EXHIBIT 10.16

 

INCENTIVE STOCK OPTION AGREEMENT

 

ZOMAX, INC.

2004 EQUITY INCENTIVE PLAN

 

 

THIS AGREEMENT, made effective as of this ____ day of _____________, 20____, by
and between Zomax, Inc., a Minnesota corporation (the “Company”), and
_______________________________ (“Participant”).

 

W I T N E S S E T H:

 

                WHEREAS, Participant on the date hereof is a key employee or
officer of the Company or one of its Subsidiaries; and

 

                WHEREAS, the Company wishes to grant an incentive stock option
to Participant to purchase shares of the Company’s Common Stock pursuant to the
Company’s 2004 Equity Incentive Plan (the “Plan”); and

 

                WHEREAS, the Board of Directors has authorized the grant of an
incentive stock option to Participant and has determined that, as of the
effective date of this Agreement, the fair market value of the Company’s Common
Stock is $          per share;

 

                NOW, THEREFORE, in consideration of the premises and of the
mutual covenants herein contained, the parties hereto agree as follows:

 

                1.             Grant of Option.  The Company hereby grants to
Participant on the date set forth above (the “Date of Grant”), the right and
option (the “Option”) to purchase all or portions of an aggregate of
                                               (                ) shares of
Common Stock at a per share price of $             on the terms and conditions
set forth herein, and subject to adjustment pursuant to Section 12 of the Plan. 
This Option is intended to be an incentive stock option within the meaning of
Section 422, or any successor provision, of the Internal Revenue Code of 1986,
as amended (the “Code”), and the regulations thereunder, to the extent permitted
under Code Section 422(d).

 

                2.             Duration and Exercisability.

 

                                a.             General.  The term during which
this Option may be exercised shall terminate on the close of business on
                            ,       , except as otherwise provided in Paragraphs
2(b) through 2(d) below.  This Option shall become exercisable according to the
following schedule:

 

 

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Vesting Date

Number of Shares

 

 

 

 

 

 

Once the Option becomes exercisable to the extent of one hundred percent (100%)
of the aggregate number of shares specified in Paragraph 1, Participant may
continue to exercise this Option under the terms and conditions of this
Agreement until the termination of the Option as provided herein.  If
Participant does not purchase upon an exercise of this Option the full number of
shares which Participant is then entitled to purchase, Participant may purchase
upon any subsequent exercise prior to this Option’s termination such previously
unpurchased shares in addition to those Participant is otherwise entitled to
purchase.

 

                                b.             Termination of Employment (other
than Disability or Death).  If Participant’s employment with the Company or any
Subsidiary is terminated for any reason other than disability or death, this
Option shall completely terminate on the earlier of (i) the close of business on
the three-month anniversary date of such termination of employment, and (ii) the
expiration date of this Option stated in Paragraph 2(a) above.  In such period
following the termination of Participant’s employment, this Option shall be
exercisable only to the extent the Option was exercisable on the vesting date
immediately preceding such termination of employment, but had not previously
been exercised.  To the extent this Option was not exercisable upon such
termination of employment, or if Participant  does not exercise the Option
within the time specified in this Paragraph 2(b), all rights of Participant
under this Option shall be forfeited.

 

                                c.             Disability.  If Participant’s
employment terminates because of disability (as defined in Code Section 22(e),
or any successor provision), this Option shall terminate on the earlier of (i)
the close of business on the twelve-month anniversary date of the such
termination of employment, and (ii) the expiration date of this Option stated in
Paragraph 2(a) above. In such period following the termination of Participant’s
employment, this Option shall be exercisable only to the extent the Option was
exercisable on the vesting date immediately preceding such termination of
employment, but had not previously been exercised.  To the extent this Option
was not exercisable upon such termination of employment, or if Participant does
not exercise the Option within the time specified in this Paragraph 2(c), all
rights of Participant under this Option shall be forfeited.

 

                                d.             Death.  In the event of
Participant’s death, this Option shall terminate on the earlier of (i) the close
of business on the twelve-month anniversary date of the date of Participant’s
death, and (ii) the expiration date of this Option stated in Paragraph 2(a)
above.  In such period following Participant’s death, this Option shall be
exercisable by the person or persons to whom Participant’s rights under this
Option shall have passed by Participant’s will or by the laws of descent and
distribution only to the extent the Option was exercisable on the vesting date
immediately preceding the date of Participant’s death. To the extent this Option
was not exercisable

 

 

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upon the date of Participant’s death, or if such person or persons do not
exercise this Option within the time specified in this Paragraph 2(d), all
rights under this Option shall be forfeited.

 

                3.             Manner of Exercise.

 

                                a.             General.  The Option may be
exercised only by Participant (or other proper party in the event of death or
incapacity), subject to the conditions of the Plan and subject to such other
administrative rules as the Board may deem advisable, by delivering within the
Option Period written notice of exercise to the Company at its principal office.
The notice shall state the number of shares as to which the Option is being
exercised and shall be accompanied by payment in full of the Option price for
all shares designated in the notice.  The exercise of the Option shall be deemed
effective upon receipt of such notice by the Company and upon payment that
complies with the terms of the Plan and this Agreement.  The Option may be
exercised with respect to any number or all of the shares as to which it can
then be exercised and, if partially exercised, may be so exercised as to the
unexercised shares any number of times during the Option period as provided
herein.

 

                                b.             Form of Payment.  Subject to
approval by the Administrator, payment of the option price by Participant shall
be in the form of cash, personal check, certified check or previously acquired
shares of Common Stock of the Company, or any combination thereof.  Any stock so
tendered as part of such payment shall be valued at its Fair Market Value as
provided in the Plan.  For purposes of this Agreement, “previously acquired
shares of Common Stock” shall include shares of Common Stock that are already
owned by Participant at the time of exercise.

 

                                c.             Stock Transfer Records.  As soon
as practicable after the effective exercise of all or any part of the Option,
Participant shall be recorded on the stock transfer books of the Company as the
owner of the shares purchased, and the Company shall deliver to Participant one
or more duly issued stock certificates evidencing such ownership.  All requisite
original issue or transfer documentary stamp taxes shall be paid by the Company.

 

                4.             Miscellaneous.

 

                                a.             Employment; Rights as
Shareholder.  This Agreement shall not confer on Participant any right with
respect to continuance of employment by the Company or any of its Subsidiaries,
nor will it interfere in any way with the right of the Company to terminate such
employment.  Participant shall have no rights as a shareholder with respect to
shares subject to this Option until such shares have been issued to Participant
upon exercise of this Option.  No adjustment shall be made for dividends
(ordinary or extraordinary, whether in cash, securities or other property),
distributions or other rights for which the record date is prior to the date
such shares are issued, except as provided in Section 12 of the Plan.

 

                                b.             Securities Law Compliance.  The
exercise of all or any parts of this Option shall only be effective at such time
as counsel to the Company shall have determined that the issuance and delivery
of Common Stock pursuant to such exercise will not violate any state or federal
securities or other laws.  Participant may be required by the Company, as a
condition of the effectiveness of any exercise of this Option, to agree in
writing that all Common Stock to be acquired pursuant to such exercise shall be
held, until such time that such Common Stock is

 

 

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registered and freely tradable under applicable state and federal securities
laws, for Participant’s own account without a view to any further distribution
thereof, that the certificates for such shares shall bear an appropriate legend
to that effect and that such shares will be not transferred or disposed of
except in compliance with applicable state and federal securities laws.

 

                                c.             Mergers, Recapitalizations, Stock
Splits, Etc.  Pursuant and subject to Section 12 of the Plan, certain changes in
the number or character of the Common Stock of the Company (through sale,
merger, consolidation, exchange, reorganization, divestiture (including a
spin-off), liquidation, recapitalization, stock split, stock dividend or
otherwise) shall result in an adjustment, reduction or enlargement, as
appropriate, in Participant’s rights with respect to any unexercised portion of
the Option (i.e., Participant shall have such “anti-dilution” rights under the
Option with respect to such events, but shall not have “preemptive” rights).

 

                                d.             Shares Reserved.  The Company
shall at all times during the option period reserve and keep available such
number of shares as will be sufficient to satisfy the requirements of this
Agreement.

 

                                e.             Withholding Taxes on
Disqualifying Disposition.  In the event of a

disqualifying disposition of the shares acquired through the exercise of this
Option, Participant hereby agrees to inform the Company of such disposition. 
Upon notice of a disqualifying disposition, the Company may take such action as
it deems appropriate to insure that, if necessary to comply with all applicable
federal or state income tax laws or regulations, all applicable federal and
state payroll, income or other taxes are withheld from any amounts payable by
the Company to Participant.  If the Company is unable to withhold such federal
and state taxes, for whatever reason, Participant hereby agrees to pay to the
Company an amount equal to the amount the Company would otherwise be required to
withhold under federal or state law.  Participant may, subject to the approval
and discretion of the Board or such administrative rules it may deem advisable,
elect to have all or a portion of such tax withholding obligations satisfied by
delivering shares of the Company’s Common Stock or by electing to have the
Company withhold shares of Common Stock otherwise issuable to Participant.  Such
shares shall have a Fair Market Value equal to the minimum required tax
withholding, based on the minimum statutory withholding rates for federal and
state tax purposes, including payroll taxes, that are applicable to the
supplemental income resulting from the disqualifying disposition of the shares
acquired through the exercise of this Option.  In no event may the Company
withhold shares having a Fair Market Value in excess of such statutory minimum
required tax withholding.

 

                                f.              Nontransferability.  During the
lifetime of Participant, the accrued Option shall be exercisable only by
Participant or by the Participant’s guardian or other legal representative, and
shall not be assignable or transferable by Participant, in whole or in part,
other than by will or by the laws of descent and distribution.

 

                                g.             2004 Equity Incentive Plan.  The
Option evidenced by this Agreement is granted pursuant to the Plan, a copy of
which Plan has been made available to Participant and is hereby incorporated
into this Agreement.  This Agreement is subject to and in all respects limited
and conditioned as provided in the Plan.  The Plan governs this Option and, in
the  event of any

 

 

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questions as to the construction of this Agreement or in the event of a conflict
between the Plan and this Agreement, the Plan shall govern, except as the Plan
otherwise provides.

 

                                h.             Lockup Period Limitation. 
Participant agrees that in the event the Company advises Participant that it
plans an underwritten public offering of its Common Stock in compliance with the
Securities Act of 1933, as amended, and that the underwriter(s) seek to impose
restrictions under which certain shareholders may not sell or contract to sell
or grant any option to buy or otherwise dispose of part or all of their stock
purchase rights of the underlying Common Stock, Participant hereby agrees that
for a period not to exceed 180 days from the prospectus, Participant will not
sell or contract to sell or grant an option to buy or otherwise dispose of this
option or any of the underlying shares of Common Stock without the prior written
consent of the underwriter(s) or its representative(s).

 

                                i.              Blue Sky Limitation. 
Notwithstanding anything in this Agreement to the contrary, in the event the
Company makes any public offering of its securities and determines in its sole
discretion that it is necessary to reduce the number of issued but unexercised
stock purchase rights so as to comply with any state securities or Blue Sky law
limitations with respect thereto, the Board of Directors of the Company shall
have the right (i) to accelerate the exercisability of this Option and the date
on which this Option must be exercised, provided that the Company gives
Participant 15 days’ prior written notice of such acceleration, and (ii) to
cancel any portion of this Option or any other option granted to Participant
pursuant to the Plan which is not exercised prior to or contemporaneously with
such public offering.  Notice shall be deemed given when delivered personally or
when deposited in the United States mail, first class postage prepaid and
addressed to Participant at the address of Participant on file with the Company.

 

                                j.              Accounting Compliance. 
Participant agrees that, if a merger, reorganization, liquidation or other
“transaction” as defined in Section 12 of the Plan occurs and Participant is an
“affiliate” of the Company or any Subsidiary (as defined in applicable legal and
accounting principles) at the time of such transaction, Participant will comply
with all requirements of Rule 145 of the Securities Act of 1933, as amended, and
the requirements of such other legal or accounting principles, and will execute
any documents necessary to ensure such compliance.

 

                                k.             Stock Legend.  The Board may
require that the certificates for any shares of Common Stock purchased by
Participant (or, in the case of death, Participant’s successors) shall bear an
appropriate legend to reflect the restrictions of Paragraph 4(b) and Paragraphs
4(h) through 4(j) of this Agreement.

 

                                l.              Binding Agreement.  This
Agreement shall bind and inure to the benefit of the Company and its successors
and assigns and Participant and any successor or successors of Participant
permitted by Paragraph 2 or Paragraph 4(f) above.  This Option is expressly
subject to all terms and conditions contained in the Plan and in this Agreement,
and Participant’s failure to execute this Agreement shall not relieve
Participant from complying with such terms and conditions.

 

                                m.            Arbitration.  Any dispute arising
out of or relating to this Agreement or the alleged breach of it, or the making
of this Agreement, including claims of fraud in the inducement,

 

 

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shall be discussed between the disputing parties in a good faith effort to
arrive at a mutual settlement of any such controversy.  If, notwithstanding,
such dispute cannot be resolved, such dispute shall be settled by binding
arbitration.  Judgment upon the award rendered by the arbitrator may be entered
in any court having jurisdiction thereof.  The arbitrator shall be a retired
state or federal judge or an attorney who has practiced securities or business
litigation for at least 10 years.  If the parties cannot agree on an arbitrator
within 20 days, any party may request that the chief judge of the District Court
for Hennepin County, Minnesota, select an arbitrator.  Arbitration will be
conducted pursuant to the provisions of this Agreement, and the commercial
arbitration rules of the American Arbitration Association, unless such rules are
inconsistent with the provisions of this Agreement.  Limited civil discovery
shall be permitted for the production of documents and taking of depositions. 
Unresolved discovery disputes may be brought to the attention of the arbitrator
who may dispose of such dispute.  The arbitrator shall have the authority to
award any remedy or relief that a court of this state could order or grant;
provided, however, that punitive or exemplary damages shall not be awarded.  The
arbitrator may award to the prevailing party, if any, as determined by the
arbitrator, all of its costs and fees, including the arbitrator’s fees,
administrative fees, travel expenses, out-of-pocket expenses and reasonable 
attorneys’ fees.  Unless otherwise agreed by the parties, the place of any
arbitration proceedings shall be Hennepin County, Minnesota.

 

 

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NONQUALIFIED STOCK OPTION AGREEMENT

 

ZOMAX, INC.

2004 EQUITY INCENTIVE PLAN

 

 

                THIS AGREEMENT, made effective as of this        day of
___________, 20__, by and between Zomax, Inc., a Minnesota corporation (the
“Company”), and ______________ (“Participant”).

 

 

W I T N E S S E T H:

 

                WHEREAS, Participant on the date hereof is a key employee,
officer, consultant or outside director of the Company or one of its
Subsidiaries; and

 

                WHEREAS, the Company wishes to grant a nonqualified stock option
to Participant to purchase shares of the Company’s Common Stock pursuant to the
Company’s 2004 Equity Incentive Plan (the “Plan”); and

 

                WHEREAS, the Board of Directors has authorized the grant of a
nonqualified stock option to Participant and has determined that, as of the
effective date of this Agreement, the fair market value of the Company’s Common
Stock is $____ per share;

 

                NOW, THEREFORE, in consideration of the premises and of the
mutual covenants herein contained, the parties hereto agree as follows:

 

                1.             Grant of Option.  The Company hereby grants to
Participant on the date set forth above (the “Date of Grant”), the right and
option (the “Option”) to purchase all or portions of an aggregate of
____________(__________) shares of Common Stock at a per share price of $_____
on the terms and conditions set forth herein, and subject to adjustment pursuant
to Section 12 of the Plan.  This Option is a nonqualified stock option and will
not be treated as an incentive stock option, as defined under Section 422, or
any successor provision, of the Internal Revenue Code of 1986, as amended (the
“Code”), and the regulations thereunder.

 

                2.             Duration and Exercisability.

 

                                a.             General.  The term during which
this Option may be exercised shall terminate on the close of business on
                            ,       , except as otherwise provided in Paragraphs
2(b) through 2(d) below.  This Option shall become exercisable according to the
following schedule:

 

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Vesting Date

Number/Percentage of Shares

 

 

 

 

 

 

Once the Option becomes fully exercisable, Participant may continue to exercise
this Option under the terms and conditions of this Agreement until the
termination of the Option as provided herein.  If Participant does not purchase
upon an exercise of this Option the full number of shares which Participant is
then entitled to purchase, Participant may purchase upon any subsequent exercise
prior to this Option’s termination such previously unpurchased shares in
addition to those Participant is otherwise entitled to purchase.

 

                                b.             Termination of Relationship
(other than Disability or Death).  If Participant ceases to be [an employee] [an
outside director] [a consultant] of the Company or any Subsidiary for any reason
other than disability or death, this Option shall completely terminate on the
earlier of (i) the close of business on the three-month anniversary date of the
termination of such relationship, and (ii) the expiration date of this Option
stated in Paragraph 2(a) above.  In such period following such termination, this
Option shall be exercisable only to the extent the Option was exercisable on the
vesting date immediately preceding the date on which Participant’s relationship
with the Company or Subsidiary has terminated, but had not previously been
exercised.  To the extent this Option was not exercisable upon the termination
of such relationship, or if Participant does not exercise the Option within the
time specified in this Paragraph 2(b), all rights of Participant under this
Option shall be forfeited.

 

                                c.             Disability.  If Participant
ceases to be [an employee] [an outside director] [a consultant] of the Company
or any Subsidiary because of disability (as defined in Code Section 22(e), or
any successor provision), this Option shall completely terminate on the earlier
of (i) the close of business on the twelve-month anniversary date of the
termination of all such relationships, and (ii) the expiration date of this
Option stated in Paragraph 2(a) above.  In such period following such
termination, this Option shall be exercisable only to the extent the Option was
exercisable on the vesting date immediately preceding the date on which all of
Participant’s relationships with the Company or Subsidiary have terminated, but
had not previously been exercised.  To the extent this Option was not
exercisable upon the termination of such relationship, or if Participant does
not exercise the Option within the time specified in this Paragraph 2(c), all
rights of Participant under this Option shall be forfeited.

 

                                d.             Death.  In the event of
Participant’s death, this Option shall terminate on the earlier of (i) the close
of business on the twelve-month anniversary date of the date of Participant’s
death, and (ii) the expiration date of this Option stated in Paragraph 2(a)
above.  In such period following Participant’s death, this Option may be
exercised by the person or persons to whom Participant’s  rights under this
Option shall have passed by Participant’s will or by the laws of descent and
distribution only to the extent the Option was exercisable on the vesting date
immediately preceding the date of Participant’s death.  To the extent this
Option was not exercisable

 

 

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upon the date of Participant’s death, or if such person or persons fail to
exercise this Option within the time specified in this Paragraph 2(d), all
rights under this Option shall be forfeited.

 

                3.             Manner of Exercise.

 

                                a.             General.  The Option may be
exercised only by Participant (or other proper party in the event of death or
incapacity), subject to the conditions of the Plan and subject to such other
administrative rules as the Board may deem advisable, by delivering within the
option period written notice of exercise to the Company at its principal
office.  The notice shall state the number of shares as to which the Option is
being exercised and shall be accompanied by payment in full of the option price
for all shares designated in the notice.  The exercise of the Option shall be
deemed effective upon receipt of such notice by the Company and upon payment
that complies with the terms of the Plan and this Agreement.  The Option may be
exercised with respect to any number or all of the shares as to which it can
then be exercised and, if partially exercised, may be exercised as to the
unexercised shares any number of times during the option period as provided
herein.

 

                                b.             Form of Payment.  Subject to the
approval of the Administrator, payment of the option price by Participant shall
be in the form of cash, personal check, certified check or previously acquired
shares of Common Stock of the Company, or any combination thereof.  Any stock so
tendered as part of such payment shall be valued at its Fair Market Value as
provided in the Plan.  For purposes of this Agreement, “previously acquired
shares of Common Stock” shall include shares of Common Stock that are already
owned by Participant at the time of exercise.

 

                                c.             Stock Transfer Records.  As soon
as practicable after the effective exercise of all or any part of the Option,
Participant shall be recorded on the stock transfer books of the Company as the
owner of the shares purchased, and the Company shall deliver to Participant one
or more duly issued stock certificates evidencing such ownership.  All requisite
original issue or transfer documentary stamp taxes shall be paid by the Company.

 

                4.             Miscellaneous.

 

                                a.             Rights as Shareholder.  This
Agreement shall not confer on Participant any right with respect to the
continuance of any relationship with the Company or any of its Subsidiaries, nor
will it interfere in any way with the right of the Company to terminate any such
relationship.  Participant shall have no rights as a shareholder with respect to
shares subject to this Option until such shares have been issued to Participant
upon exercise of this Option.  No adjustment shall be made for dividends
(ordinary or extraordinary, whether in cash, securities or other property),
distributions or other rights for which the record date is prior to the date
such shares are issued, except as provided in Section 12 of the Plan.

 

                                b.             Securities Law Compliance.  The
exercise of all or any parts of this Option shall only be effective at such time
as counsel to the Company shall have determined that the issuance and delivery
of Common Stock pursuant to such exercise will not violate any state or federal
securities or other laws.  Participant may be required by the Company, as a
condition of the effectiveness of any exercise of this Option, to agree in
writing that all Common Stock to be acquired pursuant to such exercise shall be
held, until such time that such Common Stock is

 

 

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registered and freely tradable under applicable state and federal securities
laws, for Participant’s own account without a view to any further distribution
thereof and that such shares will be not transferred or disposed of except in
compliance with applicable state and federal securities laws.

 

                                c.             Mergers, Recapitalizations, Stock
Splits, Etc.  Pursuant and subject to Section 12 of the Plan, certain changes in
the number or character of the Common Stock of the Company (through sale,
merger, consolidation, exchange, reorganization, divestiture (including a
spin-off), liquidation, recapitalization, stock split, stock dividend or
otherwise) shall result in an adjustment, reduction or enlargement, as
appropriate, in Participant’s rights with respect to any unexercised portion of
the Option (i.e., Participant shall have such “anti-dilution” rights under the
Option with respect to such events, but shall not have “preemptive” rights).

 

                                d.             Shares Reserved.  The Company
shall at all times during the option period reserve and keep available such
number of shares as will be sufficient to satisfy the requirements of this
Agreement.

 

                                e.             Withholding Taxes.  In order to
permit the Company to comply with all applicable federal or state income tax
laws or regulations, the Company may take such action as it deems appropriate to
insure that, if necessary, all applicable federal or state payroll, income or
other taxes are withheld from any amounts payable by the Company to
Participant.  If the Company is unable to withhold such federal and state taxes,
for whatever reason, Participant hereby agrees to pay to the Company an amount
equal to the amount the Company would otherwise be required to withhold under
federal or state law.  Participant may, subject to the approval and discretion
of the Board or such administrative rules it may deem advisable, elect to have
all or a portion of such tax withholding obligations satisfied by delivering
shares of the Company’s Common Stock or by electing to have the Company withhold
shares of Common Stock otherwise issuable to Participant.  Such shares shall
have a Fair Market Value equal to the minimum required tax withholding, based on
the minimum statutory withholding rates for federal and state tax purposes,
including payroll taxes, that are applicable to the supplemental income
resulting from the exercise of this Option.  In no event may the Company
withhold shares having a Fair Market Value in excess of such statutory minimum
required tax withholding.

 

                                f.              Nontransferability.  During the
lifetime of Participant, the accrued Option shall be exercisable only by
Participant or by the Participant’s guardian or other legal representative, and
shall not be assignable or transferable by Participant, in whole or in part,
other than by will or by the laws of descent and distribution.

 

                                g.             2004 Equity Incentive Plan.  The
Option evidenced by this Agreement is granted pursuant to the Plan, a copy of
which Plan has been made available to Participant and is hereby incorporated
into this Agreement.  This Agreement is subject to and in all respects limited
and conditioned as provided in the Plan. All defined terms of the Plan shall
have the same meaning when used in this Agreement.  The Plan governs this Option
and, in the event of any questions as to the construction of this Agreement or
in the event of a conflict between the Plan and this Agreement, the Plan shall
govern, except as the Plan otherwise provides.

 

 

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                                h.             Lockup Period Limitation. 
Participant agrees that in the event the Company advises Participant that it
plans an underwritten public offering of its Common Stock in compliance with the
Securities Act of 1933, as amended, and that the underwriter(s) seek to impose
restrictions under which certain shareholders may not sell or contract to sell
or grant any option to buy or otherwise dispose of part or all of their stock
purchase rights of the underlying Common Stock, Participant hereby agrees that
for a period not to exceed 180 days from the prospectus, Participant will not
sell or contract to sell or grant an option to buy or otherwise dispose of this
option or any of the underlying shares of Common Stock without the prior written
consent of the underwriter(s) or its representative(s).

 

                                i.              Blue Sky Limitation. 
Notwithstanding anything in this Agreement to the contrary, in the event the
Company makes any public offering of its securities and determines in its sole
discretion that it is necessary to reduce the number of issued but unexercised
stock purchase rights so as to comply with any state securities or Blue Sky law
limitations with respect thereto, the Board of Directors of the Company shall
have the right (i) to accelerate the exercisability of this Option and the date
on which this Option must be exercised, provided that the Company gives
Participant 15 days’ prior written notice of such acceleration, and (ii) to
cancel any portion of this Option or any other option granted to Participant
pursuant to the Plan which is not exercised prior to or contemporaneously with
such public offering.  Notice shall be deemed given when delivered personally or
when deposited in the United States mail, first class postage prepaid and
addressed to Participant at the address of Participant on file with the Company.

 

                                j.              Accounting Compliance. 
Participant agrees that, if a merger, reorganization, liquidation or other
“transaction” as defined in Section 12 of the Plan occurs and Participant is an
“affiliate” of the Company or any Subsidiary (as defined in applicable legal and
accounting principles) at the time of such transaction, Participant will comply
with all requirements of Rule 145 of the Securities Act of 1933, as amended, and
the requirements of such other legal or accounting principles, and will execute
any documents necessary to ensure such compliance.

 

                                k.             Stock Legend.  The Board may
require that the certificates for any shares of Common Stock purchased by
Participant (or, in the case of death, Participant’s successors) shall bear an
appropriate legend to reflect the restrictions of Paragraph 4(b) and Paragraphs
4(h) through 4(j) of this Agreement.

 

                                l.              Binding Agreement.  This
Agreement shall bind and inure to the benefit of the Company and its successors
and assigns and Participant and any successor or successors of Participant
permitted by Paragraph 2 or Paragraph 4(f) above.  This Option is expressly
subject to all terms and conditions contained in the Plan and in this Agreement,
and Participant’s failure to execute this Agreement shall not relieve
Participant from complying with such terms and conditions

 

                                m.            Arbitration.  Any dispute arising
out of or relating to this Agreement or the alleged breach of it, or the making
of this Agreement, including claims of fraud in the inducement, shall be
discussed between the disputing parties in a good faith effort to arrive at a
mutual settlement of any such controversy.  If, notwithstanding, such dispute
cannot be resolved, such dispute shall be settled by binding arbitration. 
Judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof.  The arbitrator shall be a retired state or federal
judge or an

 

 

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attorney who has practiced securities or business litigation for at least 10
years.  If the parties cannot agree on an arbitrator within 20 days, any party
may request that the chief judge of the District Court for Hennepin County,
Minnesota, select an arbitrator.  Arbitration will be conducted pursuant to the
provisions of this Agreement, and the commercial arbitration rules of the
American Arbitration Association, unless such rules are inconsistent with the
provisions of this Agreement.  Limited civil discovery shall be permitted for
the production of documents and taking of depositions.  Unresolved discovery
disputes may be brought to the attention of the arbitrator who may dispose of
such dispute.  The arbitrator shall have the authority to award any remedy or
relief that a court of this state could order or grant; provided, however, that
punitive or exemplary damages shall not be awarded.  The arbitrator may award to
the prevailing party, if any, as determined by the arbitrator, all of its costs
and fees, including the arbitrator’s fees, administrative fees, travel expenses,
out-of-pocket expenses and reasonable  attorneys’ fees.  Unless otherwise agreed
by the parties, the place of any arbitration proceedings shall be Hennepin
County, Minnesota.

 

 

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