**EXHIBIT10.16**

 

**INCENTIVE STOCK OPTIONAGREEMENT**

 

**ZOMAX, INC.**

**2004 EQUITYINCENTIVE PLAN**

 

 

THIS AGREEMENT, made effectiveas of this ____ day of _____________, 20____, by and between Zomax, Inc., aMinnesota corporation (the “Company”), and _______________________________ (“Participant”).

 

W I T N E S S E T H:

 

                WHEREAS, Participant on the datehereof is a key employee or officer of the Company or one of its Subsidiaries;and

 

                WHEREAS, the Company wishes togrant an incentive stock option to Participant to purchase shares of theCompany’s Common Stock pursuant to the Company’s 2004 Equity Incentive Plan(the “Plan”); and

 

                WHEREAS, the Board of Directorshas authorized the grant of an incentive stock option to Participant and hasdetermined that, as of the effective date of this Agreement, the fair marketvalue of the Company’s Common Stock is $          per share;

 

                NOW, THEREFORE, in considerationof the premises and of the mutual covenants herein contained, the partieshereto agree as follows:

 

                1.             **Grant of Option**.  The Company hereby grants to Participant onthe date set forth above (the “Date of Grant”), the right and option (the “Option”)to purchase all or portions of an aggregate of                                                (                ) shares of Common Stock ata per share price of $             on the terms and conditions set forth herein,and subject to adjustment pursuant to Section 12 of the Plan.  This Option is intended to be an incentivestock option within the meaning of Section 422, or any successor provision, ofthe Internal Revenue Code of 1986, as amended (the “Code”), and the regulationsthereunder, to the extent permitted under Code Section 422(d).

 

                2.             **Duration andExercisability**.

 

                                a.             **General**.  The term during which this Option may beexercised shall terminate on the close of business on                             ,       ,****except asotherwise provided in Paragraphs 2(b) through 2(d) below.  This Option shall become exercisableaccording to the following schedule:

 

 

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| Vesting Date | Number of Shares |
|--------------|------------------|

 

 

 

 

 

 

Oncethe Option becomes exercisable to the extent of one hundred percent (100%) ofthe aggregate number of shares specified in Paragraph 1, Participant maycontinue to exercise this Option under the terms and conditions of thisAgreement until the termination of the Option as provided herein.  If Participant does not purchase upon anexercise of this Option the full number of shares which Participant is thenentitled to purchase, Participant may purchase upon any subsequent exerciseprior to this Option’s termination such previously unpurchased shares inaddition to those Participant is otherwise entitled to purchase.

 

                                b.             **Terminationof Employment (other than Disability or Death)**.  If Participant’s employment with the Companyor any Subsidiary is terminated for any reason other than disability or death,this Option shall completely terminate on the earlier of (i) the close ofbusiness on the **three-month anniversary date** ofsuch termination of employment, and (ii) the expiration date of thisOption stated in Paragraph 2(a) above. In such period following the termination of Participant’s employment,this Option shall be exercisable only to the extent the Option was exercisableon the vesting date immediately preceding such termination of employment, buthad not previously been exercised.  Tothe extent this Option was not exercisable upon such termination of employment,or if Participant  does not exercise theOption within the time specified in this Paragraph 2(b), all rights ofParticipant under this Option shall be forfeited.

 

                                c.             **Disability**.  If Participant’s employment terminatesbecause of disability (as defined in Code Section 22(e), or any successorprovision), this Option shall terminate on the earlier of (i) the close ofbusiness on the **twelve-month anniversary date** ofthe such termination of employment, and (ii) the expiration date of this Optionstated in Paragraph 2(a) above. In such period following the termination ofParticipant’s employment, this Option shall be exercisable only to the extentthe Option was exercisable on the vesting date immediately preceding suchtermination of employment, but had not previously been exercised.  To the extent this Option was not exercisableupon such termination of employment, or if Participant does not exercise theOption within the time specified in this Paragraph 2(c), all rights ofParticipant under this Option shall be forfeited.

 

                                d.             **Death**.  In the event of Participant’s death, thisOption shall terminate on the earlier of (i) the close of business on the **twelve-month anniversary date**of the date of Participant’sdeath, and (ii) the expiration date of this Option stated in Paragraph 2(a)above.  In such period followingParticipant’s death, this Option shall be exercisable by the person or personsto whom Participant’s rights under this Option shall have passed by Participant’swill or by the laws of descent and distribution only to the extent the Optionwas exercisable on the vesting date immediately preceding the date of Participant’sdeath. To the extent this Option was not exercisable

 

 

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uponthe date of Participant’s death, or if such person or persons do not exercisethis Option within the time specified in this Paragraph 2(d), all rights underthis Option shall be forfeited.

 

                3.               **Manner of Exercise**.

 

                                a.**             General**.  The Option may be exercised only byParticipant (or other proper party in the event of death or incapacity),subject to the conditions of the Plan and subject to such other administrativerules as the Board may deem advisable, by delivering within the Option Periodwritten notice of exercise to the Company at its principal office. The noticeshall state the number of shares as to which the Option is being exercised andshall be accompanied by payment in full of the Option price for all sharesdesignated in the notice.  The exerciseof the Option shall be deemed effective upon receipt of such notice by theCompany and upon payment that complies with the terms of the Plan and thisAgreement.  The Option may be exercisedwith respect to any number or all of the shares as to which it can then beexercised and, if partially exercised, may be so exercised as to theunexercised shares any number of times during the Option period as providedherein.

 

                                b.             **Form ofPayment**.  Subject toapproval by the Administrator, payment of the option price by Participant shallbe in the form of cash, personal check, certified check or previously acquiredshares of Common Stock of the Company, or any combination thereof.  Any stock so tendered as part of such paymentshall be valued at its Fair Market Value as provided in the Plan.  For purposes of this Agreement, “previouslyacquired shares of Common Stock” shall include shares of Common Stock that arealready owned by Participant at the time of exercise.

 

                                c.             **StockTransfer Records**.  As soonas practicable after the effective exercise of all or any part of the Option,Participant shall be recorded on the stock transfer books of the Company as theowner of the shares purchased, and the Company shall deliver to Participant oneor more duly issued stock certificates evidencing such ownership.  All requisite original issue or transferdocumentary stamp taxes shall be paid by the Company.

 

                4.             **Miscellaneous**.

 

                                a.             **Employment;Rights as Shareholder**. This Agreement shall not confer on Participant any right with respect tocontinuance of employment by the Company or any of its Subsidiaries, nor willit interfere in any way with the right of the Company to terminate suchemployment.  Participant shall have norights as a shareholder with respect to shares subject to this Option untilsuch shares have been issued to Participant upon exercise of this Option.  No adjustment shall be made for dividends(ordinary or extraordinary, whether in cash, securities or other property),distributions or other rights for which the record date is prior to the datesuch shares are issued, except as provided in Section 12 of the Plan.

 

                                b.             **SecuritiesLaw Compliance**.  Theexercise of all or any parts of this Option shall only be effective at suchtime as counsel to the Company shall have determined that the issuance anddelivery of Common Stock pursuant to such exercise will not violate any stateor federal securities or other laws. Participant may be required by the Company, as a condition of theeffectiveness of any exercise of this Option, to agree in writing that allCommon Stock to be acquired pursuant to such exercise shall be held, until suchtime that such Common Stock is 

 

 

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registeredand freely tradable under applicable state and federal securities laws, forParticipant’s own account without a view to any further distribution thereof,that the certificates for such shares shall bear an appropriate legend to thateffect and that such shares will be not transferred or disposed of except incompliance with applicable state and federal securities laws.

 

                                c.             **Mergers,Recapitalizations, Stock Splits, Etc.**  Pursuant and subject to Section 12 of thePlan, certain changes in the number or character of the Common Stock of theCompany (through sale, merger, consolidation, exchange, reorganization,divestiture (including a spin-off), liquidation, recapitalization, stock split,stock dividend or otherwise) shall result in an adjustment, reduction orenlargement, as appropriate, in Participant’s rights with respect to anyunexercised portion of the Option (i.e., Participant shall have such “anti-dilution”rights under the Option with respect to such events, but shall not have “preemptive”rights).

 

                                d.             **SharesReserved**.  The Companyshall at all times during the option period reserve and keep available suchnumber of shares as will be sufficient to satisfy the requirements of thisAgreement.

 

                                e.             **WithholdingTaxes on Disqualifying Disposition**.  In the event of a

disqualifyingdisposition of the shares acquired through the exercise of this Option,Participant hereby agrees to inform the Company of such disposition.  Upon notice of a disqualifying disposition,the Company may take such action as it deems appropriate to insure that, ifnecessary to comply with all applicable federal or state income tax laws orregulations, all applicable federal and state payroll, income or other taxesare withheld from any amounts payable by the Company to Participant.  If the Company is unable to withhold suchfederal and state taxes, for whatever reason, Participant hereby agrees to payto the Company an amount equal to the amount the Company would otherwise berequired to withhold under federal or state law.  Participant may, subject to the approval anddiscretion of the Board or such administrative rules it may deem advisable,elect to have all or a portion of such tax withholding obligations satisfied bydelivering shares of the Company’s Common Stock or by electing to have theCompany withhold sharesof Common Stock otherwise issuable to Participant.  Such shares shall have a Fair Market Valueequal to 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 disqualifyingdisposition of the shares acquired through the exercise of this Option.  In no event may the Company withhold shareshaving a Fair Market Value in excess of such statutory minimum required taxwithholding.

 

                                f.              **Nontransferability**.  During the lifetime of Participant, theaccrued Option shall be exercisable only by Participant or by the Participant’sguardian or other legal representative, and shall not be assignable ortransferable by Participant, in whole or in part, other than by will or by thelaws of descent and distribution.

 

                                g.             **2004Equity Incentive Plan**. The Option evidenced by this Agreement is granted pursuant to the Plan,a copy of which Plan has been made available to Participant and is herebyincorporated into this Agreement.  ThisAgreement is subject to and in all respects limited and conditioned as providedin the Plan.  The Plan governs thisOption and, in the  event of any

 

 

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questionsas to the construction of this Agreement or in the event of a conflict betweenthe Plan and this Agreement, the Plan shall govern, except as the Planotherwise provides.

 

                                h.             **LockupPeriod Limitation**. Participant agrees that in the event the Company advises Participantthat it plans an underwritten public offering of its Common Stock in compliancewith the Securities Act of 1933, as amended, and that the underwriter(s) seekto impose restrictions under which certain shareholders may not sell orcontract to sell or grant any option to buy or otherwise dispose of part or allof their stock purchase rights of the underlying Common Stock, Participanthereby agrees that for a period not to exceed 180 days from the prospectus,Participant will not sell or contract to sell or grant an option to buy orotherwise dispose of this option or any of the underlying shares of Common Stockwithout the prior written consent of the underwriter(s) or itsrepresentative(s).

 

                                i.              **Blue SkyLimitation**. Notwithstanding anything in this Agreement to the contrary, in the eventthe Company makes any public offering of its securities and determines in itssole discretion that it is necessary to reduce the number of issued butunexercised stock purchase rights so as to comply with any state securities orBlue Sky law limitations with respect thereto, the Board of Directors of theCompany shall have the right (i) to accelerate the exercisability of thisOption and the date on which this Option must be exercised, provided that theCompany gives Participant 15 days’ prior written notice of such acceleration,and (ii) to cancel any portion of this Option or any other option granted toParticipant pursuant to the Plan which is not exercised prior to orcontemporaneously with such public offering. Notice shall be deemed given when delivered personally or when depositedin the United States mail, first class postage prepaid and addressed toParticipant at the address of Participant on file with the Company.

 

                                j.              **AccountingCompliance**.  Participantagrees that, if a merger, reorganization, liquidation or other “transaction” asdefined in Section 12 of the Plan occurs and Participant is an “affiliate” ofthe Company or any Subsidiary (as defined in applicable legal and accountingprinciples) at the time of such transaction, Participant will comply with allrequirements of Rule 145 of the Securities Act of 1933, as amended, and therequirements of such other legal or accounting principles, and will execute anydocuments necessary to ensure such compliance.

 

                                k.             **StockLegend**.  The Board mayrequire that the certificates for any shares of Common Stock purchased byParticipant (or, in the case of death, Participant’s successors) shall bear anappropriate legend to reflect the restrictions of Paragraph 4(b) and Paragraphs4(h) through 4(j) of this Agreement.

 

                                l.              **BindingAgreement**.  This Agreementshall bind and inure to the benefit of the Company and its successors andassigns and Participant and any successor or successors of Participantpermitted by Paragraph 2 or Paragraph 4(f) above.  This Option is expressly subject to all termsand conditions contained in the Plan and in this Agreement, and Participant’sfailure to execute this Agreement shall not relieve Participant from complyingwith such terms and conditions.

 

                                m.            **Arbitration**.  Any dispute arising out of or relating tothis Agreement or the alleged breach of it, or the making of this Agreement,including claims of fraud in the inducement, 

 

 

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shallbe discussed between the disputing parties in a good faith effort to arrive ata mutual settlement of any such controversy. If, notwithstanding, such dispute cannot be resolved, such dispute shallbe settled by binding arbitration. Judgment upon the award rendered by the arbitrator may be entered in anycourt having jurisdiction thereof.  Thearbitrator shall be a retired state or federal judge or an attorney who haspracticed securities or business litigation for at least 10 years.  If the parties cannot agree on an arbitratorwithin 20 days, any party may request that the chief judge of the DistrictCourt for Hennepin County, Minnesota, select an arbitrator.  Arbitration will be conducted pursuant to theprovisions of this Agreement, and the commercial arbitration rules of theAmerican Arbitration Association, unless such rules are inconsistent with theprovisions of this Agreement.  Limitedcivil discovery shall be permitted for the production of documents and takingof depositions.  Unresolved discoverydisputes may be brought to the attention of the arbitrator who may dispose ofsuch dispute.  The arbitrator shall havethe authority to award any remedy or relief that a court of this state couldorder or grant; provided, however, that punitive or exemplary damages shall notbe awarded.  The arbitrator may award tothe prevailing party, if any, as determined by the arbitrator, all of its costsand fees, including the arbitrator’s fees, administrative fees, travelexpenses, out-of-pocket expenses and reasonable attorneys’ fees.  Unless otherwiseagreed by the parties, the place of any arbitration proceedings shall beHennepin County, Minnesota.

 

 

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**NONQUALIFIED STOCK OPTIONAGREEMENT**

 

**ZOMAX,INC.**

**2004EQUITY INCENTIVE PLAN**

 

 

                THISAGREEMENT, made effective as of this        day of ___________, 20__, by and between Zomax,Inc., a Minnesota corporation (the “Company”), and ______________ (“Participant”).

 

 

W I T N E S S E T H:

 

                WHEREAS, Participant on the datehereof is a key employee, officer, consultant or outside director of theCompany or one of its Subsidiaries; and

 

                WHEREAS, the Company wishes togrant a nonqualified stock option to Participant to purchase shares of theCompany’s Common Stock pursuant to the Company’s 2004 Equity Incentive Plan(the “Plan”); and

 

                WHEREAS, the Board of Directorshas authorized the grant of a nonqualified stock option to Participant and hasdetermined that, as of the effective date of this Agreement, the fair marketvalue of the Company’s Common Stock is $____ per share;

 

                NOW, THEREFORE, in considerationof the premises and of the mutual covenants herein contained, the partieshereto agree as follows:

 

                1.             **Grant of Option**.  The Company hereby grants to Participant onthe date set forth above (the “Date of Grant”), the right and option (the “Option”)to purchase all or portions of an aggregate of ____________(__________) sharesof Common Stock at a per share price of $_____ on the terms and conditions setforth herein, and subject to adjustment pursuant to Section 12 of thePlan.  This Option is a nonqualifiedstock option and will not be treated as an incentive stock option, as definedunder Section 422, or any successor provision, of the Internal Revenue Code of1986, as amended (the “Code”), and the regulations thereunder.

 

                2.             **Duration andExercisability**.

 

                                a.             **General**.  The term during which this Option may beexercised shall terminate on the close of business on                             ,       ,****except asotherwise provided in Paragraphs 2(b) through 2(d) below.  This Option shall become exercisableaccording to the following schedule:

 

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| Vesting Date | Number/Percentage of Shares |
|--------------|-----------------------------|

 

 

 

 

 

 

Oncethe Option becomes fully exercisable, Participant may continue to exercise thisOption under the terms and conditions of this Agreement until the terminationof the Option as provided herein.  IfParticipant does not purchase upon an exercise of this Option the full numberof shares which Participant is then entitled to purchase, Participant maypurchase upon any subsequent exercise prior to this Option’s termination suchpreviously unpurchased shares in addition to those Participant is otherwiseentitled to purchase.

 

                                b.             **Terminationof Relationship (other than Disability or Death)**.  If Participant ceases to be [an employee] [anoutside director] [a consultant] of the Company or any Subsidiary for anyreason other than disability or death, this Option shall completely terminateon the earlier of (i) the close of business on the **three-monthanniversary date** of the termination of such relationship, and(ii) the expiration date of this Option stated in Paragraph 2(a)above.  In such period following suchtermination, this Option shall be exercisable only to the extent the Option wasexercisable on the vesting date immediately preceding the date on which Participant’srelationship with the Company or Subsidiary has terminated, but had notpreviously been exercised.  To the extentthis Option was not exercisable upon the termination of such relationship, orif Participant does not exercise the Option within the time specified in thisParagraph 2(b), all rights of Participant under this Option shall be forfeited.

 

                                c.             **Disability**.  If Participant ceases to be [an employee] [anoutside director] [a consultant] of the Company or any Subsidiary because ofdisability (as defined in Code Section 22(e), or any successor provision), thisOption shall completely terminate on the earlier of (i) the close of businesson the **twelve-month anniversary date** of thetermination of all such relationships, and (ii) the expiration date ofthis Option stated in Paragraph 2(a) above. In such period following such termination, this Option shall beexercisable only to the extent the Option was exercisable on the vesting dateimmediately preceding the date on which all of Participant’s relationships withthe Company or Subsidiary have terminated, but had not previously beenexercised.  To the extent this Option wasnot exercisable upon the termination of such relationship, or if Participantdoes not exercise the Option within the time specified in this Paragraph 2(c),all rights of Participant under this Option shall be forfeited.

 

                                d.             **Death**.  In the event of Participant’s death, thisOption shall terminate on the earlier of (i) the close of business on the **twelve-month anniversary date** of the date of Participant’sdeath, and (ii) the expiration date of this Option stated in Paragraph 2(a)above.  In such period followingParticipant’s death, this Option may be exercised by the person or persons towhom Participant’s  rights under thisOption shall have passed by Participant’s will or by the laws of descent anddistribution only to the extent the Option was exercisable on the vesting dateimmediately preceding the date of Participant’s death.  To the extent this Option was not exercisable

 

 

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uponthe date of Participant’s death, or if such person or persons fail to exercisethis Option within the time specified in this Paragraph 2(d), all rights underthis Option shall be forfeited.

 

                3.               **Manner of Exercise**.

 

                                a.**             General**.  The Option may be exercised only byParticipant (or other proper party in the event of death or incapacity),subject to the conditions of the Plan and subject to such other administrativerules as the Board may deem advisable, by delivering within the option periodwritten notice of exercise to the Company at its principal office.  The notice shall state the number of sharesas to which the Option is being exercised and shall be accompanied by paymentin full of the option price for all shares designated in the notice.  The exercise of the Option shall be deemedeffective upon receipt of such notice by the Company and upon payment thatcomplies with the terms of the Plan and this Agreement.  The Option may be exercised with respect toany number or all of the shares as to which it can then be exercised and, ifpartially exercised, may be exercised as to the unexercised shares any numberof times during the option period as provided herein.

 

                                b.             **Form ofPayment**.  Subject to theapproval of the Administrator, payment of the option price by Participant shallbe in the form of cash, personal check, certified check or previously acquiredshares of Common Stock of the Company, or any combination thereof.  Any stock so tendered as part of such paymentshall be valued at its Fair Market Value as provided in the Plan.  For purposes of this Agreement, “previouslyacquired shares of Common Stock” shall include shares of Common Stock that arealready owned by Participant at the time of exercise.

 

                                c.             **StockTransfer Records**.  As soonas practicable after the effective exercise of all or any part of the Option,Participant shall be recorded on the stock transfer books of the Company as theowner of the shares purchased, and the Company shall deliver to Participant oneor more duly issued stock certificates evidencing such ownership.  All requisite original issue or transferdocumentary stamp taxes shall be paid by the Company.

 

                4.             **Miscellaneous**.

 

                                a.             **Rights asShareholder**.  ThisAgreement shall not confer on Participant any right with respect to thecontinuance of any relationship with the Company or any of its Subsidiaries,nor will it interfere in any way with the right of the Company to terminate anysuch relationship.  Participant shallhave no rights as a shareholder with respect to shares subject to this Optionuntil such shares have been issued to Participant upon exercise of thisOption.  No adjustment shall be made fordividends (ordinary or extraordinary, whether in cash, securities or otherproperty), distributions or other rights for which the record date is prior tothe date such shares are issued, except as provided in Section 12 of the Plan.

 

                                b.             **SecuritiesLaw Compliance**.  Theexercise of all or any parts of this Option shall only be effective at suchtime as counsel to the Company shall have determined that the issuance anddelivery of Common Stock pursuant to such exercise will not violate any stateor federal securities or other laws. Participant may be required by the Company, as a condition of theeffectiveness of any exercise of this Option, to agree in writing that allCommon Stock to be acquired pursuant to such exercise shall be held, until suchtime that such Common Stock is 

 

 

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registeredand freely tradable under applicable state and federal securities laws, forParticipant’s own account without a view to any further distribution thereofand that such shares will be not transferred or disposed of except incompliance with applicable state and federal securities laws.

 

                                c.             **Mergers,Recapitalizations, Stock Splits, Etc.**  Pursuant and subject to Section 12 of thePlan, certain changes in the number or character of the Common Stock of theCompany (through sale, merger, consolidation, exchange, reorganization,divestiture (including a spin-off), liquidation, recapitalization, stock split,stock dividend or otherwise) shall result in an adjustment, reduction orenlargement, as appropriate, in Participant’s rights with respect to anyunexercised portion of the Option (i.e., Participant shall have such “anti-dilution”rights under the Option with respect to such events, but shall not have “preemptive”rights).

 

                                d.             **SharesReserved**.  The Companyshall at all times during the option period reserve and keep available suchnumber of shares as will be sufficient to satisfy the requirements of thisAgreement.

 

                                e.**             Withholding****Taxes**.  In order to permit the Company to comply withall applicable federal or state income tax laws or regulations, the Company maytake such action as it deems appropriate to insure that, if necessary, allapplicable federal or state payroll, income or other taxes are withheld fromany amounts payable by the Company to Participant.  If the Company is unable to withhold suchfederal and state taxes, for whatever reason, Participant hereby agrees to payto the Company an amount equal to the amount the Company would otherwise berequired to withhold under federal or state law.  Participant may, subject to the approval anddiscretion of the Board or such administrative rules it may deem advisable,elect to have all or a portion of such tax withholding obligations satisfied bydelivering shares of the Company’s Common Stock or by electing to have theCompany withhold sharesof Common Stock otherwise issuable to Participant.  Such shares shall have a Fair Market Valueequal to 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 exercise ofthis Option.  In no event may the Companywithhold shares having a Fair Market Value in excess of such statutory minimumrequired tax withholding.

 

                                f.              **Nontransferability**.  During the lifetime of Participant, theaccrued Option shall be exercisable only by Participant or by the Participant’sguardian or other legal representative, and shall not be assignable ortransferable by Participant, in whole or in part, other than by will or by thelaws of descent and distribution.

 

                                g.             **2004Equity Incentive Plan**. The Option evidenced by this Agreement is granted pursuant to the Plan,a copy of which Plan has been made available to Participant and is herebyincorporated into this Agreement.  ThisAgreement is subject to and in all respects limited and conditioned as providedin the Plan. Alldefined terms of the Plan shall have the same meaning when used in thisAgreement.  The Plan governs this Option and, in the event of any questions as tothe construction of this Agreement or in the event of a conflict between thePlan and this Agreement, the Plan shall govern, except as the Plan otherwiseprovides.

 

 

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                                h.             **LockupPeriod Limitation**. Participant agrees that in the event the Company advises Participantthat it plans an underwritten public offering of its Common Stock in compliancewith the Securities Act of 1933, as amended, and that the underwriter(s) seekto impose restrictions under which certain shareholders may not sell orcontract to sell or grant any option to buy or otherwise dispose of part or allof their stock purchase rights of the underlying Common Stock, Participanthereby agrees that for a period not to exceed 180 days from the prospectus,Participant will not sell or contract to sell or grant an option to buy orotherwise dispose of this option or any of the underlying shares of CommonStock without the prior written consent of the underwriter(s) or itsrepresentative(s).

 

                                i.              **Blue SkyLimitation**.  Notwithstandinganything in this Agreement to the contrary, in the event the Company makes anypublic offering of its securities and determines in its sole discretion that itis necessary to reduce the number of issued but unexercised stock purchaserights so as to comply with any state securities or Blue Sky law limitationswith respect thereto, the Board of Directors of the Company shall have theright (i) to accelerate the exercisability of this Option and the date on whichthis Option must be exercised, provided that the Company gives Participant 15days’ prior written notice of such acceleration, and (ii) to cancel any portionof this Option or any other option granted to Participant pursuant to the Planwhich is not exercised prior to or contemporaneously with such publicoffering.  Notice shall be deemed givenwhen delivered personally or when deposited in the United States mail, firstclass postage prepaid and addressed to Participant at the address ofParticipant on file with the Company.

 

                                j.              **AccountingCompliance**.  Participantagrees that, if a merger, reorganization, liquidation or other “transaction” asdefined in Section 12 of the Plan occurs and Participant is an “affiliate” ofthe Company or any Subsidiary (as defined in applicable legal and accountingprinciples) at the time of such transaction, Participant will comply with allrequirements of Rule 145 of the Securities Act of 1933, as amended, and therequirements of such other legal or accounting principles, and will execute anydocuments necessary to ensure such compliance.

 

                                k.             **StockLegend**.  The Board mayrequire that the certificates for any shares of Common Stock purchased byParticipant (or, in the case of death, Participant’s successors) shall bear anappropriate legend to reflect the restrictions of Paragraph 4(b) and Paragraphs4(h) through 4(j) of this Agreement.

 

                                l.              **BindingAgreement**.  This Agreementshall bind and inure to the benefit of the Company and its successors andassigns and Participant and any successor or successors of Participantpermitted by Paragraph 2 or Paragraph 4(f) above.  This Option is expressly subject to all termsand conditions contained in the Plan and in this Agreement, and Participant’sfailure to execute this Agreement shall not relieve Participant from complyingwith such terms and conditions

 

                                m.            **Arbitration**.  Any dispute arising out of or relating tothis Agreement or the alleged breach of it, or the making of this Agreement,including claims of fraud in the inducement, shall be discussed between the disputingparties in a good faith effort to arrive at a mutual settlement of any suchcontroversy.  If, notwithstanding, suchdispute cannot be resolved, such dispute shall be settled by bindingarbitration.  Judgment upon the awardrendered by the arbitrator may be entered in any court having jurisdictionthereof.  The arbitrator shall be aretired state or federal judge or an

 

 

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attorneywho has practiced securities or business litigation for at least 10 years.  If the parties cannot agree on an arbitratorwithin 20 days, any party may request that the chief judge of the DistrictCourt for Hennepin County, Minnesota, select an arbitrator.  Arbitration will be conducted pursuant to theprovisions of this Agreement, and the commercial arbitration rules of theAmerican Arbitration Association, unless such rules are inconsistent with theprovisions of this Agreement.  Limitedcivil discovery shall be permitted for the production of documents and takingof depositions.  Unresolved discoverydisputes may be brought to the attention of the arbitrator who may dispose ofsuch dispute.  The arbitrator shall havethe authority to award any remedy or relief that a court of this state couldorder or grant; provided, however, that punitive or exemplary damages shall notbe awarded.  The arbitrator may award tothe prevailing party, if any, as determined by the arbitrator, all of its costsand fees, including the arbitrator’s fees, administrative fees, travelexpenses, out-of-pocket expenses and reasonable attorneys’ fees.  Unless otherwiseagreed by the parties, the place of any arbitration proceedings shall beHennepin County, Minnesota.

 

 

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