ST PAUL COMPANIES INC /MN/ (Form: S-8, Received: 06/15/2001 13:40:27)

As filed with the Securities and Exchange Commission on June 15, 2001
	Registration No. 333-_____

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM S-8
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

THE ST. PAUL COMPANIES, INC.
(Exact name of Registrant as specified in its charter)


Minnesota (State or other jurisdiction of incorporation or organization)		41-0518860 (I.R.S. Employer Identification No.)

	385 Washington Street St. Paul, Minnesota 55102 (651) 310-7911 (Address of Principal Executive Offices)

	Amended and Restated 1994 Stock Incentive Plan (Full Title of the Plan)

	Bruce A. Backberg, Esq. Senior Vice President and Corporate Secretary The St. Paul Companies, Inc. 385 Washington Street St. Paul, MN 55102 (651) 310-7911 (Name, address and telephone number of agent for service)

CALCULATION OF REGISTRATION FEE

Title of Securities to be Registered	Amount to be Registered	Proposed Maximum Offering Price Per Share(2)	Proposed Maximum Aggregate Offering Price(2)	Amount of Registration Fee(2)
Common Stock, without par value(1)	25,400,000	$49.765	$1,264,031,000	$316,007.75

(1)	In addition, pursuant to Rule 416 under the Securities Act of 1933, as amended, this Registration Statement includes an indeterminate number of additional shares as may be issuable as a result of anti-dilution provisions included in the Amended and Restated 1994 Stock Incentive Plan.
(2)	Pursuant to Rule 457(h)(1) and 457(c) of the Securities Act of 1933, as amended, the proposed maximum offering price per share, the proposed maximum aggregate offering price and the amount of the registration fee are based upon the average of the high and low prices of the Common Stock on the New York Stock Exchange as reported in the consolidated reporting system on June 11, 2001.

PART I

INFORMATION REQUIRED IN THE SECTION 10(a) PROSPECTUS

EXPLANATORY NOTE

As permitted by Rule 428 under the Securities Act of 1933, as amended (the “Securities Act”), this Registration Statement omits the information specified in Part I of Form S-8. The documents containing the information specified in Part I will be delivered to the participants in the plan covered by this Registration Statement, as required by Rule 428(b). Such documents are not being filed with the Securities and Exchange Commission (the “Commission”) as part of this Registration Statement or as prospectuses or prospectus supplements pursuant to Rule 424 of the Securities Act.

PART II

INFORMATION REQUIRED IN THE REGISTRATION STATEMENT

Item 3.

Incorporation of Documents By Reference

The following documents filed by The St. Paul Companies, Inc. (the “Company”) are hereby incorporated by reference in this Registration Statement:

Annual Report on Form 10-K, as filed with the Commission on March 28, 2001.
Definitive Proxy Statement on Schedule 14A as filed with the Commission on March 27, 2001.
Quarterly Report on Form 10-Q, as filed with the Commission on May 14, 2001.
Current Report on Form 8-K, as filed with the Commission on April 30, 2001.
Current Report on Form 8-K, as filed with the Commission on March 12, 2001.
The description of the Company’s Common Stock contained in its registration statement on Form 8-A, including any amendments or supplements thereto, as filed with the Commission on October 17, 1991.

All documents filed by the Company pursuant to Section 13(a), 13(c), 14 and 15(d) of the Securities Exchange Act of 1934 after the date of this Registration Statement and prior to the filing of a post-effective amendment to this Registration Statement which indicates that all securities offered hereby have been sold or which deregisters all securities then remaining unsold, shall be deemed to be incorporated by reference in this Registration Statement and to be a part hereof from the filing date of such documents.

Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Registration Statement to the extent that a statement contained herein (or in any other subsequently filed document which also is incorporated or deemed to be incorporated by reference herein) modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Registration Statement.

Item 4.

Description of Securities

Not applicable.

Item 5.

Interests of Named Experts and Counsel

Not applicable.

Item 6.

Indemnification of Directors and Officers

Minnesota Statute Section 302A.521 provides that a Minnesota business corporation shall indemnify any director, officer, or employee of the corporation made or threatened to be made a party to a

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proceeding, by reason of the former or present official capacity (as defined) of the person, against judgments, penalties, fines, settlements and reasonable expenses incurred by the person in connection with the proceeding if certain statutory standards are met. “Proceeding” means a threatened, pending or completed civil, criminal, administrative, arbitration or investigative proceeding, including one by or in the right of the corporation. Section 302A.521 contains detailed terms regarding such right of indemnification and reference is made thereto for a complete statement of such indemnification rights.

The Bylaws of the Company provide, subject to certain exceptions, that directors and officers of the Company and certain others shall be indemnified by the Company to the fullest extent permitted or required by Minnesota Statute Section 302A.521.

The Company maintains directors’ and officers’ liability insurance, including a reimbursement policy in favor of the Company.

Item 7.

Exemption from Registration Claimed

Not applicable.

Item 8.

Exhibits

Exhibit
No.

Description

4.1	Restated Articles of Incorporation of the Company (incorporated herein by reference to Exhibit 3 of the Company’s Annual Report on Form 10-K for the year ended December 31, 1998)
4.2	Bylaws of the Company (incorporated herein by reference to Exhibit 3(b) of the Company’s Annual Report on Form 10-K for the year ended December 31, 2000)
5.1	Opinion and Consent of Bruce A. Backberg, Esq.
23.1	Consent of Bruce A. Backberg, Esq. (included in Exhibit 5.1)
23.2	Consent of KPMG LLP
24.1	Powers of Attorney
99.1	Amended and Restated 1994 Stock Incentive Plan

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Item 9.

Undertakings

The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement:

(i)

To include any prospectus required by Section 10(a)(3) of the Securities Act;

(ii)

To reflect in the prospectus any facts or events arising after the effective date of this Registration Statement (or the most recent post-effective amendment thereof) which, individually or in aggregate, represent a fundamental change in the information set forth in this Registration Statement.

(iii)

To include any material information with respect to the plan of distribution not previously disclosed in this Registration Statement or any material change to such information in this Registration Statement;

provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) of this Item 9 do not apply if the information required to be included in the post-effective amendment by those paragraphs is contained in periodic reports filed by the Company pursuant to Section 13 or Section 15(d) of the Exchange Act that are incorporated by reference in this Registration Statement.

(2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

(4) The undersigned Company hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the Company’s annual report pursuant to Section 13(a) or 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in this Registration Statement shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(5) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In any event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of

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appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-8 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of St. Paul, Minnesota, on June 15, 2001.


THE ST. PAUL COMPANIES, INC.


By:	/s/	Bruce A. Backberg
Name:		Bruce A. Backberg
Title:		Senior Vice President and Corporate Secretary

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons on behalf of The St. Paul Companies, Inc. and in the capacities and on the dates indicated.

Date:	June 15, 2001	By:	/s/ Douglas W. Leatherdale Douglas W. Leatherdale, Director, Chairman of the Board, President and Chief Executive Officer
Date:	June 15, 2001	By:	/s/ Thomas A. Bradley Thomas A. Bradley, Chief Financial Officer
Date:	June 15, 2001	By:	/s/ John C. Treacy John C. Treacy, Vice President and Corporate Controller (principal accounting officer)
Date:	June 15, 2001	By:	/s/ H. Furlong Baldwin H. Furlong Baldwin*, Director
Date:	June 15, 2001	By:	/s/ Carolyn H. Byrd Carolyn H. Byrd*, Director
Date:	June 15, 2001	By:	/s/ John H. Dasburg John H. Dasburg*, Director
Date:	June 15, 2001	By:	/s/ Janet M. Dolan Janet M. Dolan*, Director
Date:	June 15, 2001	By:	/s/ Kenneth M. Duberstein Kenneth M. Duberstein*, Director

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Date:	June 15, 2001	By:	/s/ Pierson M. Grieve Pierson M. Grieve*, Director
Date:	June 15, 2001	By:	/s/ Thomas R. Hodgson Thomas R. Hodgson*, Director
Date:	June 15, 2001	By:	/s/ David G. John David G. John*, Director
Date:	June 15, 2001	By:	/s/ William H. Kling William H. Kling*, Director
Date:	June 15, 2001	By:	/s/ Bruce K. MacLaury Bruce K. MacLaury*, Director
Date:	June 15, 2001	By:	/s/ Glen D. Nelson, M.D. Glen D. Nelson, M.D.*, Director
Date:	June 15, 2001	By:	/s/ Gordon M. Sprenger Gordon M. Sprenger*, Director
Date:	June 15, 2001	*By:	/s/ Bruce A. Backberg Bruce A. Backberg, Attorney-in-fact

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INDEX TO EXHIBITS

4.1	Restated Articles of Incorporation of the Company (incorporated herein by reference to Exhibit 3 of the Company’s Annual Report on Form 10-K for the year ended December 31, 1998)
4.2	Bylaws of the Company (incorporated herein by reference to Exhibit 3(b) of the Company’s Annual Report on Form 10-K for the year ended December 31, 2000)
5.1	Opinion and Consent of Bruce A. Backberg, Esq.
23.1	Consent of Bruce A. Backberg, Esq. (included in Exhibit 5.1)
23.2	Consent of KPMG LLP
24.1	Powers of Attorney
99.1	Amended and Restated 1994 Stock Incent Plan

June 15, 2001

The St. Paul Companies, Inc.,
385 Washington Street,
St. Paul, Minnesota 55102.

Ladies and Gentlemen:

In connection with the registration under the Securities Act of 1933 (the “Act”) of 25,400,000 shares (the “Securities”) of common stock, without par value, of The St. Paul Companies, Inc., a Minnesota corporation (the “Company”), to be issued pursuant to the Company’s Amended and Restated 1994 Stock Incentive Plan, as amended (the “1994 Plan”), I, as Senior Vice President of the Company, have examined such corporate records, certificates and other documents, and such questions of law, as I have considered necessary or appropriate for the purposes of this opinion. Upon the basis of such examination, I advise you that, in my opinion, when the registration statement relating to the Securities (the “Registration Statement”) has become effective under the Act, the terms of the sale of the Securities have been established in conformity with the Company’s restated articles of incorporation and the 1994 Plan, and the Securities have been duly issued and sold in accordance with the terms of the 1994 Plan and any agreement entered into pursuant to the Plan and as contemplated by the Registration Statement, the Securities will be validly issued, fully paid and nonassessable.

The foregoing opinion is limited to the federal laws of the United States and the laws of the State of Minnesota, and I am expressing no opinion as to the effect of the laws of any other jurisdiction. Also, I have relied as to certain matters on information obtained from public officials, officers of the Company and other sources believed by me to be responsible.

I hereby consent to the filing of this opinion as an exhibit to the Registration Statement. In giving such consent, I do not thereby admit that I am in the category of persons whose consent is required under Section 7 of the Act.

Very truly yours,

EXHIBIT 23.2

INDEPENDENT AUDITORS’ CONSENT

The Board of Directors
The St. Paul Companies, Inc.:

We consent to incorporation by reference in the registration statement on Form S-8 Amended and Restated 1994 Stock Incentive Plan of The St. Paul Companies, Inc., of our reports dated January 23, 2001, relating to the consolidated balance sheets of The St. Paul Companies, Inc. and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income, shareholders' equity, comprehensive income and cash flows for each of the three years in the three-year period ended December 31, 2000 and related Schedules I through V, which reports appear or are incorporated by reference in the December 31, 2000 annual report on Form 10-K of The St. Paul Companies, Inc. Our report refers to a change in the Company's method of accounting for insurance-related assessments.

Minneapolis, Minnesota
June 14, 2001

/s/ KPMG LLP

Exhibit 24.1

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, a director of The St. Paul Companies, Inc., a Minnesota corporation (“The St. Paul”), do hereby make, nominate and appoint John A. MacColl and Bruce A. Backberg, or either of them, to be my attorney-in-fact, with full power and authority to sign on my behalf a Registration Statement on Form S-8 of The St. Paul Companies, Inc. (the “Registration Statement”) relating to the issuance of shares of The St. Paul common stock and the issuance of stock options and the purchase of shares of common stock of The St. Paul to be issued pursuant to The St. Paul’s Amended and Restated 1994 Stock Incentive Plan, and any or all additional amendments (including post-effective amendments) thereto, and to file the same, with all exhibits thereto and all other documents in connection therewith, with the Securities and Exchange Commission, provided that the Registration Statement and any additional amendments thereto, in their final form, are reviewed by said attorney-in-fact, and shall have the same force and effect as though I had manually signed the Registration Statement or any amendments thereto.

1. Purpose . The purposes of The St. Paul Companies, Inc. 1994 Stock Incentive Plan (the “Plan”) are (i) to promote the interests of The St. Paul Companies, Inc. (the “Company”) and its shareholders by attracting and retaining key employees and Non-Employee Directors of the Company and its subsidiaries upon whom major responsibilities rest for the successful administration and management of the Company’s business, (ii) to provide such employees and Non-Employee Directors with incentive-based compensation in the form of Company stock, which is supplemental to any other compensation or benefit plans, based upon the Company’s sustained financial performance, (iii) to encourage decision making based upon long-term goals and (iv) to align the interest of such employees and Non-Employee Directors with that of the Company’s shareholders by encouraging them to acquire a greater ownership position in the Company.

2. Definitions . Wherever used herein, the following terms shall have the respective meanings set forth below:

	“Award” means an award to a Participant made in accordance with the terms of the Plan.
	“Board” means the Board of Directors of the Company.
	“Committee” means the Personnel and Compensation Committee of the Board, or a subcommittee of that committee.
	“Common Stock” means the common stock of the Company.
	“Disinterested Person” means “disinterested person” as defined in Rule 16b-3 of the Securities and Exchange Commission, as amended from time to time, and, generally, means any member of the Board who is not at the time of acting on a matter, and within the previous year has not been, an officer of the Company or a subsidiary.
	“Participant” means a key employee of the Company or its subsidiaries who is selected by the Committee to participate in the Plan or a Non-Employee Director who is granted options under the provisions of Section 20 and/or Section 21 of the Plan.

3. Shares Subject to the Plan . Subject to adjustment as provided in Section 16, the number of shares of Common Stock which shall be available and reserved for grant of Awards under the Plan shall not exceed thirty-three million four hundred thousand (33,400,000). The shares of Common Stock issued under the Plan will come from authorized and unissued shares. Shares of Common Stock subject to an

Award that expires unexercised, that is forfeited, terminated or canceled, in whole or in part, shall thereafter again be available for grant under the Plan. No more than twenty per cent (20%) of all shares subject to the Plan may be granted to Participants as restricted stock.

4. Administration . The Plan shall be administered by the Committee. A majority of the Committee shall constitute a quorum, and the acts of a majority shall be the acts of the Committee.

Subject to the provisions of the Plan and except where inconsistent with the provisions of Sections 20, 21 and 22 of the Plan, the Committee shall (i) select the Participants, determine the type of Awards to be made to Participants, determine the shares subject to Awards, and (ii) have the authority to interpret the Plan, to establish, amend, and rescind any rules and regulations relating to the administration of the Plan, to determine the terms and provisions of any agreements entered into hereunder, and to make all other determinations necessary or advisable for the administration of the Plan. The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan or in any Award in the manner and to the extent it shall deem desirable to carry it into effect. The determinations of the Committee in the administration of the Plan, as described herein, shall be final and conclusive.

5. Eligibility . Non-Employee Directors shall become Participants under the provisions of Section 20 of the Plan and may become Participants under Section 21 of the Plan. In addition, the Committee shall select from time to time as Participants in the Plan such key employees of the Company or its subsidiaries who are responsible for the management of the Company or a subsidiary or who are expected to contribute in a substantial measure to the successful performance of the Company. No employee shall have at any time the right (i) to be selected as a Participant, (ii) to be entitled to an Award, or (iii) having been selected for an Award, to receive any further Awards.

6. Awards . Awards under the Plan may consist of: stock options (either incentive stock options, within the meaning of Section 422 of the Internal Revenue Code, or nonstatutory stock options), Rights and restricted stock. Awards of restricted stock may provide the Participant with dividends or dividend equivalents and voting rights prior to vesting (whether based on a period of time or based on attainment of specified performance conditions).

7. Stock Options . The Committee shall establish the option price at the time each stock option is granted, which price shall not be less than the closing price of a share of the Common Stock on the New York Stock Exchange on the date of grant, or the fair market value of a share of the Common Stock if it is not so listed, as determined by the Committee. Stock options shall be exercisable for such period as specified by the Committee, but in no event may options become exercisable less than one year after the

date of grant (unless specifically approved by the Committee to attract a key executive to join the Company and except in the case of a Change of Control) or be exercisable for a period of more than ten (10) years after their date of grant. The option price of each share as to which a stock option is exercised shall be paid in full at the time of such exercise. Such payment shall be made in cash (including check, bank draft or money order), by tender of shares of Common Stock owned by the Participant valued at fair market value as of the date of exercise, subject to such guidelines for the tender of Common Stock as the Committee may establish, in such other consideration as the Committee deems appropriate, or by a combination of cash, shares of Common Stock and such other consideration. No Participant may be granted Awards of stock options with respect to more than 20% of the shares of Common Stock subject to the Plan, subject to adjustment as provided in Section 16. The Committee may, with the consent of the Participant, cancel any outstanding stock option in consideration of a cash payment in an amount not in excess of the difference between the aggregate fair market value (on the date of such cancellation) of the shares subject to the stock option and the aggregate option price of such shares.

8. [Intentionally omitted.]

9. Termination of Stock Options . Each option shall terminate:

If the Participant is then living, at the earliest of the following times:

(i) ten (10) years after the date of grant of the option;

(ii) ninety (90) days after termination of employment other than termination because of retirement or through discharge for cause, provided, however, that if any option is not fully exercisable at the time of such termination of employment, such option shall expire on the date of such termination of employment to the extent not then exercisable unless different terms are specifically approved by the Committee in the provisions of a stock option agreement designed to attract a key executive to join the Company;

(iii) immediately upon termination of employment through discharge for cause; or

(iv) any other time set forth in the agreement describing and setting the terms of the Award, which time shall not exceed ten (10) years after the date of grant.

Notwithstanding the prior provisions of this Section 9, options held by any senior executive officer of the Company or any subsidiary who is a participant in any senior executive severance policy and whose employment is terminated in a manner that causes benefits under such a policy to become payable, shall not

terminate until the earlier of three years after the date of such employment termination or ten years after the date the options were granted.

If the Participant dies while employed by the Company or any subsidiary , or if no longer so employed dies prior to termination of the entire option under Section 9 (ii) or (iii) hereof, the Participant’s options and Rights shall terminate one (1) year after the date of death, but subject to earlier termination pursuant to Section 9 (i) or (iv). However, notwithstanding the provisions of Section 9 (iv), to the extent an option is exercisable on the date of the Participant’s death, it shall remain exercisable until the earlier of one hundred eighty (180) days following the date of death or ten (10) years after the date of grant. To the extent an option is exercisable after the death of the Participant, it may be exercised by the person or persons to whom the Participant’s rights under the agreement have passed by will or by the applicable laws of descent and distribution.

10. Restricted Stock . Restricted stock may be granted in the form of actual shares of Common Stock which shall be evidenced by a certificate registered in the name of the Participant but held by the Company until the end of the restricted period. Any employment conditions, performance conditions and the length of the period for vesting of restricted stock shall be established by the Committee in its discretion. In no event will Awards of restricted stock to any one Participant total more than 2.5% of the shares of Common Stock available under this Plan during the term of the Plan, subject to adjustment as provided in Section 16. Any performance conditions applied to any Award of restricted stock may include earnings per share, net income, operating income, total shareholder return, market share, return on equity, achievement of profit or revenue targets by a business unit, or any combination thereof. No Award of restricted stock may vest earlier than one year from the date of grant (unless specifically approved by the Committee to attract a key executive to join the Company and except in the case of a Change of Control or in the event that the Participant dies, retires or terminates employment due to disability). The Committee may, on behalf of the Company, approve the purchase by the Company of any shares subject to an award of restricted stock, to the extent vested, for an amount equal to the aggregate fair market value of such shares on the date of purchase.

11. Term Sheets or Agreements . Each Award under the Plan shall be evidenced by a term sheet or an agreement setting forth the terms and conditions, as determined by the Committee, which shall apply to such Award, in addition to the terms and conditions specified in the Plan.

12. Change of Control . In the event of a Change of Control, as hereinafter defined, (i) the restrictions applicable to all shares of restricted stock shall lapse and such shares shall be deemed fully vested and (ii) subject to any limitations set forth in agreements documenting any stock option Awards, all stock options shall become

immediately exercisable in full. The Committee may, in its discretion, include such further provisions and limitations in any agreement documenting such Awards as it may deem equitable and in the best interests of the Company.

“Change of Control” means a change of control of the Company of a nature that would be required to be reported (assuming such event has not been “previously reported”) in response to Item 1(a) of the Current Report on Form 8-K, as in effect on May 3, 1994, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934; provided that, without limitation, such a change in control shall be deemed to have occurred at such time as (a) any “person” within the meaning of Section 14(d) of the Securities Exchange Act of 1934, other than the Company, a subsidiary or any employee benefit plan(s) sponsored by the Company or any subsidiary is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of fifty per cent (50%) or more of the Common Stock; or (b) individuals who constitute the Board on May 3, 1994, cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to May 3, 1994, whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least three quarters of the directors comprising the Board on May 3, 1994 (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) shall be, for purposes of this clause (b), considered as though such person were a member of the Board on May 3, 1994.

13. Withholding . The Company and its subsidiaries shall have the right to deduct from any payment to be made pursuant to the Plan, or to require prior to the issuance or delivery of any shares of Common Stock or the payment of cash under the Plan, any taxes required by law (whether federal, state, local or foreign) to be withheld therefrom. The Committee may, in its discretion, permit a Participant to elect to satisfy such withholding obligation by having the Company retain the number of shares of Common Stock whose fair market value equals the amount required to be withheld. Any fraction of a share of Common Stock required to satisfy such obligation shall be disregarded and the amount due shall instead be paid in cash to the Participant.

14. Nontransferability . No amount payable or other right under the Plan shall be subject in any manner to alienation, sale, transfer, assignment, bankruptcy, pledge, attachment, charge or encumbrance of any kind nor in manner be subject to the debts or liabilities of any person, except by will or the laws of descent and distribution, and any attempt to so alienate or subject any such amount, whether presently or thereafter payable, or any such right shall be void.

Notwithstanding the foregoing, a Participant who is a current or former Director of the Company may, upon notice to the Company’s Corporate Secretary, transfer nonstatutory stock options through gift or a domestic relations order to (i) a Family Member (as defined below), (ii) a trust in which the Participant and/or the Participant’s

Family Members have more than fifty percent of the beneficial interest, (iii) a foundation in which the Participant and/or the Participant’s Family Members control the management of assets, or (iv) any other entity in which the Participant and/or the Participant’s Family Members own more than fifty percent of the voting interest. A sale or other transfer of a nonstatutory stock option for value shall not be treated as a “gift” for purposes of this paragraph; provided, however, that neither of the following types of transfers shall be treated as a prohibited transfer for value: (1) a transfer under a domestic relations order, and (2) a transfer to an entity described in clause (iv) of the preceding sentence in exchange for an interest in such entity.

For purposes of the preceding paragraph, a “Family Member” means any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law of the Participant (including any adoptive relationships) and any person sharing the Participant’s household (other than a tenant or employee of the Participant).

15. No Right to Employment . No person shall have any claim or right to be granted an Award, and the grant of an Award shall not be construed as giving a Participant the right to continue in the employ of the Company or its subsidiaries. Further, the Company and its subsidiaries expressly reserve the right at any time to dismiss a Participant without any liability, or any claim under the Plan, except as provided herein or in any agreement entered into hereunder.

16. Adjustment of and Changes in Common Stock . In the event of any stock dividend or split, recapitalization, merger, consolidation, spin-off, combination or exchange of shares or other change in the corporate structure or shares of stock of the Company, or any distributions to common shareholders other than regular cash dividends, the Committee may make such substitution or adjustment, if any, as it deems to be equitable, as to the number or kind of shares of Common Stock or other securities issued or reserved for issuance pursuant to the Plan and to outstanding Awards.

17. Amendment . The Board may amend, suspend or terminate the Plan or any portion thereof at any time, provided that (i) no amendment shall be made without stockholder approval if such approval is necessary in order for the Plan to continue to comply with Rule 16b-3 under the Securities Exchange Act of 1934 and (ii) no amendment, suspension or termination may adversely affect any outstanding Award without the consent of the Participant to whom such Award was made.

18. Governing Law . The Plan shall be construed and its provisions enforced and administered in accordance with the laws of the State of Minnesota.

19. Effective Date . The Plan shall be effective as of May 4, 1994. Subject to earlier termination pursuant to Section 17, the Plan shall have a term of ten (10) years from its effective date.

20. Automatic Grant to Non-Employee Directors . Commencing with the first meeting of the Board in November 1998, each year on the date of the first meeting of the Board in November of each such year, each Non-Employee Director who is a director of the Company as of such date shall, without any Committee action, automatically be granted a stock option to purchase six thousand (6000) shares of Common Stock (subject to adjustment upon changes in capitalization of the Company as provided in Section 16 of the Plan). Each such option shall be evidenced by and subject to the provisions of an agreement setting forth the terms described in Section 22 and such additional terms of the Plan as are not inconsistent with the terms of Section 22.

21. Discretionary Grant to Non-Employee Directors. The Board may, subsequent to the effective date of the Plan, permit Non-Employee Directors to choose to receive all or a portion of their basic annual retainer in the form of stock options valued in accordance with a method deemed appropriate by the Committee. Each such option shall be evidenced by and subject to the provisions of an agreement setting forth the terms described in Section 22 and such additional terms of the Plan as are not inconsistent with the terms of Section 22.

22. Non-Employee Director Options. Options granted pursuant to Section 20 or 21 shall have an exercise price per share equal to 100% of the fair market value of one (1) share of Common Stock on the date the option is granted, shall become exercisable in full one (1) year after the date of grant, and shall remain exercisable until terminated in accordance with Section 9 of the Plan, provided that (i) Section 9(iii) shall be applied without regard to the words “or through discharge for cause,” (ii) Sections 9(iv) and (v) shall not be applicable and (iii) references in Section 9 to “employment” and “termination of employment” shall, for the purposes of Sections 20 and 21, refer to “service as a director” and “termination of service as a director.”

Payment of the exercise price of the shares to be purchased under options granted under Sections 20 and 21 must be made in cash only (including check, bank draft or money order) at the time of exercise of such option.

The provisions of Sections 20 and 21 shall control with respect to options granted under either Section 20 or 21, respectively, over any other inconsistent provisions of the Plan. It is intended that the provisions of Sections 20 and 21 shall not cause the Non-Employee Directors to cease to be considered Disinterested Persons and, as a result, the provisions of Sections 20 and 21 shall be interpreted to be consistent with the foregoing intent.

Non-Employee Directors may not be granted options under the Plan other than pursuant to the provisions of Sections 20 and 21. No Rights may be granted to Non-Employee Directors.