Document:

exv4w1

 

EXHIBIT 4.1

MEDTRONIC, INC.

CAPITAL ACCUMULATION PLAN

DEFERRAL PROGRAM

(as restated October 19, 2005 generally effective January 1, 2005)

 

 

TABLE OF CONTENTS

	 	 	 	 	 
	 	 	Page	 
	ARTICLE 1 DEFERRED COMPENSATION ACCOUNT
	 	 	2	 
	 
	 	 	 	 
	Section 1.1 Establishment of Account
	 	 	2	 
	 
	 	 	 	 
	Section 1.2 Property of Company
	 	 	2	 
	 
	 	 	 	 
	ARTICLE 2 DEFINITIONS, GENDER, AND NUMBER
	 	 	2	 
	 
	 	 	 	 
	Section 2.1 Definitions
	 	 	2	 
	 
	 	 	 	 
	Section 2.2 Gender and Number
	 	 	7	 
	 
	 	 	 	 
	ARTICLE 3 PARTICIPATION
	 	 	7	 
	 
	 	 	 	 
	Section 3.1 Who May Participate
	 	 	7	 
	 
	 	 	 	 
	Section 3.2 Time and Conditions of Participation
	 	 	7	 
	 
	 	 	 	 
	Section 3.3 Termination and Suspension of Participation
	 	 	8	 
	 
	 	 	 	 
	Section 3.4 Missing Persons
	 	 	8	 
	 
	 	 	 	 
	Section 3.5 Relationship to Other Plans
	 	 	8	 
	 
	 	 	 	 
	ARTICLE 4 ENTRIES TO ACCOUNT
	 	 	8	 
	 
	 	 	 	 
	Section 4.1 Contributions
	 	 	8	 
	 
	 	 	 	 
	Section 4.2 Crediting Rate
	 	 	11	 
	 
	 	 	 	 
	Section 4.3 Vesting
	 	 	12	 
	 
	 	 	 	 
	ARTICLE 5 DISTRIBUTION OF ACCOUNTS
	 	 	12	 
	 
	 	 	 	 
	Section 5.1 Distribution of Elective Deferral Accounts
	 	 	12	 
	 
	 	 	 	 
	Section 5.2 Distribution of Company Contribution Account
	 	 	13	 
	 
	 	 	 	 
	Section 5.3 Subsequent Election to Change Payment Terms
	 	 	13	 
	 
	 	 	 	 
	Section 5.4 Exception to Payment Terms
	 	 	13	 
	 
	 	 	 	 

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	 	 	Page	 
	 	 	 	 
	Section 5.5 Determination of Amount of Installment Payment
	 	 	17	 
	 
	 	 	 	 
	ARTICLE 6 SPECIAL RULES FOR DEFERRED STOCK UNIT ACCOUNTS
	 	 	18	 
	 
	 	 	 	 
	ARTICLE 7 CHANGE IN CONTROL PROVISIONS
	 	 	18	 
	 
	 	 	 	 
	Section 7.1 Application of Article 7
	 	 	18	 
	 
	 	 	 	 
	Section 7.2 Payments to and by the Trust
	 	 	18	 
	 
	 	 	 	 
	Section 7.3 Legal Fees and Expenses
	 	 	18	 
	 
	 	 	 	 
	Section 7.4 Late Payment and Additional Payment Provisions
	 	 	18	 
	 
	 	 	 	 
	ARTICLE 8 FUNDING
	 	 	19	 
	 
	 	 	 	 
	Section 8.1 Source of Benefits
	 	 	19	 
	 
	 	 	 	 
	Section 8.2 No Claim on Specific Assets
	 	 	19	 
	 
	 	 	 	 
	ARTICLE 9 ADMINISTRATION
	 	 	19	 
	 
	 	 	 	 
	Section 9.1 Administration
	 	 	19	 
	 
	 	 	 	 
	Section 9.2 Powers of Committee
	 	 	19	 
	 
	 	 	 	 
	Section 9.3 Actions of the Committee
	 	 	20	 
	 
	 	 	 	 
	Section 9.4 Delegation
	 	 	20	 
	 
	 	 	 	 
	Section 9.5 Reports and Records
	 	 	20	 
	 
	 	 	 	 
	Section 9.6 Claims Procedure
	 	 	20	 
	 
	 	 	 	 
	ARTICLE 10 AMENDMENTS AND TERMINATION
	 	 	21	 
	 
	 	 	 	 
	Section 10.1 Amendments
	 	 	21	 
	 
	 	 	 	 
	Section 10.2 Termination
	 	 	21	 
	 
	 	 	 	 
	ARTICLE 11 MISCELLANEOUS
	 	 	22	 
	 
	 	 	 	 
	Section 11.1 No Guarantee of Employment or Contract to Perform Services
	 	 	22	 
	 
	 	 	 	 
	Section 11.2 Release
	 	 	22	 
	 
	 	 	 	 

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	 	 	Page	 
	 	 	 	 
	Section 11.3 Notices
	 	 	22	 
	 
	 	 	 	 
	Section 11.4 Nonalienation
	 	 	22	 
	 
	 	 	 	 
	Section 11.5 Tax Liability
	 	 	22	 
	 
	 	 	 	 
	Section 11.6 Captions
	 	 	22	 
	 
	 	 	 	 
	Section 11.7 Applicable Law
	 	 	22	 
	 
	 	 	 	 
	Section 11.8 Invalidity of Certain Provisions
	 	 	23	 
	 
	 	 	 	 
	Section 11.9 No Other Agreements
	 	 	23	 
	 
	 	 	 	 
	Section 11.10 Incapacity
	 	 	23	 
	 
	 	 	 	 
	Section 11.11 Payment Made as Soon as Administratively Reasonable
	 	 	23	 
	 
	 	 	 	 
	Section 11.12 Electronic Media
	 	 	23	 
	 
	 	 	 	 
	SCHEDULE A — Minimum Compensation Level of Sales Force Members Considered to be Executives
Under the Plan
	 	 	 	 
	 
	 	 	 	 
	SCHEDULE B — Crediting Rate
	 	 	 	 

iii

 

MEDTRONIC, INC.

CAPITAL ACCUMULATION PLAN

DEFERRAL PROGRAM

(as restated October 19, 2005 generally effective January 1, 2005)

     Medtronic, Inc. (the “Company”) established this Medtronic, Inc. Capital Accumulation Plan
Deferral Program (the “Plan”) for the benefit of the Executives of the Company and certain of its
Affiliates, effective January 1, 1989. The Plan has been amended and restated from time to time
since its establishment. The most recent restatement was effective November 1, 1998. Since that
restatement the Plan has been amended to effect certain changes, one of which is the inclusion of
the Company’s outside directors as individuals eligible to participate. The Company hereby again
restates the Plan to incorporate the amendments made to the Plan since the last restatement,
comply with the requirements of Code Section 409A and reflect certain other changes in the design
and operation of the Plan.

     This restatement applies, generally, to amounts deferred under the Plan on or after January
1, 2005. This restatement also amends the payment provisions of the Plan with respect to amounts
deferred under the Plan prior to and during the 2005 Plan Year.

     In the case of Participants who are employees, the Plan is intended to be (and shall be
construed and administered as) an employee benefit pension plan under the provisions of ERISA,
which is unfunded and maintained primarily for the purpose of providing deferred compensation for a
select group of management or highly-compensated employees, as described in Sections 201(2),
301(a)(3) and 401(a)(1) of ERISA.

     The Plan is not intended to be qualified under Section 401(a) of the Code. The Plan, as
restated herein, is subject to, and intended to comply with, Section 409A of the Code and has
been prepared in reliance on IRS Notice 2005-1 and the Proposed Regulations issued under Section
409A of the Code on October 4, 2005. To the extent that this restatement changes the payment
terms of amounts previously deferred under the Plan, such changes are intended to comply, and be
made in accordance, with the transition rules set forth in IRS Notice 2005-1, as modified by the
above-mentioned Proposed Regulations, which allow changes in payment terms for previously
deferred amounts.

     The obligation of the Company to make payments under the Plan constitutes an unsecured (but
legally enforceable) promise of the Company to make such payments and no person, including any
Participant or Beneficiary under the Plan, shall have any lien, prior claim or other security
interest in any property of the Company as a result of the Plan.

 

 

     ARTICLE
1. DEFERRED COMPENSATION ACCOUNT

     Section 1.1. Establishment of Account. The Company shall establish one or
more Accounts for each Participant which shall be utilized solely as a device to measure and
determine the amount of deferred compensation to be paid under the Plan.

     Section 1.2. Property of Company. Any amounts set aside for benefits
payable under the Plan are the property of the Company, except, and to the extent, provided in
the Trust.

     ARTICLE
2. DEFINITIONS, GENDER, AND NUMBER

     Section 2.1. Definitions. Whenever used in the Plan, the following words
and phrases shall have the meanings set forth below unless the context plainly requires a
different meaning, and when a defined meaning is intended, the term is capitalized.

     2.1.1. “Account” means a bookkeeping account established by
the Company on its books and records to record and determine the benefits payable
to a Participant or Beneficiary under the Plan. The Company shall establish a
separate Account on behalf of a Participant for:

     (a) Each Deferral Election Agreement entered into by the
Participant pursuant to Section 4.1.1, termed an “Elective Deferral
Account;”

     (b) Each Company Contribution made on the Participant’s behalf
pursuant to Section 4.1.2, termed a “Company Contribution Account;”
and

     (c) Each deferral of Stock Units made by the Participant under
the Plan as in effect prior to the Restatement Effective Date, as
described in Article 6 herein; termed a “Deferred Stock Unit
Account.”

     The Committee may establish any number of sub-accounts on behalf of a
Participant or Beneficiary as the Committee considers necessary or advisable for
purposes of maintaining a proper accounting of amounts to be credited under the
Plan on behalf of a Participant or Beneficiary.

     2.1.2. “Affiliate” or “Affiliates” means any
corporation that is a member of a controlled group of corporations (as defined in
Section 414(b)
of the Code) which includes the Company and any trade or business (whether or
not incorporated) which is under common control (as defined in Section 414(c) of
the Code) with the Company.

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     2.1.3. “Base Salary” of a Participant for any period means the
Participant’s total salary and wages from all Affiliates for such period, including
any amount which would be included in the definition of Base Salary, but for the
individual’s election to defer some of his or her salary pursuant to the Plan or
any other deferred compensation plan established by an Affiliate; but excluding
disability pay any other remuneration paid by Affiliates, such as overtime,
incentive compensation, stock options, distributions of compensation previously
deferred, restricted stock, allowances for expenses (including moving, travel
expenses, and automobile allowances), and fringe benefits whether payable in cash
or in a form other than cash. In the case of an individual who is a participant in
a plan sponsored by an Affiliate that is described in Section 401(k), 125 or 132(f)
of the Code, the term Base Salary shall include any amount that would be included
in the definition of Base Salary but for the individual’s election to reduce his or
her salary and have the amount of the reduction contributed to or used to purchase
benefits under such plan. In the case of a Director, the term “Base Salary” shall
mean the Director’s annual retainer, meeting fees, and any other amounts payable to
the Director by the Company for services performed as a Director, excluding any
amounts distributable under the Plan or amounts not paid in cash.

     2.1.4. “Beneficiary” or “Beneficiaries” means the
persons or trusts designated by a Participant in writing pursuant to Section
5.4.1(c) of the Plan as being entitled to receive any benefit payable under the
Plan by reason of the death of a Participant, or, in the absence of such
designation, the persons specified in Section 5.4.1(d) of the Plan.

     2.1.5. “Board” means the Board of Directors of the Company as
constituted at the relevant time.

     2.1.6. “Code” means the Internal Revenue Code of 1986, as
amended from time to time and any successor statute. References to a Code section
shall be deemed to be to that section or to any successor to that section.

     2.1.7. “Committee” means the Committee or individual appointed
by the Compensation Committee of the Board (or any person or entity designated by
the Committee) to administer the Plan pursuant to Section 9.4. Until and unless
changed by the Board, the Vice President of Compensation and Benefits shall serve
as the Committee.

     2.1.8. “Company” means Medtronic, Inc. and its successors and
assigns, by merger, purchase or otherwise.

3

 

     2.1.9. “Compensation” with respect to a Participant for any
period means the sum of such Participant’s Base Salary and Incentive Compensation
for such period.

     2.1.10. “Deferral Election Agreement” means the agreement
described in Section 4.1.1 in which the Participant designates the amount of his or
her Compensation, if any, that he or she wishes to contribute to the Plan and
acknowledges and agrees to the terms of the Plan.

     2.1.11. “Director” means a member of the Board who is not an
employee of the Company.

     2.1.12. “Elective Deferral” means a contribution to the Plan
made by a Participant pursuant to a Deferral Election Agreement that the
Participant enters into with the Company. Elective Deferrals shall be made
according to the terms of the Plan set forth in Section 4.1.1.

     2.1.13. “Enrollment Period” means the period designated by the
Company during which a Deferral Election Agreement may be entered into with respect
to an Eligible Employee’s Compensation as described in Section 4.1.1. Generally,
the Enrollment Period must end no later than the end of the calendar year before
the calendar year in which the services giving rise to the Compensation to be
deferred are performed. As described in Section 4.1.1, an exception is made to
this requirement for individuals who first become eligible to participate in the
Plan, and may be made in the case of Elective Deferrals from certain types of
Incentive Compensation considered to be Performance-Based Compensation, as
determined by the Committee from time to time.

     2.1.14. “ERISA” means the Employee Retirement Income Security
Act of 1974, as amended from time to time and any successor statute. References to
an ERISA section shall be deemed to be to that section or to any successor to that
section.

     2.1.15. “Event” means an event of change in control of the
Company, as defined in the Trust.

     2.1.16. “Executive” means any United States employee who is:
(a) an Officer or a Vice President of the Company; (b) a member of the Sales Force
of a Participating Affiliate whose Compensation for the Participating Affiliate’s
fiscal year ending immediately prior to the date on which he or she first enters
into a Deferral Election Agreement equals or exceeds the
dollar amount set forth on Schedule A, hereto, which schedule may be revised
from time to time by the Company’s Chief Executive Officer in his or her
discretion; or (c) any individual designated as eligible to participate

4

 

in the Plan
by the Company’s Chief Executive Officer. Notwithstanding the preceding sentence,
in order for an employee to be an “Executive,” he or she must be considered to be a
member of a select group of management or highly compensated employees, within the
meaning of Sections 201(2), 301(3), and 401(a)(1) of ERISA and rules established by
the Committee. The Company may make such projections or estimates as it deems
desirable in applying the eligibility requirements, and its determination shall be
conclusive.

     2.1.17. “Incentive Compensation,” of a Participant for any
period, means the total remuneration of the Participant from all Affiliates for the
period under the various incentive compensation programs maintained by Affiliates,
including, but not limited to, commissions, the cash portion of the Medtronic, Inc.
2003 Long-term Incentive Plan (or any successor thereto) and any amount that would
be included in the definition of Incentive Compensation but for the individual’s
election to defer some or all of his or her Incentive Compensation pursuant to the
Plan or any other deferred compensation plan established by an Affiliate, but
excluding any other type of remuneration paid by Affiliates, such as Base Salary,
overtime, stock options, distributions of compensation previously deferred,
restricted stock, allowances for expenses (including moving expenses, travel
expenses, and automobile allowances), and fringe benefits whether payable in cash
or in a form other than cash. The Committee shall designate from time to time
those items of a Participant’s Compensation deemed to be Incentive Compensation.

     2.1.18. “Officer or Vice President” means an employee who is
either elected by the Board or appointed by the Company’s Chief Executive Officer
to such position.

     2.1.19. “Participant” means an individual who is eligible to
participate in the Plan and who has satisfied the requirements set forth in Section
3.2.

     2.1.20. “Participating Affiliate” or “Participating
Affiliates” means the Company and such Affiliates as may be designated by the
Chief Executive Officer of the Company, or his designee, from time to time.

     2.1.21. “Performance-Based Compensation,” of a Participant for
a period, means Incentive Compensation of the Participant for such period where the
amount of, or entitlement to, the Incentive Compensation is contingent on the
satisfaction of pre-established organizational or
individual performance criteria relating to a performance period of at least
12 consecutive months in which the Participant performs services. Organizational
or individual performance criteria are considered pre-

5

 

established if established in
writing by not later than 90 days after the commencement period of service to which
the criteria relates, provided that the outcome is substantially uncertain at the
time the criteria are established. Performance-based compensation may include
payment based on performance criteria that are not approved by the Board or the
Compensation Committee of the Board or by the stockholders of the Company.

     2.1.22. “Plan” means the “Medtronic, Inc. Capital Accumulation
Plan Deferral Program” as set forth herein and as amended or restated from time to
time.

     2.1.23. “Plan Year” means each January 1 through December 31.

     2.1.24. “Qualified Domestic Relations Order” has the same
meaning as in Section 414(p) of the Code.

     2.1.25. “Restatement Date” means January 1, 2005, the
effective date of this restatement.

     2.1.26. “Retirement,” of a Participant who is an Executive,
means the Participant’s Separation from Service on or after the earlier of: (a)
the last day of the calendar month in which he or she attains age 62; or (b) the
last day of the calendar month in which he or she attains age 55 and has completed
at least ten Years of Service. For these purposes, a “Year of Service” shall have
the same meaning as in the Company’s qualified retirement plans, as they may be
amended from time to time, as applied to vesting. In the case of a Director,
“Retirement” shall mean the Participant’s Separation from Service for any reason.

     2.1.27. “Sales Force” means employees of Participating
Affiliates whose primary employment responsibilities involve selling the products
manufactured by Participating Affiliates.

     2.1.28. “Separation from Service” or “Separate from
Service,” with respect to a Participant, means the Participant’s separation
from service with all Affiliates, within the meaning of Section 409A(a)(2)(A)(i)
of the Code and the regulations thereunder. Solely for these purpose, a
Participant who is an Executive will be considered to have a Separation from
Service when the Participant dies, retires, or otherwise has a termination of
employment with all Affiliates. The employment relationship is treated as
continuing intact while the Participant is on military leave, sick leave, or other
bona fide leave of absence (such as temporary employment by the government) if the
period of such leave does not exceed six months, or if longer, so long as the
individual’s rights to reemployment with the Company or any Affiliate

6

 

is provided either by statute or by contract. If the period of leave exceeds six months and
the individual’s right to reemployment is not provided either by statute or
contract, the employment relationship is deemed to terminate on the first date
immediately following such six-month period. Whether a termination of employment
has occurred is based on the facts and circumstances. A Director is considered to
have a Separation from Service when he or she ceases to perform services for the
Company as a Director and the Company does not then anticipate that the Director
will continue to perform services for the Company as a Director or employee.

     2.1.29. “Specified Employee” means a “key employee” (as
defined in Section 416(i) of the Code without regard to Section 416(i)(5)) of the
Company. For purposes hereof, an employee is a key employee if the employee meets
the requirements of Section 416(1)(A)(i), (ii) or (iii) of the Code (applied in
accordance with the regulations thereunder and disregarding Section 416(i)(5)) at
any time during the 12-month period ending on April 30. If a person is a key
employee as of this identification date, the person is treated as a Specified
Employee for the 12-month period beginning on the first day of the fourth month
following the identification date.

     2.1.30. “Stock” means the Company’s common stock $.10 par
value per share (as such par value may be adjusted from time to time).

     2.1.31. “Stock Unit” means a notational unit representing the
right to receive a share of Stock.

     2.1.32. “Trust” means the Medtronic, Inc. Compensation Trust
Agreement Number Two, as may be amended from time to time.

     Section 2.2. Gender and Number. Except as otherwise indicated by context,
masculine terminology used herein also includes the feminine and neuter, and terms used in the
singular may also include the plural.

     ARTICLE
3. PARTICIPATION

     Section 3.1. Who May Participate. Participation in the Plan is limited to
Executives and Directors.

     Section 3.2. Time and Conditions of Participation. An Executive or Director
shall become a Participant only upon his or her compliance with such terms and conditions as the Committee
may from time to time establish for the implementation of the Plan, including, but not limited to,
any condition the Committee may deem necessary or appropriate for the Company to meet its
obligations under the Plan.

7

 

     Section 3.3. Termination and Suspension of Participation. Once an individual
has become a Participant in the Plan, participation shall continue until the first to occur of:
(a) payment in full of all benefits to which the Participant or Beneficiary is entitled under the
Plan; or (b) the occurrence of an event specified in Section 3.4 which results in loss of benefits.
Except as otherwise specified in the Plan, the Company may not terminate an individual’s
participation in the Plan; provided, however, that if the Committee, in its discretion, determines
that it is likely that a Participant would not be considered to be a member of a select group of
management or highly compensated employees, within the meaning of Sections 201(2), 301(a)(3) and
401(a)(1) of ERISA, for any period, the Committee may require that no contributions be made to the
Plan by or on behalf of such Participant during such period.

     Section 3.4. Missing Persons. Each Participant and Beneficiary entitled to
receive benefits under the Plan shall be obligated to keep the Company informed of his or her
current address until all Plan benefits that are due to be paid to the Participant or Beneficiary
have been paid to him or her. If the Company is unable to locate the Participant or a Beneficiary
for purposes of making a distribution, the amount of the Participant’s benefits under the Plan that
would otherwise be considered as nonforfeitable shall be forfeited effective one year after: (a)
the last date a payment of said benefit was made, if at least one such payment was made; or (b) the
first date a payment of said benefit was directed to be made by the Company pursuant to the terms
of the Plan, if no payments have been made. If such person is located after the date of such
forfeiture, the benefits for such Participant or Beneficiary shall not be reinstated hereunder.

     Section 3.5. Relationship to Other Plans. Participation in the Plan shall not
preclude participation of the Participant in any other fringe benefit program or plan sponsored by
an Affiliate for which such Participant would otherwise be eligible.

      ARTICLE 4. ENTRIES TO ACCOUNT

     Section 4.1.
Contributions

     4.1.1. Deferrals. A Participant may elect to reduce his or her
Compensation for a Plan Year and have the amount of the reduction contributed to the Plan
on the Participant’s behalf as an Elective Deferral. A Participant wishing to make an
Elective Deferral under the Plan for a Plan Year shall enter into a Deferral
Election Agreement during the Enrollment Period immediately preceding the Plan Year. A
separate Deferral Election Agreement must be entered into for each Plan Year that a
Participant wishes to make Elective Deferrals under the Plan. The Committee may require
that a Participant enter into a separate Deferral Election Agreement for Base Compensation
and Incentive Compensation that he or she wishes to defer and, if the Participant is
eligible to receive more than one type of Incentive Compensation, that he or she enter into
a separate Deferral Election Agreement for each type of Incentive Compensation he or she is
eligible to receive.

8

 

     In order to be effective, the Deferral Election Agreement must be completed and
submitted to the Company at the time and in the manner specified by the Committee, which
may be no later than the last day of the Enrollment Period. The Company shall not accept
Deferral Election Agreements entered into after the end of the Enrollment Period.

     Notwithstanding anything in the preceding paragraph to the contrary, for the Plan Year
in which an individual first becomes eligible to participate in the Plan, he or she may
enter into a Deferral Election Agreement within 30 days after he or she first becomes
eligible. In order to be effective, the Deferral Election Agreement must be completed and
submitted to the Committee on or before the 30-day period has elapsed. The Committee shall
not accept Deferral Election Agreements entered into after the 30-day period has elapsed.
If the eligible individual fails to complete a Deferral Election Agreement by such time, he
or she may enter into a Deferral Election Agreement during any succeeding Enrollment Period
in accordance with the rules described in the preceding paragraph. For Compensation that
is earned based upon a specified performance period (for example an annual bonus) where a
Deferral Election Agreement is entered into in the first year of eligibility but after the
beginning of the service period, the Deferral Election Agreement will be deemed to apply to
Compensation paid for services performed subsequent to the date the Deferral Election
Agreement is entered into if the Deferral Election Agreement applies to the portion of the
Compensation equal to the total amount of the Compensation for the service period
multiplied by the ratio of the number of days remaining in the performance period after the
election over the total number of days in the performance period.

     Except as specified in the last sentence of the preceding paragraph and in the
following paragraph, a Deferral Election Agreement will be effective to defer Compensation
earned after the Deferral Election Agreement is entered into, and not before.

     Deferral Election Agreements for Base Salary and Incentive Compensation other than
Performance-Based Compensation, shall be completed and submitted to the Company at the time
described above that is ordinarily applicable to Deferral Election Agreements (subject to
the exception for individuals who are newly eligible to participate). Deferral Election
Agreements for Incentive
Compensation that is Performance-Based Compensation shall be completed and submitted
to the Company no later than six months before the end of the performance period for the
Incentive Compensation. The Committee shall determine from time to time whether an item of
Incentive Compensation is considered Performance-Based Compensation for these purposes.

     Each Deferral Election Agreement shall specify the amount of Compensation the
Participant wishes to have deducted from his or her

9

 

Compensation and contributed to the
Plan by type and percentage or dollar amount, subject to the following rules:

     (a) Base Compensation. Each Participant may elect to make an
Elective Deferral under the Plan for each Plan Year in an amount equal to
any whole percentage or dollar amount not in excess of 50% (100% in the
case of a Participant who is a Director) of his or her Base Compensation
(determined on a pay period basis).

     (b) Incentive Compensation. Each Participant may elect to
make an Elective Deferral under the Plan for each Plan Year in an amount
equal to any whole percentage or dollar amount not in excess of 100% of
his or her Incentive Compensation.

     (c) Minimum Elective Deferral. The Committee may from time
to time establish a minimum amount that may be deferred by a Participant
pursuant to this Section 4.1.1 for any Plan Year.

     The Company shall establish an Elective Deferral Account for each Elective Deferral
Agreement entered into by a Participant, and if more than one type of Compensation is
deferred under a Deferral Election Agreement, for each separate type of Compensation
deferred. Elective Deferrals made under the Elective Deferral Agreement shall be credited
to the Account as soon as administratively reasonable after the Compensation would have
been paid to the Participant had the Participant not elected to defer it under the Plan.

     In general, a Deferral Election Agreement shall become irrevocable as of the last day
of the Enrollment Period applicable to it. However, if a Participant incurs an
“unforeseeable emergency,” as defined in Section 5.4.5(b), or becomes entitled to receive a
hardship distribution pursuant to Treas. Reg. Sec. 1.401(k)-1(d)(3) after the Deferral
Election Agreement otherwise becomes irrevocable, the Deferral Election Agreement shall be
cancelled as of the date on which the Participant is determined to have incurred the
unforeseeable emergency or becomes eligible to receive the hardship distribution and no
further Elective Deferrals will be made under it.

     Notwithstanding anything in this Section 4.1.1 to the contrary, in all events a
Participant’s remaining Compensation, after all Elective Deferrals, must be sufficient to
enable the Company to withhold from the Participant’s pay: (a) any amounts necessary to
satisfy withholding requirements under applicable tax law; and (b) the amount of any
contributions that the Participant may be required to make or may have elected to make
under the Company’s various benefit plans.

10

 

     At the time a Participant enters into a Deferral Election Agreement, the Participant shall, as
part of such agreement, elect the time, and if applicable the form, of distribution of the Elective
Deferral Account or Accounts corresponding to the Deferral Election Agreement in accordance with
Section 5.1.

     4.1.2. Company Contributions

     (a) The Company may, in its discretion, make a contribution
to the Plan from time to time on behalf of a Participant equal to
all or a portion of amounts that would have been contributed on
behalf of the Participant under other benefit plans of the Company
if the Participant had not entered into a Deferral Election
Agreement under the Plan.

     (b) More generally, the Company may make a contribution to an
Account under the Plan on behalf of one or more Executives or
Directors in such amount and at such time and based upon such
criteria as the Company, in its sole and absolute discretion,
deems appropriate or desirable.

     The Company shall establish a separate Company Contribution Account for each
Participant for each contribution made by the Company on the Participant’s behalf
pursuant to this Section 4.1.2. The Company Contribution shall be credited to
this Account at the time and in the manner specified by the Committee. At the
time a Company Contributions Account is established, the Company shall specify the
time and manner in which it will be distributed to the Participant.

     Section 4.2. Crediting Rate. The Committee shall designate the manner in
which a Participant’s Elective Deferral Accounts and Company Contribution Accounts are to be
credited with gains and losses as described on Schedule B hereto, which Schedule may be amended
from time to time in the Committee’s discretion. If the Committee designates specific investment
funds to serve as an index for crediting gains and losses to such Accounts: (a) the Participant
shall be entitled to designate which such fund or funds shall be used to measure gains and losses
on such Accounts, and to change such designation in accordance with rules established by the Committee (in
which case, such change shall be effective prospectively); (b) the Accounts will be credited with
gains and losses as if invested in such fund or funds in accordance with the Participant’s
designation and the rules established by the Committee; and (c) the Committee may, in its sole
discretion, eliminate any investment fund or funds previously designated by it, substitute a new
investment fund or funds therefore, or add an investment fund or funds, at any time. If the
Committee makes any such investment funds available for this purpose, the Company shall have no
obligation to actually invest any amounts in any such investment funds.

11

 

     Section 4.3. Vesting. Each Elective Deferral Account will be fully vested
immediately. Each Company Contribution Account will vest in the manner specified by the Company at
the time the Company Contribution Account is established.

     ARTICLE
5. DISTRIBUTION OF ACCOUNTS

     Section 5.1.
Distribution of Elective Deferrals Accounts

     5.1.1. Time of Distribution. A Participant shall be entitled
to elect whether distribution of an Elective Deferral Account shall begin at: (a)
a specified future date, which must be at least five years after the Plan Year to
which the Deferral Election Agreement applies; or (b) the Participant’s
Retirement. If the Participant elects to have distribution commence at a
specified future date, the distribution commencement date must be specified in his
or her Deferral Election Agreement in which case distribution will commence to the
Participant as soon as administratively reasonable following the specified date.
If the Participant elects to have distributions commence at his or her Retirement,
distribution will commence to the Participant as soon as administratively
reasonable following his or her Retirement. If the Participant does not specify
the distribution commencement date of an Elective Deferral Account, the
Participant will be deemed to have elected to have distribution of the Elective
Deferral Account commence at his or her Retirement.

     5.1.2. Form of Distribution. If a Participant elects to have
distribution of an Elective Deferral Account commence at a specified date, the
Elective Deferral Account will be distributed to the Participant in a lump sum. If
the Participant elects to have distribution of an Elective Deferral Account
commence at Retirement, distribution will be made in monthly installments over a
period of 15 years. Notwithstanding the preceding sentence, for Plan Years
commencing on or after January 1, 2006, a Participant who elects to have
distribution of an Elective Deferral Account commence at Retirement shall also
elect the form of distribution
from those specified below. The permitted forms of distribution are:

     (a) lump sum; or

     (b) monthly installments over five, ten or 15 years.

     Further, any Participant who has not Separated from Service prior to November
1, 2005, and who has entered into a Deferral Election Agreement prior to that time
may enter into an amended election during the Plan Year ending December 31, 2005
(the “2005 Payment Election”) under which the Participant may change the date on
which distribution of the Account established under the Deferral Election
Agreement is to commence, consistent with Section 5.5.1, and if distribution is to

12

 

commence at Retirement, the form of payment, consistent with the forms set forth
above in this Section 5.1.2. The 2005 Payment Election shall be completed and
submitted to the Company at the time and in the manner specified by the Committee.
If a Participant fails to complete and submit a 2005 Payment Election with
respect to an Elective Deferral Account to the Company at the time and in the
manner specified by the Committee, distribution of the Account shall be made to
the Participant: (i) if the Participant had elected in his or her Deferral
Election Agreement to receive the Account at a specified date pursuant to clause
(a) of Section 5.1.1, in a lump sum on the specified date, subject to Section 5.3
and 5.4; and (ii) if the Participant had elected in his or her Deferral Election
Agreement to commence distribution of the Account at Retirement, in the form of
monthly installments over a period of 15 years commencing at Retirement, subject
to Sections 5.3 and 5.4.

     Section 5.2. Distribution of Company Contribution Account. Distribution to a
Participant of a Company Contribution Account shall be made at the time and in the manner specified
by the Company at the time the Company Contribution Account is established pursuant to Section
4.1.2, subject to Sections 5.3 and 5.4.

     Section 5.3. Subsequent Election to Change Payment Terms. A Participant may
modify a Deferral Election Agreement, and the distribution terms specified by the Company with
respect to a Company Contribution Account, to postpone the distribution commencement date and, in
the case of an Account whose distribution is scheduled to commence at Retirement, change the form
of distribution to another form permitted under Section 5.1.2. In order to be effective, the
requested modification must: (a) be in writing and be submitted to the Company at the time and in
the manner specified by the Committee; (b) not take effect for at least 12 months from the date on
which it is submitted to the Company; (c) in the case of an Account whose distribution is scheduled
to commence at a specified date pursuant to clause (a) of Section 5.1.1, be submitted to the
Company at least 12 months prior to the specified date; and (d) specify a new
distribution commencement date that is no earlier than five years after the date distribution would
otherwise have commenced. For purposes hereof, if the “specified date” referred to in clause (a)
of Section 5.1.1 is a Plan Year rather than a specified date within a Plan Year, the “specified
date” shall be deemed to be the first day of the Plan Year.

     Section 5.4. Exception to Payment Terms. Notwithstanding anything in this
Article 5 or a Participant’s Deferral Election Agreement to the contrary, the following terms, if
applicable, shall apply to the payment of a Participant’s Elective Deferral Accounts and Company
Contribution Accounts.

13

 

     5.4.1. Death.

     (a) Death After Benefit Commencement. In the event a
Participant dies after distribution of an Account has commenced to
him or her pursuant to Section 5.1 or 5.2 (as may be modified by
Section 5.3), the Participant’s remaining Account balance, if any,
shall be paid to the Participant’s Beneficiary in the same manner
the Account would have been paid to the Participant had the
Participant survived.

     (b) Death Prior to Benefit Commencement. In the
event a Participant dies prior to the date on which distribution
of an Account has commenced to him or her pursuant to Section 5.1
or 5.2 (as may be modified by Section 5.3), the Participant’s
Account shall be paid to the Participant’s Beneficiary in a lump
sum as soon as administratively reasonable following the
Participant’s death.

     (c) Designation by Participant. Each Participant has
the right to designate primary and contingent Beneficiaries for
death benefits payable under the Plan. Such Beneficiaries may be
individuals or trusts for the benefit of individuals. A
Beneficiary designation by a Participant shall be in writing on a
form acceptable to the Committee and shall only be effective upon
delivery to the Company. A Beneficiary designation may be revoked
by a Participant at any time by delivering to the Company either
written notice of revocation or a new Beneficiary designation
form. The Beneficiary designation form last delivered to the
Company prior to the death of a Participant shall control.

     (d) Failure to Designate Beneficiary. In the event
there is no Beneficiary designation on file with Company at the
Participant’s death, or if all Beneficiaries designated by a
Participant have predeceased the Participant, any benefits payable
pursuant to this Section 5.4.1 will be paid to the Participant’s
surviving spouse, if living; or if the Participant does not leave
a surviving spouse, to the Participant’s surviving issue by right
of representation; or, if there are no such surviving issue, to
the Participant’s estate. In the event there are benefits
remaining unpaid at the death of a Beneficiary and no

14

 

successor Beneficiary has been designated by the Participant,
the remaining balance of such benefit will be paid to the deceased
Beneficiary’s estate.

     5.4.2. Separation from Service. If a Participant has a
Separation from Service other than due to Retirement or death, the Participant
shall receive the balance in each of his or her Accounts in the form of monthly
installments over a five-year period. Payments pursuant to this Section 5.4.2
shall commence as soon as administratively reasonable following the date on which
the Participant has a Separation from Service.

     5.4.3. Small Account Balances. If the aggregate balance of
all of a Participant’s Accounts to be distributed on Separation from Service
pursuant to Section 5.1, 5.2 , 5.3 or 5.4.2 (determined at the time of such
separation) is less than $10,000, then the Accounts will be distributed to the
Participant in a lump as soon as administratively reasonable following the
Separation from Service.

     5.4.4. Delay in Distributions

     (a) If the Participant is a Specified Employee, any Plan
distributions that are otherwise to commence on the Participant’s
Separation from Service shall commence as soon as administratively
reasonable after the six month anniversary of the Participant’s
Separation from Service, or if earlier, the Participant’s death.

     (b) The Company shall delay the distribution of any amount
otherwise required to be distributed under the Plan if, and to the
extent that, the Company reasonably anticipates that the Company’s
deduction with respect to such distribution otherwise would be
limited or eliminated by application of Section 162(m) of the
Code. In such event, the distribution will be made at the
earliest date on which the Company reasonably anticipates that the
deduction of the distribution will not be limited or eliminated by
Section 162(m) of the Code.

     (c) The Company shall delay the distribution of any amount
otherwise required to be distributed under the Plan if, and to the
extent that, the Company reasonably anticipates that the making of
the distribution would violate Federal securities laws or other
applicable law. In such event, the distribution will be made at
the earliest date on which the Company reasonably anticipates that
the making

15

 

of the distribution will not cause such a violation.

     5.4.5. Acceleration of Distributions. All or a portion of a
Participant’s Accounts may be distributed at an earlier time and in a different
form than specified in this Article 5:

     (a) As may be necessary to fulfill a Qualified Domestic
Relations Order or a certificate of divestiture (as defined in
Code Section 1043(b)(2)).

     (b) If the Participant or Beneficiary has an unforeseeable
emergency. For these purposes an “unforeseeable emergency” is a
severe financial hardship of the Participant or Beneficiary,
resulting from an illness or accident of the Participant or
Beneficiary, the Participant’s or Beneficiary’s spouse, or the
Participant’s or Beneficiary’s dependent (as defined in Section
152(a) of the Code), loss of the Participant’s or Beneficiary’s
property due to casualty (including the need to rebuild a home
following damage to a home not otherwise covered by insurance, for
example, not as a result of a natural disaster); or other similar
extraordinary and unforeseeable circumstances arising as a result
of events beyond the control of the Participant or Beneficiary.
For example, the imminent foreclosure of or eviction from the
Participant’s or Beneficiary’s primary residence may constitute an
unforeseeable emergency. In addition, the need to pay for medical
expenses, including non-refundable deductibles, as well as for the
cost of prescription drug medication, may constitute an
unforeseeable emergency. Finally, the need to pay for funeral
expenses of a spouse or a dependent (as defined in Section 152(a)
of the Code) may also constitute an unforeseeable emergency.
Except as otherwise provided in this paragraph (b), the purchase
of a home and the payment of college tuition are not unforeseeable
emergencies. Whether a Participant or Beneficiary is faced with
an unforeseeable emergency permitting a distribution under this
paragraph (b) is to be determined based on the relevant facts and
circumstances of each case, but, in any case a distribution on
account of an unforeseeable emergency may not be made to the
extent that such emergency is or may be relieved through
reimbursement or compensation from insurance or otherwise, by
liquidation of the Participant’s assets, to the extent the
liquidation of such assets would not cause severe financial
hardship, or by

16

 

cessation of Elective Deferrals.

     Distributions because of an unforeseeable emergency must be
limited to the amount reasonably necessary to satisfy the
emergency need (which may include amounts necessary to pay any
Federal, state, or local income taxes or penalties reasonably
anticipated to result from the distribution). Determinations of
the amounts reasonably necessary to satisfy the emergency need
must take into account any additional compensation that is
available due to the Participant’s cancellation of a Deferral
Election Agreement due to unforeseeable emergency pursuant to
Section 4.1.1.

     (c) Pursuant to an election entered into in the 2005 Plan
Year according to the terms set forth in this paragraph (c). Any
Participant who has not Separated from Service prior to November
1, 2005, and who has entered into a Deferral Election Agreement
under the Plan prior to that date, may enter into an election
during the 2005 Plan Year (the “2005 Cash-out Election”) to
terminate any such Deferral Election Agreement and receive a lump
sum distribution in the 2005 Plan Year of the Elective Deferral
Account established under it. In order to be effective, the 2005
Cash-out Election must be completed and submitted to the Company
at the time and in the manner specified by the Committee.

     Section 5.5. Determination of Amount of Installment Payment. An Account to be
distributed in the form of installments will be credited with gains and losses pursuant to Section
4.2 during the payout period. The dollar amount of each installment payment will be determined as
follows. For the first Plan Year in which installment payments are to be made, the Account balance
will be determined as of the distribution commencement date (taking into account any Elective
Deferrals, vested Company contributions and gains and losses credited to the Account pursuant to
Section 4.2 as of such date). For this year, the amount of each installment payment will be
determined by dividing the Account balance, as so determined, by the total number of months that
installment payments are required to be made to exhaust the Account. For each Plan Year
thereafter, the dollar amount of each installment payment to be paid during the Plan Year will be
determined once during the year, at the beginning of the Plan Year (the “Valuation Date”), by
dividing the Account balance, determined as of the Valuation Date (taking into account gains and
losses credited to the Account pursuant to Section 4.2 and payments that have been made from the
Account as of such Valuation Date), by the total number of months
remaining, determined as of such Valuation Date, that installment payments are required to be made
to exhaust the Account.

17

 

     ARTICLE
6. SPECIAL RULES FOR DEFERRED STOCK UNIT ACCOUNTS

     Article 5 of the Plan, as in effect prior to the Restatement Date, permitted certain
Participants to defer the gain they otherwise would have realized on the exercise of stock options
granted to them by the Company and to convert that gain to the right to receive Stock at a future
date, expressed in terms of Stock Units. Each deferral of Stock Units by a Participant was
credited to a separate Deferred Stock Unit Account maintained by the Company on the Participant’s
behalf under the Plan, which Account is credited with dividend equivalents in the manner determined
by the Committee and distributed to the Participant at the time and manner elected by the
Participant, subject to the terms of the Plan. Effective December 31, 2004, all deferrals of stock
option gains ceased and no new Deferred Stock Unit Accounts were permitted to be established under
the Plan. The Company shall continue to maintain and administer the Deferred Stock Unit Accounts
established prior to the Restatement Date according to Article 5 of the Plan as in effect
immediately prior to the Restatement Date. The Deferred Stock Unit Accounts shall be treated as
grandfathered under, and therefore not subject to, Section 409A of the Code.

     ARTICLE
7. CHANGE IN CONTROL PROVISIONS

     Section 7.1. Application of Article 7. To the extent applicable, the
provisions of this Article 7 relating to an Event of change in control of the Company shall
control, notwithstanding any other provisions of the Plan to the contrary, and shall supersede any
other provisions of the Plan to the extent inconsistent with the provisions of this Article 7.

     Section 7.2. Payments to and by the Trust. Pursuant to the terms of the
Trust, the Company is required to make certain payments to the Trust if an Event occurs or if the
Company determines that it is probable that an Event may occur. The obligation of the Company to
make such payments shall be considered an obligation under the Plan, and the provisions of the
Trust related thereto are hereby incorporated in the Plan by reference; provided, however, that
such obligation shall at all times be and remain subject to the terms of the Trust as in effect
from time to time.

     Section 7.3. Legal Fees and Expenses. The Company shall reimburse a
Participant or his or her Beneficiary for all reasonable legal fees and expenses incurred by such
Participant or Beneficiary after the date of an Event in seeking to obtain any right or benefit
provided by the Plan.

     Section 7.4. Late Payment and Additional Payment Provisions. If after the
date of an Event there is a delay in the payment of any benefit under the Plan, each amount
otherwise payable to any Participant or Beneficiary, adjusted for gains and losses pursuant to
Section 4.2, shall be credited with interest at the rate of five percent per year, compounded
quarterly, from the date on which the distribution was required to be made under the terms of the
Plan until the actual date of the distribution. In the event that this interest is to be credited
for some period less than a full calendar quarter, the interest shall be determined and compounded
for the fractional quarter. This interest represents a late

18

 

payment penalty for the delay in
payment and is intended to supplement any other gains credited to a Participant’s Account under the
Plan pursuant to Section 4.2.

     In the event that payment of benefits has commenced to a Participant or Beneficiary prior to
the date of an Event, then the date on which distribution was required to be made under the terms
of the Plan shall be determined with reference to the payment provision that was in effect prior
to the date of the Event. No adjustment may be made to any payment form which was in effect
prior to the date of an Event with respect to any Account which would have the effect of delaying
payments otherwise to be made under the payment form or otherwise increasing the period of time
over which payments are to be made, except as elected by the Participant.

     Any benefit payments made by the Company after the date on which a benefit distribution was
required to be made under the terms of the Plan shall be applied first against the first due of
such benefit distributions (with application first against any applicable late payment penalty and
next against the benefit amount itself) until fully paid, and next against the next due of such
payments in the same manner, and so forth, for purposes of calculating the late payment penalties
hereunder.

     Participants and their Beneficiaries shall be entitled to benefit payment under the Plan plus
the late payment penalty referred to hereinabove first from the Trust and secondarily from the
Company, as otherwise provided in Section 7.2.

     ARTICLE
8. FUNDING

     Section 8.1. Source of Benefits. All benefits under the Plan shall be paid
when due by the Company out of its assets or from the Trust.

     Section 8.2. No Claim on Specific Assets. No Participant shall be deemed to
have, by virtue of being a Participant in the Plan, any claim on any specific assets of the Company
such that the Participant would be subject to income taxation on his or her benefits under the Plan
prior to distribution and the rights of Participants and Beneficiaries to benefits to which they
are otherwise entitled under the Plan shall be those of an unsecured general creditor of the
Company.

     ARTICLE
9. ADMINISTRATION

     Section 9.1. Administration. The Plan shall be administered by the Committee.
The Company shall bear all administrative costs of the Plan other than those specifically charged
to a Participant or Beneficiary.

     Section 9.2. Powers of Committee. In addition to the other powers granted
under the Plan, the Committee shall have all powers necessary to administer the Plan, including,
without limitation, powers to:

     (a) interpret the provisions of the Plan;

19

 

     (b) establish and revise the method of accounting for the Plan and to
maintain the Accounts; and

     (c) establish rules for the administration of the Plan and to
prescribe any forms required to administer the Plan.

     Section 9.3. Actions of the Committee. Except as modified by the Board, the
Committee (including any person or entity to whom the Committee has delegated duties,
responsibilities or authority, to the extent of such delegation) has total and complete
discretionary authority to determine conclusively for all parties all questions arising in the
administration of the Plan, to interpret and construe the terms of the Plan, and to determine all
questions of eligibility and status of employees, Participants and Beneficiaries under the Plan and
their respective interests. Subject to the claims procedures of Section 9.6, all determinations,
interpretations, rules and decisions of the Committee (including those made or established by any
person or entity to whom the Committee has delegated duties, responsibilities or authority, if made
or established pursuant to such delegation) are conclusive and binding upon all persons having or
claiming to have any interest or right under the Plan.

     Section 9.4. Delegation. The Committee, or any officer designated by the
Committee, shall have the power to delegate specific duties and responsibilities to officers or
other employees of the Company or other individuals or entities. Any delegation may be rescinded
by the Committee at any time. Each person or entity to whom a duty or responsibility has been
delegated shall be responsible for the exercise of such duty or responsibility and shall not be
responsible for any act or failure to act of any other person or entity.

     Section 9.5. Reports and Records. The Committee, and those to whom the
Committee has delegated duties under the Plan, shall keep records of all their proceedings and
actions and shall maintain books of
account, records, and other data as shall be necessary for the proper administration of the Plan
and for compliance with applicable law.

     Section 9.6. Claims Procedure. The Committee shall notify a Participant in
writing within 90 days of the Participant’s written application for benefits of his or her
eligibility or non-eligibility for benefits under the Plan. If the Committee determines that a
Participant is not eligible for benefits or full benefits, the notice shall set forth: (a) the
specific reasons for such denial; (b) a specific reference to the provision of the Plan on which
the denial is based; (c) a description of any additional information or material necessary for the
claimant to perfect his or her claim, and a description of why it is needed; and (d) an explanation
of the Plan’s claims review procedure and other appropriate information as to the steps to be taken
if the Participant wishes to have his or her claim reviewed. If the Committee determines that
there are special circumstances requiring additional time to make a decision, the Committee shall
notify the Participant of the special circumstances and the date by which a decision is expected to
be made, and may extend the time for up to an additional 90-day period. If a Participant is
determined

20

 

by the Committee to be not eligible for benefits, or if the Participant believes that he
or she is entitled to greater or different benefits, the Participant shall have the opportunity to
have his or her claim reviewed by the Committee by filing a petition for review with the Committee
within 60 days after receipt by the Participant of the notice issued by the Committee. If a
Participant does not appeal on time, the Participant will lose the right to appeal the denial and
the right to file suit under ERISA, and the Participant will have failed to exhaust the Plan’s
internal administrative appeal process, which is generally a prerequisite to bringing suit. Said
petition shall state the specific reasons the Participant believes he or she is entitled to
benefits or greater or different benefits. Within 60 days after receipt by the Committee of said
petition, the Committee shall afford the Participant (and his or her counsel, if any) an
opportunity to present the Participant’s position to the Committee orally or in writing, and the
Participant (or his or her counsel) shall have the right to review the pertinent documents, and the
Committee shall notify the Participant of its decision in writing within said 60-day period,
stating specifically the basis of the decision written in a manner calculated to be understood by
the Participant and the specific provisions of the Plan on which the decision is based. If,
because of the need for a hearing, the 60-day period is not sufficient, the decision may be
deferred for up to another 60-day period at the election of the Committee, but notice of this
deferral shall be given to the Participant. In the event an appeal of a denial of a claim for
benefits is denied, any lawsuit to challenge the denial of such claim must be brought within one
year of the date the Committee has rendered a final decision on the appeal.

     ARTICLE
10. AMENDMENTS AND TERMINATION

     Section 10.1. Amendments. The Company, by action of the Compensation
Committee of the Board, or the Chief Executive Officer or the Senior Vice President of Human
Resources of the Company, to the extent authorized by the Compensation Committee of the Board, may
amend the Plan,
in whole or in part, at any time and from time to time. Any such amendment shall be filed with the
Plan documents. No amendment, however, may be effective to reduce a Participant’s vested Account
balances immediately before the date of such amendment, except that the Company may change
investment funds pursuant to Section 4.2.

     Section 10.2. Termination. The Company expects the Plan to be permanent,
but necessarily must, and hereby does, reserve the right to terminate the Plan at any time by
action of the Board. Upon termination of the Plan, all Elective Deferrals and Company
contributions will cease and no future Elective Deferrals or Company contributions will be made.
Termination of the Plan shall not operate to eliminate or reduce a Participant’s vested Account
balances.

     If the Plan is terminated, payments from the Accounts of all Participants and Beneficiaries
shall be made at the time and in the manner specified in Article 5 and 6.

21

 

     ARTICLE
11. MISCELLANEOUS

     Section 11.1. No Guarantee of Employment or Contract to Perform Services.
Neither the adoption and maintenance of the Plan nor the execution by the Company of a Deferral
Election Agreement with any Participant shall be deemed to be a contract of employment or for the
performance of services between the Company and any Participant. Nothing contained herein shall
give any Participant the right to be retained in the employ of the Company or to perform services
for the Company, or to interfere with the right of the Company to discharge any Participant at any
time; nor shall it give the Company the right to require any Participant to remain in its employ or
to perform services for it or to interfere with the Participant’s right to terminate his or her
employment or performance of services at any time.

     Section 11.2. Release. Any payment of benefits to or for the benefit of a
Participant or a Participant’s Beneficiary that is made in good faith by the Company in accordance
with the Company’s interpretation of its obligations under the Plan shall be in full satisfaction
of all claims against the Company for benefits under the Plan to the extent of such payment.

     Section 11.3. Notices. Any notice permitted or required under the Plan shall
be in writing and shall be hand-delivered or sent, postage prepaid, by first class mail, or by
certified or registered mail with return receipt requested, to the principal office of the Company,
if to the Company, or to the address last shown on the records of the Company, if to a Participant
or Beneficiary. Any such notice shall be effective as of the date of hand-delivery or mailing.

     Section 11.4. Nonalienation. No benefit payable at any time under the Plan
shall be subject in any manner to alienation,
sale, transfer, assignment, pledge, levy, attachment, or encumbrance of any kind by any Participant
or Beneficiary, except with respect to a Qualified Domestic Relations Order.

     Section 11.5. Tax Liability. The Company may withhold from any payment of
benefits or other compensation payable to a Participant or Beneficiary, or the Company may direct
the trustee of the Trust to withhold from any payment of benefits to a Participant or Beneficiary,
such amounts as the Company determines are reasonably necessary to pay any taxes or other amounts
required to be withheld under applicable law.

     Section 11.6. Captions. Article and section headings and captions are
provided for purposes of reference and convenience only and shall not be relied upon in any way to
construe, define, modify, limit, or extend the scope of any provision of the Plan.

     Section 11.7. Applicable Law. The Plan and all rights hereunder shall be
governed by and construed according to the laws of the State of Minnesota, except to the extent
such laws are preempted by the laws of the United States of America.

22

 

     Section 11.8. Invalidity of Certain Provisions. If any provision of the Plan
is held invalid or unenforceable, such invalidity or unenforceability shall not affect any other
provision of the Plan and the Plan shall be construed and enforced as if such provision had not
been included.

     Section 11.9. No Other Agreements. The terms and conditions set forth herein
constitute the entire understanding of the Company and the Participants with respect to the matters
addressed herein.

     Section 11.10. Incapacity. In the event that any Participant is unable to
care for his or her affairs because of illness or accident, any payment due may be paid to the
Participant’s spouse, parent, brother, sister or other person deemed by the Committee to have
incurred expenses for the care of such Participant, unless a duly qualified guardian or other legal
representative has been appointed.

     Section 11.11. Payment Made as Soon as Administratively Reasonable. For
purposes of the Plan, a payment will be deemed to be made as soon as administratively reasonable
after a date if it is made within the same calendar year as such date, or, if later, by the
15th day of the third calendar month following such date.

     Section 11.12. Electronic Media. Notwithstanding anything in the Plan to the
contrary, but subject to the requirements of
ERISA, the Code, or other applicable law, any action or communication otherwise required to be
taken or made in writing by a Participant or Beneficiary or by the Company or Committee shall be
effective if accomplished by another method or methods required or made available by the Company or
Committee, or their agent, with respect to that action or communication, including e-mail,
telephone response systems, intranet systems, or the Internet.

23exv10w1

 

[Progress letterhead]

 

 

November 15, 2005

Joseph W. Alsop

c/o Progress Software Corporation

14 Oak Park

Bedford, Massachusetts 01730

	 	 	 
	     Re:

	 	Fiscal 2005 Stock Option Grant

Dear Joe:

     The Compensation Committee of the Board of Directors of Progress Software Corporation wishes
to thank you for your contributions to the continued success of Progress. The Compensation
Committee has determined that, in recognition of your achievements and your expected contributions
to the future performance of Progress, you should be rewarded with a non-qualified stock option to
purchase 120,000 shares of Progress common stock.

     The Compensation Committee has also determined that, at present, there is an insufficient
number of shares available for grant under Progress’ shareholder-approved plans to permit the
Compensation Committee both to make the foregoing grant to you and to retain enough shares under
those plans to meet the Compensation Committee’s other objectives. Nasdaq rules prohibit the
Compensation Committee from authorizing any stock option grant to you except pursuant to a
shareholder-approved plan or otherwise with the approval of our shareholders.

     Accordingly, the Compensation Committee has decided that it should defer the award of this
stock option until our shareholders have approved an increase in the number of shares available for
grant under our existing stock plans or a new plan that is large enough to enable the Compensation
Committee to make the foregoing grant and meet its other objectives. The Compensation Committee
intends to recommend that Progress seek shareholder approval of such an increase at a future annual
meeting of shareholders. Promptly after the Compensation Committee determines that a sufficient
number of shares are available, the Compensation Committee will authorize the grant of this stock
option to you (provided that you remain employed by Progress). The grant of the stock option will
also be subject to the satisfaction of any additional legal obligations Progress may have at that
time, but otherwise the commitment made in this letter is intended to be legally binding on
Progress.

     The stock option will have an exercise price equal to the fair market value of the Progress
common stock on the date of grant. The stock option will vest as if it had been granted on
November 15, 2005. In other words, the stock option will be immediately vested and exercisable
with respect to at least 9/60ths of the option, and the balance of the option will vest and be
exercisable in equal monthly increments ending on the last vest date of the options granted to

 

 

employees on November 15, 2005 without deferral arrangements. The stock option will have such
other terms and conditions as the Compensation Committee may determine at the time of grant.

     In the event of any stock split, stock dividend or similar adjustment in the Progress common
stock before the date of grant, the Compensation Committee will make an appropriate adjustment to
reflect that event.

     Each member of the Compensation Committee thanks you for your service to Progress and regrets
that Progress is unable to reward you appropriately at this time.

	 	 	 	 	 	 	 
	 	 	Sincerely,
	 
	 	 	 	 	 	 
	 	 	Progress Software Corporation
	 
	 	 	 	 	 	 
	 	 	By:	 	The Compensation Committee of the Board of Directors
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	By:
	 	/s/ Roger J. Heinen
	 

	 	 	 	 	 	 
	 

	 	 	 	 	 	Roger J. Heinen
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	By:
	 	/s/ Scott A. McGregor
	 

	 	 	 	 	 	 
	 

	 	 	 	 	 	Scott A. McGregor

- 2 -

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