation or of any corporation (or other entity) acquiring all or
substantially all of the assets of the Company shall be beneficially owned,
directly or indirectly, immediately after a reorganization, merger,
consolidation, statutory share exchange or disposition of assets referred to in
subparagraph (iii) or (iv) of this definition by a group, acting in concert,
that includes that Participant.

         (i) "Code" means the Internal Revenue Code of 1986, as amended and in
effect from time to time, or any successor statute.

         (j) "Committee" means any committee of the Board designated by the
Board to administer this Plan under Section 3 hereof, of which shall be composed
of not less than two members, each of whom shall be a "non-employee director" as
defined in Exchange Act Rule 16b-3.

         (k) "Company" means Medtronic, Inc., a Minnesota corporation, or any
successor to all or substantially all of its businesses by merger,
consolidation, purchase of assets or otherwise.

         (l) "Deferred Stock Unit" means the right to receive one Share pursuant
to Section 6 of this Plan.

         (m) "Disability" means the disability of a Participant such that the
Participant would, if an employee, be considered disabled under any retirement
plan of the Company which is qualified under Section 401 of the Code.

         (n) "Discretionary Option" means an Option granted pursuant to Section
5(f).

         (o) "Exchange Act" means the Securities Exchange Act of 1934, as
amended; "Exchange Act Rule 16b-3" means Rule 16b-3 promulgated by the
Securities and Exchange Commission under the Exchange Act as in effect with
respect to the Company or any successor regulation.

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         (p) "Fair Market Value" as of any date means, unless otherwise
expressly provided in this Plan:

                  (i) the closing sale price of a Share (A) on the composite
tape for New York Stock Exchange ("NYSE") listed shares, or (B) if the Shares
are not quoted on the NYSE composite tape, on the principal United States
securities exchange registered under the Exchange Act on which the Shares are
listed, or (C) if the Shares are not listed on any such exchange, on the
National Association of Securities Dealers, Inc. Automated Quotation System
National Market System, in any case on the date immediately preceding that date,
or, if no sale of Shares shall have occurred on that date, on the next preceding
day on which a sale of Shares occurred, or

                  (ii) if clause (i) is not applicable, what the Committee
determines in good faith to be 100% of the fair market value of a Share on that
date. However, if the applicable securities exchange or system has closed for
the day at the time the event occurs that triggers a determination of Fair
Market Value, all references in this paragraph to the "date immediately
preceding that date" shall be deemed to be references to "that date." The
determination of Fair Market Value shall be subject to adjustment as provided in
Section 7(e) hereof. For purposes of this definition, each Option granted and
each Deferred Stock Unit credited pursuant to this Plan shall be deemed
conclusively to have been granted or credited, as applicable, prior to the close
of the applicable securities exchange or system on the date of grant or credit,
as applicable.

         (q) "Fundamental Change" means a dissolution or liquidation of the
Company, a sale of substantially all of the assets of the Company, a merger or
consolidation of the Company with or into any other corporation, regardless of
whether the Company is the surviving corporation, or a statutory share exchange
involving capital stock of the Company.

         (r) "Initial Option" means an Option granted pursuant to Section 5(b).

         (s) "Initial Plan Year" means the period from March 5, 1998 through
August 31, 1998.

         (t) "Meeting" means a regular or special meeting of the Board or of a
committee of the Board on which a particular Participant serves that is actually
held.

         (u) "Non-Employee Director" means a member of the Board who is not an
employee of the Company or any Affiliate.

         (v) "Option" means a right to purchase Stock.

         (w) "Participant" means any Non-employee Director to whom an Award is
made.

         (x) "Plan" means this 1998 Outside Director Stock Compensation Plan, as
amended and in effect from time to time.

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         (y) "Plan Year" means the Initial Plan Year, or the period from
September 1 of 1998 or any subsequent year, through the following August 31.

         (z) "Pro-Ration Factor" means: (A) in the case of a Participant who is
a Non-Employee Director for the entire Plan Year in question and attends at
least 75 percent of the Meetings that occur during such Plan Year (such
Meetings, the "Plan Year Meetings"), 100 percent; (B) in the case of a
Participant who is a Non-Employee Director for only a portion of a Plan Year and
attends at least 75 percent of the Meetings that occur during that portion of a
Plan Year (such meetings, the "Applicable Meetings"), a percentage determined by
dividing the number of Applicable Meetings by the total number of Plan Year
Meetings for that Plan Year; and (C) in the case of a Non-Employee Director who
fails to satisfy the Meeting attendance requirement of clause (A) or (B), as
applicable, 75 percent of the percentage specified in clause (A) or (B), as
applicable.

         (aa) "Replacement Factor" is defined in Section 5(d)(ii).

         (bb) "Replacement Option" means an Option granted pursuant to Section
5(d) of this Plan.

         (cc) "Retirement Option" means an Option granted pursuant to Section
5(e) of this Plan.

         (dd) "Share" means a share of Stock.

         (ee) "Stock" means the common stock, $.10 par value per share (as such
par value may be adjusted from time to time), of the Company.

         (ff) "Subsidiary" means a "subsidiary corporation," as that term is
defined in Section 424(f) of the Code, or any successor provision.

         (gg) "Successor" with respect to a Participant means the legal
representative of an incompetent Participant and, if the Participant is
deceased, the legal representative of the estate of the Participant or the
person or persons who may, by bequest or inheritance, or pursuant to a transfer
permitted under Section 5(i) of this Plan, acquire the right to exercise an
Option or receive Shares issuable in satisfaction of Deferred Stock Units in the
event of the Participant's death.

         (hh) "Term" means the period during which an Option may be exercised.

         Except when otherwise indicated by the context, reference to the
masculine gender shall include, when used, the feminine gender and any term used
in the singular shall also include the plural.

         3. ADMINISTRATION.

         (a) AUTHORITY OF COMMITTEE. The Committee or its delegee shall
administer this Plan. The Committee shall have the authority to interpret this
Plan and any Award or Agreement made under this Plan, to establish, amend, waive
and rescind any rules and

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regulations relating to the administration of this Plan (including without
limitation the manner in which Participants shall make elections provided for
herein), to determine the terms and provisions of any Agreements entered into
hereunder (not inconsistent with this Plan), and to make all other
determinations necessary or advisable for the administration of this Plan. The
Committee may correct any defect, supply any omission or reconcile any
inconsistency in this Plan or in any Award in the manner and to the extent it
shall deem desirable. The determinations of the Committee in the administration
of this Plan, as described herein, shall be final, binding and conclusive.

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

         4. IN GENERAL.

         (a) SHARES AVAILABLE. The number of Shares available for distribution
under this Plan is 3,000,000 (subject to adjustment under Section 7(e) hereof).
Any Shares subject to the terms and conditions of an Award under this Plan which
are not used because the terms and conditions of the Award are not met may again
be used for an Award under this Plan. Any unexercised or undistributed portion
of any terminated, expired, exchanged, or forfeited Award or any Award settled
in cash in lieu of Shares shall be available for further Awards.

         (b) NO FRACTIONAL SHARES. No fractional Shares may be issued under this
Plan; fractional Shares will be rounded to the nearest whole Share.

         (c) RIGHTS AS SHAREHOLDER. A Participant shall have no rights as a
shareholder with respect to any securities covered by an Award until the date
the Participant becomes the holder of record.

         5. OPTIONS.

         (a) AGREEMENTS. Each Option granted under this Plan shall be evidenced
by an Agreement setting forth the terms and conditions thereof.

         (b) INITIAL OPTION GRANTS. Each Non-Employee Director first elected or
appointed to the Board on or after January 15, 1998 shall automatically be
granted, on the later of (i) the date such director first becomes a director and
(ii) March 5, 1998, an Option (an "Initial Option") to purchase that number of
Shares determined by dividing (i) two times the amount of the Annual Retainer as
in effect immediately following such election or appointment by (ii) the Fair
Market Value of a Share on the date of grant. No increase in the Annual Retainer
of the Non-Employee Directors after a person becomes a Non-Employee Director
shall increase the number of Shares subject to the Initial Option

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granted to such Non-Employee Director. An employee of the Company or an
Affiliate who terminates such employment and thereafter becomes a Non-Employee
Director is not entitled to receive an Initial Option but will be entitled to
receive Annual Options and Replacement Options. A Non-Employee Director is not
entitled to receive more than one Initial Option during his or her lifetime.

         (c) ANNUAL OPTION GRANTS. On the first day of each Plan Year other than
the Initial Plan Year, each Non-employee Director shall automatically be granted
an Option (the "Annual Option") to purchase that number of Shares equal to (i)
the amount of the Annual Retainer in effect as of such day, divided by (ii) the
Fair Market Value of a Share on the date of the grant. If there is an increase
in the Annual Retainer after the Annual Option is granted in a given year, each
Non-Employee Director shall automatically be granted, as of the date such
increase is approved, a supplemental Annual Option to purchase that number of
Shares equal to (i) the amount of the increase in such Annual Retainer divided
by (ii) the Fair Market Value of a Share on the date of the grant.

         (d) REPLACEMENT OPTION GRANT. (i) Each Non-Employee Director shall be
provided with the opportunity to elect, in advance of the first day of each Plan
Year (or upon becoming a Non-Employee Director, if later), to receive the Annual
Retainer for such Plan Year in the form of a grant of an Option (a "Replacement
Option") under this Section 5(d) rather than in cash. Each Non-Employee Director
who makes such an election who remains a member of the Board on the last day of
the relevant Plan Year shall automatically be granted on such day an Option (the
"Replacement Option") to purchase that number of Shares equal to (A) the
Replacement Factor (as defined below) times the Eligible Retainer Amount (as
defined below) for the Participant for the Plan Year times the Pro-Ration
Factor, divided by (B) the Fair Market Value of a Share on the date of grant. A
Non-Employee Director who elects to receive a Replacement Option for a Plan Year
but retires from the Board prior to the last day of such Plan Year shall
automatically be granted on the date of retirement a Replacement Option to
purchase that number of Shares equal to (C) the Replacement Factor times the
Eligible Retainer Amount for the Participant for the Plan Year times the
Pro-Ration Factor divided by (D) the Fair Market Value of the Shares on the date
of grant.

                  (ii) The "Replacement Factor" means four, or such other number
as the Board may designate before the beginning of any Plan Year.

                  (iii) The "Eligible Retainer Amount" means the amount of the
Annual Retainer for the Participant as in effect as of the beginning of the Plan
Year, less, in the case of the Initial Plan Year only, any portion thereof
earned by the Participant before March 5, 1998.

         (e) RETIREMENT OPTIONS. Each Participant who has elected, in connection
with the termination of the Medtronic, Inc. Directors' Retirement Plan (the
"Retirement Plan"), to receive Options pursuant to this Section 5(e) shall be
granted as of March 5, 1998, an Option (a "Retirement Option") to purchase that
number of Shares equal to (i) four times

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the amount of such Participant's accrued benefit under the Retirement Plan as of
March 5, 1998, divided by (ii) the Fair Market Value of a Share on the date of
grant.

         (f) DISCRETIONARY OPTIONS. The Board or the Committee may, in its
discretion, at any time or from time to time grant to any Non-Employee Director
additional Options ("Discretionary Options") to purchase such number of Shares,
on such terms and conditions, as it shall determine.

         (g) PURCHASE PRICE; TERM AND EXERCISABILITY OF OPTIONS. The purchase
price of each Share subject to an Option shall be the Fair Market Value of a
Share as of the date the Option is granted. Options granted to a Non-Employee
Director under this Section 5 shall vest and be exercisable in full on the date
of grant, except to the extent the Board provides otherwise with respect to
Discretionary Options; provided, however, that in no event shall a Non-Employee
Director initially appointed by the Board be entitled to exercise an Option
unless, and until such time as, such director shall have been elected to the
Board by the shareholders of the Company. Notwithstanding the foregoing, except
as otherwise provided by the Board with respect to Discretionary Options,
vesting of an Option granted to a Non-Employee Director who shall have been
elected by the shareholders of the Company shall accelerate and the Option shall
become immediately exercisable in full upon the occurrence of a Change in
Control or in the event that the Non-Employee Director ceases to serve as a
director of the Company due to death, Disability, resignation or retirement
under the policies of the Company then in effect. Options shall expire on the
ten-year anniversary date of the Option's grant; provided, that Initial Options
and Annual Options (but not Replacement Options or Retirement Options) shall
expire on the five-year anniversary date of the date the Non-Employee Director
ceases to be a director of the Company for any reason, if earlier than the
ten-year anniversary date of the Option's grant; and provided, further, that the
Initial Option granted to a Non-Employee Director initially appointed by the
Board shall expire on the date such director ceases to be a director of the
Company unless such director shall have been elected by the shareholders
subsequent to the grant of the Initial Option to such director.

         (h) PAYMENT OF OPTION 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; provided, that to the extent permitted by law, Participants may
simultaneously exercise Options and sell the Shares thereby acquired pursuant to
a brokerage or similar relationship and use the proceeds from such sale to pay
the purchase price of such Shares. The purchase price may also be paid in cash,
or through a reduction of the number of Shares delivered to the Participant upon
exercise of the Option or by delivery to the Company of Shares held by such
Participant for at least six months before such exercise (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 pursuant to the Option), or
a combination thereof, in the discretion of the Participant. In no event shall
any Option be exercisable at any time after its Term. When an Option is no
longer exercisable, it shall be deemed to have lapsed or terminated.

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         (i) TRANSFERABILITY. A Non-Employee Director may transfer an Option
granted pursuant to this Section 5 to any member of such Non-Employee Director's
"immediate family" (as such term is defined in Rule 16a-1(e) promulgated under
the Exchange Act, or any successor rule or regulation) or to one or more trusts
whose beneficiaries are members of such Non-Employee Director's "immediate
family" or partnerships in which such family members are the only partners;
provided, that (i) the transferor receives no consideration for the transfer and
(ii) such transferred Option shall continue to be subject to the same terms and
conditions as were applicable to such Option immediately prior to its transfer.
Unless an Option granted pursuant to this Section 5 shall have expired, in the
event of a Non-Employee Director's death, an Option granted to such Non-Employee
Director pursuant to this Section 5 shall be transferable to the beneficiary, if
any, designated by the Non-Employee Director in writing to the Company prior to
the Non-Employee Director's death and such beneficiary shall succeed to the
rights of the Non-Employee Director to the extent permitted by law. If no such
designation of a beneficiary has been made, the Non-Employee Director's legal
representative shall succeed to such Option, which shall be transferable by will
or pursuant to the laws of descent and distribution.

         6. DEFERRED STOCK UNITS.

         (a) ANNUAL CREDIT. As of the last day of each Plan Year, there shall be
credited to the Account of each Participant who is a Non-Employee Director on
such day a number of Deferred Stock Units (each representing the right to
receive a Share) equal to (i) one-half of the Annual Retainer in effect as of
such day, times the Pro-Ration Factor, divided by (ii) the average of the Fair
Market Value of a Share on each of the last 20 trading days during such Plan
Year determined in accordance with clause (i) of Section 2(p) or, if clause (i)
of Section 2(p) is inapplicable, the Fair Market Value of a Share as of the last
day of such Plan Year determined in accordance with clause (ii) of Section 2(p).
There shall be credited to the Account of any Non-Employee Director who retires
from the Board prior to the last day of the Plan Year, as of the retirement
date, a number of Deferred Stock Units equal to (i) one-half of the Annual
Retainer in effect as of such date, times the Pro-Ration Factor, divided by (ii)
the average of the Fair Market Value of a Share on each of the last 20 trading
days during such Plan Year determined in accordance with Section 2(p).

         (b) RETIREMENT PLAN CREDIT. The Account of each Participant who has
elected, in connection with the termination of the Retirement Plan, to be
credited with Deferred Stock Units pursuant to this Section 6(b) shall be
credited, as of March 5, 1998, with a number of Deferred Stock Units (each
representing the right to receive a Share) equal to (i) the amount of such
Participant's accrued benefit under the Retirement Plan as of March 5, 1998,
divided by (ii) the average of the Fair Market Value of a Share on each of the
last 20 trading days ending with March 5, 1998 determined in accordance with
clause (i) of Section 2(p) or, if clause (i) of Section 2(p) is inapplicable,
the Fair Market Value of a Share as of the last day of such Plan Year determined
in accordance with clause (ii) of Section 2(p).

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         (c) DISCRETIONARY CREDITS. The Board or the Committee may, in its
discretion, at any time and from time to time, cause additional Deferred Stock
Units (each representing the right to receive a Share) to be credited to the
account of any Non-Employee Director.

         (d) CREDITS OF DIVIDEND EQUIVALENTS; MAINTENANCE OF ACCOUNTS. The
Company shall maintain an Account for each Participant to which the credits
provided for in Sections 6(a), (b) and (c) above shall be made. Each
Participant's Account shall be credited from time to time with additional
Deferred Stock Units to reflect deemed reinvestment of any amounts that would
have been paid as cash dividends with respect to the Deferred Stock Units held
in such Account if they were Shares. Subject to the provisions of Section 6(e)
regarding delivery of Shares, Accounts may be credited with fractional Deferred
Stock Units pursuant to this Section 6(d) and Sections 6(a), (b) and (c).

         (e) DELIVERY OF SHARES FROM ACCOUNTS.

                  (i) Each Participant shall be provided the opportunity to
elect, in accordance with procedures established by the Committee, whether to
receive the balance in his or her account in a single lump sum or in five annual
installments. Once made, such an election may be changed, but no such changed
election shall take effect until six months after the date the election is made,
and in any event such changed election shall not take effect unless it is (A)
made at least six months before deliveries pursuant to Section 6(e)(ii) begin
and (B) approved by the Board or a committee of the Board if the Committee
determines that such approval is necessary or appropriate in light of Exchange
Act Rule 16b-3.

                  (ii) The balance in a Participant's Account shall be delivered
to the Participant or the Participant's Successor in the form of Shares as soon
as practicable after, or beginning as soon as practicable after, the date on
which the Participant ceases for any reason to be a member of the Board (the
"Termination Date"). If a Participant has elected a lump sum delivery, or if a
Participant dies while a member of the Board, the Participant or the
Participant's Successor, as applicable, shall receive a number of Shares equal
to the total number of Deferred Stock Units in the Participant's Account as of
the Termination Date in full satisfaction of all of the Participant's interest
in the Account; provided, that any fractional Deferred Stock Units shall be
rounded to the nearest higher whole number of Shares. If a Participant has
elected installment delivery and ceases to be a member of the Board for any
reason other than the death of the Participant, then the Participant shall
receive the balance in such Participant's Account in the form of five annual
deliveries of Shares (and if a Participant dies after ceasing to be a Board
member, any remaining annual deliveries shall be made to the Participant's
Successor). The precise number of shares delivered in each installment shall be
determined in such a manner as to cause each such delivery to represent
approximately one-fifth of the Deferred Stock Units held in such Account as of
the Termination Date together with any dividend equivalents credited thereon.
Notwithstanding the foregoing, no such installment shall be delivered unless and
until the Board or the Committee shall have

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approved the delivery (unless such approval is not necessary under Exchange Act
Rule 16b-3).

                  (iii) Notwithstanding the foregoing, the balance in all
Participants' Accounts shall be delivered to the Participants in a single lump
sum delivery of Shares upon the occurrence of a Change of Control.

         7. GENERAL PROVISIONS.

         (a) EFFECTIVE DATE OF THIS PLAN. This Plan shall become effective as of
March 5, 1998.

         (b) DURATION OF THIS PLAN. This Plan shall remain in effect until it is
terminated pursuant to Section 7(d) hereof.

         (c) NO RIGHT TO BOARD MEMBERSHIP. Nothing in this Plan or in any
Agreement shall confer upon any Participant the right to continue as a member of
the Board.

         (d) AMENDMENT, MODIFICATION AND TERMINATION OF THIS PLAN. Except as
provided in this Section 7(d), the Board may at any time amend, modify,
terminate or suspend this Plan or any or all Agreements under this Plan to the
extent permitted by law. No termination, suspension or modification of this Plan
may materially and adversely affect any right acquired by any Participant (or a
Participant's legal representative) or any Successor under an Award granted
before the date of termination, suspension or modification, unless otherwise
agreed by the Participant in the Agreement or otherwise or required as a matter
of law. It is conclusively presumed that any adjustment for changes in
capitalization provided for in Section 7(e) hereof does not adversely affect any
right of a Participant under an Award.

         (e) ADJUSTMENT FOR CHANGES IN CAPITALIZATION. Appropriate adjustments
in the aggregate number and type of Shares available for Awards under this Plan,
in the number and type of Shares subject to Awards then outstanding and in the
Option exercise price as to any outstanding Options and in the number of Defined
Stock Units in the Accounts, may be made by the Committee in its sole discretion
to give effect to adjustments made in the number or type of Shares through a
Fundamental Change, recapitalization, reclassification, stock dividend, stock
split, stock combination, or other relevant change, provided that fractional
Shares shall be rounded to the nearest whole Share.

         (f) FUNDAMENTAL CHANGE. In the event of a proposed Fundamental Change:
(a) involving a merger, consolidation or statutory share exchange, unless
appropriate provision shall be made (which the Board may, but shall not be
obligated to, make) for the protection of the outstanding Options by the
substitution of appropriate voting common stock of the corporation surviving any
such merger or consolidation or, if appropriate, the parent corporation of the
Company or such surviving corporation, to be issuable upon the exercise of
Options, or (b) involving the dissolution or liquidation of the Company, the
Board may, but shall not be obligated to, declare, at least twenty days prior to
the

                                       11
<PAGE>

occurrence of the Fundamental Change, and provide written notice to each holder
of an Option of the declaration, that each outstanding Option, whether or not
then exercisable, shall be canceled at the time of, or immediately prior to the
occurrence of, the Fundamental Change in exchange for payment to each holder of
an Option, within 20 days after the Fundamental Change, of cash for each Share
covered by the canceled Option equal to the amount, if any, by which the Fair
Market Value (as defined in this Section 7(f)) per Share exceeds the exercise
price per Share covered by such Option. At the time of the declaration provided
for in the immediately preceding sentence, each Option shall immediately become
exercisable in full and each person holding an Option shall have the right,
during the period preceding the time of cancellation of the Option, to exercise
the Option as to all or any part of the Shares covered thereby. In the event of
a declaration pursuant to this Section 7(f), each outstanding Option that shall
not have been exercised prior to the Fundamental Change shall be canceled at the
time of, or immediately prior to, the Fundamental Change, as provided in the
declaration. Notwithstanding the foregoing, no person holding an Option shall be
entitled to the payment provided for in this Section 7(f) if such Option shall
have previously expired. For purposes of this Section 7(f) only, "Fair Market
Value" per Share means the cash plus the fair market value, as determined in
good faith by the Board, of the non-cash consideration to be received per Share
by the shareholders of the Company upon the occurrence of the Fundamental
Change, notwithstanding anything to the contrary provided in this Plan.

         (g) LIMITS OF LIABILITY.

                  (i) Any liability of the Company to any Participant with
respect to an Award shall be based solely upon contractual obligations created
by this Plan and the Agreement.

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

         (h) COMPLIANCE WITH APPLICABLE LEGAL REQUIREMENTS. No certificate for
Shares distributable pursuant to this Plan shall be issued and delivered unless
the issuance of such certificate complies with all applicable legal requirements
including, without limitation, compliance with the provisions of applicable
state securities laws, the Securities Act of 1933, as amended and in effect from
time to time or any successor statute, the Exchange Act and the requirements of
the exchanges on which the Company's Shares may, at the time, be listed.

         (i) REMOVAL FOR CAUSE. Notwithstanding any other provision of this
Plan, this Section 7(i) shall apply in the event a Participant is removed from
the Board for cause before a Change of Control. In such event: (i) all of the
Participant's Options shall immediately expire and be forfeited, and (ii) unless
the Board or the Committee

                                       12
<PAGE>

specifically determines otherwise in connection with or after such removal, the
balance in such Participant's Account shall be delivered to the Participant in a
single lump sum delivery of Shares after the expiration of six months from the
date of such removal. In addition, if the Participant has received or been
entitled to delivery of Shares pursuant to the exercise of an Option within six
months before such removal, the Board or the Committee, in its sole discretion,
may require the Participant to return or forfeit all or a portion of such Shares
and receive back the exercise price (if any) paid therefor, or may require the
Participant to pay to the Company the economic value of such Shares less such
exercise price, determined as of the date of the exercise of Options in the
event of any of the following occurrences (whether before or after such
removal): competition with the Company or any Affiliate, unauthorized disclosure
of material proprietary information of the Company or any Affiliate, a violation
of applicable business ethics policies or business policies of the Company or
any Affiliate, or any other action or event that the Board may determine
warrants such a requirement. The Board's or Committee's right to require such
return or forfeiture must be exercised within 90 days after the later of the
date of such removal or the discovery of such an occurrence, but in no event
later than 15 months after such removal.

         8. GOVERNING LAW. To the extent that federal laws do not otherwise
control, this Plan and all determinations made and actions taken pursuant to
this Plan shall be governed by the laws of Minnesota and construed accordingly.

         9. SEVERABILITY. In the event any provision of this Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of this Plan, and this Plan shall be construed and enforced
as if the illegal or invalid provision had not been included.

         10. EFFECT OF PRIOR PLAN. From and after the Effective Date of this
Plan, no further awards shall be made to Non-Employee Directors under the
Company's 1994 Stock Award Plan (the "Prior Plan"). Thereafter, all grants and
awards made under the Prior Plan prior to such Effective Date shall continue in
accordance with the terms of the Prior Plan.

                                       13

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