EXHIBIT
10.3


 


WINMARK
CORPORATION


 


STOCK
OPTION PLAN


FOR
NONEMPLOYEE DIRECTORS


(As
Amended and Restated Through February 26, 2009)


 


1.            Purpose.  This Stock Option Plan (“Plan”) for Winmark
Corporation, a Minnesota corporation (“Company”), is intended (a) to
advance the interests of the Company by providing nonemployee members of the
Board of Directors with additional incentive to promote the success of the
Company’s business; (b) to increase the proprietary interest of the
nonemployee directors in the success of the Company; and (c) to attract,
reward, and retain highly qualified individuals as nonemployee directors of the
Company.


 


2.            Definitions.  In addition to definitions that may be
contained elsewhere herein, for purposes of this Plan and option agreements
entered into pursuant hereto, the following terms are defined as follows:


 


(a)           “Affiliate”
shall mean a Parent or Subsidiary of the Company.


 


(b)           “Board” means the Board of Directors
of the Company.


 


(c)           “Code” means the Internal Revenue
Code of 1986, as amended from time to time, and any successor thereto.


 


(d)           “Committee” means the Committee
referred to in Section 3 of the Plan.


 


(e)           “Disability” means disability as
determined under procedures established by the Committee for purposes of this
Plan or as defined in Section 22(e)(3) of the Code.


 


(f)            “Exchange Act” means the Securities
Exchange Act of 1934, as amended from time to time.


 


(g)           “Fair Market Value”
as of any date shall mean (i) if such stock is listed on the Nasdaq
National Market, Nasdaq SmallCap Market, or an established stock exchange, the
price of such stock at the close of the regular trading session of such market
or exchange on such date, as reported by The Wall Street Journal or a
comparable reporting service, or, if no sale of such stock shall have occurred
on such date, on the next preceding day on which there was a sale of stock; (ii) if
such stock is not so listed on the Nasdaq National Market, Nasdaq SmallCap
Market, or an established stock exchange, the average of the closing “bid” and “asked”
prices quoted by the OTC Bulletin Board, the National Quotation Bureau, or any
comparable reporting service on such date or, if there are no quoted “bid” and “asked”
prices on such date, on the next preceding date for which there are such quotes;
or (iii) if such stock is not publicly traded as of such date, the per
share value as determined by the Board, or the Committee, in its sole
discretion, pursuant to the Company’s By-Laws.


 


(h)           “Option” or “Stock
Option” means a nonqualified stock option granted pursuant to Section 5
below.


 

















 


(i)            “Option Agreement” means any written
agreement, contract, or other instrument or document evidencing any Option
granted hereunder and signed by both the Company and the Participant.


 


(j)            “Parent” shall mean
any corporation which owns, directly or indirectly in an unbroken chain, fifty
percent (50%) or more of the total voting power of the Company’s outstanding
stock.


 


(k)           “Participant” means any person
entitled to participate in this Plan as set forth in Section 4 hereof.


 


(l)            The “Plan” means
the Winmark Corporation Stock Option Plan for Nonemployee Directors, as amended
hereafter from time to time, including the form of Option Agreement as modified
by the Committee from time to time.


 


(m)          “Stock” means the Common Stock, no par
value per share, of the Company.


 


(n)           A “Subsidiary” shall
mean any corporation of which fifty percent (50%) or more of the total voting
power of outstanding stock is owned, directly or indirectly in an unbroken
chain, by the Company.


 


(o)           “Subsidiary Board”
shall mean the board of directors of any Subsidiary of the Company.


 


3.            Administration.  The Plan will be administered by the Company’s
Compensation Committee or similar body of independent directors (“Committee”).   Stock Options under the Plan will be granted
pursuant to Section 5.  The
Committee will have full authority to interpret the Plan, to promulgate such rules and
regulations with respect to the Plan as it deems desirable, and to make all
other determinations necessary or appropriate for the administration of the
Plan.  Such determinations will be final
and binding upon all persons having an interest in the Plan.


 


4.            Eligibility.  Options will be granted only to persons who
at the time of the grant are members of the Board and who are not otherwise
employees of the Company or any Affiliate of the Company (“Nonemployee Director”
or “Nonemployee Directors”).


 


5.            Options.


 


(a)           Initial and
Annual Grants.


 


(i)            Pursuant to this Plan, each person
elected to serve as a Nonemployee Director of the Board will be granted an
Option to purchase Twenty-Five Thousand (25,000) shares of Stock (the “Initial
Option”).  Except as otherwise provided
herein, each such Initial Option:  (i) will
be granted to the Participant by the Board at the meeting coinciding with or
immediately following the Participant’s election; (ii) will be subject to
all terms of this Plan; and (iii) will vest and become exercisable in four
equal annual increments, beginning on the first anniversary of the date of the
grant of the Initial Option; provided, in each instance, that the Participant
has continuously served as a Nonemployee Director until such date, and if not,
such Initial Option or any nonvested portion thereof will be forfeited in its
entirety.  Each such vested Initial
Option will remain exercisable for a term ending on the earlier of the date
that is nine years from the date of vesting of the first increment or that is
thirty days following the last day on which the Participant served as a
Nonemployee Director.


 

















 


(ii)           Each Participant may be
entitled to additional grants of options to purchase shares of Stock during
each year, in an amount and number of awards determined by the Committee (each
an “Additional Option”).  Except as
otherwise provided herein, each Additional Option: (i) will be granted to
the Participant by the Committee at a meeting or pursuant to a written action
regarding director and employee compensation, or at such other time as the
Committee deems advisable; (ii) will be subject to all terms of this Plan;
and (iii) will vest and become exercisable in four equal annual
increments, beginning on the first anniversary of the date of the grant of the
Additional Option; provided, in each instance, that the Participant has
continuously served as a Nonemployee Director until such date, and if not, such
Additional Option or any nonvested portion thereof will be forfeited in its
entirety.  Each such vested Additional
Option will remain exercisable for a term ending on the earlier of the date
that is nine years from the date of vesting of the first increment or that is
thirty days following the last day on which the Participant served as a
Nonemployee Director.


 


(b)          Exercise Price.  The exercise price per share of Stock
purchasable under an Option granted pursuant to Section 5(a) will be
the Fair Market Value on the day the Option is granted to the Participant.


 


(c)           Method of
Exercise.  Stock Options may be
exercised in whole or in part at any time during the term of the Option, as
described in Section 5(a).  Payment
of the exercise price will be made by (i) cash or certified bank check, (ii) delivery
of shares of Stock already owned by the Participant, or (iii) any
combination of the foregoing.  For
purposes of this paragraph, shares of Stock that are delivered in payment of
the exercise price will be valued at their Fair Market Value as of the date of
the exercise of the Option.


 


(d)          Withholding.  The Company’s obligation to deliver shares
upon the exercise of Options will be subject to applicable federal, state, and
local tax withholding requirements. 
Unless otherwise determined by the Committee, the Participant may
satisfy such obligation, in whole or in part, by electing to have the Company
or its Affiliate withhold shares of Stock otherwise issuable to the Participant
as a result of the exercise of the Stock Option, or by electing to deliver to
the Company already-owned shares of Stock, in either case having a Fair Market
Value equal to the minimum required tax withholding, based on the minimum statutory
withholding rates for federal and state tax purposes, including payroll taxes,
that are applicable to the supplemental income resulting from such
exercise.  In no event may the Company or
its Affiliate withhold shares having a Fair Market Value in excess of such
statutory minimum required tax withholding. 
The Participant’s election to have shares withheld or to deliver
already-owned shares of Common Stock for this purpose shall be made on or
before the date the Stock Option is exercised or, if later, the date that the
amount of tax to be withheld is determined under applicable tax law.  Such election shall be approved by the
Committee and otherwise comply with such rules as the Committee may adopt
to assure compliance with Rule 16b-3, or any successor provision, as then
in effect, of the General Rules and Regulations under the Securities
Exchange Act of 1934, if applicable.


 

















 


(e)           Restrictions on
Transfer of Option.  Each Option
granted under this Plan will be transferable only by will or the laws of descent
and distribution or pursuant to a qualified domestic relations order as defined
by the Code or Title I of the Employee Retirement Income Security Act (“ERISA”),
or the rules thereunder.  Except as
permitted by the preceding sentence, no Option granted under the Plan or any of
the rights and privileges thereby conferred will be transferred, assigned,
pledged, or hypothecated in any way (whether by operation of law or otherwise),
and no such option, right, or privilege will be subject to execution, attachment,
or similar process.  An Option may be
exercised during the Participant’s lifetime only by the Participant or his or
her guardian or legal representative.


 


6.            Shares of Stock Subject to the
Plan.


 


(a)           General.  There will be reserved and available for
issuance upon the exercise of Options granted from time to time under the Plan
an aggregate of Three Hundred Thousand (300,000) shares of the Stock.  Such shares may consist, in whole or in part,
of authorized but unissued shares of Stock or issued shares that have been
reacquired by the Company.  If any shares
subject to an Option are not issued because the Option is not exercised, such
shares will again be available for distribution in connection with future options.


 


(b)          Adjustments for
Recapitalizations.  In the event of
any merger, reorganization, consolidation, recapitalization, stock dividend,
stock split, or other change in corporate structure affecting the Stock, such
substitution or adjustment will be made in the number and option price of
shares purchasable pursuant to Section 5(a), in the aggregate number of
shares reserved for issuance under the Plan under this Section 6, and in
the number and option price of shares subject to outstanding Options granted
under the Plan as may be determined to be appropriate by the Board to prevent
dilution or enlargement of Option rights granted hereunder, provided that the
number of shares subject to any Option will always be a whole number.


 


7.            Death or Disability of
Participant.


 


(a)           Termination by
Death.  If a Participant’s service on
the Board or any Subsidiary Board terminates by reason of death, any Stock
Option held by such Participant may thereafter be exercised by the legal
representative of the Participant’s estate or by any person who acquired the
Option by will or the laws of descent and distribution for a period of one year
from the date of such death or until the expiration of the stated term of such
Stock Option, whichever period is the shorter. 
The Option shall be exercisable only to the extent that such Option was
exercisable as of the date of death.


 


(b)          Termination by
Reason of Disability.  If a
Participant’s service on the Board or any Subsidiary Board terminates by reason
of Disability, the Participant may exercise such portion of the Option as was
exercisable at the date of termination until the expiration of the stated term
of such Stock Option; provided, however, that, if the Participant dies prior to
the expiration of the Option, any unexercised Stock Option held by such
Participant will thereafter be exercisable to the extent to which it was
exercisable at the time of death for a period of one year from the date of
death or until the expiration of the stated term of such Stock Option,
whichever period is the shorter.


 

















 


8.            Restrictions on Transfer of Stock.  Unless a registration statement under the
Securities Act of 1933 and applicable state securities laws is in effect with
respect to Stock to be purchased upon exercise of options to be granted under
the Plan, the Company may require that the Participant represent to and agree
with the Company in writing that he or she is acquiring such shares of Stock
for the purpose of investment and with no present intention to transfer, sell,
or otherwise dispose of such shares of Stock. 
Further, in the absence of such registration, no shares of Stock
acquired pursuant to exercise at an Option may be transferred unless, in the
opinion of counsel to the Company, such transfer is in compliance with
applicable securities laws, and each certificate representing any shares of
Stock issued to a Participant hereunder will have endorsed thereon an
appropriate legend referring to the restrictions against transfer.  As a further condition to the issuance of
Stock to Participant, Participant agrees to the following:


 


(a)           Lock-Up Period
Limitation.  In the event the Company
advises Participant that it plans an underwritten public offering of its Stock
in compliance with the Securities Act of 1933, as amended, and the underwriter(s) seek
to impose restrictions under which certain shareholders may not sell or
contract to sell or grant any option to buy or otherwise dispose of part or all
of their rights to the Stock underlying Options, Participant will not, for a
period not to exceed 180 days from the prospectus, sell or contract to sell or
grant an option to buy or otherwise dispose of any Option granted to
Participant pursuant to the Plan or any of the underlying shares of Stock
without the prior written consent of the underwriter(s) or its
representative(s).


 


(b)          Blue-Sky
Limitation.  In the event the Company
makes any public offering of its securities and determines in its sole
discretion that it is necessary to reduce the number of issued but unexercised
Options so as to comply with any state’s securities or Blue Sky law limitations
with respect thereto, the Board shall have the right (i) to accelerate the
exercisability of any Option and the date on which such Option must be
exercised, provided that the Company gives Participant prior written notice of
such acceleration, and (ii) to cancel any Options or portions thereof
which Participant does not exercise prior to or contemporaneously with such
public offering.


 


(c)           Accounting
Compliance.  In the event of an
acquisition of the Company through the sale of substantially all of the Company’s
assets and the consequent discontinuance of its business or through a merger,
consolidation, exchange, reorganization, reclassification, extraordinary
dividend, divestiture or liquidation of the Company (collectively referred to
as a “transaction”), Participant will comply with Rule 145 of the
Securities Act of 1933 and any other restrictions imposed under other
applicable legal or accounting principles if Participant is an “affiliate” (as
defined in such applicable legal and accounting principles) at the time of the
transaction, and Participant will execute any documents necessary to ensure
compliance with such rules.


 


The Company reserves the
right to place a legend on any stock certificate issued upon the exercise of an
Award pursuant to the Plan to assure compliance with this Section 8.


 


9.            Amendment of the Plan.  The Board may suspend or terminate the Plan
or any portion thereof at any time. 
Further, either the Board or the Committee may amend the Plan from time
to time as may be deemed to be in the best interests of the Company and its
Affiliates; provided, however, that no such amendment, alteration, or
discontinuation will be made (a) that would impair the rights of a
Nonemployee Director with respect to Options theretofore awarded, without such
person’s consent, or (b) without the approval of the shareholders if such
approval is necessary to comply with any legal, tax, or regulatory requirement,
including any approval requirement that is a prerequisite for exemptive relief
from Section 16(b) of the Exchange Act.


 

















 


10.          Applicability of Plan to
Outstanding Stock Options.  This Plan
will not affect the terms and conditions of any Stock Options currently
outstanding to any Nonemployee Director of the Company, nor will it affect any
of the rights of any Nonemployee Director to whom such a Stock Option was
granted.


 


11.          Effective Date of Plan.  This Plan was originally effective September 24,
1993.  The restated Plan will become
effective upon the date of its adoption by the Board, subject to approval of
the shareholders of the Company at the next shareholders’ meeting.


 


12.          Change in Control Provisions.


 


(a)           Impact of Event.  All options granted hereunder will become
fully exercisable and vested in the event of a “Change in Control” as defined
in Section 12(b) or a “Potential Change in Control” as defined in Section 12(c).


 


(b)          Definition of “Change
in Control.”  For purposes of Section 12(a),
a “Change In Control” means the happening of any of the following:


 


(i)            When any “person” as defined in Section 3(a)(9) of
the Exchange Act and as used in Sections 13(d) and 14(d) thereof,
including a “group” as defined in Section 13(d) of the Exchange Act,
but excluding the Company or any subsidiary or parent or any employee benefit
plan sponsored or maintained by the Company or any subsidiary or parent
(including any trustee of such plan acting as trustee), directly or indirectly,
becomes the “Beneficial Owner” (as defined in Rule 13d-3 under the
Exchange Act, as amended from time to time), of securities of the Company
representing 20 percent or more of the combined voting power of the Company’s
then outstanding securities;


 


(ii)           When, during any period of 24
consecutive months during the existence of the Plan, the individuals who, at
the beginning of such period, constitute the Board (“Incumbent Directors”)
cease for any reason other than death to constitute at least a majority
thereof; provided, however, that a director who was not a director at the
beginning of such 24-month period will be deemed to have satisfied such
24-month requirement (and be deemed an Incumbent Director) if such director was
elected by, or on the recommendation or, or with the approval of, at least 60%
of the directors who then qualified as Incumbent Directors either actually
(because they were directors at the beginning of such 24-month period) or by
prior operation of this Section 12(b)(ii); or


 


(iii)          The approval by the shareholders of an
acquisition of the Company by an entity other than the Company or a subsidiary
or parent through purchase of assets, or by merger, or otherwise.


 


(c)           Definition of “Potential
Change in Control.”  For purposes of Section 12(a),
a “Potential Change in Control” means the approval by the Board of an agreement
by the Company the consummation of which would result in a Change in Control of
the Company as defined in Section 12(b).


 

















 


13.          Nonexclusivity of the Plan.  The adoption of this Plan will not be
construed as limiting the power of the Board to adopt such other incentive
arrangements as it may deem desirable, including the granting of stock options
otherwise than under this Plan.  Such
arrangements may be either generally applicable or applicable only in specific
cases.


 


14.          Miscellaneous.


 


(a)           Governing Law.  This Plan will be governed by and construed
in accordance with the laws of the State of Minnesota, and all terms will be
interpreted and construed so that there will not be committed any violation of
applicable state or federal securities laws.


 


(b)          No Additional
Rights of Service.  Participation in
or eligibility for participation in the Plan does not grant any person any
right of service as a Director, and the Company retains the right to terminate
service of any Director pursuant to Company’s Articles, Bylaws, and applicable
law.


 


APPROVED and adopted by
the Board of Directors of Winmark Corporation as of February 26, 2009.