Document:

Exhibit 10.3

 

TENNANT COMPANY

(“CORPORATION”)

RESTRICTED STOCK PLAN FOR NONEMPLOYEE DIRECTORS

(“PLAN”)

(As Amended and Restated Effective May 6, 2004)

 

 

1.                                       PURPOSE.

The purpose of the Plan is to provide for the issuance
of shares of the Corporation’s common stock (“Shares”) to members of the
Corporation’s board of directors (the “Board”) who are not employees of the
Corporation (“Non-employee Directors”). 
Shares shall be granted to each Nonemployee Director for each year
commencing on the day immediately after the date of each Annual Meeting of the
Corporation’s shareholders and ending on the day of the next succeeding Annual
Meeting (a “Board Year”).

 

2.                                       ISSUANCE
DATE.

For purposes of the Plan, the first business day of
the Board Year commencing in 2005 and the first business day of every Board
Year thereafter shall each be referred to as a “Regular Issuance Date.”

 

3.                                       ISSUANCE
OF RESTRICTED SHARES.

(a)          On
each Regular Issuance Date, the Corporation shall issue to each then incumbent
Nonemployee Director, 500 Restricted Shares (as hereinafter defined) (the
“Annual Grant”).

(b)         With
respect to any Nonemployee Director who is first elected or appointed to the
Board on a date other than the date of the Annual Meeting of the Corporation’s
shareholders immediately preceding a Regular Issuance Date, the Corporation
shall issue to such Nonemployee Director on the date following the date such
Nonemployee Director’s service commences, a prorated portion of the Annual
Grant.  The Annual Grant for any fraction
of a Board Year shall be equal to the product (rounded up to the nearest share)
obtained by multiplying 500 by a fraction (x) the numerator of which is
the number of days from the date such Nonemployee Director is first elected or
appointed to the Board to the date of the next Annual Meeting of the
Corporation’s shareholders and (y) the denominator of which is 365.

 

(c)          The
Board may from time to time increase or decrease the number of shares
constituting the Annual Grant, provided that the Board shall not change the
amount of the Annual Grant for purposes of the Plan more frequently than once
every six months.  For purposes of the
Plan, unless the Board designates otherwise, any such increase or decrease in
the Annual Grant shall be considered to be effective on the Regular Issuance
Date of the following Board Year.

 

4.                                       RESTRICTED
SHARES.

Shares issued under Section 3 shall be restricted
(“Restricted Shares”) and may not be sold, assigned, pledged, hypothecated,
transferred or otherwise disposed of (including, without limitation, transfer
by gift or donation.  Such restrictions
shall lapse upon the first to occur of the following events (but only as to
that number of Restricted Shares that were issued to a Nonemployee Director as
the Annual Grant):

(a)                       Death of
the Nonemployee Director;

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(b)                      Disability
of the Nonemployee Director preventing continued service on the Board;

(c)                       Retirement
of the Nonemployee Director from the Board in accordance with the policy of the
Corporation, if any, on retirement of Nonemployee Directors then in effect;

(d)                      Termination
of service as a director by reason of (i) resignation at the request of
the Board, (ii) resignation on the date specified in a written notice given to
the Board at least one year in advance, (iii) the director’s failure to
have been nominated for re-election to the Board or to have been re-elected by
the shareholders of the Corporation or (iv) the director’s removal by the
shareholders of the Corporation; or

(e)                       A change in
control (as defined in Section 5) of the Corporation shall occur.

Notwithstanding the
foregoing, in no event shall the restrictions on the Shares lapse prior to the
expiration of six months after the date of the issuance of the Restricted
Shares pursuant to this Plan.  The
certificates for Shares which are subject to this Section may, at the
option of the Secretary of the Corporation, be held by the Corporation until
the lapse of restrictions as provided in this Section, provided, however, the
Nonemployee Director shall be entitled to all voting, dividend and distribution
rights for such Shares.

Upon the occurrence of an
event causing the restrictions on Restricted Shares held by a Nonemployee
Director to lapse, those Restricted Shares held by such Nonemployee Director as
to which the restrictions do not lapse (that is, the number of Restricted
Shares issued to such Nonemployee Director in payment of the Annual Retainer
for Board Years commencing on or after the occurrence of such event) shall be forfeited
and revert to the Corporation.

 

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5.                                       CHANGE
IN CONTROL.

For purposes of this
Plan, “change in control” means:

(a)                       A majority
of the directors of the Corporation shall be persons other than persons

(i)                        For whose
election proxies shall have been solicited by the Board, or

(ii)                     Who are then
serving as directors appointed by the Board to fill vacancies on the Board
caused by death or resignation (but not by removal) or to fill newly-created
directorships,

(b)                      30% or more
of the outstanding voting stock of the Corporation is acquired or beneficially
owned (as defined in Rule 13d-3 under the Securities Exchange Act of 1934,
as amended, or any successor rule thereto) by any person (other than the
Corporation or a subsidiary of the Corporation) or group of persons acting in
concert (other than the acquisition and beneficial ownership by a parent
corporation or its wholly-owned subsidiaries, as long as they remain
wholly-owned subsidiaries, of 100% of the outstanding voting stock of the
Corporation as a result of a merger which complies with paragraph (c)(i)
(2) hereof in all respects), or

(c)                       The
shareholders of the Corporation approve a definitive agreement or plan to

 

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(i)                        Merge or
consolidate the Corporation with or into another corporation other than

(1)                                 a
merger or consolidation with a subsidiary of the Corporation or

(2)                                 a
merger in which

(A)                           the
Corporation is the surviving corporation,

(B)                             no
outstanding voting stock of the Corporation (other than fractional shares) held
by shareholders immediately prior to the merger is converted into cash,
securities, or other property (except (I) voting stock of a parent
corporation owning directly, or indirectly through wholly-owned subsidiaries,
both beneficially and of record 100% of the voting stock of the Corporation
immediately after the merger and (II) cash upon the exercise by holders of
voting stock of the Corporation of statutory dissenters’ rights),

(C)                             the persons
who were the beneficial owners, respectively, of the outstanding common stock
and outstanding voting stock of the Corporation immediately prior to such
merger beneficially own, directly or indirectly, immediately after the merger,
more than 70% of, respectively, the then outstanding common stock and the then
outstanding voting stock of the surviving corporation or its parent
corporation, and

 

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(D)                            if
voting stock of the parent corporation is exchanged for voting stock of the
Corporation in the merger, all holders of any class or series of voting stock
of the Corporation immediately prior to the merger have the right to receive
substantially the same per share consideration in exchange for their voting
stock of the Corporation as all other holders of such class or series,

(ii)                     exchange,
pursuant to a statutory exchange of shares of voting stock of the Corporation
held by shareholders of the Corporation immediately prior to the exchange,
shares of one or more classes or series of voting stock of the Corporation for
cash, securities, or other property,

(iii)                  sell or
otherwise dispose of all or substantially all of the assets of the Corporation
(in one transaction or a series of transactions), or

(iv)                 liquidate or
dissolve the Corporation.

 

6.                                       FORFEITURE.

In addition to the forfeiture provided for in the
final paragraph of Section 4 hereof, if a Nonemployee Director ceases to
be a Director of the Corporation within six months after the date of an
issuance of Restricted Shares for any reason or thereafter for any reason other
than upon the occurrence of one of the events described in Section 4, then
all Restricted Shares issued to such Nonemployee Director pursuant to this Plan
shall be forfeited and revert to the Corporation.

 

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7.                                       WITHHOLDING
TAXES.

Whenever under the Plan Shares are to be issued,
restrictions are to be changed or eliminated or, in the judgment of the
Corporation, it is appropriate, the Corporation shall have the right to require
the recipient to remit to the Corporation an amount in cash sufficient to
satisfy any applicable federal, state and local withholding tax requirements.

 

8.                                       GENERAL
RESTRICTION.

The issuance of Shares or the delivery of certificates
for such Shares to Nonemployee Directors hereunder shall be subject to the
requirement that, if at any time the Secretary of the Corporation shall
reasonably determine, in his or her discretion, that the listing, registration
or qualification of such Shares upon any securities exchange or under any state
or federal law, or the consent or approval of any government regulatory body,
is necessary or desirable as a condition of, or in connection with, such
issuance or delivery hereunder, such issuance or delivery shall not take place
unless such listing, registration, qualification, consent or approval shall
have been effected or obtained free of any conditions not reasonably acceptable
to the Secretary.

 

9.                                       AMENDMENT;
TERM; SHARES AVAILABLE.

The Board may, at any time, amend or terminate the
Plan; provided that no amendment or termination shall, without the consent of a
Nonemployee Director, reduce such Nonemployee Director’s rights in respect of
Restricted Shares previously granted. No Shares shall be issued pursuant
to this Plan in lieu of any Annual Retainer for any period commencing after the
Annual Meeting of the Corporation’s shareholders in 2011.  Not more than 125,000 Shares may be issued
under this Plan; provided, that in the event of a recapitalization,
reclassification, stock dividend, stock split, stock combination, or other
relevant change affecting the capitalization of the Corporation, the number of
shares issuable under this Plan shall be appropriately adjusted.  If at any time there are not sufficient
Shares available under this Plan to permit the issuance of all of the
Restricted Shares to be issued at such time pursuant to Section 3, then
this Plan shall automatically terminate and no further Shares shall be issued
hereunder.

 

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10.                                 RIGHTS
UNDER PLAN.

The Plan confers no right to be nominated or elected
to the Board nor does it confer any rights to continue to serve on the Board
independent of the Corporation’s by-laws and applicable public law.  Prior to actual issuance of Shares, no rights
to dividends or voting rights are conferred by the Plan.

 

11.                                 CONSTRUCTION
AND ADMINISTRATION.

The Plan shall be construed and interpreted in
accordance with Minnesota law.  The
ministerial duties of administering this Plan are delegated to the Secretary.

 

12.                                 EFFECTIVENESS.

The Plan originally became effective on May 7, 1993,
and was amended and restated effective January 1, 1995 and January 1,
1999.  The further amendment and
restatement of the Plan is effective May 6, 2004.

 

8Exhibit 10.6

 

TENNANT COMPANY

NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN

(As Amended and Restated Effective May 6, 2004)

 

 

1.                                       Purpose.  The purpose of this Non-Employee Director
Stock Option Plan (the “Plan”) is to promote the interests of Tennant Company,
a Minnesota corporation (the “Company”), and its shareholders by providing
non-employee directors of the Company with an opportunity to acquire a
proprietary interest in the Company and thereby provide an additional incentive
to put forth maximum effort for the continued success and growth of the
Company.  In addition, the opportunity to
acquire a proprietary interest in the Company will aid in attracting and
retaining non-employee directors of outstanding ability.

 

2.                                       Administration.

 

(a)                                  General.  This Plan
shall be administered by a the Company’s Board of Directors (the “Board”).  The Board shall have the power, subject to
the limitations contained in this Plan, to fix any terms and conditions for the
grant or exercise of any award under this Plan. 
Subject to the provisions of this Plan, the Board may from time to time
adopt such rules for the administration of this Plan as it deems
appropriate.  The decision of the Board
on any matter affecting this Plan or the rights and obligations arising under
this Plan or any award granted hereunder, shall be final, conclusive and
binding upon all persons, including without limitation the Company,
shareholders and optionees.

 

(b)                                 Indemnification. To the full extent permitted by law, (i) no
member of the Board shall be liable for any action or determination taken or
made in good faith with respect to this Plan or any award granted hereunder and
(ii) the members of the Board shall be entitled to indemnification by the
Company against and from any loss incurred by such member or person by reason
of any such actions and determinations.

 

3.                                       Shares.  The shares that may be made subject to
options granted under this Plan shall be authorized and unissued shares of
Common Stock of the Company, par value $.375 per share (“Shares,” and each
individually a “Share”), and they shall not exceed 150,000 Shares in the
aggregate, subject to adjustment as provided in paragraph 12, below,
except that, if any option lapses or terminates for any reason before such
option has been completely exercised, the Shares covered by the unexercised
portion of such option may again be made subject to options granted under this
Plan.

 

4.                                       Eligible Participants. Stock options
may be granted under this Plan to any director of the Company who is not an
employee of the Company or any parent or subsidiary thereof (a “non-employee
director”).  References herein to
“employed,” “employment” and similar terms (except “employee”) shall refer to
the providing of services as a director.

 

 

5.                                       Terms and Conditions of Director Options.

 

(a)                                  Discretionary Grants.  Subject
to the terms and conditions of this Plan, the Board may, from time to time
during the term of this Plan, grant to any non-employee director options to
purchase such number of Shares of the Company on such terms and conditions as
the Board may determine.  In determining
the non-employee directors to whom options shall be granted and the number of
Shares to be covered by each option, the Board may take into account the nature
of the services rendered by the respective non-employee directors, their
present and potential contributions to the success of the Company, and such
other factors as the Board in its sole discretion may deem relevant.  The date and time of approval by the Board of
the granting of an option shall be considered the date and the time of the
grant of such option.  The maximum number
of Shares subject to options that may be granted to any one non-employee
director under the Plan in any fiscal year of the Company (including options
granted under subparagraph 5(b)) may not exceed 10,000 Shares (subject to
adjustment pursuant to paragraph 12 hereof).

 

(b)                                 Scheduled Grants.  On
the day following each annual meeting of the shareholders of the Company
(commencing with the annual meeting to be held in 2005), the Company shall
grant to each then incumbent non-employee director an option to purchase 1,000
Shares.  With respect to any non-employee
director who is elected or appointed to the Board on a date other than the date
of an annual meeting of shareholders (including any non-employee director who
is first elected or appointed to the Board between the annual meetings held in
2004 and 2005), the Company shall grant to such non-employee director on the
day following his or her first being so elected or appointed to the Board an
option to purchase a number of shares equal to the product (rounded up to the
next 100 shares) obtained by multiplying 1,000 by a fraction (x) the
numerator of which is the number of days from the date such non-employee
director is first elected or appointed to the Board to the date of the next
scheduled annual meeting of shareholders and (y) the denominator of which
is 365.  Subject to the limitation
contained in subparagraph 5(a) as to the maximum annual aggregate grant to
any one individual, the Board may increase or decrease the number of shares to
be granted to non-employee directors on any date pursuant to this said
paragraph 5(b).

 

(c)                                  Purchase Price.  The
purchase price of each Share subject to an option granted pursuant to this
paragraph 5 shall be 100% of the Fair Market Value of a Share on the date
of grant.

 

(d)           Vesting.  With respect to any option granted under
subparagraph 5(a), the option agreement provided for in paragraph 6
relating to such option shall specify when such option shall become
exercisable.  With respect to any option
granted under subparagraph 5(b), such option shall become exercisable
cumulatively as to 33% of the shares subject thereto on the date of each of the
first through the third annual meetings of shareholders of the Company
following the date of grant thereof or, with respect to options granted on any
date other than the day following an annual meeting of shareholders, on each of
the first through the third anniversaries of the date of grant.  Notwithstanding the foregoing or the
provisions of any option agreement, the Board may, in its sole discretion,
declare at any time that any option granted under this Plan shall be
immediately exercisable.

 

 

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(e)                                  Termination.  Each
option granted pursuant to this paragraph 5 shall expire, and all rights
to purchase Shares thereunder shall terminate, on the earliest of:

 

(i)                                     ten
years after the date such option is granted or on such date prior thereto as
may be fixed by the Board on or before the date such option is granted;

 

(ii)                                  the
expiration of the period after the termination of the optionee’s service as a
non-employee director within which the option is exercisable as specified in paragraph
9(b) (provided that the Board may, in any option agreement provided for in
paragraph 6 or by Board action with respect to any outstanding option,
extend the periods specified in paragraph 9(b)); or

 

(iii)                               the
date, if any, fixed for cancellation pursuant to paragraph 10(c) or 11
below.

 

6.                                       Option Agreements.  All options granted under this Plan shall be
evidenced by a written agreement in such form or forms as the Board may from
time to time determine.

 

7.                                       Fair Market Value.  For purposes of
this Plan, the “Fair Market Value” of a Share at a specified date shall, unless
otherwise expressly provided in this Plan, mean the closing sale price of a
Share on the date immediately preceding such date or, if no sale of Shares
shall have occurred on that date, on the next preceding day on which a sale of
Shares occurred, on the Composite Tape for New York Stock Exchange listed
shares or, if Shares are not quoted on the Composite Tape for New York Stock
Exchange listed shares, on the Nasdaq National Market or any similar system
then in use or, if Shares are not included in the Nasdaq National Market or any
similar system then in use, the mean between the closing “bid” and the closing
“asked” quotation of a Share on the date immediately preceding the date as of which
such Fair Market Value is being determined, or, if no closing bid or asked
quotation is made on that date, on the next preceding day on which a quotation
is made, on the Nasdaq SmallCap Market or any similar system then in use,
provided that if the Shares in question are not quoted on any such system, Fair
Market Value shall be what the Board determines in good faith to be 100% of the
fair market value of a Share as of the date in question.  Notwithstanding anything stated in this
paragraph 7, if the applicable securities exchange or system has closed
for the day by the time the determination is being made, all references in this
paragraph to the date immediately preceding the date in question shall be
deemed to be references to the date in question.

 

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8.                                       Manner of Exercise of Options.  A person entitled to exercise an option
granted under this Plan may, subject to its terms and conditions and the terms
and conditions of this Plan, exercise it in whole at any time, or in part from
time to time, by delivery to the Company at its principal executive office, to
the attention of its Vice President, Personnel Resources, of written notice of
exercise, specifying the number of Shares with respect to which the option is
being exercised.  The purchase price of
the Shares with respect to which an option is being exercised shall be payable
in full at the time of exercise, provided that, to the extent permitted by law,
the holder of an option may simultaneously exercise an option and sell all or a
portion of the Shares thereby acquired pursuant to a brokerage or similar
relationship and use the proceeds from such sale to pay the purchase price of
such Shares.  The purchase price of each
Share on the exercise of any option shall be paid in full in cash (including
check, bank draft or money order) or, at the discretion of the person
exercising the option, by delivery to the Company of unencumbered Shares, by a
reduction in the number of Shares delivered upon exercise of the option, or by
a combination of cash and such Shares (in each case such Shares having an
aggregate Fair Market Value on the date of exercise equal to the amount of the
purchase price being paid through such delivery or reduction of Shares);
provided, however, that no person shall be permitted to pay any portion of the
purchase price with Shares if the Board, in its sole discretion, determines
that payment in such manner is undesirable. 
The granting of an option to a person shall give such person no rights
as a shareholder except as to Shares issued to such person.

 

9.                                       Transferability and Termination of Employment.

 

(a)                                  Transferability. 
During the lifetime of an optionee, only such optionee or his or her
guardian or legal representative may exercise options granted under this Plan,
and no option granted under this Plan shall be assignable or transferable by
the optionee otherwise than by will or the laws of descent and distribution or
pursuant to a domestic relations order as defined by the Code or Title I
of the Employee Retirement Income Security Act, or the rules thereunder;
provided, however, that any optionee may transfer a non-statutory stock option
granted under this Plan to a member or members of his or her immediate family
(i.e., his or her children, grandchildren and spouse) or to one or more trusts
for the benefit of such family members or partnerships in which such family
members are the only partners, if (i) the option agreement with respect to
such options expressly so provides either at the time of initial grant or by
amendment to an outstanding option agreement and (ii) the optionee does
not receive any consideration for the transfer. 
Any options held by any such transferee shall continue to be subject to
the same terms and conditions that were applicable to such options immediately
prior to their transfer and may be exercised by such transferee only as and to
the extent that such option has become exercisable and has not terminated in
accordance with the provisions of the Plan and the applicable option
agreement.  For purposes of any provision
of this Plan relating to notice to an optionee or to vesting or termination of
an option upon the death, disability or termination of employment of an
optionee, the references to “optionee” shall mean the original grantee of an
option and not any transferee.

 

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(b)                                 Termination of Employment. 
In the event that an optionee ceases to be employed as a non-employee
director by reason of

 

(i)                                     death,

(ii)                                  disability
preventing continued service,

(iii)                               retirement
from the Board in accordance with the policy of the Company, if any, on
retirement of non-employee directors then in effect, or

(iv)                              termination
of service as a non-employee director by reason of (x) resignation at the
request of the Board (other than for gross misconduct, as determined by the
Board) (y) the director’s failure to have been nominated for re-election
to the Board (unless such failure results from the non-employee director’s
unwillingness to continue to serve) or to have been re-elected by the
shareholders of the Company, or

(v)                                 the
director’s removal by the shareholders of the Company

 

then any option granted to such optionee that was not
previously exercisable shall become immediately exercisable in full if the
optionee shall have been continuously employed by the Company or a parent or
subsidiary thereof between the date such option was granted and the date of
such termination of service and such option shall continue to be exercisable for
five years after termination of such optionee’s employment.  If an optionee’s employment terminates in any
manner other than as provided for in the preceding sentence, any option granted
to such optionee shall terminate immediately upon such termination of
employment.

 

(c)                                  Right to Terminate Employment.  Nothing contained in this Plan, or in any
option granted pursuant to this Plan, shall confer upon any optionee any right
to continued employment by the Company or limit in any way the right of the
Company to terminate such optionee’s employment at any time.

 

(d)                                 Expiration Date.  In
no event shall any option be exercisable at any time after the time it shall
have expired in accordance with paragraph 5(e) of this Plan.  When an option is no longer exercisable, it
shall be deemed to have lapsed or terminated and will no longer be outstanding.

 

10.                                 Change in Control.

 

(a)                                  For
purposes of this Plan, a “Change in Control” of the Company shall be deemed to
occur if any of the following occur:

 

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(i)                                     Any
“person” (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”)) acquires or
becomes a “beneficial owner” (as defined in Rule 13d-3 or any successor rule
under the Exchange Act), directly or indirectly, of securities of the Company
representing 30% or more of the combined voting power of the Company’s then
outstanding securities entitled to vote generally in the election of directors
(“Voting Securities”), provided, however, that the following shall not
constitute a Change in Control pursuant to this paragraph (a)(1):

 

(A)                              any
acquisition or beneficial ownership by the Company or a Subsidiary;

 

(B)                                any
acquisition or beneficial ownership by any employee benefit plan (or related
trust) sponsored or maintained by the Company or one or more of its
Subsidiaries;

 

(C)                                any
acquisition or beneficial ownership by any corporation with respect to which,
immediately following such acquisition, more than 70% of both the combined
voting power of the Company’s then outstanding Voting Securities and the Shares
of the Company is then beneficially owned, directly or indirectly, by all or
substantially all of the persons who beneficially owned Voting Securities and
Shares of the Company immediately prior to such acquisition in substantially
the same proportions as their ownership of such Voting Securities and Shares,
as the case may be, immediately prior to such acquisition;

 

(ii)                                  A
majority of the members of the Board of Directors of the Company shall not be
Continuing Directors. “Continuing Directors” shall mean:  (A) individuals who, on the date hereof,
are directors of the Company, (B) individuals elected as directors of the
Company subsequent to the date hereof for whose election proxies shall have
been solicited by the Board of Directors of the Company or (C) any
individual elected or appointed by the Board of Directors of the Company to
fill vacancies on the Board of Directors of the Company caused by death or resignation
(but not by removal) or to fill newly-created directorships;

 

(iii)          Approval
by the shareholders of the Company of a reorganization, merger or consolidation
of the Company or a statutory exchange of outstanding Voting Securities of the
Company, unless immediately following such reorganization, merger,
consolidation or exchange, all or substantially all of the persons who were the
beneficial owners, respectively, of Voting Securities and Shares of the Company
immediately prior to such reorganization, merger, consolidation or exchange
beneficially own, directly or indirectly, more than 70% of, respectively, the
combined voting power of the then outstanding voting securities entitled to
vote generally in the election of directors and the then outstanding shares of
common stock, as the case may be, of the corporation resulting from such
reorganization, merger, consolidation or exchange in substantially the same
proportions as their ownership, immediately prior to such reorganization,
merger, consolidation or exchange, of the Voting Securities and Stock of the
Company, as the case may be; or

 

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(iv)                              Approval
by the shareholders of the Company of (x) a complete liquidation or
dissolution of the Company or (y) the sale or other disposition of all or
substantially all of the assets of the Company (in one or a series of
transactions), other than to a corporation with respect to which, immediately
following such sale or other disposition, more than 70% of, respectively, the
combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors and the
then outstanding shares of common stock of such corporation is then
beneficially owned, directly or indirectly, by all or substantially all of the
persons who were the beneficial owners, respectively, of the Voting Securities
and Shares of the Company immediately prior to such sale or other disposition
in substantially the same proportions as their ownership, immediately prior to
such sale or other disposition, of the Voting Securities and Shares of the
Company, as the case may be.

 

(b)                                 Acceleration of Vesting. 
Notwithstanding anything in subparagraph 5(d) above to the
contrary, if a Change of Control of the Company shall occur, then, without any
action by the Board, each option granted under this Plan and not already
exercised in full or otherwise terminated, expired or canceled shall become
immediately exercisable in full.

 

(c)                                  Cash Payment.  If a
Change in Control of the Company shall occur, then, so long as a majority of
the members of the Board are Continuing Directors, the Board, in its sole
discretion, and without the consent of the holder of any option affected
thereby, may determine that some or all outstanding options shall be cancelled
as of the effective date of any such Change in Control and that the holder or
holders of such cancelled options shall receive, with respect to some or all of
the Common Shares subject to such options, as of the date of such cancellation,
cash in an amount, for each Share subject to an option, equal to the excess of
the per Share Fair Market Value of such Shares immediately prior to such Change
in Control of the Company over the exercise price per Share of such options.

 

(d)                                 Limitation on Change in Control Payments.  Notwithstanding anything in
subparagraph 10(b) or 10(c) above or paragraph 11 below to the contrary,
if, with respect to an optionee, the acceleration of the exercisability of an
option or the payment of cash in exchange for all or part of an option as
provided in subparagraph 10(b) or 10(c) above or paragraph 11 (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 which
such optionee has the right to receive from the Company or any corporation
which 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 such acceleration of exercisability
and payments pursuant to subparagraph 10(b) or 10(c) above or paragraph 11
shall be reduced to the largest amount as, in the sole judgment of the Board,
will result in no portion of such payments being subject to the excise tax
imposed by Section 4999 of the Code.

 

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11.                                 Dissolution, Liquidation, Merger.  In the event of (a) the proposed dissolution
or liquidation of the Company, (b) a proposed sale of substantially all of
the assets of the Company or (c) a proposed merger, consolidation of the
Company with or into any other entity, regardless of whether the Company is the
surviving corporation, or a proposed statutory share exchange with any other
entity (the actual effective date of the dissolution, liquidation, sale,
merger, consolidation or exchange being herein called an “Event”), the Board
may, but shall not be obligated to, either (i) if the Event is a merger,
consolidation or statutory share exchange, make appropriate provision for the
protection of outstanding options granted under this Plan by the substitution,
in lieu of such options, of options to purchase appropriate voting common stock
(the “Survivor’s Stock”) of the corporation surviving any such merger or
consolidation or, if appropriate, the parent corporation of the Company or such
surviving corporation, or, alternatively, by the delivery of a number of shares
of the Survivor’s Stock which has a Fair Market Value as of the effective date
of such merger, consolidation or statutory share exchange equal to the product
of (x) the excess of (A) the Event Proceeds per Share (as hereinafter
defined) covered by the option as of such effective date over (B) the
exercise price per Share of the Shares subject to such option, times
(y) the number of Shares covered by such option or (ii) declare, at
least twenty days prior to the Event, and provide written notice to each optionee
of the declaration, that each outstanding option, whether or not then
exercisable, shall be canceled at the time of, or immediately prior to the
occurrence of, the Event (unless it shall have been exercised prior to the
occurrence of the Event).  In connection
with any declaration pursuant to clause (ii) of the preceding sentence, the
Board may, but shall not be obligated to, cause payment to be made, within
twenty days after the Event, in exchange for each cancelled option to each
holder of an option that is cancelled, of cash equal to the amount (if any),
for each Share covered by the canceled option, by which the Event Proceeds per
Share (as hereinafter defined) exceeds the exercise price per Share covered by
such option.  At the time of any
declaration pursuant to clause (ii) of the first sentence of this
paragraph 11, each option that has not previously expired pursuant to
subparagraph 5(e)(i) or 5(e)(ii) of this Plan or been cancelled pursuant
to paragraph 10(c) of this Plan shall immediately become exercisable in
full and each holder of an option shall have the right, during the period
preceding the time of cancellation of the option, to exercise his or her option
as to all or any part of the Shares covered thereby.  In the event of a declaration pursuant to clause
(ii) of the first sentence of this paragraph 11, each outstanding option
granted pursuant to this Plan that shall not have been exercised prior to the
Event shall be canceled at the time of, or immediately prior to, the Event, as
provided in the declaration, and this Plan shall terminate at the time of such
cancellation, subject to the payment obligations of the Company provided in
this paragraph 11.  Notwithstanding
the foregoing, no person holding an option shall be entitled to the payment
provided in this paragraph 11 if such option shall have expired pursuant to
subparagraph 5(e)(i) or 5(e)(ii) of this Plan or been cancelled pursuant
to paragraph 10(c) of this Plan. 
For purposes of this paragraph 11, “Event Proceeds per Share” shall
mean the cash plus the fair market value, as determined in good faith by the
Board, of  the non-cash consideration to
be received per Share by the shareholders of the Company upon the occurrence of
the Event.

 

8

 

 

12.                                 Adjustments.  In the event of any reorganization, merger,
consolidation, recapitalization, liquidation, reclassification, stock dividend,
stock split, combination of shares, rights offering, or extraordinary dividend
or divestiture (including a spin-off), or any other change in the corporate
structure or Shares of the Company, the Board (or if the Company does not
survive any such transaction, the Board of Directors of the surviving
corporation) may, without the consent of any holder of an option, make such adjustment
as it determines in its discretion to be appropriate as to the number and kind
of securities subject to and reserved under this Plan and, in order to prevent
dilution or enlargement of rights of participants in this Plan, the number and
kind of securities issuable upon exercise of outstanding options and the
exercise price thereof.

 

13.                                 Compliance With Legal Requirements.  No certificate for Shares distributable
under this Plan shall be issued and delivered unless the issuance of such
certificate complies with all applicable legal requirements including, without
limitation, compliance with the provisions of applicable state securities laws,
the Securities Act of 1933, as amended, and the Exchange Act.

 

14.                                 Governing Law.  To the extent that federal laws do not
otherwise control, this Plan and all determinations made and actions taken
under this Plan shall be governed by the laws of the State of Minnesota,
without regard to the conflicts of law provisions thereof, and construed
accordingly.

 

9

 

15.                                 Amendment and Discontinuance of Plan.  The Board may at any time amend, suspend or
discontinue this Plan; provided, however, that no amendment to this Plan shall,
without the consent of the holder of the option, alter or impair any option
previously granted under this Plan.  To
the extent considered necessary to comply with applicable provisions of the
Code, any such amendments to this Plan may be made subject to approval by the
shareholders of the Company.

 

16.                                 Term.

 

(a)                                  Effective Date.  This
Plan originally became effective as of January 1, 1997.  This amendment and restatement of the Plan is
effective May 6, 2004.

 

(b)                                 Termination.  This
Plan shall remain in effect until all Shares subject to it are distributed or
this Plan is terminated under paragraph 15 above.

 

10

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