Exhibit 10.1


 


FARGO ELECTRONICS, INC.


2003 STOCK INCENTIVE PLAN


 


1.             Purpose of Plan.


 


The purpose of the Fargo Electronics, Inc. 2003 Stock
Incentive Plan (the “Plan”) is to advance the interests of Fargo Electronics,
Inc. (the “Company”) and its stockholders by enabling the Company and its
Subsidiaries to attract and retain qualified individuals through opportunities
for equity participation in the Company, and to reward those individuals who
contribute to the Company’s achievement of its economic objectives.


 


2.             Definitions.


 


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


 


2.1.   “Board” means the Company’s Board of
Directors.


 


2.2.   “Broker Exercise Notice” means a written
notice pursuant to which a Participant, upon exercise of an Option, irrevocably
instructs a broker or dealer to sell a sufficient number of shares or loan a
sufficient amount of money to pay all or a portion of the exercise price of the
Option and/or any related withholding tax obligations and remit such sums to
the Company and directs the Company to deliver stock certificates to be issued
upon such exercise directly to such broker or dealer or their nominee.


 


2.3.   “Cause” means (i) dishonesty, fraud,
misrepresentation, embezzlement or deliberate injury or attempted injury, in
each case related to the Company or any Subsidiary, (ii) any unlawful or
criminal activity of a serious nature, (iii) any intentional and deliberate
breach of a duty or duties that, individually or in the aggregate, are material
in relation to the Participant’s overall duties, or (iv) any material breach of
any confidentiality or noncompete agreement entered into with the Company or
any Subsidiary.


 


2.4.   “Change in Control” means an event
described in Section 10.1 of the Plan.


 


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


 


2.6.   “Committee” means the group of individuals
administering the Plan, as provided in Section 3 of the Plan.


 


2.7.   “Common Stock” means the common stock of
the Company, par value $0.01 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 of the Plan.


 


2.8.   “Disability” means the disability of the
Participant such as would entitle the Participant to receive disability income
benefits pursuant to the long-term disability plan of the Company or
Subsidiary then covering the Participant or, if no such plan exists or is
applicable to the Participant, the permanent and total disability of the
Participant within the meaning of Section 22(e)(3) of the Code.


 

















 


2.9.    “Effective
Date” means May 1, 2003 or such later date as the Plan is initially
approved by the Company’s stockholders.


 


2.10.        “Eligible Recipients” means all employees (including,
without limitation, officers and directors who are also employees) of the
Company or any Subsidiary and all non-employee directors.


 


2.11.        “Exchange Act” means the Securities
Exchange Act of 1934, as amended.


 


2.12.        “Fair Market Value” means, with respect to
the Common Stock, as of any date:  (i)
the mean between the reported high and low sale prices of the Common Stock at
the end of the regular trading session, if the Common Stock is listed, admitted
to unlisted trading privileges, or reported on any national securities exchange
or on the Nasdaq National Market on 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
(ii) if the Common Stock is not so listed, admitted to unlisted trading
privileges, or reported on any national exchange or on the Nasdaq National
Market, the closing bid price as of such date at the end of the regular trading
session, as reported by the Nasdaq SmallCap Market, OTC Bulletin Board, the
Bulletin Board Exchange (BBX) or the National Quotation Bureaus, Inc., or other
comparable service; or (iii) if the Common Stock is not so listed or reported,
such price as the Committee determines in good faith in the exercise of its
reasonable discretion.


 


2.13.        “Incentive Award” means an Option or
Restricted Stock Award granted to an Eligible Recipient pursuant to the Plan.


 


2.14.        “Incentive Stock Option” means a right to
purchase Common Stock granted to an Eligible Recipient pursuant to Section 6 of
the Plan that qualifies as an “incentive stock option” within the meaning of
Section 422 of the Code.


 


2.15.        “Non-Statutory Stock Option” means a right
to purchase Common Stock granted to an Eligible Recipient pursuant to Section 6
of the Plan that does not qualify as an Incentive Stock Option.


 


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


 


2.17.        “Participant” means an Eligible Recipient
who receives one or more Incentive Awards under the Plan.


 


2.18.        “Previously Acquired Shares” means shares of
Common Stock that are already owned by the Participant or, with respect to any
Incentive Award, that are to be issued upon the grant, exercise or vesting of
such Incentive Award.


 


2.19.        “Restricted Stock Award” means an award of
Common Stock granted to an Eligible Recipient pursuant to Section 7 of the Plan
that is subject to the restrictions on transferability and the risk of
forfeiture imposed by the provisions of such Section 7.


 


2.20.        “Retirement” means normal or approved early
termination of employment or service pursuant to and in accordance with the
regular retirement/pension plan or practice of the Company or Subsidiary then
covering the Participant, provided that if the Participant is not covered by
any such plan or practice, the Participant will be deemed to be covered by the
Company’s plan or practice for purposes of this determination.


 


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2.21.        “Securities Act” means the Securities Act
of 1933, as amended.


 


2.22.        “Subsidiary” means any entity that is
directly or indirectly controlled by the Company or any entity in which the
Company has a significant equity interest, as determined by the Committee.


 


3.             Plan Administration.


 


3.1.  The Committee.  The Plan will be administered by the Board or by a committee of
the Board.  So long as the Company has a
class of its equity securities registered under Section 12 of the Exchange Act,
any committee administering the Plan will consist solely of two or more members
of the Board who are “non-employee directors” within the meaning of Rule 16b-3
under the Exchange Act.  Such a
committee, if established, will act by majority approval of the members
(unanimous approval with respect to action by written consent), and a majority
of the members of such a committee will constitute a quorum.  As used in the Plan, “Committee” will refer
to the Board or to such a committee, if established.  To the extent consistent with applicable corporate law of the
Company’s jurisdiction of incorporation, the Committee may delegate to any
officers of the Company the duties, power and authority of the Committee under
the Plan pursuant to such conditions or limitations as the Committee may
establish; provided, however, that only the Committee may exercise such duties,
power and authority with respect to Eligible Recipients who are subject to
Section 16 of the Exchange Act.  The
Committee may exercise its duties, power and authority under the Plan in its
sole and absolute discretion without the consent of any Participant or other
party, unless the Plan specifically provides otherwise.  Each determination, interpretation or other
action made or taken by the Committee pursuant to the provisions of the Plan
will be conclusive and binding for all purposes and on all persons, and no
member of the Committee will be liable for any action or determination made in
good faith with respect to the Plan or any Incentive Award granted under the
Plan.


 


3.2.   Authority of the Committee.


 


(a)           In accordance with and
subject to the provisions of the Plan, the Committee will have the authority to
determine all provisions of Incentive Awards as the Committee may deem
necessary or desirable and as consistent with the terms of the Plan, including,
without limitation, the following:  (i)
the Eligible Recipients to be selected as Participants; (ii) the nature and
extent of the Incentive Awards to be made to each Participant (including the
number of shares of Common Stock to be subject to each Incentive Award, any
exercise price, the manner in which Incentive Awards will vest or become
exercisable and whether Incentive Awards will be granted in tandem with other
Incentive Awards) and the form of written agreement, if any, evidencing such
Incentive Award; (iii) the time or times when Incentive Awards will be granted;
(iv) the duration of each Incentive Award; and (v) the restrictions and other
conditions to which the payment or vesting of Incentive Awards may be
subject.  In addition, the Committee
will have the authority under the Plan in its sole discretion to pay the
economic value of any Incentive Award in the form of cash, Common Stock or any
combination of both.


 


(b)           Subject to Section
3.2(d), below, the Committee will have the authority under the Plan to amend or
modify the terms of any outstanding Incentive Award


 


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in
any manner, including, without limitation, the authority to modify the 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, accept the surrender
of any outstanding Incentive Award or, to the extent not previously exercised
or vested, authorize the grant of new Incentive Awards in substitution for
surrendered Incentive Awards; provided, however that the amended or modified
terms are permitted by the Plan as then in effect and that any Participant
adversely affected by such amended or modified terms has consented to such
amendment or modification.


 


(c)           In the event of (i) any
reorganization, merger, consolidation, recapitalization, liquidation,
reclassification, stock dividend, stock split, combination of shares, rights
offering, extraordinary dividend or divestiture (including a spin-off) or
any other change in corporate structure or shares; (ii) any purchase,
acquisition, sale, disposition or write-down of a significant amount of assets
or a significant business; (iii) any change in accounting principles or
practices, tax laws or other such laws or provisions affecting reported
results; or (iv) any other similar change, in each case with respect to the
Company or any other entity whose performance is relevant to the grant or
vesting of an Incentive Award, the Committee (or, if the Company is not the
surviving corporation in any such transaction, the board of directors of the
surviving corporation) may, without the consent of any affected Participant,
amend or modify the vesting criteria of any outstanding Incentive Award that is
based in whole or in part on the financial performance of the Company (or any
Subsidiary or division or other subunit thereof) or such other entity so as
equitably to reflect such event, with the desired result that the criteria for
evaluating such financial performance of the Company or such other entity will
be substantially the same (in the sole discretion of the Committee or the board
of directors of the surviving corporation) following such event as prior to
such event; provided, however, that the amended or modified terms are permitted
by the Plan as then in effect.


 


(d)           Notwithstanding any
other provision of this Plan other than Section 4.3, the Committee may not,
without prior approval of the Company’s stockholders, seek to effect any
re-pricing of any previously granted, “underwater” Option by: (i) amending or
modifying the terms of the Option to lower the exercise price; (ii) canceling
the underwater Option and granting either replacement Options having a lower
exercise price or Restricted Stock Awards; 
in exchange; or (iii) repurchasing the underwater Options and granting
new Incentive Awards under this Plan. 
For purposes of this Section 3.2(d) and Section 10.4, an Option will be
deemed to be “underwater” at any time when the Fair Market Value of the Common Stock
is less than the exercise price of the Option.


 


4.             Shares Available for Issuance.


 


4.1.   Maximum Number of Shares Available; Certain
Restrictions on Awards. 
Subject to adjustment as provided in Section 4.3 of the Plan, the
maximum number of shares of Common Stock that will be available for issuance
under the Plan will be 1,000,000.  The
shares available for issuance under the Plan may, at the election of the
Committee, be either treasury shares or shares authorized but unissued, and, if
treasury shares are used, all references in the Plan to the issuance of shares
will, for corporate law purposes, be


 


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deemed to mean the transfer of shares from treasury.  Notwithstanding any other provisions of the
Plan to the contrary, (i) no Participant in the Plan may be granted any
Incentive Awards relating to more than 200,000 shares of Common Stock in the
aggregate during any fiscal year of the Company and (ii) no more than 100,000
shares of Common Stock may be granted as Restricted Stock Awards under the
Plan; provided, however, that a Participant who is first appointed or elected
as an officer, hired as an employee by the Company or who receives a promotion
that results in an increase in responsibilities or duties may be granted,
during the fiscal year of such appointment, election, hiring, retention or
promotion, Incentive Awards relating to up to 400,000 shares of Common Stock
(subject to adjustment as provided in Section 4.3 of the Plan).


 


4.2.   Accounting for Incentive Awards.  Shares of Common Stock that are issued under
the Plan or that are subject to outstanding Incentive Awards will be applied to
reduce the maximum number of shares of Common Stock remaining available for
issuance under the Plan; provided, however, that shares subject to an Incentive
Award that lapses, expires, is forfeited (including issued shares forfeited
under a Restricted Stock Award) or for any reason is terminated unexercised or
unvested or is settled or paid in cash or any form other than shares of Common
Stock will automatically again become available for issuance under the
Plan.  To the extent that the exercise
price of any Option and/or associated tax withholding obligations are paid by
tender or attestation as to ownership of Previously Acquired Shares, or to the
extent that such tax withholding obligations are satisfied by withholding of
shares otherwise issuable upon exercise of the Option, only the number of
shares of Common Stock issued net of the number of shares tendered, attested to
or withheld will be applied to reduce the maximum number of shares of Common
Stock remaining available for issuance under the Plan.


 


4.3.    Adjustments to Shares and Incentive Awards.  In the event of any reorganization, merger,
consolidation, recapitalization, liquidation, reclassification, stock dividend,
stock split, combination of shares, rights offering, divestiture or
extraordinary dividend (including a spin-off) 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) will make appropriate adjustment (which
determination will be conclusive) as to the number and kind of securities or other
property (including cash) available for issuance or payment under the Plan and,
in order to prevent dilution or enlargement of the rights of Participants, the
number and kind of securities or other property (including cash) subject to
outstanding Incentive Awards and the exercise price of outstanding Options.


 


5.             Participation.


 


Participants in the Plan will be those Eligible
Recipients who, in the judgment of the Committee, have contributed, are
contributing or are expected to contribute to the achievement of economic
objectives of the Company or its Subsidiaries. 
Eligible Recipients may be granted from time to time one or more
Incentive Awards, singly or in combination or in tandem with other Incentive
Awards, as may be determined by the Committee in its sole discretion.  Incentive Awards will be deemed to be
granted as of the date specified in the grant resolution of the Committee,
which date will be the date of any related agreement with the Participant.


 


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6.             Options.


 


6.1.    Grant. 
An Eligible Recipient may be granted one or more Options under the Plan,
and such Options will be subject to such terms and conditions, consistent with
the other provisions of the Plan, as may be determined by the Committee in its
sole discretion.  The Committee may
designate whether an Option is to be considered an Incentive Stock Option or a
Non-Statutory Stock Option.  To the
extent that any Incentive Stock Option granted under the Plan ceases for any
reason to qualify as an “incentive stock option” for purposes of Section 422 of
the Code, such Incentive Stock Option will continue to be outstanding for
purposes of the Plan but will thereafter be deemed to be a Non-Statutory
Stock Option.


 


6.2.   Exercise Price.  The per share price to be paid by a Participant upon exercise of
an Option will be determined by the Committee in its discretion at the time of
the Option grant; provided, however, that such price will not be less than 100%
of the Fair Market Value of one share of Common Stock on the date of grant with
respect to any Option (110% of the Fair Market Value with respect to an
Incentive Stock Option if, at the time such Incentive Stock Option is granted,
the Participant owns, directly or indirectly, more than 10% of the total
combined voting power of all classes of stock of the Company or any parent or
subsidiary corporation of the Company).


 


6.3.    Exercisability and Duration.  An Option will become exercisable at such
times and in such installments and upon such terms and conditions as may be
determined by the Committee in its sole discretion at the time of grant
(including without limitation that the Participant remain in the continuous
employ or service of the Company or a Subsidiary for a certain period);
provided, however, that no Option may be exercisable prior to six months from
its date of grant (other than as provided in Section 8.1 of the Plan) or after
10 years from its date of grant (five years from its date of grant in the case
of an Incentive Stock Option if, at the time the Incentive Stock Option is
granted, the Participant owns, directly or indirectly, more than 10% of the
total combined voting power of all classes of stock of the Company or any
parent or subsidiary corporation of the Company).


 


6.4.    Payment of Exercise Price.  The total purchase price of the shares to be
purchased upon exercise of an Option will be paid entirely in cash (including
check, bank draft or money order); provided, however, that the Committee, in
its sole discretion and upon terms and conditions established by the Committee,
may allow such payments to be made, in whole or in part, by tender of a Broker
Exercise Notice, by tender, or attestation as to ownership, of Previously
Acquired Shares that have been held for the period of time necessary to avoid a
charge to the Company’s earnings for financial reporting purposes and that are
otherwise acceptable to the Committee, or by a combination of such methods. For
purposes of such payment, Previously Acquired Shares tendered or covered by an
attestation will be valued at their Fair Market Value on the exercise date.


 


6.5.  Manner of Exercise.  An Option may be exercised by a Participant
in whole or in part from time to time, subject to the conditions contained in
the Plan and in the agreement evidencing such Option, by delivery in person, by
facsimile or electronic transmission or through the mail of written notice of
exercise to the Company at its principal executive office in Eden Prairie,
Minnesota and by paying in full the total exercise price for the shares of
Common Stock to be purchased in accordance with Section 6.4 of the Plan.


 


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7.             Restricted Stock Awards.


 


7.1.    Grant. 
An Eligible Recipient may be granted one or more Restricted Stock Awards
under the Plan, and such Restricted Stock Awards will be subject to such terms
and conditions, consistent with the other provisions of the Plan, as may be
determined by the Committee in its sole discretion.  The Committee may impose such restrictions or conditions, not
inconsistent with the provisions of the Plan, to the vesting of such Restricted
Stock Awards as it deems appropriate, including, without limitation, that the
Participant remain in the continuous employ or service of the Company or a
Subsidiary for a certain period; provided, however, that other than as provided
in Section 8.1 of the Plan, no Restricted Stock Award may vest prior to six
months from its date of grant.


 


7.2.    Rights as a Stockholder; Transferability.  Except as provided in Sections 7.1, 7.3, 7.4
and 11.3 of the Plan, a Participant will have all voting, dividend, liquidation
and other rights with respect to shares of Common Stock issued to the
Participant as a Restricted Stock Award under this Section 7 upon the Participant
becoming the holder of record of such shares as if such Participant were a
holder of record of shares of unrestricted Common Stock.


 


7.3.    Dividends and Distributions.  Unless the Committee determines otherwise in
its sole discretion (either in the agreement evidencing the Restricted Stock
Award at the time of grant or at any time after the grant of the Restricted
Stock Award), any dividends or distributions (other than regular quarterly cash
dividends) paid with respect to shares of Common Stock subject to the unvested
portion of a Restricted Stock Award will be subject to the same restrictions as
the shares to which such dividends or distributions relate.  The Committee will determine in its sole
discretion whether any interest will be paid on such dividends or
distributions.


 


7.4.    Enforcement of Restrictions.  To enforce the restrictions referred to in
this Section 7, the Committee may place a legend on the stock certificates
referring to such restrictions and may require the Participant, until the restrictions
have lapsed, to keep the stock certificates, together with duly endorsed stock
powers, in the custody of the Company or its transfer agent, or to maintain
evidence of stock ownership, together with duly endorsed stock powers, in a
certificateless book-entry stock account with the Company’s transfer agent.


 


8.             Effect of Termination of Employment or Other Service.


 


8.1.    Termination Due to Death or Disability.  In the event a Participant’s employment or
other service with the Company and all Subsidiaries is terminated by reason of
death or Disability:


 


(a)           All outstanding Options
then held by the Participant will become immediately exercisable in full and
will remain exercisable for a period of one (1) year after such termination
(but in no event after the expiration date of any such Option); and


 


(b)           All Restricted Stock
Awards then held by the Participant will become fully vested.


 


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8.2.    Termination Due to Retirement.  Subject to Section 8.5 of the Plan, in the
event a Participant’s employment or other service with the Company and all
Subsidiaries is terminated by reason of Retirement:


 


(a)           All outstanding Options
then held by the Participant will, to the extent exercisable as of such
termination, remain exercisable in full for a period of three (3) months after
such termination (but in no event after the expiration date of any such
Option).  Options not exercisable as of
such Retirement will be forfeited and terminate; and


 


(b)           All Restricted Stock
Awards then held by the Participant that have not vested as of such termination
will be terminated and forfeited.


 


8.3.    Termination for Reasons Other than Death, Disability
or Retirement.  Subject to
Section 8.5 of the Plan, in the event a Participant’s employment or other
service is terminated with the Company and all Subsidiaries for any reason
other than death, Disability or Retirement, or a Participant is in the employ
of a Subsidiary and the Subsidiary ceases to be a Subsidiary of the Company
(unless the Participant continues in the employ of the Company or another
Subsidiary):


 


(a)           All outstanding Options
then held by the Participant will, to the extent exercisable as of such
termination, remain exercisable in full for a period of three months after such
termination (but in no event after the expiration date of any such
Option).  Options not exercisable as of
such termination will be forfeited and terminate; and


 


(b)           All Restricted Stock
Awards then held by the Participant that have not vested as of such termination
will be terminated and forfeited.


 


8.4.    Modification of Rights Upon Termination.  Notwithstanding the other provisions of this
Section 8, upon a Participant’s termination of employment or other service with
the Company and all Subsidiaries, the Committee may, in its sole discretion
(which may be exercised at any time on or after the date of grant, including
following such termination), cause Options (or any part thereof) then held by
such Participant to become or continue to become exercisable and/or remain
exercisable following such termination of employment or service, and Restricted
Stock Awards then held by such Participant to vest and/or continue to vest or
become free of restrictions and conditions to issuance, as the case may be, following
such termination of employment or service, in each case in the manner
determined by the Committee; provided, however, that (a) no Option will become
exercisable or vest prior to six months from its date of grant (unless such
exercisability or vesting is by reason of death or Disability), (b) no
Restricted Stock Award will vest or be issued prior to six months from its date
of grant (unless such vesting or issuance is by reason of death or Disability)
and (c) no Incentive Award may remain exercisable or continue to vest for more
than two years beyond the date such Incentive Award would have terminated if
not for the provisions of this Section 8.4 but in no event beyond its
expiration date.


 


8.5.    Effects of Actions Constituting Cause.  Notwithstanding anything in the Plan to the
contrary, in the event that a Participant is determined by the Committee,
acting in its sole discretion, to have committed any action which would
constitute Cause as defined in Section 2.3, irrespective of whether such action
or the Committee’s determination occurs


 


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before or after termination of such Participant’s employment or service
with the Company or any Subsidiary, all rights of the Participant under the
Plan and any agreements evidencing an Incentive Award then held by the
Participant shall terminate and be forfeited without notice of any kind.  The Company may defer the exercise of any
Option or the vesting of any Restricted Stock Award for a period of up to
forty-five (45) days in order for the Committee to make any determination as to
the existence of Cause.


 


8.6.    Determination of Termination of Employment or Other
Service.  Unless the
Committee otherwise determines in its sole discretion, a Participant’s
employment or other service will, for purposes of the Plan, be deemed to have
terminated on the date recorded on the personnel or other records of the
Company or the Subsidiary for which the Participant provides employment or
service, as determined by the Committee in its sole discretion based upon such
records.


 


9.             Payment of Withholding Taxes.


 


9.1.    General Rules.  The Company is entitled to (a) withhold and deduct from future
wages of the Participant (or from other amounts that may be due and owing to
the Participant from the Company or a Subsidiary), or make other arrangements
for the collection of, all legally required amounts necessary to satisfy any
and all federal, foreign, state and local withholding and employment-related
tax requirements attributable to an Incentive Award, including, without
limitation, the grant, exercise or vesting of, or payment of dividends with
respect to, an Incentive Award or a disqualifying disposition of stock received
upon exercise of an Incentive Stock Option, or (b) require the Participant
promptly to remit the amount of such withholding to the Company before taking
any action, including issuing any shares of Common Stock, with respect to an
Incentive Award.


 


9.2.   Special Rules.  The Committee may, in its sole discretion and upon terms and
conditions established by the Committee, permit or require a Participant to
satisfy, in whole or in part, any withholding or employment-related tax
obligation described in Section 9.1 of the Plan by electing to tender, or by
attestation as to ownership of, Previously Acquired Shares that have been held
for the period of time necessary to avoid a charge to the Company’s earnings
for financial reporting purposes and that are otherwise acceptable to the
Committee, by delivery of a Broker Exercise Notice or a combination of such
methods.  For purposes of satisfying a
Participant’s withholding or employment-related tax obligation, Previously
Acquired Shares tendered or covered by an attestation will be valued at their
Fair Market Value.  


 


10.           Change in Control.


 


10.1.        A
“Change in Control” shall be deemed to have occurred if the event set forth in
any one of the following paragraphs has occurred:


 


(a)           the sale, lease,
exchange or other transfer, directly or indirectly, of substantially all of the
assets of the Company (in one transaction or in a series of related
transactions) to any Successor;


 


(b)           the approval by the
stockholders of the Company of any plan or proposal for the liquidation or
dissolution of the Company;


 


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(c)           any Successor, other
than a Bona Fide Underwriter, becomes after the effective date of the Plan the
“beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of (i) 20% or more, but not 50% or more, of the combined voting
power of the Company’s outstanding securities ordinarily having the right to
vote at elections of directors, unless the transaction resulting in such
ownership has been approved in advance by the Continuity Directors (as defined
in Section 10.2 below), or (ii) more than 50% of the combined voting power of
the Company’s outstanding securities ordinarily having the right to vote at
elections of directors (regardless of any approval by the Continuity
Directors);


 


(d)           a merger or consolidation
to which the Company is a party if the stockholders of the Company immediately
prior to effective date of such merger or consolidation have “beneficial
ownership” (as defined in Rule 13d-3 under the Exchange Act), immediately
following the effective date of such merger or consolidation, of securities of
the surviving corporation representing (i) 50% or more, but not more than 80%,
of the combined voting power of the surviving corporation’s then outstanding
securities ordinarily having the right to vote at elections of directors,
unless such merger or consolidation has been approved in advance by the
Continuity Directors, or (ii) less than 50% of the combined voting power
of the surviving corporation’s then outstanding securities ordinarily having
the right to vote at elections of directors (regardless of any approval by the
Continuity Directors); or


 


(e)           the Continuity
Directors cease for any reason to constitute at least a majority of the Board.


 


10.2.        Change in Control Definitions.  For purposes of this Section 10:


 


(a)           “Continuity Directors” of the Company will
mean any individuals who are members of the Board on the effective date of the
Plan and any individual who subsequently becomes a member of the Board whose
election, or nomination for election by the Company’s stockholders, was
approved by a vote of at least a majority of the Continuity Directors (either
by specific vote or by approval of the Company’s proxy statement in which such
individual is named as a nominee for director without objection to such
nomination).


 


(b)           “Bona Fide Underwriter” means an entity
engaged in business as an underwriter of securities that acquires securities of
the Company through such entity’s participation in good faith in a firm
commitment underwriting until the expiration of 40 days after the date of such
acquisition.


 


(c)           “Successor” means any individual,
corporation, partnership, group, association or other person,” as such term is
used in Section 13(d) or Section 14(d) of the Exchange Act, other than the
Company, any “affiliate” (as defined below) or any benefit plan(s) sponsored by
the Company or any affiliate that succeeds to, or has the practical ability to
control (either immediately or solely with the passage of time), the Company’s
business directly, by merger, consolidation or other form of business
combination, or indirectly, by purchase of the Company’s outstanding securities
ordinarily having the right to vote at the election of directors or all or
substantially all of its assets or otherwise. 
For this


 


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purpose,
an “affiliate” is (i) any corporation at least a majority of whose outstanding
securities ordinarily having the right to vote at elections of directors is
owned directly or indirectly by the Company or (ii) any other form of business
entity in which the Company, by virtue of a direct or indirect ownership
interest, has the right to elect a majority of the members of such entity’s
governing body.


 


10.3.        Acceleration of Vesting.  Without limiting the authority of the
Committee under Sections 3.2 and 4.3 of the Plan, if a Change in Control of the
Company occurs, then, if approved by the Committee in its sole discretion
either in an agreement evidencing an Incentive Award at the time of grant or at
any time after the grant of an Incentive Award: (a) all Options that have been
outstanding for at least six months will become immediately exercisable in full
and will remain exercisable in accordance with their terms; and (b) all
Restricted Stock Awards that have been outstanding for at least six months will
become immediately fully vested and non-forfeitable.


 


10.4.        Cash Payment.  If a Change in Control of the Company occurs, then the Committee,
if approved by the Committee in its sole discretion either in an agreement
evidencing an Incentive Award at the time of grant or at any time after the
grant of an Incentive Award, and without the consent of any Participant
affected thereby, may determine that:


 


(a)           some or all
Participants holding outstanding Options will receive, with respect to some or
all of the shares of Common Stock subject to such Options, as of the effective
date of any such Change in Control of the Company, cash in an amount equal to
the excess of the Fair Market Value of such shares immediately prior to the
effective date of such Change in Control of the Company over the exercise price
per share of such Options; and


 


(b)           any Options which, as
of the effective date of any such Change in Control, are “underwater” (as
defined in Section 3.2(d)) shall terminate as of the effective date of any such
Change in Control.


 


10.5.        Limitation on Change in Control Payments.  Notwithstanding anything in
Section 10.3 or 10.4 of the Plan to the contrary, if, with respect to a
Participant, the acceleration of the exercisability of an Option as provided in
Section 10.3 or the payment of cash in exchange for all or part of an
Option as provided in Section 10.4 (which acceleration or payment could be
deemed a “payment” within the meaning of Section 280G(b)(2) of the Code),
together with any other “payments” that such Participant has the right to
receive from the Company or any corporation that is a member of an “affiliated
group” (as defined in Section 1504(a) of the Code without regard to
Section 1504(b) of the Code) of which the Company is a member, would
constitute a “parachute payment” (as defined in Section 280G(b)(2) of the
Code), then the “payments” to such Participant pursuant to Section 10.3 or 10.4
of the Plan will be reduced to the largest amount as will result in no portion
of such “payments” being subject to the excise tax imposed by Section 4999 of
the Code; provided, however, that if a Participant is subject to a separate
agreement with the Company or a Subsidiary which specifically provides that
payments attributable to one or more forms of employee stock incentives or to
payments made in lieu of employee stock incentives will not reduce any other
payments under such agreement, even if it would constitute an excess parachute
payment, or provides that the Participant will have the discretion to determine
which


 


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payments will be reduced in order to avoid an excess parachute payment,
then the limitations of this Section 10.4 will, to that extent, not apply.


 


11.           Rights of Eligible Recipients and Participants;
Transferability.


 


11.1.        Employment or Service.  Nothing in the Plan will interfere with or
limit in any way the right of the Company or any Subsidiary to terminate the
employment or service of any Eligible Recipient or Participant at any time, nor
confer upon any Eligible Recipient or Participant any right to continue in the
employ or service of the Company or any Subsidiary.


 


11.2.        Rights as a Stockholder.  As a holder of Incentive Awards (other than
Restricted Stock Awards), a Participant will have no rights as a stockholder
unless and until such Incentive Awards are exercised for, or paid in the form
of, shares of Common Stock and the Participant becomes the holder of record of
such shares.  Except as otherwise
provided in the Plan, no adjustment will be made for dividends or distributions
with respect to such Incentive Awards as to which there is a record date
preceding the date the Participant becomes the holder of record of such shares,
except as the Committee may determine in its discretion.


 


11.3.        Restrictions on Transfer.


 


(a)           Except pursuant to
testamentary will or the laws of descent and distribution or as otherwise
expressly permitted by subsections (b) and (c) below, no right or interest of
any Participant in an Incentive Award prior to the exercise (in the case of
Options) or vesting (in the case of Restricted Stock Awards) of such Incentive
Award will be assignable or transferable, or subjected to any lien, during the
lifetime of the Participant, either voluntarily or involuntarily, directly or
indirectly, by operation of law or otherwise.


 


(b)           A Participant will be
entitled to designate a beneficiary to receive an Incentive Award upon such
Participant’s death, and in the event of such Participant’s death, payment of
any amounts due under the Plan will be made to, and exercise of any Options (to
the extent permitted pursuant to Section 8 of the Plan) may be made by, such
beneficiary.  If a deceased Participant
has failed to designate a beneficiary, or if a beneficiary designated by the
Participant fails to survive the Participant, payment of any amounts due under
the Plan will be made to, and exercise of any Options (to the extent permitted
pursuant to Section 9 of the Plan) may be made by, the Participant’s legal
representatives, heirs and legatees.  If
a deceased Participant has designated a beneficiary and such beneficiary
survives the Participant but dies before complete payment of all amounts due
under the Plan or exercise of all exercisable Options, then such payments will
be made to, and the exercise of such Options may be made by, the legal
representatives, heirs and legatees of the beneficiary.


 


(c)           Upon a Participant’s
request, the Committee may, in its sole discretion, permit a transfer of all or
a portion of a Non-Statutory Stock Option, other than for value, to such
Participant’s child, stepchild, grandchild, parent, stepparent, grandparent,
spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law,
son-in-law, daughter-in-law, brother-in-law, or sister-in-law, any person
sharing such Participant’s household (other than a tenant or employee), a


 


12

















 


trust
in which any of the foregoing have more than fifty percent of the beneficial
interests, a foundation in which any of the foregoing (or the Participant)
control the management of assets, and any other entity in which these persons
(or the Participant) own more than fifty percent of the voting interests.  Any permitted transferee will remain subject
to all the terms and conditions applicable to the Participant prior to the
transfer.  A permitted transfer may be
conditioned upon such requirements as the Committee may, in its sole discretion,
determine, including, but not limited to execution and/or delivery of
appropriate acknowledgements, opinion of counsel, or other documents by the
transferee.


 


11.4.        Non-Exclusivity of the Plan.  Nothing contained in the Plan is intended to
modify or rescind any previously approved compensation plans or programs of the
Company or create any limitations on the power or authority of the Board to
adopt such additional or other compensation arrangements as the Board may deem
necessary or desirable.


 


12.           Securities Law and Other Restrictions.


 


Notwithstanding any other provision of the Plan or any
agreements entered into pursuant to the Plan, the Company will not be required
to issue any shares of Common Stock under this Plan, and a Participant may not
sell, assign, transfer or otherwise dispose of shares of Common Stock issued
pursuant to Incentive Awards granted under the Plan, unless (a) there is in
effect with respect to such shares a registration statement under the
Securities Act and any applicable securities laws of a state or foreign jurisdiction
or an exemption from such registration under the Securities Act and applicable
state or foreign securities laws, and (b) there has been obtained any other
consent, approval or permit from any other U.S. or foreign regulatory body
which the Committee, in its sole discretion, deems necessary or advisable.  The Company may condition such issuance,
sale or transfer upon the receipt of any representations or agreements from the
parties involved, and the placement of any legends on certificates representing
shares of Common Stock, as may be deemed necessary or advisable by the Company
in order to comply with such securities law or other restrictions.


 


13.           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 Awards under
the Plan will 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 amendments to the Plan will be effective
without approval of the Company’s stockholders if: (i) stockholder approval of
the amendment is then required pursuant to Section 422 of the Code or the rules
of any stock exchange or Nasdaq or similar regulatory body; or (ii) such
amendment seeks to modify Section 3.2(d) hereof.   No termination,
suspension or amendment of the Plan may adversely affect any outstanding
Incentive Award without the consent of the affected Participant; provided,
however, that this sentence will not impair the right of the Committee to take
whatever action it deems appropriate under Sections 3.2(c), 4.3 and 10 of the
Plan.


 


14.           Effective Date and Duration of the Plan.


 


The Plan is effective as of the Effective Date.  The Plan will terminate at midnight on April
30, 2013, and may be terminated prior to such time by Board action.  No Incentive Award


 


13

















 


will be granted after
termination of the Plan.  Incentive
Awards outstanding upon termination of the Plan may continue to be exercised,
or become free of restrictions, according to their terms.


 


15.           Miscellaneous.


 


15.1.        Governing Law.  Except to the extent expressly provided herein or in connection
with other matters of corporate governance and authority (all of which shall be
governed by the laws of the Company’s jurisdiction of incorporation), the
validity, construction, interpretation, administration and effect of the Plan
and any rules, regulations and actions relating to the Plan will be governed by
and construed exclusively in accordance with the laws of the State of
Minnesota, notwithstanding the conflicts of laws principles of any
jurisdictions.


 


15.2.        Successors and Assigns.  The Plan will be binding upon and inure to
the benefit of the successors and permitted assigns of the Company and the
Participants.


 


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