**Exhibit10.1**

 

**AUGUST TECHNOLOGYCORPORATION**

 

**1997 STOCK OPTION PLAN**

**(Restated to Include Amendments andStock Adjustments Through July 29, 2003)**

 

ARTICLE 1.  ESTABLISHMENT AND PURPOSE

 

1.1  ESTABLISHMENT.  August Technology Corporation (the “Company”) herebyestablishes a plan providing for the grant of stock options to certain eligibleemployees, directors and consultants of the Company and its subsidiaries.  This plan shall be known as the 1997 StockOption Plan (the “Plan”).

 

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

 

ARTICLE 2.  DEFINITIONS

 

The following terms shallhave the meanings set forth below, unless the context clearly otherwiserequires:

 

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

 

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

 

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

 

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

 

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

 

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

 

2.7  “ELIGIBLE PERSONS” means individuals who are(a) salaried employees (including, without limitation, officers and directorswho 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 ExchangeAct of 1934, as amended.

 

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

 

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

 

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

 

(b)  if the Common Stock is not listed oradmitted to unlisted trading privileges or reported on the NASDAQ NationalMarket System, and bid and asked prices therefor in the over-the-counter marketare reported by the NASDAQ System or the National Quotation Bureau, Inc. (orany comparable reporting service), the mean of the closing bid and asked pricesas 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 reportingservice); or

 

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

 

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

 

2.11 “NON-EMPLOYEEDIRECTOR” means any member of the Board who is not an employee of the Companyor any Subsidiary.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

ARTICLE 3.  PLAN ADMINISTRATION

 

The Plan shall beadministered by the Board or by a Committee of the Board consisting of two ormore directors.  In the event theCompany’s securities are registered pursuant to Section 12 of the SecuritiesExchange Act of 1934, as amended, each of the members of the Committee shall bea “Non-Employee Director” within the meaning of Rule 16b-3, or any successorprovision, as then in effect, of the General Rules and Regulations under theSecurities Exchange Act of 1934 as amended. Members of a Committee, if established, shall be appointed from time totime by the Board, shall serve at the pleasure of the Board and may resign atany time upon written notice to the Board. A majority of the members of the Committee shall constitute aquorum.  The Committee shall act bymajority approval of its members, shall keep minutes of its meetings and shallprovide copies of such minutes to the Board. Action of the Committee may be taken without a meeting if unanimouswritten consent thereto is given. Copies of minutes of the Committee’s meetings and of its actions bywritten consent shall be provided to the Board and kept with the corporaterecords of the Company.  As used in thisPlan, the term “Committee” will refer either to the Board or to such aCommittee, if established.  From andafter the date on which the Company first registers a class of its equitysecurities under Section 12 of the Exchange Act, no member of the Committeeshall be eligible, or shall have been eligible at any time within the lesser ofone year or the period since the Company first registered a class of its equitysecurities under Section 12 of the Exchange Act, to receive an Incentive StockOption or a Non-Statutory Stock Option under the Plan.

 

In accordance with theprovisions of the Plan, the Committee shall select the Optionees from EligiblePersons; shall determine the number of shares of Common Stock to be subject toOptions granted pursuant to the Plan, the time at which such Options aregranted, the Option exercise price, Option period and the manner in which eachsuch Option vests or becomes exercisable; and shall fix such other provisionsof such Options as the Committee may deem necessary or desirable and asconsistent with the terms of the Plan. The Committee shall determine the form or forms of the agreements withOptionees which shall evidence the particular terms, conditions, rights andduties of the Company and the Optionees under Options granted pursuant to thePlan.  The Committee shall have theauthority, subject to the provisions of the Plan, to establish, adopt andrevise such rules and regulations relating to the Plan as it may deem necessaryor advisable for the administration of the Plan.  With the consent of the Optionee affected thereby, the Committeemay amend or modify the terms of any outstanding Incentive Stock Option orNon-Statutory Stock Option in any manner, provided that the amended or modifiedterms are permitted by the Plan as then in effect.  Without limiting the generality of the foregoing sentence, theCommittee may, with the consent of the Optionee affected thereby, modify theexercise price, number of shares or other terms and conditions of an IncentiveAward, extend the term of an Incentive Award, accelerate the exercisability orvesting or otherwise terminate any restrictions relating to an Incentive Award,extend, renew or accept the surrender of any outstanding Incentive Stock Optionor Non-Statutory Stock Option, to the extent not previously exercised, and theCommittee may authorize the grant of new Options in substitution therefor tothe extent not previously exercised.

 

Each determination,interpretation or other action made or taken by the Committee pursuant to theprovisions of the Plan shall be conclusive and binding for all purposes and onall 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, officersand employees of the Company and its Subsidiaries, and the Optionees and theirrespective 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 forissuance under the Plan shall be 3,050,000, subject to adjustment upon changesin capitalization of the Company as provided in Section 4.3 below. The maximumnumber of shares authorized may be increased from time to time by approval ofthe Board and, if required pursuant to Rule 16b-3, Section 422A of the Code, orthe rules of any securities exchange or the NASD, or the shareholders of theCompany.  Shares of Common Stock thatmay be issued upon exercise of Options shall be applied to reduce the maximumnumber 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 anyportion thereof) that lapses, expires or for any reason is terminatedunexercised shall automatically again become available for use under the Plan.

 

4.3  CHANGE IN SHARES, ADJUSTMENTS, ETC.  If the number of outstanding shares ofCommon Stock is increased or decreased or changed into or exchanged for adifferent number or kind of shares of stock or other securities of the Companyor 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 changein the corporate structure or shares of the Company, the Committee (or, if theCompany is not the surviving corporation in any such transaction, the board ofdirectors of the surviving corporation) shall make appropriate adjustment as tothe 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, thenumber and kind of securities subject to outstanding Options.  Any such adjustment in any outstandingOption shall be made without change in the aggregate purchase price applicableto the unexercised portion of the Option but with an appropriate adjustment inthe price for each share or other unit of any security covered by theOption.  However, no change shall bemade in the terms of any outstanding Incentive Stock Option as a result of anysuch change in the corporate structure or shares of the Company, without theconsent of the Optionee affected thereby, that would disqualify that IncentiveStock Option from treatment under Section 422 of the Code or would beconsidered a modification, extension or renewal of an option under Section424(h) of the Code.

 

ARTICLE 5.  ELIGIBILITY

 

Incentive Stock Options orNon-Statutory Stock Options shall be granted only to those Eligible Personswho, in the judgment of the Committee, are performing, or during the term of anOption, will perform, vital services in the management, operation anddevelopment of the Company or a Subsidiary, and significantly contribute or areexpected to significantly contribute to the achievement of long-term corporateeconomic objectives.  Optionees may begranted from time to time one or more Incentive Stock Options and/orNon-Statutory Stock Options under the Plan, provided that only employees of theCompany 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 ofOptions granted to various Eligible Persons need not be uniform, consistent orin accordance with any plan, whether or not such Eligible Persons are similarlysituated. The Committee may grant both an Incentive Stock Option and aNon-Statutory Stock Option to the same Optionee at the same time or atdifferent times. Incentive Stock Options

 

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and Non-Statutory Stock Options, whether granted at the same ordifferent times, shall be deemed to have been awarded in separate grants, shallbe clearly identified, and in no event will the exercise of one Option affectthe right to exercise any other Option or affect the number of shares of CommonStock for which any other Option may be exercised.  Upon determination by the Committee that an Option is to begranted to an Optionee, written notice shall be given such person specifyingsuch terms, conditions, rights and duties related thereto.  Each Optionee shall enter into an agreementwith the Company, in such form as the Committee shall determine and which isconsistent with the provisions of the Plan, specifying the terms, conditions,rights and duties of Incentive Stock Options and Non-Statutory Stock Optionsgranted under the Plan. Options shall be deemed to be granted as of the datespecified in the grant resolution of the Committee, which date shall be thedate 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 inwhole or in part from time to time, subject to the conditions contained hereinand in the agreement evidencing such Option, by delivery, in person or throughcertified or registered mail, of written notice of exercise to the Company atits principal executive office (Attention: Secretary), and by paying in full the total Option exercise price forthe shares of Common Stock purchased in accordance with Section 6.3.  Such notice shall be in a form satisfactoryto the Committee and shall specify the particular Option (or portion thereof)that is being exercised and the number of shares with respect to which theOption is being exercised.  Subject toSection 9.1, the exercise of the Option shall be deemed effective upon receiptof such notice and payment.  As soon aspracticable after the effective exercise of the Option, the Company shallrecord on the stock transfer books of the Company the ownership of the sharespurchased in the name of the Optionee, and the Company shall deliver to theOptionee one or more duly issued stock certificates evidencing such ownership.

 

6.2  METHOD OF PAYMENT OF OPTION EXERCISEPRICE.  At the time of the exercise ofan Incentive Stock Option or a Non-Statutory Stock Option, the Optionee maydetermine whether the total purchase price of the shares to be purchased shallbe paid solely in cash or by transfer from the Optionee to the Company ofpreviously acquired shares of Common Stock, or by a combination thereof.  In the event the Optionee elects to pay thepurchase price in whole or in part with previously acquired shares of CommonStock, the value of such shares shall be equal to their Fair Market Value onthe date of exercise.  The Committee mayreject an Optionee’s election to pay all or part of the purchase price withpreviously acquired shares of Common Stock and require such purchase price tobe paid entirely in cash if, in the sole discretion of the Committee, paymentin previously acquired shares would cause the Company to be required torecognize a charge to earnings in connection therewith.  For purposes of this Section 6.2,“previously acquired shares” shall include only those shares of Common Stockwhich the Optionee has owned for at least six (6) months prior to the exercise ofthe stock option, or for such other period of time as may be required bygenerally accepted accounting principles. In its sole discretion, the Committee may determine either at the timeof grant or exercise of an Incentive Stock Option or a Non-Statutory StockOption, to permit a Optionee to pay all or any portion of the purchase price bydelivery of a promissory note in form and substance acceptable to theCommittee.

 

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

 

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distributions or other rights as to which there is a record datepreceding the date the Optionee becomes the holder of record except as theCommittee 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 Optioneeat the time an Incentive Stock Option is exercised will be determined by theCommittee, but shall not be less than (i) 100% of the Fair Market Value of oneshare of Common Stock on the date the Option is granted, or (ii) 110% of theFair Market Value of one share of Common Stock on the date the Option isgranted if, at that time the Option is granted, the Optionee owns, directly orindirectly (as determined pursuant to Section 424(d) of the Code), more than10% 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 ofSection 424(e) of the Code).

 

(b)  AGGREGATE LIMITATION OF STOCK SUBJECT TOINCENTIVE STOCK OPTIONS. Notwithstanding any other provision of the Plan, theaggregate Fair Market Value (determined as of the date an Incentive StockOption is granted) of the shares of Common Stock with respect to whichincentive stock options (within the meaning of Section 422 of the Code) areexercisable for the first time by an Optionee during any calendar year (underthe Plan and any other incentive stock option plans of the Company, anySubsidiary or any parent corporation of the Company (within the meaning ofSection 424(e) of the Code)) shall not exceed $100,000 (or such other amount asmay be prescribed by the Code from time to time).

 

(c)  DURATION OF INCENTIVE STOCK OPTIONS.  The period during which an Incentive StockOption may be exercised shall be fixed by the Committee at the time such Optionis granted, but in no event shall such period exceed ten years from the datethe Option is granted or, in the case of an Optionee that owns, directly orindirectly (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, anySubsidiary or any parent corporation of the Company (within the meaning ofSection 424(e) of the Code), five years from the date the Incentive StockOption is granted.  An Incentive StockOption shall become exercisable at such times and in such installments (whichmay be cumulative) as shall be determined by the Committee at the time theOption is granted.  Upon the completionof its exercise period, an Incentive Stock Option, to the extent not thenexercised, shall expire.  Except asotherwise provided in Articles 7 or 11, all Incentive Stock Options granted toan Optionee hereunder shall terminate and may no longer be exercised if theOptionee ceases to be an employee of the Company and all Subsidiaries or if theOptionee is an employee of a Subsidiary and the Subsidiary ceases to be aSubsidiary of the Company (unless the Optionee continues as an employee of theCompany or another Subsidiary).

 

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

 

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

 

(e)  WITHHOLDING TAXES.  The Company is entitled to withhold and deduct from future wagesof the Optionee, or make other arrangements for the collection of, all legallyrequired amounts necessary to satisfy any federal, state or local withholdingtax requirements attributable to any action by the Optionee, including, withoutlimitation, 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 anincentive 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 theOptionee at the time a Non-Statutory Stock Option is exercised will be determinedby the Committee, but shall not be less than 85% of the Fair Market Value ofone share of Common Stock on the date the Option is granted.

 

(b)  DURATION OF NON-STATUTORY STOCKOPTIONS.  The period during which aNon-Statutory Stock Option may be exercised shall be fixed by the Committee atthe time such Option is granted, but in no event shall such period exceed 10years and one month from the date the Option is granted. A Non-Statutory StockOption shall become exercisable at such times and in such installments (whichmay be cumulative) as shall be determined by the Committee at the time theOption is granted.  Upon the completionof its exercise period, a Non-Statutory Stock Option, to the extent not thenexercised, shall expire.  Except asotherwise provided in Articles 7 or 11, all Non-Statutory Stock Options grantedhereunder to an Optionee who is an employee of the Company or any Subsidiariesshall terminate and may no longer be exercised if the Optionee ceases to be anemployee of the Company or a Subsidiary or if the Optionee is an employee of aSubsidiary and the Subsidiary ceases to be a Subsidiary of the Company (unlessthe Optionee continues as an employee of the Company or anotherSubsidiary).  A Non-Statutory StockOption granted hereunder to an Optionee who is not an employee of the Companyor a Subsidiary will terminate as determined by the Committee at the time ofgrant.

 

(c)  WITHHOLDING TAXES.

 

(i) The Company isentitled to (aa) withhold and deduct from future wages of the Optionee, or makeother arrangements for the collection of, all legally required amountsnecessary to satisfy any federal, state or local withholding tax requirementsattributable to the Optionee’s exercise of a Non-Statutory Stock Option orotherwise incurred with respect to the Option, or (bb) require the Optioneepromptly to remit the amount of such withholding to the Company before actingon 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, permitan Optionee to satisfy, in whole or in part, any withholding tax obligationwhich may arise in connection with the exercise of a Non-Statutory Optioneither by

 

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electing to have the Company withhold from the shares of Common Stockto be issued upon exercise that number of shares of Common Stock, or byelecting to deliver to the Company that number of already-owned shares ofCommon Stock, in either case having a Fair Market Value, on the date such taxis determined under the Code (the “Tax Date”), equal to the amount necessary tosatisfy the minimum required tax withholding, based on the minimum statutorywithholding 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 Affiliatewithhold shares having a Fair Market Value in excess of such statutory minimumrequired tax withholding.  An Optionee’selection to have the Company withhold shares of Common Stock or to deliveralready-owned shares of Common Stock is irrevocable, subject to the consent ofthe Committee, and subject to such rules as the Committee may adopt to assurecompliance with Rule 16b-3, or any successor provision, as then in effect, ofthe General Rules and Regulations under the Securities Exchange Act of 1934, ifapplicable.  If shares of Common Stockare issued prior to the Tax Date to an Optionee making such an election, theOptionee shall agree in writing to surrender that number of shares on the TaxDate having an aggregate Fair Market Value equal to the minimum statutorywithholding tax due.

 

ARTICLE 7.  EFFECT OF TERMINATION OF EMPLOYMENT ONOPTIONS

 

7.1  TERMINATION OF EMPLOYMENT OR OTHER SERVICEDUE TO DEATH, DISABILITY OR RETIREMENT. Except as otherwise provided in the agreement evidencing the option, inthe event an Optionee’s employment or other service is terminated with theCompany and all Subsidiaries by reason of his death, Disability or Retirement,all outstanding Incentive Stock Options and Non-Statutory Stock Options thenheld by the Optionee (a) in the capacity of Non-Employee Director or where theCommittee has otherwise unanimously approved, shall become immediatelyexercisable in full and remain exercisable for the full term of the Option asset forth under either Section 6.4(c) or 6.5(b), or (b) in all other capacitiesincluding employees and consultants, shall become immediately exercisable infull and remain exercisable for a period of three months in the case ofRetirement and one year in the case of death or Disability and shall thereafterif not exercised terminate without notice of any kind and no Incentive StockOption or Non-Statutory Stock Option then held by the Optionee shall thereafterbe exercisable, provided, however, in any of the above that an exercise may notoccur after the expiration date thereof in any event.  The Company shall undertake to use its best efforts to notify theOptionee or his heirs or representatives, as the case may be, of the last dateby 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 ofdeath or Disability, prior to such date.

 

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

 

(a)  Except as otherwise provided in Article 11or in the agreement evidencing the option, in the event an Optionee’semployment or other service is terminated with the Company and all Subsidiariesfor any reason other than his death, Disability or Retirement, all vestedrights of the Optionee under the Plan (a) in the capacity of Non-EmployeeDirector or where the Committee has otherwise unanimously approved, shallremain exercisable in full up to the expiration date thereof which is not toexceed the term as set forth under either Section 6.4(c) or 6.5(b), or (b) inall other capacities including employees and consultants, shall remainexercisable in full for a period of no more than ninety (90) days followingsuch termination of employment and shall thereafter if not exercised terminatewithout 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 exercisableprovided, however, in any of the above that an exercise may not occur after theexpiration date thereof in any event.

 

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

 

7.3  DATE OF TERMINATION.  For purposes of the Plan, an Optionee’semployment or other service shall be deemed to have terminated on the date thatthe Optionee ceases to perform services for the Company or the last day of thepay period covered by the Optionee’s final paycheck, as the case may be. Notwithstandingthe foregoing, the employee Optionee shall not be deemed to have ceased to bean employee for purposes of the Plan until the later of the 91st day of anybona fide leave of absence approved by the Company or a Subsidiary for theOptionee (including, without limitation any layoff) or the expiration of theperiod of any bona fide leave of absence approved by the Company or aSubsidiary for the Optionee (including without limitation any layoff) duringwhich the Optionee’s right to reemployment is guaranteed either by statute orcontract.

 

ARTICLE 8.  RIGHTS OF EMPLOYEES; OPTIONEES

 

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

 

8.2  NONTRANSFERABILITY.  No right or interest of any Optionee in anOption granted pursuant to the Plan shall be assignable or transferable duringthe lifetime of the Optionee, either voluntarily or involuntarily, or subjectedto 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, anOptionee’s rights and interest in any Options shall be transferable bytestamentary will or the laws of descent and distribution, and payment of anyamounts due under the Plan shall be made to, and exercise of any Options (tothe extent permitted pursuant to Section 7.1) may be made by, the Optionee’slegal representatives, heirs or legatees. If in the opinion of the Committee an Optionee holding any Option isdisabled from caring for his or her affairs because of mental condition,physical condition or age, any payments due the Optionee may be made to, andany rights of the Optionee under the Plan shall be exercised by, suchOptionee’s guardian, conservator or other legal personal representative uponfurnishing the Committee with evidence satisfactory to the Committee of suchstatus.

 

8.3  NON-EXCLUSIVITY OF THE PLAN.  Nothing contained in the Plan is intended toamend, modify or rescind any previously approved compensation plans or programsentered into by the Company.  The Planwill be construed to be an addition to any and all such other plans orprograms.  Neither the adoption of thePlan nor the submission of the Plan to the shareholders of the Company forapproval will be construed as creating any limitations on the power orauthority of the

 

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Board to adopt such additional or other compensation arrangements asthe 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 agreementsentered into pursuant hereto, the Company shall not be required to issue ordeliver any certificate for shares of Common Stock under this Plan (and anOption shall not be considered to be exercised, notwithstanding the tender bythe Optionee of any consideration therefor), unless and until each of thefollowing conditions has been fulfilled:

 

(a) (i) there shall be ineffect with respect to such shares a registration statement under theSecurities Act and any applicable state securities laws if the Committee, inits sole discretion, shall have determined to file, cause to become effectiveand maintain the effectiveness of such registration statement; or (ii) if the Committeehas determined not to so register the shares of Common Stock to be issued underthe Plan, (A) exemptions from registration under the Securities Act andapplicable state securities laws shall be available for such issuance (asdetermined by counsel to the Company) and (B) there shall have been receivedfrom the Optionee (or, in the event of death or disability, the Optionee’sheir(s) or legal representative(s)) any representations or agreements requestedby the Company in order to permit such issuance to be made pursuant to suchexemptions; and

 

(b)  there shall have been obtained any otherconsent, approval or permit from any state or federal governmental agency whichthe Committee shall, in its sole discretion upon the advice of counsel, deemnecessary or advisable.

 

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

 

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

 

THE SECURITIES EVIDENCEDHEREBY 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 FORINVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, ASSIGNED, TRANSFERRED,PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVEREGISTRATION STATEMENT UNDER THE ACT AND

 

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

 

ARTICLE 10.  PLAN AMENDMENT, MODIFICATION AND TERMINATION

 

The Board may suspend orterminate the Plan or any portion thereof at any time, and may amend the Planfrom time to time in such respects as the Board may deem advisable in orderthat Incentive Stock Options and Non-Statutory Stock Options under the Planshall conform to any change in applicable laws or regulations or in any otherrespect the Board may deem to be in the best interests of the Company;provided, however, that no such amendment, without approval of the shareholdersof the Company, may (a) materially increase the benefits accruing to Optioneesunder the Plan, (b) increase the total number of shares of Common Stock as towhich Options may be granted under the Plan, except as provided in Section 4.3of the Plan, or (c) materially modify the requirements as to eligibility forparticipation in the Plan.  Notermination, suspension or amendment of the Plan shall alter or impair anyoutstanding Option without the consent of the Optionee affected thereby;provided, however, that this sentence shall not impair the right of theCommittee to take whatever action it deems appropriate under Section 4.3.

 

ARTICLE 11.  CHANGE IN CONTROL

 

If, during the term of anOption, (i) the Company merges or consolidates with any other corporation andis not the surviving corporation after such merger or consolidation; (ii) theCompany transfers all or substantially all of its business and assets to anyother person; or (iii) more than 50% of the Company’s outstanding voting sharesare purchased by any other person, all outstanding stock options shall becomeimmediately exercisable prior to the anticipated effective date of any of theforegoing transactions, whether or not such options had become exercisableprior to the transaction; provided, however, that if the Board of Directors, basedupon the opinion of either the Company’s independent outside legal counsel orindependent certified public accountants, deems that such acceleration of theexercisability of such options would prohibit, negate or preclude thetransaction under any applicable law or generally accepted accountingprinciples 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 ofthe shareholders within 12 months. Options may be granted under the Plan prior to shareholder approval ifmade subject to shareholder approval.

 

12.2 DURATION OF THEPLAN.  The Plan shall terminate atmidnight on July 30, 2007 and may be terminated prior thereto by Boardaction, and no Options shall be granted after such termination.  Options outstanding upon termination of thePlan may continue to be exercised in accordance with their terms.

 

ARTICLE 13.  MISCELLANEOUS

 

13.1 GOVERNING LAW.  The Plan and all agreements hereunder shallbe construed in accordance with and governed by the laws of the State of  Minnesota without regard to the conflict oflaws 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 thePlan and agree not to raise or assert the defense that such forum is notconvenient for such party.

 

13.2 GENDER ANDNUMBER.  Except when otherwise indicatedby 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 alsoinclude the plural.

 

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

 

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

 

13.5 SURVIVAL OFPROVISIONS.  The rights, remedies,agreements, obligations and covenants contained in or made pursuant to thePlan, any agreement evidencing an Incentive Award and any other notices oragreements in connection therewith, including, without limitation, any noticeof exercise of an Option, shall survive the execution and delivery of suchnotices and agreements and the delivery and receipt of shares of Common Stockand shall remain in full force and effect.

 

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