EXHIBIT 10.18

 

WINMARK CORPORATION

2010 STOCK OPTION PLAN

 

SECTION 1.

DEFINITIONS

 

As used herein, the following terms shall have the meanings indicated below:

 

(a)                                  “Affiliate” shall mean a Parent or
Subsidiary of the Company.

 

(b)                                 “Committee” shall mean a Committee of two or
more directors who shall be appointed by and serve at the pleasure of the
Board.  In the event the Company’s securities are registered pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended, each of the
members of the Committee shall be a “non-employee director” within the meaning
of Rule 16b-3, or any successor provision, as then in effect, of the General
Rules and Regulations under the Securities Exchange Act of 1934 as amended and
shall be independent under the listing rules of any stock exchange upon which
the Company’s common stock is listed for trading.

 

(c)                                  The “Company” shall mean Winmark
Corporation, a Minnesota corporation.

 

(d)                                 “Fair Market Value” as of any date shall
mean (i) if such stock is listed on the Nasdaq Global Select Market, Nasdaq
Global Market, Nasdaq Capital Market, or an established stock exchange, the
price of such stock at the close of the regular trading session of such market
or exchange on such date, as reported by The Wall Street Journal or a comparable
reporting service, or, if no sale of such stock shall have occurred on such
date, on the next preceding day on which there was a sale of stock; (ii) if such
stock is not so listed on the Nasdaq National Market, Nasdaq SmallCap Market, or
an established stock exchange, the average of the closing “bid” and “asked”
prices quoted by the OTC Bulletin Board, the Pink OTC Markets, or any comparable
reporting service on such date or, if there are no quoted “bid” and “asked”
prices on such date, on the next preceding date for which there are such quotes;
or (iii) if such stock is not publicly traded as of such date, the per share
value as determined by the Board, or the Committee, in its sole discretion by
applying principles of valuation with respect to the Company’s Common Stock.

 

(e)                                  The “Internal Revenue Code” is the Internal
Revenue Code of 1986, as amended from time to time.

 

(f)                                    “Option Stock” shall mean Common Stock of
the Company (subject to adjustment as described in Section 12) reserved for
options pursuant to this Plan.

 

(g)                                 The “Optionee” means an employee of the
Company or any Affiliate to whom an incentive stock option has been granted
pursuant to Section 9; a consultant or advisor, to or director, employee or
officer, of the Company or any Affiliate to whom a nonqualified stock option has
been granted pursuant to Section 10; or a director to whom a nonqualified stock
option has been granted hereunder.

 

(h)                                 “Parent” shall mean any corporation which
owns, directly or indirectly in an unbroken chain, fifty percent (50%) or more
of the total voting power of the Company’s outstanding stock.

 

(i)                                     The “Plan” means the Winmark Corporation
2010 Stock Option Plan, as amended hereafter from time to time, including the
form of Option Agreements as they may be modified by the Administrator from time
to time.

 

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(j)                                     A “Subsidiary” shall mean any
corporation of which fifty percent (50%) or more of the total voting power of
outstanding stock is owned, directly or indirectly in an unbroken chain, by the
Company.

 

SECTION 2.

PURPOSE

 

The purpose of the Plan is to promote the success of the Company and its
Affiliates by facilitating the employment and retention of competent personnel
and by furnishing incentive to officers, directors, employees, consultants, and
advisors upon whose efforts the success of the Company and its Affiliates will
depend to a large degree.

 

It is the intention of the Company to carry out the Plan through the granting of
stock options which will qualify as “incentive stock options” under the
provisions of Section 422 of the Internal Revenue Code, or any successor
provision, and through the granting of “non-qualified stock options.”  Adoption
of this Plan shall be and is expressly subject to the condition of approval by
the shareholders of the Company within twelve (12) months before or after the
adoption of the Plan by the Board of Directors.  In the event shareholder
approval is not obtained within such twelve-month period, any incentive stock
options granted under the Plan shall automatically become nonqualified stock
options.

 

SECTION 3.

EFFECTIVE DATE OF PLAN

 

The Plan shall be effective as of the date of adoption by the Board of
Directors, subject to approval by the shareholders of the Company as required in
Section 2.

 

SECTION 4.

ADMINISTRATION

 

The Plan shall be administered by the Committee which shall be appointed by the
Board of Directors of the Company (the “Board”) (hereinafter the Committee shall
be referred to as the “Administrator”).  The Administrator shall have all of the
powers vested in it under the provisions of the Plan, including but not limited
to exclusive authority (where applicable and within the limitations described
herein) to determine, in its sole discretion, whether an incentive stock option
or nonqualified stock option shall be granted, the individuals to whom, and the
time or times at which, options shall be granted, the number of shares subject
to each option and the option price and terms and conditions of each option. 
The Administrator shall have full power and authority to administer and
interpret the Plan, to make and amend rules, regulations and guidelines for
administering the Plan, to prescribe the form and conditions of the respective
stock option agreements (which may vary from Optionee to Optionee) evidencing
each option and to make all other determinations necessary or advisable for the
administration of the Plan.  The Administrator’s interpretation of the Plan, and
all actions taken and determinations made by the Administrator pursuant to the
power vested in it hereunder, shall be conclusive and binding on all parties
concerned.

 

No member of the Board or the Committee shall be liable for any action taken or
determination made in good faith in connection with the administration of the
Plan.  Any action of the Committee with respect to the administration of the
Plan shall be taken pursuant to a majority vote of the Committee members or
pursuant to the written resolution of all Committee members.

 

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SECTION 5.

PARTICIPANTS

 

The Administrator shall from time to time, at its discretion and without
approval of the shareholders, designate those employees, officers, directors,
consultants, and advisors of the Company or of any Affiliate to whom
nonqualified stock options shall be granted under this Plan; provided, however,
that consultants or advisors shall not be eligible to receive stock options
hereunder unless such consultant or advisor renders bona fide services to the
Company or Affiliate and such services are not in connection with the offer or
sale of securities in a capital raising transaction and do not directly or
indirectly promote or maintain a market for the Company’s securities.  The
Administrator shall, from time to time, at its discretion and without approval
of the shareholders, designate those employees of the Company or any Affiliate
to whom incentive stock options shall be granted under this Plan.  The
Administrator may grant additional incentive stock options or nonqualified stock
options under this Plan to some or all participants then holding options or may
grant options solely or partially to new participants.  In designating
participants, the Administrator shall also determine the number of shares to be
optioned to each such participant.  The Administrator may from time to time
designate individuals as being ineligible to participate in the Plan.

 

SECTION 6.

STOCK

 

The Stock to be optioned under this Plan shall consist of authorized but
unissued shares of Option Stock.  Two Hundred Fifty Thousand (250,000) shares of
Option Stock shall be reserved and available for options under the Plan;
provided, however, that the total number of shares of Option Stock reserved for
options under this Plan shall be subject to adjustment as provided in Section 12
of the Plan.  In the event that any outstanding option under the Plan for any
reason expires or is terminated prior to the exercise thereof, the shares of
Option Stock allocable to the unexercised portion of such option shall continue
to be reserved for options under the Plan and may be optioned hereunder.

 

SECTION 7.

DURATION OF PLAN

 

Incentive stock options may be granted pursuant to the Plan from time to time
during a period of ten (10) years from the effective date as defined in
Section 3.  Nonqualified stock options may be granted pursuant to the Plan from
time to time after the effective date of the Plan and until the Plan is
discontinued or terminated by the Board.

 

SECTION 8.

PAYMENT

 

Optionees may pay for shares upon exercise of options granted pursuant to this
Plan with cash, personal check, certified check or, if approved by the
Administrator in its sole discretion, previously-owned shares of Option Stock
valued at such stock’s then Fair Market Value, or such other form of payment as
may be authorized by the Administrator.  The Administrator may, in its sole
discretion, limit the forms of payment available to the Optionee and may
exercise such discretion any time prior to the termination of the Option granted
to the Optionee or upon any exercise of the Option by the Optionee. 
“Previously-owned shares” means shares of Option Stock which the Optionee has
owned for at least six (6) months prior to the exercise of the stock option, or
for such other period of time as may be required by generally accepted
accounting principles.

 

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With respect to payment in the form of shares of Option Stock, the Administrator
may require advance approval or adopt such rules as it deems necessary to assure
compliance with Rule 16b-3, or any successor provision, as then in effect, of
the General Rules and Regulations under the Securities Exchange Act of 1934, if
applicable.

 

SECTION 9.

TERMS AND CONDITIONS OF INCENTIVE STOCK OPTIONS

 

Each incentive stock option granted pursuant to this Section 9 shall be
evidenced by a written stock option agreement (the “Option Agreement”).  The
Option Agreement shall be in such form as may be approved from time to time by
the Administrator and may vary from Optionee to Optionee; provided, however,
that each Optionee and each Option Agreement shall comply with and be subject to
the following terms and conditions:

 

(a)                                  Number of Shares and Option Price.  The
Option Agreement shall state the total number of shares covered by the incentive
stock option.  To the extent required to qualify the Option as an incentive
stock option under Section 422 of the Internal Revenue Code, or any successor
provision, the option price per share shall not be less than one hundred percent
(100%) of the per share Fair Market Value of the Option Stock on the date the
Administrator grants the option; provided, however, that if an Optionee owns
stock possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or of its parent or any Subsidiary, the
option price per share of an incentive stock option granted to such Optionee
shall not be less than one hundred ten percent (110%) of the per share Fair
Market Value of the Option Stock on the date of the grant of the option.  The
Administrator shall have full authority and discretion in establishing the
option price and shall be fully protected in so doing.

 

(b)                                 Term and Exercisability of Incentive Stock
Option.  The term during which any incentive stock option granted under the Plan
may be exercised shall be established in each case by the Administrator .  To
the extent required to qualify the Option as an incentive stock option under
Section 422 of the Internal Revenue Code, or any successor provision, in no
event shall any incentive stock option be exercisable during a term of more than
ten (10) years after the date on which it is granted; provided, however, that if
an Optionee owns stock possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or of its parent or
any Subsidiary, the incentive stock option granted to such Optionee shall be
exercisable during a term of not more than five (5) years after the date on
which it is granted.  The Option Agreement shall state when the incentive stock
option becomes exercisable and shall also state the maximum term during which
the option may be exercised.  In the event an incentive stock option is
exercisable immediately, the manner of exercise of the option in the event it is
not exercised in full immediately shall be specified in the Option Agreement. 
The Administrator may accelerate the exercise date of any incentive stock option
granted hereunder which is not immediately exercisable as of the date of grant.

 

(c)                                  Other Provisions.  The Option Agreement
authorized under this Section 9 shall contain such other provisions as the
Administrator shall deem advisable.  Any such Option Agreement shall contain
such limitations and restrictions upon the exercise of the option as shall be
necessary to ensure that such option will be considered an “incentive stock
option” as defined in Section 422 of the Internal Revenue Code or to conform to
any change therein.

 

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SECTION 10.

TERMS AND CONDITIONS OF NONQUALIFIED STOCK OPTIONS

 

Each nonqualified stock option granted pursuant to this Section 10 shall be
evidenced by a written Option Agreement.  The Option Agreement shall be in such
form as may be approved from time to time by the Administrator and may vary from
Optionee to Optionee; provided, however, that each Optionee and each Option
Agreement shall comply with and be subject to the following terms and
conditions:

 

(a)                                  Number of Shares and Option Price.  The
Option Agreement shall state the total number of shares covered by the
nonqualified stock option.  Unless otherwise determined by the Administrator,
the option price per share shall be one hundred percent (100%) of the per share
Fair Market Value of the Option Stock on the date the Administrator grants the
option; provided, however, that the option price per share may not be less than
eighty-five percent (85%) of the per share Fair Market Value of the Option Stock
on the date of grant.

 

(b)                                 Term and Exercisability of Nonqualified
Stock Option.  The term during which any nonqualified stock option granted under
the Plan may be exercised shall be established in each case by the
Administrator.  The Option Agreement shall state when the nonqualified stock
option becomes exercisable and shall also state the maximum term during which
the option may be exercised.  In the event a nonqualified stock option is
exercisable immediately, the manner of exercise of the option in the event it is
not exercised in full immediately shall be specified in the stock option
agreement.  The Administrator may accelerate the exercise date of any
nonqualified stock option granted hereunder which is not immediately exercisable
as of the date of grant.

 

(c)                                  Withholding.  The Company or its Affiliate
shall be entitled to withhold and deduct from future wages of the Optionee all
legally required amounts necessary to satisfy any and all withholding and
employment-related taxes attributable to the Optionee’s exercise of a
nonqualified stock option.  In the event the Optionee is required under the
Option Agreement to pay the Company, or make arrangements satisfactory to the
Company respecting payment of, such withholding and employment-related taxes,
the Administrator may, in its discretion and pursuant to such rules as it may
adopt, permit the Optionee to satisfy such obligation, in whole or in part, by
electing to have the Company withhold shares of Option Stock otherwise issuable
to the Optionee as a result of the option’s exercise having 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 option.  In no
event may the Company or any Affiliate withhold shares having a Fair Market
Value in excess of such statutory minimum required tax withholding.  The
Optionee’s election to have shares withheld for this purpose shall be made on or
before the date the option is exercised or, if later, the date that the amount
of tax to be withheld is determined under applicable tax law.  Such election
shall be approved by the Administrator and otherwise comply with such rules as
the Administrator may adopt to assure compliance with Rule 16b-3, or any
successor provision, as then in effect, of the General Rules and Regulations
under the Securities Exchange Act of 1934, if applicable.

 

(d)                                 Other Provisions.  The Option Agreement
authorized under this Section 10 shall contain such other provisions as the
Administrator shall deem advisable.

 

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SECTION 11.

TRANSFER OF OPTION

 

No incentive stock option shall be transferable, in whole or in part, by the
Optionee other than by will or by the laws of descent and distribution and,
during the Optionee’s lifetime, the option may be exercised only by the
Optionee.  If the Optionee shall attempt any transfer of any incentive stock
option granted under the Plan during the Optionee’s lifetime, such transfer
shall be void and the incentive stock option, to the extent not fully exercised,
shall terminate.

 

No nonqualified stock option shall be transferred, except that the Administrator
may, in its sole discretion, permit the Optionee to transfer any or all
nonqualified stock options to any member of the Optionee’s “immediate family” as
such term is defined in Rule 16a-1(e) promulgated under the Securities Exchange
Act of 1934, or any successor provision, or to one or more trusts whose
beneficiaries are members of such Optionee’s “immediate family” or partnerships
in which such family members are the only partners; provided, however, that the
Optionee receives no consideration for the transfer and such transferred
nonqualified stock option shall continue to be subject to the same terms and
conditions as were applicable to such nonqualified stock option immediately
prior to its transfer.

 

SECTION 12.

RECAPITALIZATION, SALE, MERGER, EXCHANGE

OR LIQUIDATION

 

If, following adoption of this Plan, the Company effects an increase or decrease
in the number of shares of Common Stock in the form of a subdivision or
consolidation of shares, or the payment of a stock dividend, or effects any
other increase or decrease in the number of shares of Common Stock without
receipt of consideration by the Company, the number of shares of Option Stock
reserved under Section 6 hereof and the number of shares of Option Stock covered
by each outstanding option and the price per share thereof shall be
appropriately adjusted by the Board to reflect such change.  Additional shares
which may be credited pursuant to such adjustment shall be subject to the same
restrictions as are applicable to the shares with respect to which the
adjustment relates.

 

Unless otherwise provided in the Option Agreement, in the event of an
acquisition of the Company through the sale of substantially all of the
Company’s assets and the consequent discontinuance of its business or through a
merger, consolidation, exchange, reorganization, reclassification, extraordinary
dividend, divestiture or liquidation of the Company (collectively referred to as
a “transaction”), all outstanding stock options shall become immediately
exercisable, whether or not such options had become exercisable prior to the
transaction.  In addition to the foregoing, the Board may provide for one or
more of the following:

 

(a)                                  the complete termination of this Plan and
the cancellation of outstanding options not exercised prior to a date specified
by the Board (which date shall give Optionees a reasonable period of time in
which to exercise the options prior to the effectiveness of such transaction);

 

(b)                                 that Optionees holding outstanding stock
options shall receive, with respect to each share of Stock subject to such
options, as of the effective date of any such transaction, cash in an amount
equal to the excess of the Fair Market Value of such Stock on the date
immediately preceding the effective date of such transaction over the option
price per share of such options; provided that the Board may, in lieu of such
cash payment, distribute to such Optionees shares of stock of the Company or
shares of stock of any corporation succeeding the Company by reason of such
transaction, such shares having a value equal to the cash payment herein;

 

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(c)                                  the continuance of the Plan with respect to
the exercise of options which were outstanding as of the date of adoption by the
Board of such plan for such transaction and provide to Optionees holding such
options the right to exercise their respective options as to an equivalent
number of shares of stock of the corporation succeeding the Company by reason of
such transaction.

 

The Board may restrict the rights of or the applicability of this Section 12 to
the extent necessary to comply with Section 16(b) of the Securities Exchange Act
of 1934, the Internal Revenue Code or any other applicable law or regulation. 
The grant of an option pursuant to the Plan shall not limit in any way the right
or power of the Company to make adjustments, reclassifications, reorganizations
or changes of its capital or business structure or to merge, exchange or
consolidate or to dissolve, liquidate, sell or transfer all or any part of its
business or assets.

 

SECTION 13.

INVESTMENT PURPOSE

 

No shares of Option Stock shall be issued pursuant to the Plan unless and until
there has been compliance, in the opinion of Company’s counsel, with all
applicable legal requirements, including without limitation, those relating to
securities laws and stock exchange listing requirements.  As a condition to the
issuance of Option Stock to Optionee, the Administrator may require Optionee to
(a) represent that the shares of Option Stock are being acquired for investment
and not resale and to make such other representations as the Administrator shall
deem necessary or appropriate to qualify the issuance of the shares as exempt
from the Securities Act of 1933 and any other applicable securities laws, and
(b) represent that Optionee shall not dispose of the shares of Option Stock in
violation of the Securities Act of 1933 or any other applicable securities laws.

 

As a further condition to the grant of any stock option or the issuance of
Option Stock to Optionee, Optionee agrees to the following:

 

(a)                                  In the event the Company advises Optionee
that it plans an underwritten public offering of its Common Stock in compliance
with the Securities Act of 1933, as amended, and 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, Optionee will not, for a
period not to exceed 180 days from the prospectus, sell or contract to sell or
grant an option to buy or otherwise dispose of any stock option granted to
Optionee pursuant to the Plan or any of the underlying shares of Option Stock
without the prior written consent of the underwriter(s) or its
representative(s).

 

(b)                                 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 states securities or Blue Sky law limitations with
respect thereto, the Administrator shall have the right (i) to accelerate the
exercisability of any stock option and the date on which such option must be
exercised, provided that the Company gives Optionee prior written notice of such
acceleration, and (ii) to cancel any options or portions thereof which Optionee
does not exercise prior to or contemporaneously with such public offering.

 

The Company reserves the right to place a legend on any stock certificate issued
upon exercise of an option granted pursuant to the Plan to assure compliance
with this Section 13.

 

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SECTION 14.

RIGHTS AS A SHAREHOLDER

 

An Optionee (or the Optionee’s successor or successors) shall have no rights as
a shareholder with respect to any shares covered by an option until the date of
the issuance of a stock certificate evidencing such shares.  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 stock certificate is actually issued (except as otherwise
provided in Section 12 of the Plan).

 

SECTION 15.

AMENDMENT OF THE PLAN

 

The Administrator may from time to time, insofar as permitted by law, suspend or
discontinue the Plan or revise or amend it in any respect; provided, however,
that no such revision or amendment, except as is authorized in Section 12, shall
impair the terms and conditions of any option which is outstanding on the date
of such revision or amendment to the material detriment of the Optionee without
the consent of the Optionee.  Notwithstanding the foregoing, no such revision or
amendment shall (i) increase the number of shares subject to the Plan except as
provided in Section 12 hereof, (ii) change the designation of the class of
employees eligible to receive options, (iii) decrease the price at which options
may be granted, (iv) materially increase the benefits accruing to Optionees
under the Plan, or otherwise make any material amendment of the Plan as defined
under any listing regulations of the stock exchange in which the Company’s
common stock is listed without the approval of the shareholders of the Company
if such approval is required for compliance with the requirements of any
applicable law or regulation.  Furthermore, the Plan may not, without the
approval of the shareholders, be amended in any manner that will cause incentive
stock options to fail to meet the requirements of Section 422 of the Internal
Revenue Code.

 

SECTION 16.

NO OBLIGATION TO EXERCISE OPTION

 

The granting of an option shall impose no obligation upon the Optionee to
exercise such option.  Further, the granting of an option hereunder shall not
impose upon the Company or any Affiliate any obligation to retain the Optionee
in its employ for any period.

 

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INCENTIVE STOCK OPTION AGREEMENT

 

WINMARK CORPORATION

2010 STOCK OPTION PLAN

 

THIS AGREEMENT, made effective as of this              day of
                              ,               , by and between Winmark
Corporation, a Minnesota corporation (the “Company”), and
                                   (“Optionee”).

 

W I T N E S S E T H:

 

WHEREAS, Optionee on the date hereof is a key employee or officer of the Company
or an Affiliate; and

 

WHEREAS, the Company wishes to grant an incentive stock option to Optionee to
purchase shares of the Company’s Common Stock pursuant to the Company’s 2010
Stock Option Plan (the “Plan”); and

 

                                                WHEREAS, the Administrator of
the Plan has authorized the grant of an incentive stock option to Optionee 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 Optionee 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 (the “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                         ,
               except as otherwise provided in Paragraphs 2(b) through
2(d) below.  This Option shall become exercisable according to the following
schedule:

 

Vesting Date

 

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

 

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b.                                      Termination of Employment (Other Than
Disability or Death).  If Optionee’s employment with the Company or its
Affiliate is terminated for any reason other than disability or death, this
Option shall terminate on the earlier of (i) the close of business on the
three-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 Optionee’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 Optionee does not exercise the Option within
the time specified in this Paragraph 2(b), all rights of Optionee under this
Option shall be forfeited.

 

c.                                       Disability.  If Optionee’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 Optionee’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 Optionee does not
exercise the Option within the time specified in this Paragraph 2(c), all rights
of Optionee under this Option shall be forfeited.

 

d.                                      Death.  In the event of Optionee’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 Optionee’s death, and
(ii) the expiration date of this Option stated in Paragraph 2(a) above.  In such
period following Optionee’s death, this Option shall be exercisable by the
person or persons to whom Optionee’s rights under this Option shall have passed
by Optionee’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
Optionee’s death, but had not previously been exercised.  To the extent this
Option was not exercisable upon the date of Optionee’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 Optionee (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 Administrator 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.

 

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b.                                      Form of Payment.  Subject to approval by
the Administrator, payment of the option price by Optionee shall be in the form
of cash, personal check, certified check or previously acquired shares of 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-owned shares” means shares of Stock
which the Optionee has owned for at least six (6) months prior to the exercise
of the stock option, or for such other period of time as may be required by
generally accepted accounting principles.

 

c.                                       Stock Transfer Records.  As soon as
practicable after the effective exercise of all or any part of the Option,
Optionee shall be recorded on the stock transfer books of the Company as the
owner of the shares purchased, and the Company shall deliver to Optionee 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 Optionee any right with respect to
continuance of employment by the Company or any of its Affiliates, nor will it
interfere in any way with the right of the Company to terminate such
employment.  Optionee shall have no rights as a shareholder with respect to
shares subject to this Option until such shares have been issued to Optionee
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
Stock pursuant to such exercise will not violate any state or federal securities
or other laws.  Optionee may be required by the Company, as a condition of the
effectiveness of any exercise of this Option, to agree in writing that all Stock
to be acquired pursuant to such exercise shall be held, until such time that
such Stock is registered and freely tradable under applicable state and federal
securities laws, for Optionee’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 Stock (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 Optionee’s rights with
respect to any unexercised portion of the Option (i.e., Optionee 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, Optionee 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 Optionee.  If the Company is
unable to withhold such federal and state taxes, for whatever reason, Optionee
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.  Optionee
may, subject to the approval and discretion of the Administrator 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 Stock having
a Fair Market Value equal to such obligations.

 

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

 

g.                                      2010 Stock Option Plan.  The Option
evidenced by this Agreement is granted pursuant to the Plan, a copy of which
Plan has been made available to Optionee 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 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.  Optionee
agrees that in the event the Company advises Optionee 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, Optionee hereby agrees that for
a period not to exceed 180 days from the prospectus, Optionee 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 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 Administrator 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 Optionee 15 days’ prior
written notice of such acceleration, and (ii) to cancel any portion of this
Option or any other option granted to Optionee 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 Optionee at the address of
Optionee on file with the Company.

 

--------------------------------------------------------------------------------

 

j.                                          Stock Legend.  The Administrator may
require that the certificates for any shares of Stock purchased by Optionee (or,
in the case of death, Optionee’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.

 

k.                                       Scope of Agreement.  This Agreement
shall bind and inure to the benefit of the Company and its successors and
assigns and Optionee and any successor or successors of Optionee permitted by
Paragraph 2 or Paragraph 4(f) above.

 

l.                                          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 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, Minneapolis.

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
on the day and year first above written.

 

WINMARK CORPORATION

 

 

 

 

 

 

 

 

By:

 

 

 

 

Its:

 

 

Optionee

 

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NONQUALIFIED STOCK OPTION AGREEMENT

 

WINMARK CORPORATION

2010 STOCK OPTION PLAN

 

THIS AGREEMENT, made effective as of this              day of
                      ,           , by and between Winmark Corporation, a
Minnesota corporation (the “Company”), and                                 
(“Optionee”).

 

W I T N E S S E T H:

 

WHEREAS, Optionee on the date hereof is a key employee, officer or director of
the Company or an Affiliate; and

 

WHEREAS, the Company wishes to grant a nonqualified stock option to Optionee to
purchase shares of the Company’s Common Stock pursuant to the Company’s 2010
Stock Option Plan (the “Plan”); and

 

WHEREAS, the Administrator has authorized the grant of a nonqualified stock
option to Optionee 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 Optionee 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 (the
“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                               ,
            , except as otherwise provided in Paragraphs 2(b) through
2(d) below.  This Option shall become exercisable according to the following
schedule:

 

Vesting Date

 

Cumulative Percentage
of Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

--------------------------------------------------------------------------------

 

b.                                      Termination of Relationship (Other Than
Disability or Death).  If Optionee’s relationship 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 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 Optionee’s relationship with the Company or Subsidiary terminated,
but had not previously been exercised.  To the extent this Option was not
exercisable upon the termination of such relationship, or if Optionee does not
exercise the Option within the time specified in this Paragraph 2(b), all rights
of Optionee under this Option shall be forfeited.

 

c.                                       Disability.  If Optionee ceases to be
[an employee] [a consultant] [a nonemployee director] 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
Optionee’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 Optionee does not exercise the
Option within the time specified in this Paragraph 2(c), all rights of Optionee
under this Option shall be forfeited.

 

d.                                      Death.  In the event of Optionee’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 Optionee’s death, and
(ii) the expiration date of this Option stated in Paragraph 2(a) above.  In such
period following Optionee’s death, this Option may be exercised by the person or
persons to whom Optionee’s rights under this Option shall have passed by
Optionee’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
Optionee’s death, but had not previously been exercised.  To the extent this
Option was not exercisable upon the date of Optionee’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 Optionee (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 Administrator 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 Optionee shall be
in the form of cash, personal check, certified check or previously acquired
shares of 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-owned shares”
means shares of Stock which the Optionee has owned for at least six (6) months
prior to the exercise of the stock option, or for such other period of time as
may be required by generally accepted accounting principles.

 

c.                                       Stock Transfer Records.  As soon as
practicable after the effective exercise of all or any part of the Option,
Optionee shall be recorded on the stock transfer books of the Company as the
owner of the shares purchased, and the Company shall deliver to Optionee 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 Optionee any right with respect to the continuance of any
relationship with the Company or any of its Affiliates,  nor will it interfere
in any way with the right of the Company to terminate any such relationship. 
Optionee shall have no rights as a shareholder with respect to shares subject to
this Option until such shares have been issued to Optionee 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
Stock pursuant to such exercise will not violate any state or federal securities
or other laws.  Optionee may be required by the Company, as a condition of the
effectiveness of any exercise of this Option, to agree in writing that all Stock
to be acquired pursuant to such exercise shall be held, until such time that
such Stock is registered and freely tradable under applicable state and federal
securities laws, for Optionee’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 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 Optionee’s
rights with respect to any unexercised portion of the Option (i.e., Optionee
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 Optionee.  If the
Company is unable to withhold such federal and state taxes, for whatever reason,
Optionee 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.

 

Subject to such rules as the Administrator may adopt, the Administrator may, in
its sole discretion, permit a Optionee to satisfy such withholding tax
obligations, in whole or in part (i) by delivering shares of Stock of having an
equivalent fair market value, or (ii) by electing to have the Company withhold
shares of Stock otherwise issuable to Optionee having 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 option.  In no
event may the Company or Affiliate withhold shares having a Fair Market Value in
excess of such statutory minimum required tax withholding.  Optionee’s election
to have shares withheld for purposes of such withholding tax obligations shall
be made on or before the date that triggers such obligations or, if later, the
date that the amount of tax to be withheld is determined under applicable tax
law.  Optionee’s election shall be approved by the Administrator and otherwise
comply with such rules as the Administrator may adopt to assure compliance with
Rule 16b-3 or any successor provision, as then in effect, of the General
Rules and Regulations under the Securities and Exchange Act of 1934, if
applicable.

 

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

 

g.                                      2010 Stock Option Plan.  The Option
evidenced by this Agreement is granted pursuant to the Plan, a copy of which
Plan has been made available to Optionee 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.

 

h.                                      Lockup Period Limitation.  Optionee
agrees that in the event the Company advises Optionee 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, Optionee hereby agrees that for
a period not to exceed 180 days from the prospectus, Optionee 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 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 Administrator 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 Optionee 15 days’ prior
written notice of such acceleration, and (ii) to cancel any portion of this
Option or any other option granted to Optionee 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 Optionee at the address of
Optionee on file with the Company.

 

j.                                          Stock Legend.  The Administrator may
require that the certificates for any shares of Common Stock purchased by
Optionee (or, in the case of death, Optionee’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.

 

k.                                       Scope of Agreement.  This Agreement
shall bind and inure to the benefit of the Company and its successors and
assigns and Optionee and any successor or successors of Optionee permitted by
Paragraph 2 or Paragraph 4(f) above.

 

l.                                          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 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.

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
on the day and year first above written.

 

 

WINMARK CORPORATION

 

 

 

 

 

 

 

 

By:

 

 

 

 

Its:

 

 

Optionee

 

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