Exhibit 10.1

 

AUGUST TECHNOLOGY CORPORATION

 

1997 STOCK OPTION PLAN

(Restated to Include Amendments and Stock Adjustments Through July 29, 2003)

 

ARTICLE 1.  ESTABLISHMENT AND PURPOSE

 

1.1  ESTABLISHMENT.  August Technology Corporation (the “Company”) hereby
establishes a plan providing for the grant of stock options to certain eligible
employees, directors and consultants of the Company and its subsidiaries.  This
plan shall be known as the 1997 Stock Option Plan (the “Plan”).

 

1.2  PURPOSE.  The purpose of the Plan is to advance the interests of the
Company and its shareholders by enabling the Company to attract and retain
persons of ability as employees, directors and consultants, by providing an
incentive to such individuals through equity participation in the Company and by
rewarding such individuals who contribute to the achievement by the Company of
its long-term economic objectives.

 

ARTICLE 2.  DEFINITIONS

 

The following terms shall have the meanings set forth below, unless the context
clearly otherwise requires:

 

2.1  “BOARD” means the Board of Directors of the Company.

 

2.2  “CHANGE IN CONTROL” means an event described in Article 11 below.

 

2.3  “CODE”  means the Internal Revenue Code of 1986, as amended.

 

2.4  “COMMITTEE” means the entity administering the Plan, as provided in Article
3 below.

 

2.5  “COMMON STOCK” means the common stock of the Company, par value $.01 per
share, or the number and kind of shares of stock or other securities into which
such Common Stock may be changed in accordance with Section 4.3 below.

 

2.6  “DISABILITY” means the occurrence of an event which constitutes permanent
and total disability within the meaning of Section 22(e)(3) of the Code.

 

2.7  “ELIGIBLE PERSONS” means individuals who are (a) salaried employees
(including, without limitation, officers and directors who are also employees)
of the Company or one of its Subsidiaries, (b) Non-Employee Directors, or (c)
consultants to the Company.

 

2.8  “EXCHANGE ACT” means the Securities Exchange Act of 1934, as amended.

 

2.9  “FAIR MARKET VALUE” means, with respect to the Common Stock, as of any
date:

 

(a)  if the Common Stock is listed or admitted to unlisted trading privileges on
any national securities exchange or is not so listed or admitted but
transactions in the Common Stock are

 

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reported on the NASDAQ National Market System, the mean between the reported
high and low sale prices of the Common Stock on such exchange or by the NASDAQ
National Market System as of such date (or, if no shares were traded on such
day, as of the next preceding day on which there was such a trade); or

 

(b)  if the Common Stock is not listed or admitted to unlisted trading
privileges or reported on the NASDAQ National Market System, and bid and asked
prices therefor in the over-the-counter market are reported by the NASDAQ System
or the National Quotation Bureau, Inc. (or any comparable reporting service),
the mean of the closing bid and asked prices as of such date, as reported by the
NASDAQ System, or, if not reported thereon, as reported by the National
Quotation Bureau, Inc. (or a comparable reporting service); or

 

(c)  if the Common Stock is not listed or admitted to unlisted trading
privileges, or reported on the NASDAQ National Market System, and bid and asked
prices are not reported, the price that the Committee determines in good faith
in the exercise of its reasonable discretion. The Committee’s determination as
to the current value of the Common Stock shall be final, conclusive and binding
for all purposes and on all persons, including, without limitation, the Company,
the shareholders of the Company, the Optionees and their respective
successors-in-interest.  No member of the Board or the Committee shall be liable
for any determination regarding current value of the Common Stock that is made
in good faith.

 

2.10 “INCENTIVE STOCK OPTION” means a right to purchase Common Stock granted to
an Optionee pursuant to Section 6.5 of the Plan that qualifies as an incentive
stock option within the meaning of Section 422 of the Code.

 

2.11 “NON-EMPLOYEE DIRECTOR” means any member of the Board who is not an
employee of the Company or any Subsidiary.

 

2.12 “NON-STATUTORY STOCK OPTION means a right to purchase Common Stock granted
to an Optionee pursuant to Section 6.6 of the Plan that does not qualify as an
Incentive Stock Option.

 

2.13 “OPTION” means an Incentive Stock Option or a Non-Statutory Stock Option.

 

2.14 “OPTIONEE” means an Eligible Person who receives one or more Incentive
Stock Options or Non-Statutory Stock Options under the Plan.

 

2.15 “PERSON” means any individual, corporation, partnership, group, association
or other “person” (as such term is used in Section 14(d) of the Exchange Act),
other than the Company, a wholly owned subsidiary of the Company or any employee
benefit plan sponsored by the Company.

 

2.16 “RETIREMENT” means the retirement of an Optionee pursuant to and in
accordance with the regular retirement plan or practice of the Company or the
Subsidiary employing the Optionee.

 

2.17 “SECURITIES ACT” means the Securities Act of 1933, as amended.

 

2.18 “SUBSIDIARY” means any corporation that is a subsidiary corporation of the
Company (within the meaning of Section 424(f) of the Code).

 

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2.19 “TAX DATE” means a date defined in Section 6.5(c) of the Plan.

 

ARTICLE 3.  PLAN ADMINISTRATION

 

The Plan shall be administered by the Board or by a Committee of the Board
consisting of two or more directors.  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.  Members of a Committee, if established, shall be appointed from
time to time by the Board, shall serve at the pleasure of the Board and may
resign at any time upon written notice to the Board.  A majority of the members
of the Committee shall constitute a quorum.  The Committee shall act by majority
approval of its members, shall keep minutes of its meetings and shall provide
copies of such minutes to the Board.  Action of the Committee may be taken
without a meeting if unanimous written consent thereto is given.  Copies of
minutes of the Committee’s meetings and of its actions by written consent shall
be provided to the Board and kept with the corporate records of the Company.  As
used in this Plan, the term “Committee” will refer either to the Board or to
such a Committee, if established.  From and after the date on which the Company
first registers a class of its equity securities under Section 12 of the
Exchange Act, no member of the Committee shall be eligible, or shall have been
eligible at any time within the lesser of one year or the period since the
Company first registered a class of its equity securities under Section 12 of
the Exchange Act, to receive an Incentive Stock Option or a Non-Statutory Stock
Option under the Plan.

 

In accordance with the provisions of the Plan, the Committee shall select the
Optionees from Eligible Persons; shall determine the number of shares of Common
Stock to be subject to Options granted pursuant to the Plan, the time at which
such Options are granted, the Option exercise price, Option period and the
manner in which each such Option vests or becomes exercisable; and shall fix
such other provisions of such Options as the Committee may deem necessary or
desirable and as consistent with the terms of the Plan.  The Committee shall
determine the form or forms of the agreements with Optionees which shall
evidence the particular terms, conditions, rights and duties of the Company and
the Optionees under Options granted pursuant to the Plan.  The Committee shall
have the authority, subject to the provisions of the Plan, to establish, adopt
and revise such rules and regulations relating to the Plan as it may deem
necessary or advisable for the administration of the Plan.  With the consent of
the Optionee affected thereby, the Committee may amend or modify the terms of
any outstanding Incentive Stock Option or Non-Statutory Stock Option in any
manner, provided that the amended or modified terms are permitted by the Plan as
then in effect.  Without limiting the generality of the foregoing sentence, the
Committee may, with the consent of the Optionee affected thereby, modify the
exercise price, number of shares or other terms and conditions of an Incentive
Award, extend the term of an Incentive Award, accelerate the exercisability or
vesting or otherwise terminate any restrictions relating to an Incentive Award,
extend, renew or accept the surrender of any outstanding Incentive Stock Option
or Non-Statutory Stock Option, to the extent not previously exercised, and the
Committee may authorize the grant of new Options in substitution therefor to the
extent not previously exercised.

 

Each determination, interpretation or other action made or taken by the
Committee pursuant to the provisions of the Plan shall be conclusive and binding
for all purposes and on all persons, including, without limitation, the Company
and its Subsidiaries, the shareholders of the Company,

 

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the Committee and each of the members thereof, the directors, officers and
employees of the Company and its Subsidiaries, and the Optionees and their
respective successors in interest.

 

ARTICLE 4.  SHARES SUBJECT TO THE PLAN

 

4.1  NUMBER.  The maximum number of shares of Common Stock that shall be
reserved for issuance under the Plan shall be 3,050,000, subject to adjustment
upon changes in capitalization of the Company as provided in Section 4.3 below.
The maximum number of shares authorized may be increased from time to time by
approval of the Board and, if required pursuant to Rule 16b-3, Section 422A of
the Code, or the rules of any securities exchange or the NASD, or the
shareholders of the Company.  Shares of Common Stock that may be issued upon
exercise of Options shall be applied to reduce the maximum number of shares of
Common Stock remaining available for use under the Plan.

 

4.2  UNUSED STOCK.  Any shares of Common Stock that are subject to an Option (or
any portion thereof) that lapses, expires or for any reason is terminated
unexercised shall automatically again become available for use under the Plan.

 

4.3  CHANGE IN SHARES, ADJUSTMENTS, ETC.  If the number of outstanding shares of
Common Stock is increased or decreased or changed into or exchanged for a
different number or kind of shares of stock or other securities of the Company
or of another corporation by reason of any reorganization, merger,
consolidation, recapitalization, reclassification, stock dividend, stock split,
reverse stock split, combination of shares, rights offering or any other change
in the corporate structure or shares of the Company, the Committee (or, if the
Company is not the surviving corporation in any such transaction, the board of
directors of the surviving corporation) shall make appropriate adjustment as to
the number and kind of securities subject to and reserved under the Plan and, in
order to prevent dilution or enlargement of the rights of Optionees, the number
and kind of securities subject to outstanding Options.  Any such adjustment in
any outstanding Option shall be made without change in the aggregate purchase
price applicable to the unexercised portion of the Option but with an
appropriate adjustment in the price for each share or other unit of any security
covered by the Option.  However, no change shall be made in the terms of any
outstanding Incentive Stock Option as a result of any such change in the
corporate structure or shares of the Company, without the consent of the
Optionee affected thereby, that would disqualify that Incentive Stock Option
from treatment under Section 422 of the Code or would be considered a
modification, extension or renewal of an option under Section 424(h) of the
Code.

 

ARTICLE 5.  ELIGIBILITY

 

Incentive Stock Options or Non-Statutory Stock Options shall be granted only to
those Eligible Persons who, in the judgment of the Committee, are performing, or
during the term of an Option, will perform, vital services in the management,
operation and development of the Company or a Subsidiary, and significantly
contribute or are expected to significantly contribute to the achievement of
long-term corporate economic objectives.  Optionees may be granted from time to
time one or more Incentive Stock Options and/or Non-Statutory Stock Options
under the Plan, provided that only employees of the Company or a Subsidiary may
be granted Incentive Stock Options under the Plan, in any case as may be
determined by the Committee in its sole discretion.  The number, type, terms and
conditions of Options granted to various Eligible Persons need not be uniform,
consistent or in accordance with any plan, whether or not such Eligible Persons
are similarly situated. The Committee may grant both an Incentive Stock Option
and a Non-Statutory Stock Option to the same Optionee at the same time or at
different times. Incentive Stock Options

 

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and Non-Statutory Stock Options, whether granted at the same or different times,
shall be deemed to have been awarded in separate grants, shall be clearly
identified, and in no event will the exercise of one Option affect the right to
exercise any other Option or affect the number of shares of Common Stock for
which any other Option may be exercised.  Upon determination by the Committee
that an Option is to be granted to an Optionee, written notice shall be given
such person specifying such terms, conditions, rights and duties related
thereto.  Each Optionee shall enter into an agreement with the Company, in such
form as the Committee shall determine and which is consistent with the
provisions of the Plan, specifying the terms, conditions, rights and duties of
Incentive Stock Options and Non-Statutory Stock Options granted under the Plan.
Options shall be deemed to be granted as of the date specified in the grant
resolution of the Committee, which date shall be the date of the related
agreement with the Optionee.

 

ARTICLE 6.  DURATION AND EXERCISE

 

6.1  MANNER OF OPTION EXERCISE.  An Option may be exercised by an Optionee in
whole or in part from time to time, subject to the conditions contained herein
and in the agreement evidencing such Option, by delivery, in person or through
certified or registered mail, of written notice of exercise to the Company at
its principal executive office (Attention:  Secretary), and by paying in full
the total Option exercise price for the shares of Common Stock purchased in
accordance with Section 6.3.  Such notice shall be in a form satisfactory to the
Committee and shall specify the particular Option (or portion thereof) that is
being exercised and the number of shares with respect to which the Option is
being exercised.  Subject to Section 9.1, the exercise of the Option shall be
deemed effective upon receipt of such notice and payment.  As soon as
practicable after the effective exercise of the Option, the Company shall record
on the stock transfer books of the Company the ownership of the shares purchased
in the name of the Optionee, and the Company shall deliver to the Optionee one
or more duly issued stock certificates evidencing such ownership.

 

6.2  METHOD OF PAYMENT OF OPTION EXERCISE PRICE.  At the time of the exercise of
an Incentive Stock Option or a Non-Statutory Stock Option, the Optionee may
determine whether the total purchase price of the shares to be purchased shall
be paid solely in cash or by transfer from the Optionee to the Company of
previously acquired shares of Common Stock, or by a combination thereof.  In the
event the Optionee elects to pay the purchase price in whole or in part with
previously acquired shares of Common Stock, the value of such shares shall be
equal to their Fair Market Value on the date of exercise.  The Committee may
reject an Optionee’s election to pay all or part of the purchase price with
previously acquired shares of Common Stock and require such purchase price to be
paid entirely in cash if, in the sole discretion of the Committee, payment in
previously acquired shares would cause the Company to be required to recognize a
charge to earnings in connection therewith.  For purposes of this Section 6.2,
“previously acquired shares” shall include only those shares of Common 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.  In its sole discretion, the Committee
may determine either at the time of grant or exercise of an Incentive Stock
Option or a Non-Statutory Stock Option, to permit a Optionee to pay all or any
portion of the purchase price by delivery of a promissory note in form and
substance acceptable to the Committee.

 

6.3  RIGHTS AS A SHAREHOLDER.  The Optionee shall have no rights as a
shareholder with respect to any shares of Common Stock covered by an Option
until the Optionee shall have become the holder of record of such shares, and no
adjustments shall be made for dividends or other

 

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distributions or other rights as to which there is a record date preceding the
date the Optionee becomes the holder of record except as the Committee may
determine pursuant to Section 4.3.

 

6.4  INCENTIVE STOCK OPTIONS.

 

(a)  INCENTIVE STOCK OPTION EXERCISE PRICE.  The per share price to be paid by
the Optionee at the time an Incentive Stock Option is exercised will be
determined by the Committee, but shall not be less than (i) 100% of the Fair
Market Value of one share of Common Stock on the date the Option is granted, or
(ii) 110% of the Fair Market Value of one share of Common Stock on the date the
Option is granted if, at that time the Option is granted, the Optionee owns,
directly or indirectly (as determined pursuant to Section 424(d) of the Code),
more than 10% of the total combined voting power of all classes of stock of the
Company, any Subsidiary or any parent corporation of the Company (within the
meaning of Section 424(e) of the Code).

 

(b)  AGGREGATE LIMITATION OF STOCK SUBJECT TO INCENTIVE STOCK OPTIONS.
Notwithstanding any other provision of the Plan, the aggregate Fair Market Value
(determined as of the date an Incentive Stock Option is granted) of the shares
of Common Stock with respect to which incentive stock options (within the
meaning of Section 422 of the Code) are exercisable for the first time by an
Optionee during any calendar year (under the Plan and any other incentive stock
option plans of the Company, any Subsidiary or any parent corporation of the
Company (within the meaning of Section 424(e) of the Code)) shall not exceed
$100,000 (or such other amount as may be prescribed by the Code from time to
time).

 

(c)  DURATION OF INCENTIVE STOCK OPTIONS.  The period during which an Incentive
Stock Option may be exercised shall be fixed by the Committee at the time such
Option is granted, but in no event shall such period exceed ten years from the
date the Option is granted or, in the case of an Optionee that owns, directly or
indirectly (as determined pursuant to Section 424(d) of the Code) more than 10%
of the total combined voting power of all classes of stock of the Company, any
Subsidiary or any parent corporation of the Company (within the meaning of
Section 424(e) of the Code), five years from the date the Incentive Stock Option
is granted.  An Incentive Stock Option shall become exercisable at such times
and in such installments (which may be cumulative) as shall be determined by the
Committee at the time the Option is granted.  Upon the completion of its
exercise period, an Incentive Stock Option, to the extent not then exercised,
shall expire.  Except as otherwise provided in Articles 7 or 11, all Incentive
Stock Options granted to an Optionee hereunder shall terminate and may no longer
be exercised if the Optionee ceases to be an employee of the Company and all
Subsidiaries or if the Optionee is an employee of a Subsidiary and the
Subsidiary ceases to be a Subsidiary of the Company (unless the Optionee
continues as an employee of the Company or another Subsidiary).

 

(d)  DISPOSITION OF COMMON STOCK ACQUIRED PURSUANT TO THE EXERCISE OF INCENTIVE
STOCK OPTIONS.  Prior to making a disposition (as defined in Section 424(c) of
the Code) of any shares of Common Stock acquired pursuant to the exercise of an
Incentive Stock Option granted under the Plan before the expiration of two years
after the date on which the Option was granted or before the expiration of one
year after the date on which such shares of Common Stock were transferred to the
Optionee pursuant to exercise of the Option, the Optionee shall send written
notice to the Company of the proposed date of such disposition, the number of
shares to be disposed of, the amount of proceeds to be received from such
disposition and any other information relating to such disposition that the
Company may reasonably request.  The right of an Optionee to make any such
disposition shall be conditioned on the receipt by the Company of all

 

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amounts necessary to satisfy any federal, state or local withholding tax
requirements attributable to such disposition.  The Committee shall have the
right, in its sole discretion, to endorse the certificates representing such
shares with a legend restricting transfer and to cause a stop transfer order to
be entered with the Company’s transfer agent until such time as the Company
receives the amounts necessary to satisfy such withholding requirements or until
the later of the expiration of two years from the date the Option was granted or
one year from the date on which such shares were transferred to the Optionee
pursuant to the exercise of the Option.

 

(e)  WITHHOLDING TAXES.  The Company is entitled to withhold and deduct from
future wages of the Optionee, or make other arrangements for the collection of,
all legally required amounts necessary to satisfy any federal, state or local
withholding tax requirements attributable to any action by the Optionee,
including, without limitation, a disposition of shares of Common Stock described
in Section 6.4(d) above, that causes the Incentive Stock Option to cease to
qualify as an incentive stock option within the meaning of Section 422 of the
Code.

 

6.5  NON-STATUTORY STOCK OPTIONS.

 

(a)  OPTION EXERCISE PRICE.  The per share price to be paid by the Optionee at
the time a Non-Statutory Stock Option is exercised will be determined by the
Committee, but shall not be less than 85% of the Fair Market Value of one share
of Common Stock on the date the Option is granted.

 

(b)  DURATION OF NON-STATUTORY STOCK OPTIONS.  The period during which a
Non-Statutory Stock Option may be exercised shall be fixed by the Committee at
the time such Option is granted, but in no event shall such period exceed 10
years and one month from the date the Option is granted. A Non-Statutory Stock
Option shall become exercisable at such times and in such installments (which
may be cumulative) as shall be determined by the Committee at the time the
Option is granted.  Upon the completion of its exercise period, a Non-Statutory
Stock Option, to the extent not then exercised, shall expire.  Except as
otherwise provided in Articles 7 or 11, all Non-Statutory Stock Options granted
hereunder to an Optionee who is an employee of the Company or any Subsidiaries
shall terminate and may no longer be exercised if the Optionee ceases to be an
employee of the Company or a Subsidiary or if the Optionee is an employee of a
Subsidiary and the Subsidiary ceases to be a Subsidiary of the Company (unless
the Optionee continues as an employee of the Company or another Subsidiary).  A
Non-Statutory Stock Option granted hereunder to an Optionee who is not an
employee of the Company or a Subsidiary will terminate as determined by the
Committee at the time of grant.

 

(c)  WITHHOLDING TAXES.

 

(i) The Company is entitled to (aa) withhold and deduct from future wages of the
Optionee, or make other arrangements for the collection of, all legally required
amounts necessary to satisfy any federal, state or local withholding tax
requirements attributable to the Optionee’s exercise of a Non-Statutory Stock
Option or otherwise incurred with respect to the Option, or (bb) require the
Optionee promptly to remit the amount of such withholding to the Company before
acting on the Optionee’s notice of exercise of the Option.

 

(ii) The Committee may, in its discretion and subject to such rules as the
Committee may adopt, permit an Optionee to satisfy, in whole or in part, any
withholding tax obligation which may arise in connection with the exercise of a
Non-Statutory Option either by

 

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electing to have the Company withhold from the shares of Common Stock to be
issued upon exercise that number of shares of Common Stock, or by electing to
deliver to the Company that number of already-owned shares of Common Stock, in
either case having a Fair Market Value, on the date such tax is determined under
the Code (the “Tax Date”), equal to the amount necessary to satisfy 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.  An Optionee’s election to have the
Company withhold shares of Common Stock or to deliver already-owned shares of
Common Stock is irrevocable, subject to the consent of the Committee, and
subject to such rules as the Committee 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.  If shares
of Common Stock are issued prior to the Tax Date to an Optionee making such an
election, the Optionee shall agree in writing to surrender that number of shares
on the Tax Date having an aggregate Fair Market Value equal to the minimum
statutory withholding tax due.

 

ARTICLE 7.  EFFECT OF TERMINATION OF EMPLOYMENT ON OPTIONS

 

7.1  TERMINATION OF EMPLOYMENT OR OTHER SERVICE DUE TO DEATH, DISABILITY OR
RETIREMENT.  Except as otherwise provided in the agreement evidencing the
option, in the event an Optionee’s employment or other service is terminated
with the Company and all Subsidiaries by reason of his death, Disability or
Retirement, all outstanding Incentive Stock Options and Non-Statutory Stock
Options then held by the Optionee (a) in the capacity of Non-Employee Director
or where the Committee has otherwise unanimously approved, shall become
immediately exercisable in full and remain exercisable for the full term of the
Option as set forth under either Section 6.4(c) or 6.5(b), or (b) in all other
capacities including employees and consultants, shall become immediately
exercisable in full and remain exercisable for a period of three months in the
case of Retirement and one year in the case of death or Disability and shall
thereafter if not exercised terminate without notice of any kind and no
Incentive Stock Option or Non-Statutory Stock Option then held by the Optionee
shall thereafter be exercisable, provided, however, in any of the above that an
exercise may not occur after the expiration date thereof in any event.  The
Company shall undertake to use its best efforts to notify the Optionee or his
heirs or representatives, as the case may be, of the last date by which Options
may be exercised pursuant to this Section 7.1, at least thirty (30) days in the
case of Retirement and at least sixty (60) days in the case of death or
Disability, prior to such date.

 

7.2  TERMINATION OF EMPLOYMENT OR OTHER SERVICE FOR REASONS OTHER THAN DEATH,
DISABILITY OR RETIREMENT.

 

(a)  Except as otherwise provided in Article 11 or in the agreement evidencing
the option, in the event an Optionee’s employment or other service is terminated
with the Company and all Subsidiaries for any reason other than his death,
Disability or Retirement, all vested rights of the Optionee under the Plan (a)
in the capacity of Non-Employee Director or where the Committee has otherwise
unanimously approved, shall remain exercisable in full up to the expiration date
thereof which is not to exceed the term as set forth under either Section 6.4(c)
or 6.5(b), or (b) in all other capacities including employees and consultants,
shall remain exercisable in full for a period of no more than ninety (90) days
following such termination of employment and shall thereafter if not exercised
terminate without notice of any kind and no Incentive Stock Option or
Non-Statutory Stock

 

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Option then held by the Optionee shall thereafter be exercisable provided,
however, in any of the above that an exercise may not occur after the expiration
date thereof in any event.

 

(b)  Notwithstanding the provisions of Subsection (a) above, upon an Optionee’s
termination of employment or other service with the Company and all
Subsidiaries, the Committee may, in its sole discretion (which may be exercised
before or following such termination), cause Incentive Stock Options and
Non-Statutory Stock Options then held by such Optionee to become exercisable and
to remain exercisable following such termination of employment or other service
in the manner determined by the Committee; provided, however, that no Option
shall be exercisable after the expiration date thereof in any event, and any
Incentive Stock Option that remains unexercised more than three months following
termination of employment shall thereafter be deemed to be a Non-Statutory Stock
Option.

 

7.3  DATE OF TERMINATION.  For purposes of the Plan, an Optionee’s employment or
other service shall be deemed to have terminated on the date that the Optionee
ceases to perform services for the Company or the last day of the pay period
covered by the Optionee’s final paycheck, as the case may be. Notwithstanding
the foregoing, the employee Optionee shall not be deemed to have ceased to be an
employee for purposes of the Plan until the later of the 91st day of any bona
fide leave of absence approved by the Company or a Subsidiary for the Optionee
(including, without limitation any layoff) or the expiration of the period of
any bona fide leave of absence approved by the Company or a Subsidiary for the
Optionee (including without limitation any layoff) during which the Optionee’s
right to reemployment is guaranteed either by statute or contract.

 

ARTICLE 8.  RIGHTS OF EMPLOYEES; OPTIONEES

 

8.1  EMPLOYMENT.  Nothing in the Plan shall interfere with or limit in any way
the right of the Company or any Subsidiary to terminate the employment of any
Eligible Person or Optionee at any time, nor confer upon any Eligible Person or
Optionee any right to continue in the employ of the Company or any Subsidiary.

 

8.2  NONTRANSFERABILITY.  No right or interest of any Optionee in an Option
granted pursuant to the Plan shall be assignable or transferable during the
lifetime of the Optionee, either voluntarily or involuntarily, or subjected to
any lien, directly or indirectly, by operation of law, or otherwise, including
execution, levy, garnishment, attachment, pledge or bankruptcy.  In the event of
an Optionee’s death, an Optionee’s rights and interest in any Options shall be
transferable by testamentary will or the laws of descent and distribution, and
payment of any amounts due under the Plan shall be made to, and exercise of any
Options (to the extent permitted pursuant to Section 7.1) may be made by, the
Optionee’s legal representatives, heirs or legatees.  If in the opinion of the
Committee an Optionee holding any Option is disabled from caring for his or her
affairs because of mental condition, physical condition or age, any payments due
the Optionee may be made to, and any rights of the Optionee under the Plan shall
be exercised by, such Optionee’s guardian, conservator or other legal personal
representative upon furnishing the Committee with evidence satisfactory to the
Committee of such status.

 

8.3  NON-EXCLUSIVITY OF THE PLAN.  Nothing contained in the Plan is intended to
amend, modify or rescind any previously approved compensation plans or programs
entered into by the Company.  The Plan will be construed to be an addition to
any and all such other plans or programs.  Neither the adoption of the Plan nor
the submission of the Plan to the shareholders of the Company for approval will
be construed as creating any limitations on the power or authority of the

 

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Board to adopt such additional or other compensation arrangements as the Board
may deem necessary or desirable.

 

ARTICLE 9.  SHARE ISSUANCE AND TRANSFER RESTRICTIONS

 

9.1  SHARE ISSUANCES.  Notwithstanding any other provision of the Plan or any
agreements entered into pursuant hereto, the Company shall not be required to
issue or deliver any certificate for shares of Common Stock under this Plan (and
an Option shall not be considered to be exercised, notwithstanding the tender by
the Optionee of any consideration therefor), unless and until each of the
following conditions has been fulfilled:

 

(a) (i) there shall be in effect with respect to such shares a registration
statement under the Securities Act and any applicable state securities laws if
the Committee, in its sole discretion, shall have determined to file, cause to
become effective and maintain the effectiveness of such registration statement;
or (ii) if the Committee has determined not to so register the shares of Common
Stock to be issued under the Plan, (A) exemptions from registration under the
Securities Act and applicable state securities laws shall be available for such
issuance (as determined by counsel to the Company) and (B) there shall have been
received from the Optionee (or, in the event of death or disability, the
Optionee’s heir(s) or legal representative(s)) any representations or agreements
requested by the Company in order to permit such issuance to be made pursuant to
such exemptions; and

 

(b)  there shall have been obtained any other consent, approval or permit from
any state or federal governmental agency which the Committee shall, in its sole
discretion upon the advice of counsel, deem necessary or advisable.

 

9.2  SHARE TRANSFER.  Shares  of Common Stock issued pursuant to the exercise of
Options granted under the Plan may not be sold, assigned, transferred, pledged,
encumbered or otherwise disposed of (whether voluntarily or involuntarily)
except pursuant to registration under the Securities Act and applicable state
securities laws or pursuant to exemptions from such registrations.  The Company
may condition the sale, assignment, transfer, pledge, encumbrance or other
disposition of such shares not issued pursuant to an effective and current
registration statement under the Securities Act and all applicable state
securities laws on the receipt from the party to whom the shares of Common Stock
are to be so transferred of any representations or agreements requested by the
Company in order to permit such transfer to be made pursuant to exemptions from
registration under the Securities Act and applicable state securities laws.

 

9.3  LEGENDS.  Unless a registration statement under the Securities Act is in
effect with respect to the issuance or transfer of shares of Common Stock issued
under the Plan, each certificate representing any such shares shall be endorsed
with a legend in substantially the following form, unless counsel for the
Company is of the opinion as to any such certificate that such legend is
unnecessary:

 

THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (“THE ACT”), OR UNDER APPLICABLE STATE SECURITIES LAWS. 
THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR
SALE, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND

 

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SUCH STATE LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND
SUCH STATE LAWS, THE AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE 
SATISFACTION OF THE COMPANY.

 

ARTICLE 10.  PLAN AMENDMENT, MODIFICATION AND TERMINATION

 

The Board may suspend or terminate the Plan or any portion thereof at any time,
and may amend the Plan from time to time in such respects as the Board may deem
advisable in order that Incentive Stock Options and Non-Statutory Stock Options
under the Plan shall conform to any change in applicable laws or regulations or
in any other respect the Board may deem to be in the best interests of the
Company; provided, however, that no such amendment, without approval of the
shareholders of the Company, may (a) materially increase the benefits accruing
to Optionees under the Plan, (b) increase the total number of shares of Common
Stock as to which Options may be granted under the Plan, except as provided in
Section 4.3 of the Plan, or (c) materially modify the requirements as to
eligibility for participation in the Plan.  No termination, suspension or
amendment of the Plan shall alter or impair any outstanding Option without the
consent of the Optionee affected thereby; provided, however, that this sentence
shall not impair the right of the Committee to take whatever action it deems
appropriate under Section 4.3.

 

ARTICLE 11.  CHANGE IN CONTROL

 

If, during the term of an Option, (i) the Company merges or consolidates with
any other corporation and is not the surviving corporation after such merger or
consolidation; (ii) the Company transfers all or substantially all of its
business and assets to any other person; or (iii) more than 50% of the Company’s
outstanding voting shares are purchased by any other person, all outstanding
stock options shall become immediately exercisable prior to the anticipated
effective date of any of the foregoing transactions, whether or not such options
had become exercisable prior to the transaction; provided, however, that if the
Board of Directors, based upon the opinion of either the Company’s independent
outside legal counsel or independent certified public accountants, deems that
such acceleration of the exercisability of such options would prohibit, negate
or preclude the transaction under any applicable law or generally accepted
accounting principles then the exercisability of such options shall not
accelerate.

 

ARTICLE 12.  EFFECTIVE DATE OF THE PLAN

 

12.1 EFFECTIVE DATE.  The Plan is effective as of July 31, 1997, the effective
date it was adopted by the Board subject to the approval of the shareholders
within 12 months.  Options may be granted under the Plan prior to shareholder
approval if made subject to shareholder approval.

 

12.2 DURATION OF THE PLAN.  The Plan shall terminate at midnight on July 30,
2007 and may be terminated prior thereto by Board action, and no Options shall
be granted after such termination.  Options outstanding upon termination of the
Plan may continue to be exercised in accordance with their terms.

 

ARTICLE 13.  MISCELLANEOUS

 

13.1 GOVERNING LAW.  The Plan and all agreements hereunder shall be construed in
accordance with and governed by the laws of the State of  Minnesota without
regard to the conflict of laws provisions of any jurisdictions.  All parties
agree to submit to the jurisdiction of the state and

 

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federal courts of Minnesota with respect to matters relating to the Plan and
agree not to raise or assert the defense that such forum is not convenient for
such party.

 

13.2 GENDER AND NUMBER.  Except when otherwise indicated by the context,
reference to the masculine gender in the Plan shall include, when used, the
feminine gender and any term used in the singular shall also include the plural.

 

13.3 CONSTRUCTION.  Wherever possible, each provision of this Plan shall be
interpreted in such a manner as to be effective and valid under applicable law,
but if any provision of this Plan shall be prohibited by or invalid under
applicable law, such provision shall be ineffective only to the extent of such
prohibition or invalidity without invalidating the remainder of such provision
or the remaining provisions of this Plan.

 

13.4 SUCCESSORS AND ASSIGNS.  This Plan shall be binding upon and inure to the
benefit of the successors and permitted assigns of the Company, including,
without limitation, whether by way of merger, consolidation, operation of law,
assignment, purchase or other acquisition of substantially all of the assets or
business of the Company, and any and all such successors and assigns shall
absolutely and unconditionally assume all of the Company’s obligations under the
Plan.

 

13.5 SURVIVAL OF PROVISIONS.  The rights, remedies, agreements, obligations and
covenants contained in or made pursuant to the Plan, any agreement evidencing an
Incentive Award and any other notices or agreements in connection therewith,
including, without limitation, any notice of exercise of an Option, shall
survive the execution and delivery of such notices and agreements and the
delivery and receipt of shares of Common Stock and shall remain in full force
and effect.

 

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