Document:

Exhibit
4.5

 

REGISTRATION RIGHTS AGREEMENT

 

THIS REGISTRATION RIGHTS
AGREEMENT (“Agreement”) is
made and entered into as of June 29, 2004, by and among Southwest Casino
and Hotel Corp., a Minnesota corporation (the “Company”),
and each of the investors (“Investor”)
executing this Agreement who are listed on Schedule 1 attached
hereto (and who are collectively referred to as the “Investors”).

 

RECITALS

 

WHEREAS, the
Company has entered into a Subscription Agreement and Letter of Investment
Intent dated June 29, 2004 (the “Subscription
Agreement”), pursuant to which the
Investor has subscribed to purchase, and, upon acceptance by the Company, the
Company has agreed to issue and sell, the Company’s 8% Convertible Demand
Note(s) (the “Notes”) to certain
of the Holders to the extent and in such amounts as set forth therein; and

 

WHEREAS, as a
condition to the obligations of the purchasers under the Subscription
Agreement, the Company has agreed to grant the registration rights with respect
to the Registrable Common (as defined herein) on the terms and conditions set
forth herein.

 

AGREEMENT

 

NOW,
THEREFORE, in consideration of the foregoing, and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the Company and the Holders hereby agree as follows.

 

Section 1.                                          Definitions.

 

As used in this
Agreement, the following terms shall have the meanings set forth below.  Capitalized terms used herein without definition have the meanings
specified in the Notes.

 

1.1                                 “Affiliate” means any Person which
controls, is controlled by or is under common control with any other Person or
Persons.  For the purposes of this
definition, “control” has the meaning specified as of the date of this Agreement
for that word in Rule 405 promulgated by the Commission under the Securities
Act.

 

1.2                                 “Board” means the Board of Directors
of the Company.

 

1.3                                 “Capital Raising Transaction” means a
private placement of convertible debt or equity securities of the Company or
the Public Company following consummation of a merger transaction in which the
Company’s equity owners (including holders of all outstanding options,
warrants, 8% Convertible Demand Notes and other securities that are convertible
into equity of the Company) become owner of at least ninety-two and four-tenths
percent (92.4%) of the outstanding equity capital of the Public Company on a
fully diluted basis.

 

 

1.4                                 “Commission” means the United States
Securities and Exchange Commission, and any successor thereto.

 

1.5                                 “Common Stock” means the Company’s
common stock, $.01 par value.

 

1.6                                 “Exchange Act” means the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
from time to time thereunder.

 

1.7                                 “Holders” means the (i) Investors,
each of whom is a party to this Agreement, and (ii) any subsequent legal or
beneficial owner of the Company’s 8% Convertible Demand Notes who has become a
party to this Agreement in accordance with Section 11.9 of this Agreement.

 

1.8                                 “Lock-Out Period” means the ninety
(90) day period of time as described in Section 10 of this Agreement.

 

1.9                                 “Person” means an individual,
partnership, limited partnership, corporation, business trust, limited
liability company, association, joint stock company, trust, unincorporated
organization, joint venture or other entity of whatever nature.

 

1.10                           “PIPE Transaction” means the
potential transaction involving the private placement in public equity of the
Company or the Public Company following the Reverse Merger Transaction or the
Company otherwise becoming a Public Company.

 

1.11                           “Public Company” means a corporation
which has its common stock registered
pursuant to Section 12 of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), and is subject to the periodic reporting requirements,
and has timely filed such reports during the past 12 months, pursuant to
Sections 13 and 14 of the Exchange Act, or a corporation that voluntarily files
reports under Section 15(d) of the Exchange Act, and has timely filed such
reports during the past 12 months, the capital stock of which corporation is
traded on a nationally recognized securities medium, not less than the National
Association of Securities Dealers, Inc.’s OTC Electronic Bulletin Board and
with which the Company’s Board of Directors agrees to conduct a Reverse Merger
Transaction and closes the same.

 

1.12                           “Registrable Common” means (a) any
shares of Common Stock which have been issued or are issuable upon the
conversion of the Company’s 8% Convertible Demand Notes (issued on, 2004) and
(b) any share of Common Stock issued as a dividend, stock split,
reclassification, recapitalization or other distribution with respect to or in
exchange for or replacement of such 8% Convertible Demand Notes or Common
Stock, provided, however, that shares of Common Stock shall no longer be
Registrable Common when they shall have been effectively registered under the
Securities Act and sold by the Holder thereof in accordance with such
registration or sold by the Holder pursuant to Rule 144, or when registration
under the Securities Act would no longer be required for the immediate public
distribution of such shares of Common Stock as a result of the provisions of
Rule 144.

 

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1.13                           “Register,”  “registered” and “registration”  refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and the declaration or ordering of the
effectiveness of such registration statement.

 

1.14                           “Reverse Merger Transaction” means the
consummation and closing of a reverse merger transaction, contemplated to be
effected in the form of a tax free “A” reorganization pursuant to I.R.C.
Section 368(a)(2)(E), with the Public Company, upon the completion of
which the Company shall survive as a subsidiary of the Public Company, and
resulting in the current shareholders of the Company (including holders of all
outstanding options, warrants, the Conversion Shares and all securities that
are convertible into equity of the Company, holders of the Company’s
Series A Convertible Subordinated Debentures in the currently outstanding
principal amount of $362,500 and including a pool of options or warrants to
purchase 1,500,000 shares of Public Company Stock reserved for grant to
management of the Public Company who assumes such positions after the Reverse
Merger Date) owning at least ninety-two and four-tenths percent (92.4%) of the
Public Company Stock.

 

1.15                           “Rule 144” means Rule 144
promulgated by the Commission under the Securities Act, as such rule may be
amended from time to time, or any successor rule thereto.

 

1.16                           “Securities Act” means the
Securities Act of 1933, as amended, and the rules and regulations promulgated
from time to time thereunder.

 

Section 2.                                          Registration
Rights.

 

2.1                                 Piggyback Registration.

 

2.1.1                        After
consummation and closing of a Reverse Merger Transaction or the Company
otherwise becoming a Public Company, and subject to the Carve Back Right
described in Section 2.1.3, if the Company shall determine to proceed with
the actual preparation and filing of a registration statement under the
Securities Act in connection with the proposed offer and sale for cash of its
Common Stock by holders of its securities purchased from the Company in a PIPE
Transaction or other Capital Raising Transaction (other than in response to a
Registration Request, the Company’s IPO, registration on a Form S-8 or similar
form, or a registration on a form that does not permit the inclusion of shares
by its security holders), then the Company shall give written notice of its
determination to all record Holders of Registrable Common (a “Participation Notice”) at least thirty (30) days prior to
filing such registration statement.  Upon
the written request of a record Holder of any Registrable Common given within
fifteen (15) days after receipt of a Participation Notice, the Company will,
except as herein provided, cause all such Registrable Common, the record
Holders of which have so requested registration thereof, to be included in such
registration statement, provided that, with respect to all shares of
Registrable Common for which registration has been requested, holders of the 8%
Convertible Demand Notes so

 

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requesting to have
shares of Registrable Common included in such registration statement, all to
the extent required to permit the sale or other disposition by the prospective
seller or sellers of the Registrable Common, to be so registered.  If any registration pursuant to this
Section 2.1 shall be underwritten in whole or in part, the Company may
require that the Registrable Common requested for inclusion pursuant to this
Section 2.1 be included in the underwriting on the same terms and
conditions as the securities otherwise being sold through the underwriters.

 

2.1.2                        Nothing
contained in this Agreement shall prevent the Company from, at any time,
abandoning or delaying any such registration initiated by it in order to comply
with applicable securities laws.  All
registration expenses in such case shall be borne by the Company.

 

2.1.3                        If,
in the judgment of the Company’s managing underwriter of such public offering
or the Company’s placement agent in the PIPE Transaction or Capital Raising
Transaction (the “Carve Back Right”), the inclusion of any or all of the
Registrable Common originally covered by a request for registration would
interfere with the successful marketing of the shares of Common Stock offered
by the Company or would negatively impact the trading market of the Common
Stock, then the number of Registrable Common otherwise to be included in the
public offering or registered hereunder may be reduced pro rata (by number of
shares) among the Holders thereof requesting inclusion of such registration,
which reduction may be to zero.

 

2.1.4                        The
right of any Holder to include Registrable Common in any underwritten
registration pursuant to this Agreement shall be conditioned upon such Holder’s
full participation in such underwriting and the inclusion of such Holder’s
Registrable Common in the underwriting. 
All Holders proposing to distribute their securities through such
underwriting shall (together with the Company) enter into an underwriting
agreement in customary form with the underwriter or underwriters selected.

 

2.1.5                        The
Company shall not be obligated to effect or take any action to effect, any
registration pursuant to Section 2.1 more than two (2) times.

 

2.2                                 Required Registration.

 

2.2.1                        If,
at any time during the six (6) months after termination of the Lock-Out Period,
the Company shall receive a written request from the record Holder or Holders
of a majority of the outstanding Registrable Common for registration under the
Securities Act of the Registrable Common (a “Registration
Request”):

 

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(a)                                  the
Company shall promptly give written notice to all other record Holders of
Registrable Common that such registration is to be effected (“Registration Notice”); and

 

(b)                                 subject
to the limitations and requirements set forth in this Section 2.2, the
Company shall use its commercially reasonable efforts to prepare and file a
registration statement under the Securities Act covering the Registrable Common
which is the subject of the Registration Request and such additional
Registrable Common for which it has received written requests to register by
such other record Holders within fifteen (15) days after the delivery of the
Registration Notice, and shall use its commercially reasonable efforts to cause
such registration statement to become effective as soon as is reasonably
practicable after receipt of the Registration Request.

 

2.2.2                        The
Company shall be obligated to proceed with filing the registration statement
contemplated in this Section 2.2 only if (i) the Holders of at least a
majority of the then Registrable Common request registration of such
Registrable Common in the registration to be effected pursuant to the
Registration Request and (ii) the registration to be effected pursuant to the
Registration Request has anticipated aggregate gross offering proceeds of at
least $1,000,000.

 

2.2.3                        If
the Company shall furnish to the Holder(s) of Registrable Common for which
registration has been requested within thirty (30) days of a Registration
Request a certificate signed by the CEO, President or CFO of the Company
stating that (i) the Company pursuant to an action approved by the Board of
Directors already has a present plan to commence preparation of a registration
statement and to file the same within ninety (90) days, or (ii) in the good
faith judgment of the Board of Directors of the Company it would be seriously
detrimental to the Company and its shareholders for such registration statement
to be filed in due course pursuant to the terms hereof and it is therefore
essential to defer the filing of such registration statement, the Company shall
have the right to defer undertaking any actions to effect such filing for a
period ending not later than ninety (90) days from the date of the President’s
certificate required herein; provided, however, that the Company may not
utilize the rights under this Section 2.2.3 more than once.

 

2.2.4                        If
the Holders submitting the Registration Request (the “Initiating
Holders”) intend to distribute the Registrable Common covered by
such request by means of an underwriting, the Registration Request shall so
indicate and the Company shall include such information in the Registration
Notice.  The Company shall select the
managing underwriter.  Notwithstanding
any other provision of this Section 2, if the managing underwriter advises
the participating Holders in writing that marketing or other factors require
reducing the number of shares to be underwritten, then the number of shares of
Registrable Common included in the underwriting shall be reduced pro rata among
all participating

 

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Holders in
proportion (as nearly as practicable) to the amount of Registrable Common owned
by each participating Holder; provided, however that such reduction shall be
made only if all other securities to be included (other than the Registrable
Common) already have been entirely excluded from the underwriting.

 

2.2.5                        In
the event that the Holders of a majority of the Registrable Common for which
registration has been requested pursuant to this Section 2.2 determine for
any reason not to proceed with a registration at any time before a registration
statement has been declared effective by the Commission, and such registration
statement, if theretofore filed with the Commission, is withdrawn with respect
to the Registrable Common covered thereby, and the Holders of such Registrable
Common agree to bear their own expenses incurred in connection therewith and to
reimburse the Company for the expenses incurred by it attributable to the
registration of such Registrable Common, and, if such Holders in fact so
reimburse the Company, then the Holders of such Registrable Common shall not be
deemed to have exercised their right to require the Company to register
Registrable Common pursuant to this Section 2.2 (such a withdrawn
registration for which the Company has been so reimbursed a “Withdrawn Registration”).

 

2.2.6                        If,
at the time a Registration Request is received by the Company, the Company has
already determined to proceed with the actual preparation and filing of a
registration statement under the Securities Act in connection with the
Company’s proposed offer and sale for cash of its securities, the Registration
Request shall be deemed to have been given pursuant to Section 2.1 rather
than this Section 2.2, and the rights and obligations of the Holders and
the Company with respect to the Registration Request shall be governed by
Section 2.1 hereof.

 

2.2.7                        Notwithstanding
any other provision in this Agreement, the Company shall not be obligated to
effect, or to take any action to effect, any registration pursuant to this
Section 2.2 after the Company has effected one (1) registration pursuant
to this Section 2.2 (it being understood that a Withdrawn Registration
shall not be considered to have been effected).

 

Section 3.                                          Registration
Procedures.  When the Company is
required by the terms of this Agreement to effect the registration of
Registrable Common under the Securities Act, the Company will do the following:

 

3.1                                 Filing.  Prepare and file with the Commission a
registration statement with respect to such securities, and use its
commercially reasonable efforts to cause such registration statement to become
and remain effective for such period as may be reasonably necessary to effect
the sale of such securities, not to exceed six (6) months;

 

3.2                                 Period of Effectiveness.  Prepare and file with the Commission such
amendments to such registration statement and supplements to the prospectus
contained therein as may be necessary to keep such registration statement
effective for such period

 

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as may be reasonably
necessary to effect the sale of such securities, not to exceed nine (9) months;

 

3.3                                 Copies.  Furnish to the Holders participating in such
registration and to the underwriters of the securities being registered such
reasonable number of copies of the registration statement, preliminary
prospectus, formal prospectus and such other documents as such underwriters may
reasonably request in order to facilitate the public offering of such
securities;

 

3.4                                 Blue Sky.  Use its commercially reasonable efforts to
register or qualify the securities covered by such registration statement under
such state securities or blue sky laws of such jurisdictions as such participating
Holders may reasonably request in writing within twenty (20) days following the
original filing of such registration statement, except that the Company shall
not for any purpose be required to execute a general consent to service of
process or to qualify to do business as a foreign corporation in any
jurisdiction wherein it is not so qualified;

 

3.5                                 Notification.  Notify the Holders participating in such
registration, promptly after it shall receive notice thereof, of the time when
such registration statement has become effective or a supplement to any
prospectus forming a part of such registration statement has been filed;

 

3.6                                 Amendment Notice.  Notify such Holders promptly of any request
by the Commission for the amending or supplementing of such registration
statement or prospectus or for additional information;

 

3.7                                 Update.  Prepare and promptly file with the Commission
and promptly notify such Holders of the filing of such amendment or supplement
to such registration statement or prospectus as may be necessary to correct any
statements or omissions if, at the time when a prospectus relating to such
securities is required to be delivered under the Securities Act, any event
shall have occurred as the result of which any such prospectus or any other
prospectus as then in effect would include an untrue statement of a material
fact or omit to state any material fact necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading;

 

3.8                                 Stop Orders.  Advise such Holders, promptly after it shall
receive notice or obtain knowledge thereof, of the issuance of any stop order
by the Commission suspending the effectiveness of such registration statement
or the initiation or threatening of any proceeding for that purpose and
promptly use its best efforts to prevent the issuance of any stop order or to
obtain its withdrawal if such stop order should be issued; and

 

3.9                                 Compliance Issues.  Not file any amendment or supplement to such
registration statement or prospectus to which a majority in interest of such
Holders shall have reasonably objected on the grounds that such amendment or
supplement does not comply in all material respects with the requirements of
the Securities Act or the rules

 

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and regulations
promulgated thereunder, after having been furnished with a copy thereof at
least two (2) business days prior to the filing thereof, unless in the opinion
of counsel for the Company the filing of such amendment or supplement is
reasonably necessary to protect the Company from any liabilities under any
applicable federal or state law and such filing will not violate applicable
law.

 

Section 4.                                          Furnish
Information.  It
shall be a condition precedent to the obligations of the Company to take any
action pursuant to Sections 2 and 3 with respect to the Registrable Common of
any selling Holder that such Holder shall furnish to the Company such
information regarding itself, the Registrable Common held by him or it, and the
intended method of disposition of such securities as shall be required to
effect the registration of such Holder’s Registrable Common.

 

Section 5.                                          Expenses.  With respect to each registration requested
pursuant to Sections 2.2 or 2.3 hereof (except as otherwise provided in such
Section) and with respect to each inclusion of Registrable Common in a
registration statement pursuant to Section 2.2 hereof (except as otherwise
provided in such Section), the Company shall bear the following fees, costs and
expenses: all registration, filing and NASD (or exchange) fees, printing
expenses, fees and disbursements of counsel and accountants for the Company,
fees and disbursements of counsel for the underwriter or underwriters of such
securities (if the Company and/or selling security Holders are required to bear
such fees and disbursements), all internal Company expenses, all legal fees and
disbursements and other expenses of complying with state securities or blue sky
laws of any jurisdictions in which the securities to be offered are to be
registered or qualified, and the premiums and other costs of policies of
insurance against liability (if any) arising out of such public offering.  All fees and disbursements of any legal counsel,
accountants or advisors for the selling security Holders, underwriting
discounts and commissions and transfer taxes relating to the shares included in
the offering by the selling security Holders, and any other expenses incurred
by the selling security Holders not expressly included above, shall be borne by
the selling security Holders.

 

Section 6.                                          Delay of Registration. 
No Holder shall have any right to obtain or seek an injunction
restraining or otherwise delaying any such registration as the result of any
controversy that might arise with respect to the interpretation or
implementation of this Agreement.

 

Section 7.                                          Indemnification.  In the event that any Registrable Common is
included in a registration statement under Section 2.1 or 2.2 hereof.

 

7.1                                 Indemnification by Company.  To the fullest extent permitted by law, the
Company will indemnify and hold harmless each Holder of Registrable Common
which are included in a registration statement pursuant to the provisions
hereof, its directors, officers, partners, shareholders and legal counsel and
any underwriter (as defined in the Securities Act) for such Holder and each
Person, if any, who controls such Holder or such underwriter within the meaning
of the Securities Act, from and against, and will reimburse such Holder and
each such underwriter and controlling Person with

 

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respect to, any and all
loss, damage, claims or liability (collectively, “Losses”),
joint or several, to which any of them may become subject under the Securities
Act, state securities laws or otherwise, and the Company will pay to each such
Holder, director, officer, partner, shareholder, legal counsel, underwriter or
controlling person any legal or other costs or expenses reasonably incurred by
such person in connection with investigating or defending any such Loss,
insofar as such Losses are caused by any untrue or alleged untrue statement of
any material fact contained in such registration statement, any prospectus
contained therein or any amendment or supplement thereto, or arise out of or
are based upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances in which they were made, not misleading; provided,
however, that the Company will not be liable in any such case to the extent
that any such Loss arises out of or is based upon an untrue statement or
omission so made in conformity with information furnished by such Holder,
director, officer, partner, shareholder, legal counsel, such underwriter or
such controlling Person; provided further, however, that the indemnity
agreement in this Section 7.1 shall not apply to amounts paid in
settlement of any such Loss if such settlement is effected without the consent
of the Company, which consent shall not be unreasonably withheld, and that the
foregoing indemnity obligation with respect to any preliminary prospectus shall
not inure to the benefit of any Holder on account of any Loss whatsoever
arising from the sale of any Registrable Common by such Holder to any person if
(A) a copy of the prospectus (as amended or supplemented if such amendments or
supplements shall have been furnished to such Holder prior to the confirmation
of the sale involved) shall not have been sent or given by or on behalf of such
Holder to such person, if required by law, with or prior to the written
confirmation of the sale involved, and (B) the untrue statement or omission of
a material fact contained in such preliminary prospectus from which such Loss
arose was corrected in the prospectus (as amended or supplemented if such
amendments or supplements thereto shall have been furnished as aforesaid).

 

7.2                                 Indemnification by Holders.  Each Holder of Registrable Common which is
included in a registration statement pursuant to the provisions hereof will
indemnify and hold harmless the Company, its directors and officers, each
Person, if any, who controls the Company within the meaning of the Securities
Act, any other Holder selling securities pursuant to such registration
statement, any controlling Person of any such selling Holder, any underwriter
and any controlling Person of any such underwriter (each, an “Indemnitee”) from and against, and will reimburse any
Indemnitee with respect to, any and all Losses to which such Indemnitee may
become subject under the Securities Act, state securities laws or otherwise,
and the Holder will pay to each such Indemnitee any legal or other costs or
expenses reasonably incurred by such person in connection with investigating or
defending any such Loss, insofar as such Losses are caused by any untrue or
alleged untrue statement of any material fact contained in such registration
statement, any prospectus contained therein or any amendment or supplement thereto,
or arise out of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading, in each

 

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case to the extent, but
only to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was so made in reliance upon and in conformity
with information furnished in writing by such Holder to the Company
specifically for use in the preparation thereof, and provided, however, that
the indemnity agreement in this Section 7.2 shall not apply to amounts
paid in settlement of any such Loss if such settlement is effected without the
consent of the indemnifying Holder, which consent shall not be unreasonably
withheld, and that the foregoing indemnity obligation with respect to any
preliminary prospectus shall not inure to the benefit of the Company on account
of any Loss whatsoever arising from the sale of any Registrable Common by the
Holder to any person if (A) a copy of the prospectus (as amended or
supplemented if such amendments or supplements shall have been furnished to
such Holder prior to the confirmation of the sale involved) shall not have been
sent or given by or on behalf of such Holder to such person, if required by
law, with or prior to the written confirmation of the sale involved, and (B)
the untrue statement or alleged untrue statement or omission or alleged
omission of a material fact contained in such preliminary prospectus from which
such Loss arose was corrected in the prospectus (as amended or supplemented if
such amendments or supplements thereto shall have been furnished as aforesaid);
provided, further that the obligations of such Holders under this
Section 7.2 shall be limited to an amount equal to the net proceeds
received by each such Holder of Registrable Common sold as contemplated herein.

 

7.3                                 Indemnification Procedures.  Promptly after receipt by a party entitled to
indemnification pursuant to this Section 7 (each, an “Indemnified
Party”) of notice of the commencement of any action involving the
subject matter of the foregoing indemnity provisions such Indemnified Party
will, if a claim is to be made against the party obligated to provide
indemnification pursuant to this Section 7 (each, an “Indemnifying
Party”), promptly notify the Indemnifying Party of the commencement
thereof; but the omission to provide such notice will not relieve the Indemnifying
Party from any liability hereunder, except to the extent that the delay in
giving, or failing to give, such notice has a material adverse effect upon the
ability of the Indemnifying Party to defend against the claim.  In case such action is brought against an
Indemnified Party, the Indemnifying Party shall have the right to participate
in and, at the Indemnifying Party’s option, to assume the defense thereof,
singly or jointly with any other Indemnifying Party similarly notified, with
counsel satisfactory to the Indemnified Party; provided, however, that if the
defendants in any action include both the Indemnified Party and the
Indemnifying Party and the Indemnified Party shall have reasonably concluded
that there may be legal defenses available to any Indemnified Parties that are
different from or additional to those available to the Indemnifying Party, or
if there is a conflict of interest which would prevent counsel for the
Indemnifying Party from also representing the Indemnified Party, the Indemnified
Party shall have the right to select counsel to participate in the defense of
such action on behalf of such Indemnified Party at the expense of the
Indemnifying Party; provided that the Indemnifying Party shall be responsible
for the expense of only one such special counsel selected jointly by the
Indemnified Parties, if there is more than one Indemnified Party.  After notice from an Indemnifying Party to
any Indemnified Party of such Indemnifying Party’s election to assume the
defense or the action, the Indemnifying

 

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Party will not be liable
to such Indemnified Party pursuant to this Section 7 for any legal or
other expense subsequently incurred by such Indemnified Party in connection
with the defense thereof other than reasonable costs of investigation, unless
(i) the Indemnified Party shall have employed counsel in accordance with the
proviso of the preceding sentence, or (ii) the Indemnifying Party shall not
have employed counsel satisfactory to the Indemnified Party to represent the
Indemnified Party within a reasonable time after the notice of the commencement
of the action, or (iii) the Indemnifying Party has authorized the employment of
counsel for the Indemnified Party at the expense of the Indemnifying Party.

 

Section 8.                                          Exceptions
to and Termination of Registration Obligations.  The Company shall not be obligated to (a)
honor a request or a demand to register its Registrable Common under either
Section 2.1 or Section 2.2 if all such Registrable Common which could
be registered pursuant to such demand is otherwise eligible for immediate sale
by the Holder thereof under Rule 144 promulgated under the Securities Act or
(b) effect a registration during the Lock-Out Period.  Pursuant to Section 10 below, the
Company shall not be obligated to effect a registration until the expiration of
the Lock-Out Period.  The Company shall
also not be obligated to effect a registration if the Company delivers to the
holders of the Registrable Securities within thirty (30) days of any
Registration Request notice permitted by Section 2.2.3 and so files within
such period described in the notice. 
This Agreement, and the registration rights set forth herein, shall terminate
on the earlier to occur of (a) a date that is two (2) years following the
closing of the Company’s Reverse Merger Transaction or (b) at any time
following the Company’s Reverse Merger Transaction that all Holders who make
demand for registration hereunder are able to sell their entire holdings during
any ninety (90) day period under Rule 144(k).

 

Section 9.                                          Cooperation.  Any Holder whose Registrable Common are to be
included in a Registration Statement either filed pursuant to a demand or as
part of a Company registration agrees to cooperate with all reasonable requests
by the Company necessary to effectuate the purposes of this Agreement,
including by timely providing the Company with all information necessary to
file a registration statement.

 

Section 10.                                   “Lock-Out” Agreement.  Each Holder hereby agrees that, following the
effective date of a registration of the Company’s securities (or securities of
the Public Company) under the Securities Act, for the period of time not to
exceed ninety (90) days following the effective date of any registration
statement whether to register securities acquired in connection with the
Company’s PIPE Transaction, the Company’s Capital Raising Transaction, or the
Company’s IPO and to the extent requested by the Company’s underwriter(s) or
placement agent, such Holder shall not sell, offer to sell, contract to sell
(including, without limitation, any short sale), grant any option to purchase
or otherwise transfer or dispose of any securities of the Company (or the
Public Company) held by such Holder, directly or indirectly, whether through
trade in the public securities markets, OTCBB or private transactions or
through any other means, except transfers to donees who agree to be similarly
bound) during the Lock-Out Period.  Each

 

11

 

Holder acknowledges and
agrees that the Company may impose stop-transfer instructions during such
Lock-Out Period with respect to the securities of each Holder subject to this
restriction if necessary to enforce such restrictions.

 

Section 11.                                   Miscellaneous.

 

11.1                           Waivers, Amendments and Approvals.  In each case in which the approval of the
Holders is required by the terms of this Agreement, such requirement shall be
satisfied by a vote or the written action of Holders of at least a majority of the Registrable Common,
unless a higher percentage is specifically required by the terms of this
Agreement.  Any term or provision of this
Agreement requiring performance by or binding upon the Company or Holders may
be amended, and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only by a writing signed by the Company and the Holders of at
least a majority of the then outstanding Registrable Common.  Any amendment or waiver effected in
accordance with this Section shall be binding upon the Holders (including
permitted assigns pursuant to Section 11.9 hereof).  The waiver by a party of any breach hereof or
default in payment of any amount due hereunder or default in the performance
hereof shall not be deemed to constitute a waiver of any other default or
succeeding breach or default.  Written
notice of any such waiver, consent or agreement of amendment, modification or
supplement shall be given to the record Holders of Registrable Common who did
not give written consent thereto.

 

11.2                           Written Changes, Waivers, Etc.  Neither this Agreement nor any provision
hereof may be changed, waived, discharged or terminated orally, but only by a
statement in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought, except to the extent
provided in Section 11.1.

 

11.3                           Notices.  All notices, demands or other communications
to be given or delivered under or by reason of the provisions of this Agreement
shall be in writing and shall be deemed to have been given when delivered
personally to the recipient, sent to the recipient by reputable overnight
courier service (charges prepaid), mailed to the recipient by certified or registered
mail, return receipt requested and postage prepaid, or transmitted by facsimile
or electronic mail (with request for immediate confirmation of receipt in a
manner customary for communications of such type and with physical delivery of
the communication being made by one of the other means specified in this
section as promptly as practicable thereafter), as follows:

 

11.3.1                  To
a Holder, addressed to such Holder at the address(es) set forth on Schedule 1
hereto.

 

12

 

11.3.2      To
the Company, to:

 

Southwest Casino and
Hotel Corp.

Attention:  Thomas E. Fox, President

2001 Killebrew Drive,
Suite 306

Minneapolis, MN  55425

Facsimile:   952-853-9991

Telephone:  952-853-9990

 

Any party may change its
address for such communications by giving notice thereof to the other parties
in conformity with this Section.

 

11.4                           Delays or Omissions.  Except as expressly provided herein, no delay
or omission to exercise any right, power or remedy accruing to any party under this
Agreement shall impair any such right, power or remedy of such party nor shall
it be construed to be a waiver of any such breach or default, or an
acquiescence thereto, or of a similar breach of default thereafter occurring;
nor shall any waiver of any single breach or default be deemed a waiver of any
other breach or default theretofore or thereafter occurring.  Any waiver, permit, consent or approval of
any kind or character on the part of any party hereto of any breach of default
under the Agreement, or any waiver on the part of any party of any provisions
or conditions of this Agreement, must be in writing and shall be effective only
to the extent specifically set forth in such writing.

 

11.5                           Other Remedies.  Any and all remedies herein expressly conferred
upon a party shall be deemed cumulative with, and not exclusive of, any other
remedy conferred hereby or by law on such party, and the exercise of any one
remedy shall not preclude the exercise of any other.

 

11.6                           Attorneys’ Fees.  Should suit be brought to enforce or
interpret any part of this Agreement, the prevailing party shall be entitled to
recover, as an element of the costs of suit and not as damages, reasonable
attorneys’ fees to be fixed by the court (including, without limitation, costs,
expenses and fees on any appeal).  The
prevailing party shall be the party entitled to recover its costs of suit,
regardless of whether such suit proceeds to final judgment.  A party not entitled to recover its costs
shall not be entitled to recover attorneys’ fees.  No sum for attorneys’ fees shall be counted
in calculating the amount of a judgment for purposes of determining if a party
is entitled to recover costs or attorneys’ fees.

 

11.7                           Entire Agreement.  This Agreement, the schedules hereto, the
documents referenced herein and the exhibits thereto, constitute the entire
understanding and agreement of the parties hereto with respect to the subject
matter hereof and thereof and supersede all prior and contemporaneous
agreements or understandings, inducements or conditions, express or implied,
written or oral, between the parties with respect hereto and thereto.  The express terms hereof control and
supersede any course of performance or usage of the trade inconsistent with any
of the terms hereof.

 

13

 

11.8                           Severability.  Should any one or more of the provisions of
this Agreement or of any agreement entered into pursuant to this Agreement be
determined to be illegal or unenforceable, all other provisions of this
Agreement and of each other agreement entered into pursuant to this Agreement,
shall be given effect separately from the provision or provisions determined to
be illegal or unenforceable and shall not be affected thereby.

 

11.9                           Successors and Assigns.  The terms and conditions of this Agreement
shall inure to the benefit of, and be binding upon and be enforceable by, the
respective heirs, successors and assigns of the parties hereto; provided,
however, that if notice is given to the Company, the rights of a Holder
hereunder may be assigned only (i) to a partner or retired partner of the
assigning Holder if such assigning Holder is a partnership or to any affiliate
of an assigning Holder which is also an accredited investor within the meaning
of the Securities Act, (ii) to any family member of, or trust for the benefit
of, the assigning Holder, (iii) to any affiliated entities of the assigning
Holder if such affiliated entities are managed by the same manager or managing
partner or management company, or managed by an entity controlling, controlled
by or under common control with such manager, managing partner or management
company, or (iv) concurrent with the sale or transfer to such assignee of at
least 25,000 shares (subject to
adjustment for any stock dividend, stock split, subdivision, combination or
other recapitalization of the Company) of the Registrable Common then held by
such Holder.  Any Holder making an
assignment in connection with the sale or transfer of only a portion of its
shares shall retain its rights under this Agreement for the shares not sold or
transferred.  Nothing in this Agreement,
express or implied, is intended to confer upon any party, other than the
parties hereto or their respective successors and assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement. 
Notwithstanding any provision contained elsewhere in this Agreement,
upon the transfer of shares by any of the parties hereto, no claims or causes
of action arising out of or related to this Agreement existing as of the
transfer date shall be transferred by such party to any respective heir,
successor, assign or permitted transferee, provided that the transfer of shares
shall not be deemed a waiver by the transferring party of any such claim or
cause of action.

 

11.10                     Assignment to and Assumption by Parent Company.  Company covenants and agrees to include as a
condition precedent to consummation of the Reverse Merger Transaction with the
Public Company in any definitive merger agreement entered into with the Public
Company that the Public Company will expressly assume this Registration Rights
Agreement and will succeed to and be substituted for the Company, with the same
effect as if the Public Company had been named in this Agreement in the
Company’s place.

 

11.11                     Governing Law.  This Agreement shall be governed by and
construed under the laws of the State of Minnesota.

 

14

 

11.12                     Counterparts. This Agreement may be
executed concurrently in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.

 

(BALANCE OF
PAGE INTENTIONALLY BLANK)

 

15

 

IN
WITNESS WHEREOF, this Agreement is hereby executed as of the date first written
above.

 

	
  COMPANY:

  	
  SOUTHWEST CASINO AND HOTEL
  CORP.

  
	
   

  	
   

  
	
   

  	
  By:

  	
       /s/

  	
   

  
	
   

  	
  Its:

  	
   

  	
   

  
	
   

  	
   

  
	
  8% CONVERTIBLE DEMAND NOTE
  INVESTORS:

  	
  /s/

  	
   

  
	
   

  	
  James Lazzarini

  
	
   

  	
   

  
	
   

  	
  Neil V. Moody Revocable
  Trust dated 2/9/95

  
	
   

  	
   

  
	
   

  	
  By:

  	
       /s/

  	
   

  
	
   

  	
  Its:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/

  	
   

  
	
   

  	
  Ted Swindells

  
	
   

  	
   

  
	
   

  	
  Flynn 1995 Revocable
  Trust

  
	
   

  	
   

  
	
   

  	
  By:

  	
       /s/

  	
   

  
	
   

  	
  Its:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/

  	
   

  
	
   

  	
  Gary Lingbeck

  
	
   

  	
   

  
	
   

  	
  The Gary Fears Trust

  
	
   

  	
   

  
	
   

  	
  By:

  	
       /s/

  	
   

  
	
   

  	
  Its:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Kevin F. Flynn June 1992
  Non-Exempt Trust

  
	
   

  	
   

  
	
   

  	
  By:

  	
       /s/

  	
   

  
	
   

  	
  Its:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/

  	
   

  
	
   

  	
  Eric Golting

  
	
   

  	
   

  
	
   

  	
  /s/

  	
   

  
	
   

  	
  Daniel Ryweck

  
	
   

  	
   

  
	
   

  	
  /s/

  	
   

  
	
   

  	
  Daniel Boyle

  

 

16

 

	
   

  	
  /s/

  	
   

  
	
   

  	
  Paul T. Donnelly

  
	
   

  	
   

  
	
   

  	
  /s/

  	
   

  
	
   

  	
  John P. McMahon

  
	
   

  	
   

  
	
   

  	
  /s/

  	
   

  
	
   

  	
  Victor Casini

  
	
   

  	
   

  
	
   

  	
  Keith J. Skibicki
  Revocable Trust

  
	
   

  	
   

  
	
   

  	
  By:

  	
       /s/

  	
   

  
	
   

  	
  Its:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/

  	
   

  
	
   

  	
  Richard Stubbs

  
	
   

  	
   

  
	
   

  	
  Stubbvo Partners, LLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
       /s/

  	
   

  
	
   

  	
  Its:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Chicago Real Estate
  Consulting Group, LLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
       /s/

  	
   

  
	
   

  	
  Its:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/

  	
   

  
	
   

  	
  Gerald Klasen

  
	
   

  	
   

  
	
   

  	
  /s/

  	
   

  
	
   

  	
  Robert Moore

  
	
   

  	
   

  
	
   

  	
  /s/

  	
   

  
	
   

  	
  William W. Koop III

  
	
   

  	
   

  
	
   

  	
  /s/

  	
   

  
	
   

  	
  Robert Koch

  
	
   

  	
   

  
	
   

  	
  /s/

  	
   

  
	
   

  	
  Stephen F. LaBelle

  

 

[SIGNATURE PAGE TO
THE REGISTRATION RIGHTS AGREEMENT]

 

17

 

SCHEDULE 1

 

LIST OF HOLDERS OF 8% CONVERTIBLE DEMAND NOTES

 

Names and
Addresses of Holders of

8% Convertible Demand Notes

 

	
  James Lazzarini

  
	
  [need address]

  
	
   

  
	
  Neil V. Moody Revocable
  Trust dated 2/9/95

  
	
  100 Sands Point Road
  #305

  
	
  Longboat Key, FL  34228

  
	
   

  
	
  Ted Swindells

  
	
  11400 S.E. 8th Street

  
	
  Suite 420

  
	
  Bellevue, WA  98004

  
	
   

  
	
  Flynn 1995 Revocable Trust

  
	
  203 Bluff Cove

  
	
  San Antonio, TX  78216

  
	
   

  
	
  Gary Lingbeck

  
	
  146 Interlachen Lane NW

  
	
  Rochester, MN  55901

  
	
   

  
	
  The Gary Fears Trust

  
	
  9 Gateway Drive

  
	
  Collinsville, IL  62234

  
	
   

  
	
  Kevin F. Flynn June 1992
  Non-Exempt Trust

  
	
  120 North LaSalle
  Street

  
	
  Suite 3300

  
	
  Chicago, IL  60602

  
	
   

  
	
  Eric Golting

  
	
  10700 East Bethany
  Drive #200

  
	
  Aurora, CO  80114

  
	
   

  
	
  Daniel Ryweck

  
	
  10125 Crosstown Circle
  #210

  
	
  Eden Prairie, MN  55344

  
	
   

  
	
  Daniel Boyle

  
	
  833 Race Street

  
	
  Denver, CO  80206

  
	
   

  
	
  Paul T. Donnelly

  
	
  151 Prairie Avenue

  
	
  Wilmette, IL  60091

  
	
   

  
	
  John P. McMahon

  
	
  71 Sheridan Avenue

  
	
  Clarendon Hills,
  IL  60514

  

 

 

	
  Victor Casini

  
	
  676 North Michigan
  Avenue

  
	
  Suite 3300

  
	
  Chicago, IL  60611

  
	
   

  
	
  Keith J. Skibicki
  Revocable Trust

  
	
  511 North Grant Street

  
	
  Hinsdale, IL  60521

  
	
   

  
	
  Richard Stubbs

  
	
  4279 Marlow Cr.

  
	
  Colorado Springs,
  CO  80916

  
	
   

  
	
  Stubbvo Partners, LLC

  
	
  4279 Marlow Cr.

  
	
  Colorado Springs,
  CO  80916

  
	
   

  
	
  Chicago Real Estate
  Consulting Group, LLC

  
	
  444 North Michigan

  
	
  Suite 25000

  
	
  Chicago, IL  60611

  
	
   

  
	
  Gerald Klasen

  
	
  1434 182nd
  Avenue

  
	
  New Richmond, WI  54017

  
	
   

  
	
  Robert Moore

  
	
  4225 Pineview Lane

  
	
  Plymouth, MN  55442

  
	
   

  
	
  William W. Koop III

  
	
  13551 Kerry Lane

  
	
  Eden Prairie, MN  55346

  
	
   

  
	
  Robert Koch

  
	
  316 Spruce Street

  
	
  San Francisco, CA  94118

  
	
   

  
	
  Stephen F. LaBelle

  
	
  2305 Indian Road West

  
	
  Minnetonka, MN  55305Exhibit
10.1

 

SOUTHWEST CASINO AND HOTEL CORP.

2004 STOCK INCENTIVE PLAN

 

1.             Purpose
of Plan.

 

The purpose of the
Southwest Casino and Hotel Corp. 2004 Stock Incentive Plan (the “Plan”) is to
advance the interests of Southwest Casino and Hotel Corp. (the “Company”) and
its shareholders by enabling the Company and its Subsidiaries to attract and
retain persons of skill and ability to perform services for the Company and its
Subsidiaries by providing an incentive to such individuals through equity
participation in the Company and by rewarding such individuals who contribute
to the achievement by the Company of its economic objectives.

 

2.             Definitions.

 

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

 

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

 

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

 

2.3           “Change in Control”
means an event described in Section 13.1 of the Plan.

 

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

 

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

 

2.6           “Common Stock”
means the common stock of the Company, $.01 par value, or the number and kind
of shares of stock or other securities into which such common stock may be
changed in accordance with Section 4.3 of the Plan.

 

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

 

2.8           “Eligible Recipients”
means all employees of the Company or any Subsidiary and any non-employee directors,
consultants and independent contractors of the Company or any Subsidiary.

 

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

 

 

2.10         “Fair Market Value”
means, with respect to the Common Stock, as of any date (or, if no shares were
traded or quoted on such date, as of the next preceding date on which there was
such a trade or quote) (a) the mean between the reported high and low sale
prices of the Common Stock if the Common Stock is listed, admitted to unlisted
trading privileges or reported on any foreign or national securities exchange
or on the Nasdaq National Market or an equivalent foreign market on which sale
prices are reported; (b) if the Common Stock is not so listed, admitted to
unlisted trading privileges or reported, the closing bid price as reported by
the Nasdaq SmallCap Market, OTC Bulletin Board or the National Quotation
Bureau, Inc. or other comparable service; or (c) if the Common Stock is not so
listed or reported, such price as the Committee determines in good faith in the
exercise of its reasonable discretion.

 

2.11         “Incentive Award”
means an Option, Stock Appreciation Right, Restricted Stock Award, Performance
Unit or Stock Bonus granted to an Eligible Recipient pursuant to the Plan.

 

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

 

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

 

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

 

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

 

2.16         “Performance Unit”
means a right granted to an Eligible Recipient pursuant to Section 9 of
the Plan to receive a payment from the Company, in the form of stock, cash or a
combination of both, upon the achievement of established employment, service,
performance or other goals.

 

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

 

2.18         “Restricted Stock
Award” means an award of Common Stock granted to an Eligible Recipient
pursuant to Section 8 of the Plan that is subject to the restrictions on
transferability and the risk of forfeiture imposed by the provisions of such
Section 8.

 

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

 

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

 

2

 

2.21         “Stock Appreciation
Right” means a right granted to an Eligible Recipient pursuant to Section 7
of the Plan to receive a payment from the Company, in the form of stock, cash
or a combination of both, equal to the difference between the Fair Market Value
of one or more shares of Common Stock and the exercise price of such shares
under the terms of such Stock Appreciation Right.

 

2.22         “Stock Bonus”
means an award of Common Stock granted to an Eligible Recipient pursuant to
Section 10 of the Plan.

 

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

 

2.24         “Tax Date” means
the date any withholding tax obligation arises under the Code or other
applicable tax statute for a Participant with respect to an Incentive Award.

 

3.             Plan
Administration.

 

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

 

3.2           Authority of the
Committee.

 

(a)           In accordance with and
subject to the provisions of the Plan, the Committee will have the authority to
determine all provisions of Incentive Awards as the Committee may deem
necessary or desirable and as consistent with the terms of the Plan, including,
without limitation, the following: (i) the Eligible Recipients to be
selected as Participants; (ii) the nature and extent of the Incentive Awards to
be made to each Participant (including the number of shares of Common Stock to
be subject to each

 

3

 

Incentive Award, any
exercise price, the manner in which Incentive Awards will vest or become
exercisable and whether Incentive Awards will be granted in tandem with other
Incentive Awards) and the form of written agreement, if any, evidencing such
Incentive Award; (iii) the time or times when Incentive Awards will be granted;
(iv) the duration of each Incentive Award; and (v) the restrictions and
other conditions to which the payment or vesting of Incentive Awards may be
subject.  In addition, the Committee will
have the authority under the Plan in its sole discretion to pay the economic
value of any Incentive Award in the form of cash, Common Stock or any
combination of both.

 

(b)           The Committee will have
the authority under the Plan to amend or modify the terms of any outstanding
Incentive Award in any manner, including, without limitation, the authority to
modify the number of shares or other terms and conditions of an Incentive
Award, extend the term of an Incentive Award, accelerate the exercisability or
vesting or otherwise terminate any restrictions relating to an Incentive Award,
accept the surrender of any outstanding Incentive Award or, to the extent not
previously exercised or vested, authorize the grant of new Incentive Awards in
substitution for surrendered Incentive Awards; provided, however that the
amended or modified terms are permitted by the Plan as then in effect and that
any Participant adversely affected by such amended or modified terms has
consented to such amendment or modification. 
No amendment or modification to an Incentive Award, however, whether
pursuant to this Section 3.2 or any other provisions of the Plan, will be
deemed to be a re-grant of such Incentive Award for purposes of this Plan.

 

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

 

4.             Shares
Available for Issuance.

 

4.1           Maximum Number of
Shares Available.  Subject to
adjustment as provided in Section 4.3 of the Plan or by amendment, the
maximum number of shares of Common Stock that will be available for issuance
under the Plan will be 3,000,000 shares. 
Notwithstanding any other provisions of the Plan to the contrary, no
Participant in the Plan may be granted any Options or Stock Appreciation
Rights, or any other Incentive Awards with a value basked solely on an increase
in the value of the Common Stock after the date of grant, relating to more than

 

4

 

300,000 shares of Common Stock in the aggregate in any
fiscal year of the Company (subject to adjustment as provided in Section 4.3 of
the Plan).

 

4.2           Accounting for
Incentive Awards.  Shares of Common
Stock that are issued under the Plan or that are subject to outstanding
Incentive Awards will be applied to reduce the maximum number of shares of
Common Stock remaining available for issuance under the Plan.  Any shares of Common Stock that are subject
to an Incentive Award that lapses, expires, is forfeited or for any reason are
terminated unexercised or unvested and any shares of Common Stock that are
subject to an Incentive Award that is settled or paid in cash or any form other
than shares of Common Stock will automatically again become available for
issuance under the Plan.  Any shares of
Common Stock that constitute the forfeited portion of a Restricted Stock Award
will not become available for re-issuance under the Plan after they have been
so forfeited.

 

4.3           Adjustments to
Shares and Incentive Awards.  In the
event of any reorganization, merger, consolidation, recapitalization,
liquidation, reclassification, stock dividend, stock split, combination of
shares, rights offering, divestiture or extraordinary dividend (including a
spin-off) or any other similar change in the corporate structure or shares of
the Company, the Committee (or, if the Company is not the surviving corporation
in any such transaction, the board of directors of the surviving corporation)
will make appropriate adjustment (which determination will be conclusive) as to
the number and kind of securities or other property (including cash) available
for issuance or payment under the Plan and, in order to prevent dilution or
enlargement of the rights of Participants, (a) the number and kind of
securities or other property (including cash) subject to outstanding Incentive
Awards; and (b) the exercise price of outstanding Options and Stock Appreciation
Rights.

 

5.             Participation.

 

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

 

6.             Options.

 

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

 

6.2           Exercise Price.  The per share price to be paid by a
Participant upon exercise of an Option will be determined by the Committee in
its discretion at the time of the Option grant; provided, however, that (a)
such price will not be less than 100% of the Fair Market Value of one

 

5

 

share of Common Stock on the date of grant with respect
to an Incentive Stock Option (110% of the Fair Market Value if, at the time the
Incentive Stock Option is granted, the Participant owns, directly or
indirectly, more than 10% of the total combined voting power of all classes of
stock of the Company or any parent or subsidiary corporation of the Company),
and (b) such price will not be less than 85% of the Fair Market Value of one
share of Common Stock on the date of grant with respect to a Non-Statutory
Stock Option.

 

6.3           Exercisability and
Duration.  An Option will become
exercisable at such times and in such installments as may be determined by the
Committee in its sole discretion at the time of grant; provided, however, that
no Incentive Stock Option may be exercisable after ten (10) years from its date
of grant (five (5) years from its date of grant if, at the time the Incentive
Stock Option is granted, the Participant owns, directly or indirectly, more
than 10% of the total combined voting power of all classes of stock of the
Company or any parent or subsidiary corporation of the Company).

 

6.4           Payment of Exercise
Price.  The total purchase price of
the shares to be purchased upon exercise of an Option will be paid entirely in
cash (including check, bank draft or money order); provided, however, that the
Committee, in its sole discretion and upon terms and conditions established by
the Committee, may allow such payments to be made, in whole or in part, by
tender of a Broker Exercise Notice, Previously Acquired Shares, a promissory
note (on terms acceptable to the Committee in its sole discretion) or by a
combination of such methods.  For
purposes of such payment, Previously Acquired Shares tendered or covered by an
attestation will be valued at their Fair Market Value on the exercise date.

 

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

 

6.6           Aggregate Limitation
of Stock Subject to Incentive Stock Options.  To the extent that the aggregate Fair Market
Value (determined as of the date an Incentive Stock Option is granted) of the
shares of Common Stock with respect to which incentive stock options (within
the meaning of Section 422 of the Code) are exercisable for the first time by a
Participant during any calendar year (under the Plan and any other incentive
stock option plans of the Company or any subsidiary or parent corporation of the
Company (within the meaning of the Code)) exceeds $100,000 (or such other
amount as may be prescribed by the Code from time to time), such excess Options
will be treated as Non-Statutory Stock Options. 
The determination will be made by taking incentive stock options into
account in the order in which they were granted.  If such excess only applies to a portion of
an Incentive Stock Option, the Committee, in its discretion, will designate
which shares will be treated as shares to be acquired upon exercise of an
Incentive Stock Option.

 

7.             Stock Appreciation
Rights.

 

7.1           Grant.  An Eligible Recipient may be granted one or
more Stock Appreciation Rights under the Plan, and such Stock Appreciation
Rights will be subject to such terms and conditions, consistent with the other
provisions of the Plan, as may be determined by the

 

6

 

Committee in its sole discretion.  The Committee will have the sole discretion
to determine the form in which payment of the economic value of Stock
Appreciation Rights will be made to a Participant (i.e.,
cash, Common Stock or any combination thereof) or to consent to or disapprove
the election by a Participant of the form of such payment.

 

7.2           Exercise Price.  The exercise price of a Stock Appreciation
Right will be determined by the Committee, in its discretion, at the date of
grant but may not be less than 100% of the Fair Market Value of one share of
Common Stock on the date of grant.

 

7.3           Exercisability and
Duration.  A Stock Appreciation Right
will become exercisable at such time and in such installments as may be
determined by the Committee in its sole discretion at the time of grant;
provided, however, that no Stock Appreciation Right may be exercisable after
ten (10) years from its date of grant.  A
Stock Appreciation Right will be exercised by giving notice in the same manner
as for Options, as set forth in Section 6.5 of the Plan.

 

8.             Restricted
Stock Awards.

 

8.1           Grant.  An Eligible Recipient may be granted one or
more Restricted Stock Awards under the Plan, and such Restricted Stock Awards
will be subject to such terms and conditions, consistent with the other
provisions of the Plan, as may be determined by the Committee in its sole
discretion.  The Committee may impose
such restrictions or conditions, such as a repurchase option or forfeiture, not
inconsistent with the provisions of the Plan, to the vesting of or the lapse of
restrictions or conditions for any such Restricted Stock Awards as it deems
appropriate, including, without limitation, that the Participant remain in the
continuous employ or service of the Company or a Subsidiary for a certain
period or that the Participant or the Company (or any Subsidiary or division
thereof) satisfy certain performance goals or criteria.

 

8.2           Rights as a
Shareholder; Transferability.  Except
as provided in Sections 8.1, 8.3 and 14.3 of the Plan, a Participant will have
all voting, dividend, liquidation and other rights with respect to shares of
Common Stock issued to the Participant as a Restricted Stock Award under this
Section 8 upon the Participant becoming the holder of record of such
shares as if such Participant were a holder of record of shares of unrestricted
Common Stock.

 

8.3           Dividends and
Distributions.  Unless the Committee determines
otherwise in its sole discretion (either in the agreement evidencing the
Restricted Stock Award at the time of grant or at any time after the grant of
the Restricted Stock Award), any dividends or distributions (including regular
quarterly cash dividends) paid with respect to shares of Common Stock subject
to the unvested portion of a Restricted Stock Award will be subject to the same
restrictions as the shares to which such dividends or distributions
relate.  In the event the Committee
determines not to pay dividends or distributions currently, the Committee will
determine in its sole discretion whether any interest will be paid on such
dividends or distributions.  In addition,
the Committee in its sole discretion may require such dividends and distributions
to be reinvested (and in such case the Participant consents to such
reinvestment) in shares of Common Stock that will be subject to the same
restrictions as the shares to which such dividends or distributions relate.

 

8.4           Enforcement of
Restrictions.  To enforce the
restrictions referred to in this Section 8, the Committee may place a
legend on the stock certificates referring to such

 

7

 

restrictions and may require the Participant, until
the restrictions have lapsed, to keep the stock certificates, together with
duly endorsed stock powers, in the custody of the Company or its transfer agent
or to maintain evidence of stock ownership, together with duly endorsed stock
powers, in a certificateless book-entry stock account with the Company’s
transfer agent.

 

9.             Performance
Units.

 

An Eligible Recipient may
be granted one or more Performance Units under the Plan, and such Performance
Units will be subject to such terms and conditions, consistent with the other
provisions of the Plan, as may be determined by the Committee in its sole
discretion.  The Committee may impose
such restrictions or conditions, not inconsistent with the provisions of the
Plan, to the vesting of such Performance Units as it deems appropriate,
including, without limitation, that the Participant remain in the continuous
employ or service of the Company or any Subsidiary for a certain period or that
the Participant or the Company (or any Subsidiary or division thereof) satisfy
certain performance goals or criteria. 
The Committee will have the sole discretion to determine the form in
which payment of the economic value of Performance Units will be made to a
Participant (i.e., cash, Common Stock or any combination thereof) or to consent
to or disapprove the election by a Participant of the form of such payment.

 

10.           Stock
Bonuses.

 

An Eligible Recipient may
be granted one or more Stock Bonuses under the Plan, and such Stock Bonuses
will be subject to such terms and conditions, consistent with the other
provisions of the Plan, as may be determined by the Committee.  The Participant will have all voting,
dividend, liquidation and other rights with respect to the shares of Common
Stock issued to a Participant as a Stock Bonus under this Section 10 upon the
Participant becoming the holder of record of such shares; provided, however,
that the Committee may impose such restrictions on the assignment or transfer
of a Stock Bonus as it deems appropriate.

 

11.           Effect
of Termination of Employment or Other Service.

 

11.1         Termination Due to
Death, Disability or Retirement. 
Unless otherwise provided by the Committee in its sole discretion in the
agreement evidencing an Incentive Award, in the event a Participant’s
employment or other service with the Company and all Subsidiaries is terminated
by reason of death, Disability or Retirement:

 

(a)           All outstanding Options
and Stock Appreciation Rights then held by the Participant will remain
exercisable, to the extent exercisable as of the date of such termination, for
a period of six (6) months after such termination (but in no event after the
expiration date of any such Option or Stock Appreciation Right);

 

(b)           The restrictions (as
set forth in the Restricted Stock Award Agreement) applicable to [12.5%] of the unvested shares of any
Restricted Stock Award will immediately lapse and terminate and those shares
will become fully vested.  The balance of
the shares shall remain unvested and subject to the restrictions and repurchase
option as set forth in the Restricted Stock Award Agreement; and

 

8

 

(c)           All Performance Units
and Stock Bonuses then held by the Participant will vest and/or continue to
vest in the manner determined by the Committee and set forth in the agreement
evidencing such Performance Units or Stock Bonuses.

 

11.2         Termination for
Reasons Other than Death, Disability or Retirement.

 

(a)           Unless otherwise
provided by the Committee in its sole discretion in the agreement evidencing an
Incentive Award, in the event a Participant’s employment or other service is
terminated with the Company and all Subsidiaries for any reason other than
death, Disability or Retirement, or a Participant is in the employ or service
of a Subsidiary and the Subsidiary ceases to be a Subsidiary of the Company
(unless the Participant continues in the employ or service of the Company or
another Subsidiary), all rights of the Participant under the Plan and any
agreements evidencing an Incentive Award will immediately terminate, without
notice of any kind, and no Options or Stock Appreciation Rights then held by
the Participant will thereafter be exercisable, all Restricted Stock Awards
then held by the Participant that have not vested will be terminated and
forfeited, and all Performance Units and Stock Bonuses then held by the
Participant will vest and/or continue to vest in the manner determined by the
Committee and set forth in the agreement evidencing such Performance Units or
Stock Bonuses; provided, however, that if such termination is due to any reason
other than termination by the Company or any Subsidiary for “Cause,” all
outstanding Options and Stock Appreciation Rights then held by such Participant
will remain exercisable, to the extent exercisable as of such termination, for
a period of three (3) months after such termination (but in no event after the
expiration date of any such Option or Stock Appreciation Right).

 

(b)           For purposes of this
Section 11.2, “Cause” (as determined by the Committee) will be as defined in
any employment or other agreement or policy applicable to the Participant or,
if no such agreement or policy exists, will mean (i) dishonesty, fraud,
material misrepresentation, embezzlement or deliberate injury or attempted
injury, in each case related to the Company, any Subsidiary or the business of
any such entity; (ii) any unlawful or criminal activity of a serious nature;
(iii) any intentional and deliberate breach of a duty or duties that,
individually or in the aggregate, are material in relation to the Participant’s
overall duties; or (iv) any material breach of any employment, service,
confidentiality or non-compete agreement entered into with the Company or any
Subsidiary.  The Company may defer the
exercise or vesting of, or issuance of shares pursuant to, any Incentive Award
for a period of up to forty-five (45) days in order for the Committee to make
any determination as to the existence of “Cause.”

 

11.3         Modification of Rights
Upon Termination.  Notwithstanding
the other provisions of this Section 11, upon a Participant’s termination
of employment or other service with the Company and all Subsidiaries, the
Committee may, in its sole discretion (which may be exercised at any time on or
after the date of grant, including following such termination), cause Options
and Stock Appreciation Rights (or any part thereof) then held by such
Participant to become or continue to become exercisable and/or remain
exercisable following such termination of employment or service and Restricted
Stock Awards, Performance Units and Stock Bonuses then held by such Participant
to vest and/or continue to vest or become free of transfer restrictions, as the
case may be, following such termination of employment or service, in each

 

9

 

case in the manner determined by the Committee;
provided, however, that no Incentive Award may remain exercisable or continue
to vest beyond its expiration date.

 

11.4         Exercise of Incentive
Stock Options Following Termination. 
Any Incentive Stock Option that remains unexercised (and exercisable
pursuant to an agreement with the Company) more than one (1) year following
termination of employment by reason of Disability or more than three (3) months
following termination for any reason other than death or Disability will
thereafter be deemed to be a Non-Statutory Stock Option.

 

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

 

12.           Payment
of Withholding Taxes.

 

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

 

12.2         Special Rules.  The Committee may, in its sole discretion and
upon terms and conditions established by the Committee, permit or require a
Participant to satisfy, in whole or in part, any withholding or
employment-related tax obligation described in Section 12.1 of the Plan by
electing to tender Previously Acquired Shares, a Broker Exercise Notice or a
promissory note (on terms acceptable to the Committee in its sole discretion),
or by a combination of such methods.  For
purposes of such payment, Previously Acquired Shares tendered or covered by an
attestation will be valued at their Fair Market Value.

 

13.           Change
in Control.

 

13.1         Change in Control.  For purposes of this Section 13, a “Change in
Control” of the Company will mean the following:

 

(a)           the sale, lease,
exchange or other transfer, directly or indirectly, of substantially all of the
assets of the Company (in one transaction or in a series of related
transactions) to a person or entity that is not controlled by the Company;

 

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

 

10

 

(c)           any person becomes
after the effective date of the Plan the “beneficial owner” (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of (i) 20% or more, but
not 50% or more, of the combined voting power of the Company’s outstanding
securities ordinarily having the right to vote at elections of directors,
unless the transaction resulting in such ownership has been approved in advance
by the Continuity Directors (as defined in Section 13.2 below), or (ii) 50% or
more of the combined voting power of the Company’s outstanding securities
ordinarily having the right to vote at elections of directors (regardless of
any approval by the Continuity Directors); provided that a traditional
institution or venture capital financing transaction shall be excluded from
this definition;

 

(d)           a merger or
consolidation to which the Company is a party if the shareholders of the
Company immediately prior to effective date of such merger or consolidation
have “beneficial ownership” (as defined in Rule 13d-3 under the Exchange
Act), immediately following the effective date of such merger or consolidation,
of securities of the surviving corporation representing (i) more than 50%, but
less than 80%, of the combined voting power of the surviving corporation’s then
outstanding securities ordinarily having the right to vote at elections of
directors, unless such merger or consolidation has been approved in advance by
the Continuity Directors, or (ii) 50% or less of the combined voting power
of the surviving corporation’s then outstanding securities ordinarily having
the right to vote at elections of directors (regardless of any approval by the
Continuity Directors);

 

(e)           after the date the
Company’s securities are first sold in a registered public offering, the
Continuity Directors cease for any reason to constitute at least a majority of
the Board; or

 

(f)            any other change in
control of the Company of a nature that would be required to be reported
pursuant to Section 13 or 15(d) of the Exchange Act, whether or not the Company
is then subject to such reporting requirement.

 

13.2         Continuity Directors.  For purposes of this Section 13, “Continuity
Directors” of the Company will mean any individuals who are members of the
Board on the effective date of the Plan and any individual who subsequently
becomes a member of the Board whose election, or nomination for election by the
Company’s shareholders, was approved by a vote of at least a majority of the Continuity
Directors (either by specific vote or by approval of the Company’s proxy
statement in which such individual is named as a nominee for director without
objection to such nomination).

 

13.3         Acceleration of
Vesting.  Without limiting the
authority of the Committee under Sections 3.2 and 4.3 of the Plan, if a Change
in Control of the Company occurs whereby the acquiring entity or successor to
the Company does not assume the Incentive Awards or replace them with
substantially equivalent incentive awards, then, unless otherwise provided by
the Committee in its sole discretion in the agreement evidencing an Incentive
Award at the time of grant, as of the date of the Change of Control: (a) all
outstanding Options and Stock Appreciation Rights will vest and will become
immediately exercisable in full and will remain exercisable for the remainder
of their terms, regardless of whether the Participant to whom such Options or
Stock Appreciation Rights have been granted remains in the employ or service of
the Company or any Subsidiary or any acquiring entity or successor to the
Company; (b) all

 

11

 

outstanding
Restricted Stock Awards and Performance Units will become immediately fully
vested and non-forfeitable; and (c) all outstanding Stock Bonuses then held by
the Participant will vest and/or continue to vest in the manner determined by
the Committee and set forth in the agreement evidencing such Stock Bonuses.

 

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

 

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

 

(b)           with respect to any
granted and outstanding Option, the Fair Market Value of the shares of Common
Stock underlying such Option is less than or equal to the exercise price per
share of such Option as of the effective date of the applicable Change in
Control and the Option, therefore, shall terminate as of the effective date of
the applicable Change in Control.

 

If the Committee makes a
determination as set forth in subparagraph (a) of this Section 13.4, then as of
the effective date of any such Change in Control of the Company such Options will
terminate as to such shares and the Participants formerly holding such Options
will only have the right to receive such cash payment(s).  If the Committee makes a determination as set
forth in subparagraph (b) of this Section 13.4, then as of the effective date
of any such Change in Control of the Company such Options will terminate,
become void and expire as to all unexercised shares of Common Stock subject to
such Options on such date, and the Participants formerly holding such Options
will have no further rights with respect to such Options.

 

13.5         Limitation on Change
in Control Payments.  Notwithstanding
anything in Section 13.3 or 13.4 of the Plan to the contrary, if, with
respect to a Participant, the acceleration of the vesting of an Incentive Award
as provided in Section 13.3 or the payment of cash in exchange for all or
part of an Incentive Award as provided in Section 13.4 (which acceleration or
payment could be deemed a “payment” within the meaning of
Section 280G(b)(2) of the Code), together with any other “payments” that
such Participant has the right to receive from the Company or any corporation
that is a member of an “affiliated group” (as defined in Section 1504(a)
of the Code without regard to Section 1504(b) of the Code) of which the
Company is a member, would constitute a “parachute payment” (as defined in
Section 280G(b)(2) of the Code), then the “payments” to such Participant
pursuant to Section 13.3 or 13.4 of the Plan will be reduced to the largest
amount as will result in no portion of such “payments” being subject to the
excise tax imposed by Section 4999 of the Code; provided, however, that such
reduction shall be made only if the aggregate amount of the payments after such
reduction exceeds the difference between (a) the amount of such payments absent
such reduction minus (b) the aggregate amount of the excise tax imposed under
Section 4999 of the Code attributable to any such excess parachute
payments.  Notwithstanding the foregoing
sentence, if a Participant is subject to a separate agreement with the Company
or a Subsidiary

 

12

 

that expressly addresses the potential application of
Sections 280G or 4999 of the Code (including, without limitation, that
“payments” under such agreement or otherwise will be reduced, that the
Participant will have the discretion to determine which “payments” will be
reduced, that such “payments” will not be reduced or that such “payments” will
be “grossed up” for tax purposes), then this Section 13.5 will not apply, and
any “payments” to a Participant pursuant to Section 13.3 or 13.4 of the Plan
will be treated as “payments” arising under such separate agreement.

 

14.           Rights
of Eligible Recipients and Participants; Transferability.

 

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

 

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

 

14.3         Restrictions on
Transfer.  Except pursuant to
testamentary will or the laws of descent and distribution or as otherwise
expressly permitted by the Plan, unless approved by the Committee in its sole
discretion, no right or interest of any Participant in an Incentive Award prior
to the exercise or vesting of such Incentive Award will be assignable or
transferable, or subjected to any lien, during the lifetime of the Participant,
either voluntarily or involuntarily, directly or indirectly, by operation of
law or otherwise.  A Participant will,
however, be entitled to designate a beneficiary to receive an Incentive Award
upon such Participant’s death, and in the event of a Participant’s death,
payment of any amounts due under the Plan will be made to, and exercise of any
Options (to the extent permitted pursuant to Section 11 of the Plan) may
be made by, the Participant’s legal representatives, heirs and legatees.  If a deceased Participant has designated a
beneficiary and such beneficiary survives the Participant but dies before
complete payment of all amounts due under the Plan or exercise of all
exercisable Options, then such payments will be made to, and the exercise of
such Options may be made by, the legal representatives, heirs and legatees of
the beneficiary.

 

14.4         Breach of Confidentiality,
Assignment of Inventions or Non-Compete Agreements.  Notwithstanding anything in the Plan to the
contrary, in the event that a Participant materially breaches the terms of any
confidentiality, assignment of inventions or non-compete agreement entered into
with the Company or any Subsidiary, whether such breach occurs before or after
termination of such Participant’s employment or other service with the Company
or any Subsidiary, the Committee in its sole discretion may immediately
terminate all rights of the Participant under the Plan and any agreements
evidencing an Incentive Award then held by the Participant without notice of
any kind.

 

14.5         Non-Exclusivity of the
Plan.  Nothing contained in the Plan
is intended to modify or rescind any previously or subsequently approved
compensation plans or programs of the

 

13

 

Company or create any limitations on the power or
authority of the Board to adopt such additional or other compensation
arrangements as the Board may deem necessary or desirable.

 

15.           Securities
Law and Other Restrictions.

 

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

 

16.           Plan
Amendment, Modification and Termination.

 

The Board may suspend or
terminate the Plan or any portion thereof at any time, and may amend the Plan
from time to time in such respects as the Board may deem advisable in order
that Incentive Awards under the Plan will conform to any change in applicable laws
or regulations or in any other respect the Board may deem to be in the best
interests of the Company; provided, however, that no amendments to the Plan
will be effective without approval of the shareholders of the Company if
shareholder approval of the amendment is then required pursuant to Section 422
of the Code or the rules of any stock exchange or Nasdaq or similar regulatory
body.  No termination, suspension or
amendment of the Plan may adversely affect any outstanding Incentive Award
without the consent of the affected Participant; provided, however, that this
sentence will not impair the right of the Committee to take whatever action it
deems appropriate under Sections 3.2, 4.3 and 13 of the Plan.

 

17.           Effective
Date and Duration of the Plan.

 

The Plan is effective as
of June 30, 2004, the date it was adopted by the Board.  The Plan will terminate at midnight on June
29, 2014 and may be terminated prior to such time by Board action, and no
Incentive Award may be granted after such termination.  Incentive Awards outstanding upon termination
of the Plan may continue to be exercised, or become free of restrictions, in
accordance with their terms.

 

18.           Miscellaneous.

 

18.1         Governing Law.  The validity, construction, interpretation,
administration and effect of the Plan and any rules, regulations and actions
relating to the Plan will be governed by and construed exclusively in
accordance with the laws of the State of Minnesota, notwithstanding the
conflicts of laws principles of any jurisdictions.

 

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

 

14

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