Document:

Prepared by MerrillDirect

ADC TELECOMMUNICATIONS, INC,

GLOBAL STOCK INCENTIVE PLAN

(as
amended and restated through February 27, 2001)

 

Section 1.  Purpose; Effect on
Prior Plan.

          (a)      Purpose.  The
purpose of the ADC Telecommunications,
Inc. Global Stock Incentive Plan (the “Plan”) is to aid in maintaining and
developing management personnel capable of assuring the future success of ADC
Telecommunications, Inc. (the “Company”), to offer such personnel incentives to
put forth maximum efforts for the success of the Company’s business and to
afford such personnel an opportunity to acquire a proprietary interest in the
Company.

          (b)      Effect On Prior Plan
 .  From and after the
effective date of the Plan, no stock options or restricted stock awards shall
be granted under the Company’s Stock Option and Restricted Stock Plan.  All outstanding stock options and restricted
stock awards previously granted under the Stock Option and Restricted Stock
Plan shall remain outstanding in accordance with the terms thereof.

Section 2.  Definitions.

          As used in the Plan, the following terms shall have the meanings
set forth below:

          (a)      “Affiliate”
shall mean (i) any entity that, directly or indirectly through one or more
intermediaries, is controlled by the Company and (ii) any entity in which the
Company has a significant equity interest, as determined by the Committee.

          (b)      “Award”
shall mean any Option, Stock Appreciation Right, Restricted Stock or
Performance Award granted under the Plan.

          (c)      “Award
Agreement” shall mean any written agreement, contract or other instrument or
document evidencing any Award granted under the Plan.

          (d)      “Code”
shall mean the Internal Revenue Code of 1986, as amended from time to time, and
any regulations promulgated thereunder.

          (e)      “Committee”
shall mean a committee of the Board of Directors of the Company designated by
such Board to administer the Plan and composed of not less than three
directors, each of whom is a “disinterested person” within the meaning of Rule
16b-3.

          (f)       
“Fair Market Value” shall mean, with respect to any property (including,
without limitation, any Shares or other securities), the fair market value of
such property determined by such methods or procedures as shall be established
from time to time by the Committee. 
Notwithstanding the foregoing, for purposes of the Plan, the Fair Market
Value of Shares on a given date shall be (i) the last sale price of the Shares
as reported on the Nasdaq National Market System on such date, if the Shares
are then quoted on the Nasdaq National Market System or (ii) the closing price
of the Shares or such date on a national securities exchange, if the shares are
then being traded an a national securities exchange.

          (g)      “Incentive
Stock Option” shall mean an option granted under Section 6(a) of the Plan that
is intended to meet the requirements of Section 422 of the Code or any
successor provision thereto.

          (h)      “Key
Employee” shall mean any employee of the Company or any Affiliate who the
Committee determines to be a key employee.

          (i)       “Non-Qualified
Stock Option” shall mean an option granted under Section 6(a) of the Plan that
is not intended to be an Incentive Stock Option.

          (j)       “Option”
shall mean an Incentive Stock Option or a Non-Qualified Stock Option.

          (k)      “Participant”
shall mean a Key Employee designated to be granted an Award under the Plan.

          (l)       “Performance
Award” shall mean any right granted under Section 6(d) of the Plan.

          (m)     “Person”
shall mean any individual, corporation, partnership, association or trust.

          (n)      “Restricted
Stock” shall mean any Share granted under Section 6(c) of the Plan.

          (o)      “Rule
16b-3” shall mean Rule 16b-3 promulgated by the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended, or any
successor rule or regulation thereto.

          (p)      “Shares”
shall mean shares of Common Stock, $.20 par value, of the Company or such other
securities or property as may become subject to Awards pursuant to an
adjustment made under Section 4(c) of the Plan.

          (q)      “Stock
Appreciation Right” shall mean any right granted under Section 6(b) of the
Plan.

Section 3.  Administration.

          (a)      Power and Authority of the Committee
.  The Plan shall be
administered by the Committee.  Subject
to the terms of the Plan and applicable law, the Committee shall have full
power and authority to: (i) designate Participants; (ii) determine the type or
types of Awards to be granted to each Participant under the Plan; (iii)
determine the number of Shares to be covered by (or with respect to which
payments are to be calculated in connection with) Awards; (iv) determine the
terms and conditions of any Award or Award Agreement; (v) amend the terms and
conditions of any Award or Award Agreement and accelerate the exercisability of
Options or the lapse of restrictions relating to Restricted Stock; (vi) determine
whether, to what extent and under what circumstances Awards may be exercised in
cash, Shares, other securities, other Awards or other property, or canceled,
forfeited or suspended; (vii) determine whether, to what extent and under what
circumstances cash or Shares payable with respect to an Award under the Plan
shall be deferred either automatically or at the election of the holder thereof
or the Committee; (viii) interpret and administer the Plan and any instrument
or agreement relating to, or Award made under, the Plan; (ix) establish, amend,
suspend or waive such rules and regulations and appoint such agents as it shall
deem appropriate for the proper administration of the Plan; and (x) make any
other determination and take any other action that the Committee deems
necessary or desirable for the administration of the Plan.  Unless otherwise expressly provided in the
Plan, all designations, determinations, interpretations and other decisions
under or with respect to the Plan or any Award shall be within the sole
discretion of the Committee, may be made at any time and shall be final,
conclusive and binding upon any Participant, any holder or beneficiary of any
Award and any employee of the Company or any Affiliate.

          (b)      Meetings of the Committee.  The Committee shall
select one of its members as its chairman and shall hold its meetings at such
times and places as the Committee may determine.  A majority of the Committee’s members shall constitute a quorum.  All determinations of the Committee shall be
made by not less than a majority of its members.  Any decision or determination reduced to writing and signed by
all of the members of the Committee shall be fully effective as if it had been
made by a majority vote at a meeting duly called and held.  The Committee may appoint a secretary and
may make such rules and regulations for the conduct of its business as it shall
deem advisable.

Section 4.  Shares Available for
Awards.

          (a)      Shares Available
 .  Subject to adjustment as
provided in Section 4(c), the number of Shares available for granting Awards
under the Plan shall be 181,246,832.  If
any Shares covered by an Award or to which an Award relates are not purchased
or are forfeited, or if an Award otherwise terminates without delivery of any
Shares or cash payments to be received thereunder, then the number of Shares
counted against the aggregate number of Shares available under the Plan with
respect to such Award, to the extent of any such forfeiture or termination,
shall again be available for granting Awards under the Plan.  In addition, any Shares that are used by a
Participant as full or partial payment to the Company of the purchase price of
Shares acquired upon exercise of an Option shall again be available for granting
Awards.

          (b)      Accounting for Awards
 .  For purposes of this
Section 4,

          (i)       if an Award entitles the holder thereof to
receive or purchase
Shares, the number of Shares covered by such Award or to which such Award
relates shall be counted on the date of grant of such Award against the
aggregate number of Shares available for granting Awards under the Plan; and

          (ii)      if an Award entitles the holder to receive cash
payments but the
amount of such payments are denominated in or based on a number of Shares, such
number of Shares shall be counted on the date of grant of such Award against
the aggregate number of Shares available for granting Awards under the Plan;

provided, however,
that Awards that operate in tandem with (whether granted simultaneously with or
at a different time from), or that are substituted for, other Awards may be
counted or not counted under procedures adopted by the Committee in order to
avoid double counting.

          (c)      Adjustments. 
In the event that the Committee shall
determine that any dividend or other distribution (whether in the form of cash,
Shares, other securities or other property), recapitalization, stock split,
reverse stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase or exchange of Shares or other securities of the
Company, issuance of warrants or other rights to purchase Shares or other
securities of the Company or other similar corporate transaction or event
affects the Shares such that an adjustment is determined by the Committee to be
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan, then the
Committee shall, in such manner as it may deem equitable, adjust any or all of
(i) the number and type of Shares (or securities or other property) which
thereafter may be made the subject of Awards, (ii) the number and type of
Shares (or securities or other property) subject to outstanding Awards and
(iii) the exercise price with respect to any Award; provided, however, that the
number of Shares covered by any Award or to which such Award relates shall
always be a whole number.

          (d)      Incentive Stock Options.  Notwithstanding the
foregoing, the number of Shares available for granting Incentive Stock Options
under the Plan shall not exceed 181,246,832, subject to adjustment as provided
in the Plan and Section 422 or 424 of the Code.

Section 5.  Eligibility.

          Any Key Employee, including any Key Employee who is an officer or
director of the Company or any Affiliate, shall be eligible to be designated a
Participant; provided, however, that an Incentive Stock Option shall not
be granted to an employee of an Affiliate unless such Affiliate is also a
“subsidiary corporation” of the Company within the meaning of Section 424(f) of
the Code.

Section 6.  Awards.

          (a)      Options.  The
Committee is hereby authorized to grant
Options to Participants with the following terms and conditions and with such
additional terms and conditions not inconsistent with the provisions of the
Plan as the Committee shall determine:

          (i)       Exercise
Price.  The purchase price per Share purchasable under an Option shall be
determined by the Committee; provided, however, that such purchase
price shall not be less than the Fair Market Value of a Share on the date of
grant of such Option.

          (ii)      Option Term. 
The term of each Option
shall be fixed by the Committee, but such term shall not exceed 10 years from
the date on which such Option is granted.

          (iii)     Time and
Method of Exercise.  The Committee shall determine the time or times at which an Option
may be exercised in whole or in part and the method or methods by which, and
the form or forms (including, without limitation, cash, Shares, other
securities, other Awards or other property, or any combination thereof, having
a Fair Market Value on the exercise date equal to the relevant exercise price)
in which, payment of the exercise price with respect thereto may be made or
deemed to have been made.

          (b)      Stock Appreciation Rights.  The Committee is hereby
authorized to grant Stock Appreciation Rights to Participants subject to the
terms of the Plan and any applicable Award Agreement.  A Stock Appreciation Right granted under the Plan shall confer on
the holder thereof a right to receive upon exercise thereof the excess of (i)
the Fair Market Value of one Share on the date of exercise (or, if the
Committee shall so determine, at any time during a specified period before or
after the date of exercise) over (ii) the grant price of the Stock Appreciation
Right as specified by the Committee, which price shall not be less than the
Fair Market Value of one Share on the date of grant of the Stock Appreciation
Right.  Subject to the terms of the Plan
and any applicable Award Agreement, the grant price, term, methods of exercise,
dates of exercise, methods of settlement and any other terms and conditions of
any Stock Appreciation Right shall be as determined by the Committee.  The Committee may impose such conditions or
restrictions on the exercise of any Stock Appreciation Right as it may deem
appropriate.

          (c)      Restricted Stock
 .  The Committee is hereby
authorized to grant Awards of Restricted Stock to Participants with the
following terms and conditions and with such additional terms and conditions
not inconsistent with the provisions of the Plan as the Committee shall
determine:

          (i)       Restrictions
 .  Shares of Restricted
Stock shall be subject to such restrictions as the Committee may impose
(including, without limitation, any limitation on the right to vote a Share of
Restricted Stock or the right to receive any dividend or other right or
property with respect thereto), which restrictions may lapse separately or in
combination at such time or times, in such installments or otherwise as the
Committee may deem appropriate.

 

          (ii)      Stock
Certificates.  Any Restricted Stock granted under the Plan shall be evidenced by
issuance of a stock certificate or certificates.  Such certificate or certificates shall be registered in the name
of the Participant and shall bear an appropriate legend referring to the terms,
conditions and restrictions applicable to such Restricted Stock.

          (iii)     Forfeiture;
Delivery of Shares.  Except as otherwise determined by the Committee, upon termination
of employment (as determined under criteria established by the Committee)
during the applicable restriction period, all Shares of Restricted Stock at
such time subject to restriction shall be forfeited and reacquired by the
Company; provided,
however, that the Committee may, when it finds that a waiver would
be in the best interest of the Company, waive in whole or in part any or all
remaining restrictions with respect to Shares of Restricted Stock.  Shares representing Restricted Stock that is
no longer subject to restrictions shall be delivered to the holder thereof
promptly after the applicable restrictions lapse or are waived.

          (iv)     Limit on
Restricted Stock Awards.  Grants of Restricted Stock shall be subject
to the limitations set forth in Section 6(e) hereof.

          (d)      Performance Awards
 .  The Committee is hereby
authorized to grant Performance Awards to Participants subject to the terms of
the Plan and any applicable Award Agreement. 
A Performance Award granted under the Plan (i) shall be granted and
payable in Shares (including, without limitation, Restricted Stock) and (ii)
shall confer on the holder thereof the right to receive shares upon the
achievement of such performance goals during such performance periods as the
Committee shall establish.  Subject to
the terms of the Plan and any applicable Award Agreement, the performance goals
to be achieved during any performance period, the length of any performance
period, the amount of any Performance Award granted and the number of shares to
be issued pursuant to any Performance Award shall be determined by the
Committee.  Grants of Performance Awards
shall be subject to the limitations set forth in Section 6(e) hereof.

          (e)      Limit on Restricted Stock and Performance Awards
.  The maximum number of
Shares under the Plan available for grants of Restricted Stock and Performance
Awards, in the aggregate, shall be 4,000,000 Shares.

          (f)       General.

          (i)       No Cash
Consideration for Awards.  Awards shall be granted for no cash
consideration or for such minimal cash consideration as may be required by
applicable law.

                    (ii)      Awards May
Be Granted Separately or Together.  Awards may, in the discretion of the
Committee, be granted either alone or in addition to, in tandem with or in
substitution for any other Award or any award granted under any plan of the
Company or any Affiliate other than the Plan. 
Awards granted in addition to or in tandem with other Awards or in
addition to or in tandem with awards granted under any such other plan of the
Company or any Affiliate may be granted either at the same time as or at a
different time from the grant of such other Awards or awards.

          (iii)     Forms of
Payment Under Awards.  Subject to the terms of the Plan and of any applicable Award
Agreement, payments to be made by the Company or an Affiliate upon the grant,
exercise or payment of an Award may be made in Shares, cash or a combination
thereof as the Committee shall determine, and may be made in a single payment,
in installments or on a deferred basis, in each case in accordance with rules
and procedures established by the Committee. 
Such rules and procedures may include, without limitation, provisions
for the payment or crediting of reasonable interest on installments or deferred
payments.

          (iv)     Limits On
Transfer of Awards.  No Award and no right under any such Award shall be assignable,
alienable, salable or transferable by a Participant otherwise than by will or
by the of descent and distribution; provided, however, that a Participant may,
in the manner established by the Committee,

          (A)     designate a beneficiary or beneficiaries to exercise the
rights of
the Participant and receive any property distributable with respect to any
Award upon the death of the Participant, or

          (B)     transfer a Non-Qualified Stock Option to any member of such

Participant’s immediate family (which, for purposes of this clause (B) shall
mean such Participant’s children, grandchildren or current spouse) or to one or
more trusts established for the exclusive benefit of one or more such immediate
family members or partnerships in which the Participant or such immediate
family members are the only partners, provided that (1) there is no
consideration for such transfer, and (2) the Non-Qualified Stock Options held
by such transferees continue to be subject to the same terms and conditions
(including restrictions or subsequent transfers) as were applicable to such
Non-Qualified Stock Options immediately prior to their transfer.

Each Award or right under
any Award shall be exercisable during the Participant’s lifetime only by the
Participant, by a transferee pursuant to a transfer permitted by clause (B) of
this Section 6(f)(iv), or, if permissible under applicable law, by the
Participant’s or such transferee’s guardian or legal representative.  No Award or right under any such Award may
be pledged, alienated, attached or otherwise encumbered, and any purported
pledge, alienation, attachment or encumbrance thereof shall be void and
unenforceable against the Company or any Affiliate.

          (v)      Term of
Awards.  Subject to the terms of the Plan, the term of each Award shall be
for such period as may be determined by the Committee.

 

          (vi)     Rule 16b-3
Six-Month Limitations.  To the extent required in order to comply with Rule 16b-3 only,
any equity security offered pursuant to the Plan may not be sold for at least
six months after acquisition, except in the case of death or disability, and
any derivative security issued pursuant to the Plan shall not be exercisable
for at least six months, except in case of death or disability.  Terms used in the preceding sentence shall,
for the purposes of such sentence only, have the meanings, if any, assigned or
attributed to them under Rule 16b-3.

          (vii)    Restrictions;
Securities Exchange Listing.  All certificates for Shares delivered under
the Plan pursuant to any Award or the exercise thereof shall be subject to such
stop transfer orders and other restrictions as the Committee may deem advisable
under the Plan or the rules, regulations and other requirements of the
Securities and Exchange Commission and any applicable federal or state
securities laws, and the Committee may cause a legend or legends to be placed
on any such certificates to make appropriate reference to such
restrictions.  If the Shares are traded
on a securities exchange, the Company shall not be required to deliver any
Shares covered by an Award unless and until such Shares have been admitted for
trading on such securities exchange.

          (viii)    Award
Limitations Under the Plan.  No Participant may be granted any Award or
Awards under the Plan, the value of which Award or Awards are based solely on
an increase in the value of Shares after the date of grant of such Award or
Awards, for more than 4,000,000 Shares, in the aggregate, in any one calendar
year period beginning with the 1994 calendar year.  The foregoing annual limitation specifically includes the grant
of any Awards representing qualified performance-based compensation, within the
meaning of Section 162(m) of the Code.

Section 7.  Amendment and
Termination; Adjustments.

          Except
to the extent prohibited by applicable law and unless otherwise expressly
provided in an Award Agreement or in the Plan:

          (a)      Amendments to the Plan
 .  The Board of Directors
of the Company may amend, alter, suspend, discontinue or terminate the Plan; provided,
however, that, notwithstanding any other provision of the Plan or
any Award Agreement, without the approval of the shareholders of the Company,
no such amendment, alteration, suspension, discontinuation or termination shall
be made that:

          (i)       absent such approval, would cause Rule 16b-3
to become unavailable
with respect to the Plan;

          (ii)      requires the approval of the Company’s
shareholders under any
rules or regulations of the National Association of Securities Dealers, Inc. or
any securities exchange that are applicable to the Company; or

          (iii)     requires the approval of the Company’s
shareholders under the Code
in order to permit Incentive Stock Options to be granted under the Plan.

          (b)      Amendments
to Awards.  The Committee may waive any conditions of or rights of the
Company under any outstanding Award, prospectively or retroactively, subject to
Section 7(c) of the Plan.  The Committee may not amend, alter, suspend,
discontinue or terminate any outstanding Award, prospectively or retroactively,
without the consent of the Participant or holder or beneficiary thereof.

          (c)      Prohibition on Option Repricing.  The Committee shall not
reduce the exercise price of any outstanding Option, whether through amendment,
cancellation or replacement grants, or any other means, without shareholder
approval.

          (d)      Correction of Defects, Omissions and
Inconsistencies.  The Committee may
correct any defect, supply any omission or reconcile any inconsistency in the
Plan or any Award in the manner and to the extent it shall deem desirable to
carry the Plan into effect.

Section 8.  Income Tax
Withholding; Tax Bonuses.

          (a)      Withholding. 
In order to comply with all applicable
federal or state income tax laws or regulations, the Company may take such
action as it deems appropriate to ensure that all applicable federal or state
payroll, withholding, income or other taxes, which are the sole and absolute
responsibility of a Participant, are withheld or collected from such
Participant.  In order to assist a
Participant in paying all federal and state taxes to be withheld or collected
upon exercise or receipt of (or the lapse of restrictions relating to) an
Award, the Committee, in its discretion and subject to such additional terms
and conditions as it may adopt, may permit the Participant to satisfy such tax
obligation by (i) electing to have the Company withhold a portion of the Shares
otherwise to be delivered upon exercise or receipt of (or the lapse of
restrictions relating to) such Award with a Fair Market Value equal to the
amount of such taxes or (ii) delivering to the Company Shares other than Shares
issuable upon exercise or receipt of (or the lapse of restrictions relating to)
such Award with a Fair Market Value equal to the amount of such taxes.  The election, if any, must be made on or
before the date that the amount of tax to be withheld is determined.

          (b)      Tax Bonuses. 
The Committee, in its discretion, shall have
the authority, at the time of grant of any Award under this Plan or at any time
thereafter to approve bonuses to designated Participants to be paid upon their
exercise or receipt of (or the lapse of restrictions relating to) Awards in
order to provide funds to pay all or a portion of federal and state taxes due
as a result of such exercise or receipt (or the lapse of such
restrictions).  The Committee shall have
full authority in its discretion to determine the amount of any such tax bonus.

Section 9.  General Provisions.

          (a)      No Rights to Awards
 .  No Key Employee,
Participant or other Person shall have any claim to be granted any Award under
the Plan, and there is no obligation for uniformity of treatment of Key
Employees, Participants or holders or beneficiaries of Awards under the
Plan.  The terms and conditions of
Awards need not be the same with respect to different Participants.

          (b)      Delegation.  The Committee may
delegate to one or more officers of the Company or any affiliate or a committee
of such officers the authority, subject to such terms and limitations as the
Committee shall determine, to grant Awards to Key Employees who are not
officers or directors of the Company for purposes of Section 16 of the
Securities Exchange Act of 1934, as amended.

          (c)      Granting of Awards
 .  The granting of an Award
pursuant to the Plan shall take place only when an Award Agreement shall have
been duly executed on behalf of the Company.

          (d)      No Limit on Other Compensation Arrangements
.  Nothing contained in the
Plan shall prevent the Company or any Affiliate from adopting or continuing in
effect other or additional compensation arrangements, and such arrangements may
be either generally applicable or applicable only in specific cases.

          (e)      No Right to Employment
 .  The grant of an Award
shall not be construed as giving a Participant the right to be retained in the
employ of the Company or any Affiliate. 
In addition, the Company or an Affiliate may at any time dismiss a
Participant from employment, free from any liability or any claim under the
Plan, unless otherwise expressly provided in the Plan or in any Award
Agreement.

          (f)       Governing Law
 .  The validity,
construction and effect of the Plan and any rules and regulations relating to
the Plan shall be determined in accordance with the laws of the State of
Minnesota.

          (g)      Severability. 
If any provision of the Plan or any Award is
or becomes or is deemed to be invalid, illegal or unenforceable in any
jurisdiction or would disqualify the Plan or any Award under any law deemed
applicable by the Committee, such provision shall be construed or deemed
amended to conform to applicable laws, or if it cannot be so construed or
deemed amended without, in the determination of the Committee, materially
altering the purpose or intent of the Plan or the Award, such provision shall
be stricken as to such jurisdiction or Award, and the remainder of the Plan or
any such Award shall remain in full force and effect.

          (h)      No Trust or Fund Created.  Neither the Plan nor any
Award shall create or be construed to create a trust or separate fund of any
kind or a fiduciary relationship between the Company or any Affiliate and a
Participant or any other Person.  To the
extent that any Person acquires a right to receive payments from the Company or
any Affiliate pursuant to an Award, such right shall be no greater than the
right of any unsecured general creditor of the Company or any Affiliate.

          (i)       No Fractional Shares.  No fractional Shares shall
be issued or delivered pursuant to the Plan or any Award, and the Committee
shall determine whether cash shall be paid in lieu of any fractional Shares or
whether such fractional Shares or any rights thereto shall be canceled,
terminated or otherwise eliminated.

          (j)       Headings.  Headings are given to
the Sections and subsections of the Plan solely as a convenience to facilitate
reference.  Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
the Plan or any provision thereof.

Section 10.  Effective Date of
the Plan.

          The Plan shall be effective as of the date of its approval by the
shareholders of the Company.

Section 11.  Term of the Plan.

          Awards shall be granted under the Plan during a period commencing
February 26, 1991, the date the Plan was approved by the shareholders of the
Company, through February 26, 2006, the date to which the shareholders of the
Company extended the expiration date of the Plan.  However, unless otherwise expressly provided in the Plan or in an
applicable Award Agreement, any Award theretofore granted may extend beyond the
ending date of the period stated above, and the authority of the Committee
provided for hereunder with respect to the Plan and any Awards, and the authority
of the Board of Directors of the Company to amend the Plan, shall extend beyond
the end of such period.Prepared by MerrillDirect

 

ADC TELECOMMUNICATIONS, INC.

NONEMPLOYEE DIRECTOR STOCK OPTION PLAN

(As amended and restated through February 27,
2001)

Section 1.   Purpose.

          This
plan shall be known as the “ADC Telecommunications, Inc. Nonemployee Director
Stock Option Plan” and is hereinafter referred to as the “Plan.”  The purpose of the Plan is to promote the
interests of ADC Telecommunications, Inc., a Minnesota corporation (the
“Company”), by enhancing its ability to attract and retain the services of
experienced and knowledgeable outside directors and by providing additional
incentive for such directors to increase their interest in the Company’s
long-term success and progress.

Section 2.   Administration.

          The
Plan shall be administered by a committee (the “Committee”) of three or more
persons appointed by the Board of Directors of the Company.  Grants of stock options under the Plan and
the amount and nature of the awards to be granted shall be automatic as
described in Section 6.  However, all
questions of interpretation of the Plan or of any options issued under it shall
be determined by the Committee and such determination shall be final and
binding upon all persons having an interest in the Plan.

Section 3.   Participation in
the Plan.

          Each
director of the Company shall be eligible to participate in the Plan unless
such director is an employee of the Company or any subsidiary of the Company.

Section 4.   Stock Subject to
the Plan.

          Subject
to the provisions of Section 11 hereof, the stock to be subject to options
under the Plan shall be authorized but unissued shares of the Company's common
stock, par value $.20 per share (the “Common Stock”).  Subject to adjustment as provided in Section 11 hereof, the
maximum number of shares with respect to which options may be exercised under
this Plan shall be 3,860,000 shares.  If
an option under the Plan expires, or for any reason is terminated, any shares
that have not been purchased upon exercise of the option prior to the
expiration or termination date shall again be available for options thereafter
granted during the term of the Plan.

Section 5.   Nonqualified Stock
Options.

          All
options granted under the Plan shall be nonqualified stock options which do not
qualify as incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended.

Section 6.   Terms and
Conditions of Options.

          Each
option granted under this Plan shall be evidenced by a written agreement in
such form as the Committee shall from time to time approve, which agreements
shall comply with and be subject to the following terms and conditions:

(a)      Initial
Option Grants.  An option to
purchase 24,000 shares of Common Stock shall be granted automatically on the
first business day immediately following each meeting of the Company’s shareholders
or Board of Directors during the term of the Plan to each eligible director, if
any, who is elected to the Board of Directors for the first time at such
meeting.

          (b)      Annual Option Grants.  Subject to Section 6(c) hereof, an option to
purchase 12,000 shares of Common Stock shall be granted automatically on the
first business day immediately following each annual meeting of the Company’s
shareholders held during the term of the Plan beginning with the 2000 annual
meeting of shareholders (the “Annual Option Grant Date”) to each eligible
director in office on such Annual Option Grant Date who prior to such Annual
Option Grant Date has received an option pursuant to Section 6(a) hereof; provided,
however, that, in the event that a director has attended less than 75%
of the total meetings of the Board of Directors held in the calendar year
immediately preceding such Annual Option Grant Date, such director shall be
granted an option to purchase 9,000 shares of Common Stock pursuant to this
Section 6(b).

          (c)      Return on
Equity Requirement.  No
options shall be granted pursuant to Section 6(b) hereof on any Annual Option
Grant Date if the Company's “return on equity” (as hereinafter defined) for the
fiscal year ended immediately preceding such Annual Option Grant Date was less
than 10%.  “Return on equity” shall mean
the percentage determined by dividing (i) the net income of the Company for
such fiscal year by (ii) the total shareholders’ investment in the Company as
of the end of the next preceding fiscal year. 
Net income and total shareholders’ investment shall be determined by
reference to the Company’s audited financial statements.  If the Company does not have net income for
any fiscal year, the return on equity for such fiscal year shall be deemed to
be less than 10%.

 

          (d)      Options Non-Transferable.  No option granted under the Plan shall be
transferable by the optionee otherwise than by will or by the laws of descent
and distribution as provided in Section 6(g) hereof; provided, however,
that an optionee may, in the manner established by the Committee, transfer an
option to any member of such optionee’s immediate family (which, for purposes
of this clause (d) shall mean such optionee’s children, grandchildren, or
current spouse) or to one or more trusts established for the exclusive benefit
of one or more such immediate family members or one or more partnerships in
which the Participant or such immediate family members are the only partners;
and provided further, that (1) there is no consideration for such
transfer, and (2) the options held by such transferees continue to be subject
to the same terms and conditions (including restrictions on subsequent
transfers) as were applicable to such options immediately prior to their
transfer.  During the lifetime of the
optionee, the options shall be exercisable only by such optionee.  No option or interest therein may be
transferred, assigned, pledged or hypothecated by the optionee during such
optionee’s lifetime, except as set forth at this section (d), whether by
operation of law or otherwise, or be made subject to execution, attachment or
similar process.

          (e)      Period of
Options.  Options shall
terminate upon the expiration of 10 years from the date on which they were
granted.

          (f)       Exercise of
Options.

          (i)       Options
granted under the Plan shall not be exercisable for a period of one year after
the date on which they were granted, but thereafter will be exercisable in full
at any time or from time to time during the term of the option.

          (ii)      The
exercise of any option granted hereunder shall only be effective at such time
as counsel to the Company shall have determined that the issuance and delivery
of Common Stock pursuant to such exercise will not violate any federal or state
securities or other laws.  An optionee desiring
to exercise an option may be required by the Company, as a condition of the
effectiveness of any exercise of an option granted hereunder, to agree in
writing that all Common Stock to be acquired pursuant to such exercise shall be
held for his or her own account without a view to any distribution thereof,
that the certificates for such shares shall bear an appropriate legend to that
effect and that such shares will not be transferred or disposed of except in
compliance with applicable federal and state securities laws.

          (iii)     An
optionee electing to exercise an option shall give written notice to the
Company of such election and of the number of shares subject to such
exercise.  The full purchase price of
such shares shall be tendered with such notice of exercise.  Payment shall be made to the Company in cash
(including check, bank draft or money order).

 

          (g)      Effect of
Death.  If the optionee shall
die prior to the time the option is fully exercised, such option may be
exercised at any time within two years after his or her death by the personal
representatives or administrators of the optionee or by any person or persons
to whom the option is transferred by will or the applicable laws of descent and
distribution, to the extent of the full number of shares the optionee was
entitled to purchase under the option on the date of death and subject to the
condition that no option shall be exercisable after the expiration of the term
of the option.

Section 6A.   One-Time Grant

          On April 1, 1997, benefits accrued pursuant
to the Company’s Directors’ Supplemental Retirement Plan, prior to its
termination, were converted to options for the purchase of the Company’s Common
Stock to be issued pursuant to the Plan, in accordance with the following
schedule (as adjusted to reflect stock splits occurring after such date):

 

	 

  	

Length of Service 12/96

  
  

  

  	

No. of Option Shares

  
  

  

  
	 

  	 

  	 

  
	 

  	

< 1 year

  	

3,600

  
	 

  	

2 to 3 years

  	

11,000

  
	 

  	

3 to 4 years

  	

14,600

  
	 

  	

5 to 6 years

  	

21,800

  
	 

  	

6 to 7 years

  	

25,400

  
	 

  	

10 + years

  	

36,400

  

 

          Each such option had an exercise price equal
to the market price of a share of the Common Stock as of the close of trading
on April 1, 1997.  Each such option
shall be exercisable on the earlier of the date on which a participant no longer
is a member of the Board of Directors of the Company or 9.5 years from April 1,
1997, and each unexercised option shall expire ten years from April 1, 1997.

Section 7.   Option Exercise
Price.

          The
option exercise price per share for the shares covered by each option shall be
equal to the “fair market value” of a share of Common Stock as of the date on
which the option is granted, as determined pursuant to Section 9 hereof.

Section 8.   Time for Granting
Options.

          Unless
the Plan shall have been discontinued as provided in Section 13 hereof, the
Plan shall terminate on February 26, 2006. 
No option may be granted after such termination, but termination of the
Plan shall not, without the consent of the optionee, alter or impair any rights
or obligations under any option theretofore granted.

Section 9.   Fair Market Value
of Common Stock.

          For
purposes of the Plan, the fair market value of the Common Stock on a given date
shall be (i) the last sale price of the Common Stock as reported on the Nasdaq
National Market System on such date, if the Common Stock is then quoted on the
Nasdaq National Market System, or (ii) the closing price of the Common Stock on
such date on a national securities exchange, if the Common Stock is then being
traded on a national securities exchange. If on the date as of which the fair
market value is being determined the Common Stock is not publicly traded, the
Committee shall make a good faith attempt to determine such fair market value
and, in connection therewith, shall take such actions and consider such factors
as it deems necessary or advisable.

Section 10.   Limitation of Rights.

          (a)      No Right to Continue as a Director.  Neither this Plan, nor the granting of an
option nor any other action taken pursuant to this Plan, shall constitute, or
be evidence of, any agreement or understanding, express or implied, that the
Company will retain a director for any period of time, or at any particular
rate of compensation.

          (b)      No Shareholder Rights for Options.  An optionee shall have no rights as a
shareholder with respect to the shares covered by options until the date of the
issuance to such optionee of a stock certificate therefor, and no adjustment
will be made for cash dividends or other rights for which the record date is
prior to the date such certificate is issued.

Section 11.   Adjustments to
Common Stock.

          If
there shall be any change in the Common Stock through merger, consolidation,
reorganization, recapitalization, stock dividend (of whatever amount), stock
split or other change in the corporate structure, appropriate adjustments in
the Plan and outstanding options shall be made.  In the event of any such changes, adjustments shall include,
where appropriate, changes in the aggregate number of shares subject to the
Plan, the number of shares subject to outstanding options and the option
exercise prices thereof in order to prevent dilution or enlargement of option
rights.

Section 12.   Effective Date of
the Plan.

          The
Plan shall take effect immediately upon its approval by the affirmative vote of
the holders of a majority of the shares present in person or by proxy and voted
at a duly held meeting of shareholders of the Company.

Section 13.   Amendment of the
Plan.

          The
Board may suspend or discontinue the Plan or revise or amend it in any respect
whatsoever; provided, however, that without approval of the shareholders of the
Company no revision or amendment shall be made that (a) absent such shareholder
approval, would cause Rule 16b-3, as promulgated by the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended, or any
successor rule or regulation thereto, to become unavailable with respect to the
Plan or (b) requires the approval of the Company’s shareholders under any rules
or regulations of the National Association of Securities Dealers, Inc. or any
securities exchange that are applicable to the Company.  The Board shall not alter or impair any
option theretofore granted under the Plan without the consent of the holder of
the option.

Section 14.   Governing Law.

          The Plan and all determinations made and
actions taken pursuant hereto shall be governed by the law of the State of
Minnesota and construed accordingly.

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