**Exhibit10.31**

 

**DIRECT REPORTS AGREEMENT**

 

This Agreement (this “Agreement”), effective asof December 15, 2003, is between Fargo Electronics, Inc., a Delawarecorporation located at 6533 Flying Cloud Drive, Eden Prairie, Minnesota 55344(“Fargo”) and                            ,an individual residing at                                                                                                ****(the ”Executive”).

 

A.                                   TheExecutive is currently employed as Fargo’s                                                                   .

 

B.                                     TheBoard considers that the Executive’s services are of significant value to theCompany and its shareholders.  Therefore, the Fargo and the Board believe that the establishment andmaintenance of a program that provides the Executive with security if a Changeof Control of Fargo occurs is in the best interests of the Company and itsshareholders.

 

C.                                     ThisAgreement, which has been approved by the Board, sets forth the benefits thatthe Fargo agrees will be provided to the Executive in the event the Executive’semployment with Fargo or its Successor is terminated in connection with aChange in Control under the circumstances described below.

 

Accordingly, the Companyand Executive each intending to be legally bound, agree as follows:

 

1.                                       Definitions

 

For purposes of the Agreement, the following termswill have the meaning set forth below unless the context clearly requiresotherwise.  Terms defined elsewhere inthe Agreement will have the same meaning throughout the Agreement.

 

A.                                   “BasePay” means the Executive’s annual base salary from Fargo or any Successorat the rate in effect immediately prior to a Change in Control or at the timeNotice of Termination is given, whichever is greater.  Base Pay includes only the gross cash salary excluding incentivecompensation.

 

B.                                     “Board”means the board of directors of Fargo or any Successor duly qualified andacting at the time in question.  On andafter the date of a Change in Control, any duty of the Board in connection withthis Agreement is nondelegable and any attempt by the Board to delegate anysuch duty is ineffective.

 

# C.                                     “Cause” means:

 

## (i)                                     the Executive’s gross misconduct that ismaterially and demonstrably injurious to Fargo or any Successor;

 

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## (ii)                                  the Executive’s willful and continuedfailure to perform substantially the Executive’s duties with Fargo or anySuccessor (unless the Executive cannot perform these duties due to bodilyinjury or physical or mental illness or if the Change in Control has so changedthe Executive’s responsibilities that the change constitutes a Good Reason fortermination.  If Fargo or any Successordetermines that the Executive has not performed his or her duties under theterms of this clause after a Change of Control occurs, Fargo or any Successorwill specifically identify these areas and provide the Executive a reasonableperiod of time to take corrective actions; or

 

## (iii)                               the Executive’s conviction (including a plea of nolocontendere) of willfully engaging in illegal conduct constituting a felony orgross misdemeanor under federal or state law which is materially anddemonstrably injurious to Fargo or any Successor or which impairs theExecutive’s ability to perform substantially the Executive’s duties for theCompany.

 

For the purpose of this clause, a “gross or willful”action will mean an act that is done by the Executive in bad faith and withoutreasonable belief that it was in, or not opposed to, the best interests ofFargo or any Successor.  Any actionbased on a resolution of the Board of Directors or a committee thereof will beconclusively presumed to be done in good faith. If the Executive has otherduties not related to Fargo (such as charitable or service on other Boards)prior to the Change of Control, continuation of those actions is conclusivelypresumed to be done in good faith. If there is a dispute regarding thetermination of the Executive for cause, such dispute shall be subject to thedispute resolution as described in Section 5(g) of this Agreement.

 

D.                                    “Changein Control” means the occurrence of any of the following on or after April30, 2001:

 

## (i)                                     the sale, lease, exchange or othertransfer, directly or indirectly, of all or substantially all of the assets ofFargo or any Successor, in one transaction or in a series of relatedtransactions, to any Successor;

 

## (ii)                                  the approval by the stockholders of Fargoor any Successor of any plan or proposal for the liquidation or dissolution ofFargo or any Successor;

 

## (iii)                               any entity, other than a “bona fide underwriter,”becomes, after the date of this Agreement, the “beneficial owner” (as definedin Rule 13d-3 under the Exchange Act), directly or indirectly, of (i) 20percent or more, but not more than 50 percent, of the combined voting power ofFargo’s or any Successor’s outstanding securities ordinarily having the rightto vote at elections of directors, unless the transaction resulting in suchownership has been approved in advance by the “continuity directors” or (ii)more than 50 percent of the combined voting power of Fargo’s or any Successor’soutstanding securities ordinarily having the right to vote at elections ofdirectors (regardless of any approval by the continuity directors);

 

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## (iv)                              a merger or consolidation to which Fargoor any Successor is a party if the stockholders of Fargo or any Successorimmediately prior to the effective date of such merger or consolidation have,solely on account of ownership of securities of Fargo or any Successor at suchtime, “beneficial ownership” (as defined in Rule 13d-3 under the Exchange Act)immediately following the effective date of such merger or consolidation ofsecurities of the surviving corporation representing (i) 50 percent or more,but not more than 80 percent, of the combined voting power of the survivingcorporation’s then outstanding securities ordinarily having the right to voteat elections of directors, unless such merger or consolidation has beenapproved in advance by the continuity directors, or (ii) less than 50 percentof the combined voting power of the surviving corporation’s then outstandingsecurities ordinarily having the right to vote at elections of directors(regardless of any approval by the continuity directors); or

 

## (v)                                 the continuity directors cease for anyreason to constitute at least a majority of the Board.

 

A “continuity director” means any individual who is amember of the Board on the date of the Agreement, and any individual whosubsequently becomes a member of the Board whose election or nomination forelection by Fargo’s or any Successor’s stockholders was approved by a vote ofat least a majority of the directors who are continuity directors (either by aspecific vote or by approval of the proxy statement of Fargo or any Successorin which such individual is named as a nominee for director without objectionto such nomination). A “bona fide underwriter” means an entity engaged inbusiness as an underwriter of securities that acquires securities of Fargo orany Successor through such entity’s participation in good faith in a firmcommitment underwriting until the expiration of 40 days after the date of suchacquisition.

 

E.                                      “Code”means the Internal Revenue Code of 1986, as amended.  Any reference to a specific provision of the Code includes areference to such provision as it may be amended from time to time and to anysuccessor provision.

 

F.                                      “Dateof Termination” means the last day of regular paid employment.

 

G.                                     “ERISA”means the Employee Retirement Income Security Act of 1974, as amended.  Any reference to a specific provision ofERISA includes a reference to such provision as it may be amended from time totime and to any successor provision.

 

H.                                    “ExchangeAct” means the Securities Exchange Act of 1934, as amended.  Any reference to a specific provision of theExchange Act or to any rule or regulation thereunder includes a reference tosuch provision as it may be amended from time to time and to any successorprovision.

 

# I.                                         “Good Reason” means:

 

## (i)                                     a change in the Executive’s title(s),status, position(s), authority, duties or responsibilities as an executive ofFargo or any Successor as in effect

 

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## immediately prior to the Change in Control which, inthe Executive’s reasonable judgment, is material and adverse.  However, if the changes are those that areconsistent with working for a subsidiary of another company or if the change induties is directly attributable to the fact that Fargo or any Successor is nolonger publicly owned, then these will not be material and adverse.  Provided, that Good Reason does not includesuch a change that is remedied by the Company promptly after receipt of noticeof such change is given by the Executive;

 

## (ii)                                  a reduction by Fargo or any Successor inthe Executive’s Base Pay, or an adverse change in the form or timing of thepayment thereof, as in effect immediately prior to the Change in Control or asthereafter increased; provided, however, that Good Reason does not include sucha reduction that applies to all employees of Fargo or any Successor and is notmore than 20% of the Executive’s Base Pay;

 

## (iii)                               the failure by Fargo or any Successor to provide tothe Executive (and/or the Executive’s family and dependents) substantiallysimilar benefits to those the Successor provides to its employees;

 

## (iv)                              Fargo or any Successor’s requiring theExecutive to be based in a different metropolitan area (other than theMinneapolis or St. Paul metropolitan area) from where the Executive’s office is located immediately prior to theChange in Control, except for required travel on Fargo’s or any Successor’sbusiness, and then only to the extent substantially consistent with thebusiness travel obligations which the Executive undertook on behalf of Fargoduring the 90-day period immediately preceding the Change in Control (withoutregard to travel related to or in anticipation of the Change in Control);

 

## (v)                                 the failure by Fargo to obtain from anySuccessor the assent to this Agreement contemplated by Section 5(a) of theAgreement;

 

## (vi                                  any purported termination by Fargo or anySuccessor of the Executive’s employment that is not properly effected pursuantto a Notice of Termination and pursuant to any other requirements of thisAgreement, and, for purposes of this Agreement, no such purported terminationwill be effective; or

 

The Executive’s continued employment does notconstitute consent to, or waiver of any rights arising in connection with, anycircumstances constituting Good Reason. The Executive’s termination of employment for Good Reason as definedabove will constitute Good Reason for all purposes of the Agreementnotwithstanding that the Executive may also thereby be deemed to have retiredunder any applicable benefit plan, policy or practice of Fargo or anySuccessor.

 

J.                                        “Noticeof Termination” means a written notice given on or after the date of aChange in Control unless the Executive’s termination before the date of theChange in Control was either a condition of the Change in Control or was at therequest or insistence of any entity related to the Change in Control in whichcase the written notice

 

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may be given before the date of the Change in Control which indicatesthe specific termination provision in the Agreement pursuant to which thenotice is given

 

K.                                    “OtherArrangement” is any Benefit Plan or other plan, policy or practice of theCompany or any other agreement between the Executive and Fargo, other than thisAgreement.

 

# L.                                      “Fargo” means Fargo Electronics,Inc. and includes any successor to Fargo Electronics, Inc.

 

M .                              “Successor”means any individual, corporation partnership, group, association or otherperson,” as such term is used in Section 13(d) or Section 14(d) of the ExchangeAct, other than the Fargo, any affiliate or any benefit plan(s) sponsored bythe Fargo that succeeds to, or has the practical ability to control (eitherimmediately or solely with the passage of time), the parent corporation’s businessdirectly, by merger, consolidation or other form of business combination, orindirectly, by purchase of the parent corporation’s outstanding securitiesordinarily having the right to vote at the election of directors or all orsubstantially all of its assets or otherwise. Successor shall also mean the entity that exists after the Change inControl occurs, regardless of what form such entity shall take.

 

2.                                       Termof Agreement.  This Agreement iseffective immediately and will have an initial term ending on December 31,2004.  After this initial term, thisAgreement will automatically continue for consecutive one-year terms (“RenewalPeriods”) however, each such extension must be approved by the Company’s Boardof Directors.  The Company or theExecutive can choose to terminate this Agreement by giving notice 90 (ninety)calendar days prior to the automatic renewal that the Agreement will not beextended.

 

Notwithstanding anything to the contrary, if a Changein Control has occurred during the term of this Agreement, this Agreement willcontinue in effect for a period of 12 months following the month during whichthe Change in Control occurs.

 

3.                                       Benefitsupon a Change in Control Termination. The Executive will become entitled to the benefits described in thisSection 2 if and only if (i) Fargo or any Successor terminates the Executive’semployment for any reason other than the Executive’s death or Cause, or theExecutive terminates the Executive’s employment with the Successor for GoodReason, and (ii) the termination is within 12 months after the date of theChange in Control (or before the Change in Control if at the request of orrequired by the Successor related to the change in control.

 

## (a)                                  Cash Payment. Not more than 30 days following the Date of Termination, or, if later,not more than 30 days following the date of the Change in Control, the Companyor the Successor will make a lump-sum cash payment to the Executive in anamount equal to the sum of 100% of the Executive’s Base Pay.

 

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## (b)                                 Stock Options.  100% of the Executive’s unvested options under the 1998 Stock OptionPlan will vest fully.

 

## (c)                                  Other Stock Options. If other stock options under any plans after the 1998 Stock Option Planare issued, these stock options will be treated as if the stock options hadvested at 100% in connection with the Change in Control.  Any difference between the value of suchstock options that actually vested in connection with the Change in Control and100% vesting shall be calculated and Fargo or the Successor will pay suchamount not more than 30 days following the Date of Termination.

 

 4.                                    Indemnification.  Following a Change in Control, Fargo or anySuccessor will indemnify and advance expenses to the Executive for damages,costs and expenses (including, without limitation, judgments, fines, penalties,settlements and reasonable fees and expenses of the Executive’s counsel)incurred in connection with all matters, events and transactions relating tothe Executive’s service to or status with Fargo’s or any Successor’s employeebenefit plan or other service.  Fargo orany Successor must do so to the extent that would have been required underapplicable law, corporate articles, bylaws or agreements or instruments of anynature with or covering the Executive, as in effect immediately prior to theChange in Control and to any further extent as may be determined or agreed uponfollowing the Change in Control.

 

# 5.                                       Miscellaneous.

 

## (a)                                  Successors.  Fargo musthave any Successor, by agreement in form and substance satisfactory to theExecutive, assent to the fulfillment by the Company of the Company’sobligations under this Agreement. Failure by any Successor to enter into such agreement will constituteGood Reason for termination by the Executive of the Executive’s employment.

 

## (b)                                 Binding Agreement. This Agreement inures to the benefit of, and is enforceable by, theExecutive, or in the event of death or incapacity of the Executive, theExecutive’s personal and legal representatives, executors, administrators,successors, heirs, distributees, devisees and legatees.

 

## (c)                                  No Mitigation. The Executive will not be required to mitigate the amount of anybenefits the Successor becomes obligated to provide to the Executive inconnection with this Agreement by seeking other employment or otherwise.

 

## (d)                                 No Setoff.  TheSuccessor has no right to setoff benefits owed to the Executive under thisAgreement against amounts owed (or claimed to be owed) by the Executive toFargo or the Successor under this Agreement or otherwise.

 

## (e)                                  Taxes.  All benefitsto be provided to the Executive in connection with this Agreement will besubject to required withholding of federal, state and local income, excise andemployment-related taxes.  TheSuccessor’s good faith

 

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## determination with respect to its obligation towithhold such taxes relieves it of any obligation that such amounts should havebeen paid to the Executive.

 

## (f)                                    Notices.  For the purposesof this Agreement, notices and all other communications provided for in, orrequired under, this Agreement must be in writing and will be deemed to havebeen duly given when personally delivered or when mailed by United Statesregistered or certified mail, return receipt requested to the address of eitherparty on the first page of this Agreement or to any other address of which oneparty notifies the other.

 

## (g)                                 Disputes.  The partiesagree that any dispute, controversy or claim arising under or in connectionwith this Agreement will be settled exclusively by binding arbitrationadministered by the American Arbitration Association in Minneapolis, Minnesotain accordance with the Commercial Arbitration Rules of the American ArbitrationAssociation then in effect.  Thearbiter’s decision will be binding on both parties. The Successor will pay allfees and costs of the arbitration including legal fees.

 

## (h)                                 Related Agreements and Other Arrangements. This Agreement constitutes the entire agreement of the parties withrespect to the subject matter hereof other than the options outstanding underthe stock option plan, and no agreements or representations, oral or otherwise,express or implied, with respect to the subject matter to this Agreement havebeen made by any party which are not expressly set forth in thisAgreement.  If there are any otherAgreements or provisions in other Agreements to the contrary, this Agreementshall apply and take precedence.

 

## (i)                                     No Employment or Service Contract. Nothing in this Agreement is intended to provide the Executive with anyright to continue in the employ of Fargo or the Successor for any period ofspecific duration or interfere with or otherwise restrict in any way theExecutive’s rights or the rights of Fargo or the Successor.

 

## (j)                                     Payment; Assignment. Benefits payable under this Agreement will be paid only from the generalassets of the Successor and the Executive will be a general unsecured creditor.

 

## (k)                                  Late Payments. Benefits not paid under this Agreement when due will accrue interest atthe rate of 18% per year, or the maximum rate permitted under applicable law.

 

## (l)                                     Survival.  Therespective obligations and benefits of this Agreement shall survive terminationuntil the obligations are satisfied.

 

## (m)                               Amendments; Waivers. No provision of this Agreement may be modified, waived or dischargedunless such modification, waiver or discharge is agreed to in writing signed bythe Executive and the Chief Operating Officer of Fargo.  No waiver of any breach of this Agreement,or of compliance with any

 

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## condition or provision of this Agreement will bedeemed a waiver of similar or dissimilar provisions or conditions at any time.

 

## (n)                                 Governing Law. This Agreement and the legal relations among the parties as to allmatters shall be governed by the laws of the State of Minnesota (without regardto the conflict of laws principles of any jurisdiction).

 

## (o)                                 Further Assurances. The parties to this Agreement agree to perform, or cause to beperformed, such further acts and deeds, and to execute and deliver, or cause tobe executed and delivered, such additional or supplemental documents orinstruments as may be reasonably required by the other party to carry intoeffect the intent and purpose of this Agreement.

 

## (p)                                 Interpretation. The invalidity or unenforceability of all or any part of any provisionof this Agreement will not affect the validity or enforceability of theremainder of such provision or of any other provision of this Agreement, whichwill remain in full force and effect.

 

## (q)                                 Counterparts. This Agreement may be executed in several counterparts, each of whichwill be deemed to be an original, but all of which together will constitute oneand the same instrument.

 

 

Fargo and the Executivehave executed this Agreement as of the date first above written.

 

 
|   | **FARGO ELECTRONICS, INC.**                      |
|--------|--------------------------------------------------|
|   |
|   |
|   | By:                                              |   |
|   |
|   |
|   | Agreed to as of this 15th  day of December, 2003 |
|   |
|   |                                             |
|   | [Name of Executive]                              |

 

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