Document:

Ex. 10.3 - PSA

Exhibit 10.3

RESTRICTED STOCK AGREEMENT
PERFORMANCE BASED VESTING

CARDIOVASCULAR SYSTEMS, INC.
2014 EQUITY INCENTIVE PLAN 

CARDIOVASCULAR SYSTEMS, INC., a Delaware corporation (the “Company”) has engaged _________________________ to maintain an online system to provide secure account access to participants receiving grants (each, a “Participant”) under, the Company’s 2014 Equity Incentive Plan (the “Plan”).  Each Participant has an account at _________________________ with an award summary (the “Award Summary”) disclosing the date of the award, the number of shares subject to each award and conditions of the vesting of the award.  This Agreement sets forth terms and conditions applicable to those awards set forth in the Award Summary that are subject to performance-based vesting.

W I T N E S S E T H:

WHEREAS, the Participant is, on the date of grant set forth in the Award Summary, a key employee, officer or director of, or a consultant or advisor to, the Company or a Subsidiary of the Company; and

WHEREAS, the Company wishes to grant a restricted stock award to the Participant for shares of the Company’s Common Stock pursuant to the Plan; and

WHEREAS, the Administrator of the Plan has authorized the grant of a restricted stock award to the Participant; 

NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained, the parties hereto agree as follows:

1.    Grant of Restricted Stock Award.  The Company hereby grants to the Participant on the date set forth in the Award Summary a restricted stock award (the “Award”) for the number of shares of Common Stock set forth in the Award Summary on the terms and conditions set forth in the Award Summary and this Agreement, which shares are subject to adjustment pursuant to Section 15 of the Plan.  The Company shall cause to be issued one or more stock certificates (or, upon request and if permitted in the Administrator’s discretion, an entry to be made in the books of the Company or its designated agent) representing such shares of Common Stock in the Participant’s name, and shall hold each such certificate until such time as the risk of forfeiture and other transfer restrictions set forth in this Agreement have lapsed with respect to the shares represented by the certificate.  The Company may also place a legend on such certificates describing the risks of forfeiture and other transfer restrictions set forth in this Agreement providing for the cancellation of such certificates if the shares of Common Stock are forfeited as provided in Section 2 below.  Until such risks of forfeiture have lapsed or the shares subject to this Award have been forfeited pursuant to Section 2 below, the Participant shall be entitled to vote the shares represented 

Exhibit 10.3

by such stock certificates and shall receive all dividends attributable to such shares, but the Participant shall not have any other rights as a shareholder with respect to such shares.

2.    Vesting of Restricted Stock.  For purposes of determining the whether the shares of Common Stock subject to this Award shall be forfeited by the Participant or vested upon the lapse of the risks of forfeiture, the following definitions shall apply:

		
	a.
	“Peer Group” shall mean that group of companies selected by the Company’s compensation consultant for purposes of comparing compensation or performance of the Peer Group to that of the Company.

		
	b.
	“Annual Revenue Growth” shall mean, (i) for the Company and any company in the Peer Group with a fiscal year ending on June 30, the percentage increase in revenue reported in the audited financial statements included in such company’s annual report on Form 10-K for the fiscal year ending on the June 30 immediately following the date of the Award, as compared to the revenue reported in the audited financial statements included in such company’s annual report on Form 10-K for the preceding fiscal year, and (ii) for any company in the Peer Group with a fiscal year not ending on June 30, the percentage increase in revenue for the 12 months ending on the June 30, immediately following the date of the Award, as determined by aggregating the revenue reported in such company’s quarterly reports on Form 10-Q and annual report on Form 10-K for the four quarters ending on the June 30 immediately following the date of the Award, as compared to the company’s aggregate revenue reported in such reports for the 12 months ending on June 30 of the preceding year.

		
	c.
	“90 Day Average Closing Price Beginning of Year” shall mean the average of the closing prices per share of the common stock of the Company or any company in the Peer Group, as applicable, for the 90 consecutive trading days following the June 30 immediately preceding the date of the Award, as reported by NASDAQ, or if such shares are not traded on NASDAQ, as reported by the principal stock market or automated quotation system on which such shares are traded.

		
	d.
	“90 Day Average Closing Price End of Year” shall mean the average of the closing prices per share of the common stock of the Company or any company in the Peer Group, as applicable, for the 90 consecutive trading days prior to the July 1 immediately following the date of the Award, as reported by NASDAQ, or if such shares are not traded on NASDAQ, as reported by the principal stock market or automated quotation system on which such shares are traded.

		
	e.
	“Total Shareholder Return” shall mean, for either the Company or any company in the Peer Group, as applicable, the product of (i) a fraction, the numerator of which is equal to the 90 Day Average Closing Price End of Year less the 90 Day Average Closing Price Beginning of Year plus any dividends paid with respect 

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Exhibit 10.3

to the common stock during the fiscal year, and the denominator of which is the 90 day Average Closing Price Beginning of Year, multiplied by (ii) 100.

		
	f.
	“Determination Date” shall mean the later of (i) the date the Company’s annual report on Form 10-K for the fiscal year ending on the June 30, immediately following the date of the Award is filed with the Securities and Exchange Commission, and (ii) the date of the last filing of any quarterly report on Form 10-Q or annual report on Form 10-K of any Peer Group company necessary to determine the Annual Revenue Growth of each company in the Peer Group. 

Fifty percent of the shares of Common Stock subject to this award (the “Revenue Growth Shares”) shall vest or be forfeited as of the Determination Date based on the Company’s Annual Revenue Growth as compared to the Peer Group. If the Company’s Annual Revenue Growth is less than the 25th percentile of the range of Annual Revenue Growth for all of the companies in the Peer Group, the Participant shall on the Determination Date forfeit all of the Revenue Growth Shares.  If the Company’s Annual Revenue Growth is equal to or greater than the 25th percentile, but less than or equal to the 50th percentile, of the range of Annual Revenue Growth for all of the companies in the Peer Group, the risks of forfeiture shall lapse on the Determination Date with respect to 25% of the Revenue Growth Shares, plus a pro rata portion of the remaining Revenue Growth Shares for each percentile point from the 25th percentile to the 50th percentile, such that the risks of forfeiture shall lapse with respect to 50% of the Revenue Growth Shares if the Company’s Annual Revenue Growth is equal to the 50th percentile of the range of Annual Revenue Growth for all the companies in the Peer Group.  If the Company’s Annual Revenue Growth is greater than the 50th percentile of the range of Annual Revenue Growth for all of the companies in the Peer Group, the risks of forfeiture shall lapse on the Determination Date with respect to 50% of the Revenue Growth Shares, plus a pro rata portion of the remaining Revenue Growth Shares for each percentile point from the 50th percentile to the 85th percentile, such that the risks of forfeiture shall lapse with respect to 100% of the Revenue Growth Shares if the Company’s Annual Revenue Growth is equal to or greater than the 85th percentile of the range of Annual Revenue Growth for all the companies in the Peer Group.

Fifty percent of the shares of Common Stock subject to this award (the “TSR Shares”) shall vest or be forfeited as of the Determination Date based on the Company’s Total Shareholder Return as compared to the Peer Group.  If the Company’s Total Shareholder Return is less than the 25th percentile of the range of Total Shareholder Return for all of the companies in the Peer Group, the Participant shall on the Determination Date forfeit all of the TSR Shares.  If the Company’s Total Shareholder Return is equal to or greater than the 25th percentile, but less than or equal to the 50th percentile, of the range of Total Shareholder Return for all of the companies in the Peer Group, the risks of forfeiture shall lapse on the Determination Date with respect to 25% of the Revenue Growth Shares, plus a pro rata portion of the remaining TSR Shares for each percentile point from the 25th percentile to the 50th percentile, such that the risks of forfeiture shall lapse with respect to 50% of the TSR Shares if the Company’s Total Shareholder Return is equal to the 50th percentile of the range of Total Shareholder Return for all the companies in the Peer Group.  If the Company’s Total Shareholder Return is greater than the 50th percentile of the range of Total Shareholder Return for all of the companies in the Peer Group, the risks of forfeiture shall lapse on the Determination Date with respect to 50% of the TSR Shares, plus a pro rata portion of the remaining TSR Shares for 

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Exhibit 10.3

each percentile point from the 50th percentile to the 85th percentile, such that the risks of forfeiture shall lapse with respect to 100% of the TSR Shares if the Company’s Total Shareholder Return is equal to or greater than the 85th percentile of the range of Total Shareholder Return for all the companies in the Peer Group.

Notwithstanding anything in the Plan, the Award Summary or this Agreement to the contrary, the shares of Common Stock subject to this Award will become fully vested upon a Change of Control.

3.    Termination of Employment or Other Relationship.  If the Participant’s employment or other relationship with the Company (or a Subsidiary of the Company) ceases at any time prior to the Determination Date for any reason, including the Participant’s voluntary resignation or retirement, the Participant shall be entitled to receive a fraction of the shares that Participant would have been entitled to receive pursuant to Section 2 above if such employment or other relationship had not ceased, which fraction shall have a numerator equal to the number of full months in the fiscal year ending on June 30 immediately following the date of the Award that Participant was employed by, or maintained a relationship with, the Company, and a denominator equal to 12.  The Participant shall on the Determination Date forfeit all other shares subject to this Award. 

4.    General Provisions.

a.    Employment or Other Relationship.  This Agreement shall not confer on the Participant any right with respect to continuation of employment or other relationship by the Company, nor will it interfere in any way with the right of the Company to terminate such employment or relationship.  Nothing in this Agreement shall be construed as creating an employment or service contract for any specified term between Participant and the Company.

b.    280G Limitations.  Notwithstanding anything in the Plan, this Agreement or in any other agreement, plan, contract or understanding entered into from time to time between Participant and the Company or any of its Subsidiaries to the contrary (except an agreement that expressly modifies or excludes the application of this Paragraph 4(b)), the lapse of the risks of forfeiture of this Award shall not be accelerated in connection with a Change of Control to the extent that such acceleration, taking into account all other rights, payments and benefits to which Participant is entitled under any other plan or agreement, would  constitute a "parachute payment" or an "excess parachute payment" for purposes of Sections 280G and 4999 of the Internal Revenue Code of 1986, as amended, or any successor provisions, and the regulations issued thereunder; provided, however, that the Administrator, in its sole discretion and in accordance with applicable law, may modify or exclude the application of this Paragraph 4(b).

c.    Securities Law Compliance.  Participant shall not transfer or otherwise dispose of the shares of Common Stock received pursuant to this Agreement until such time as counsel to the Company shall have determined that such transfer or other disposition will not violate any state or federal securities laws.  The Participant may be required by the Company, as a condition of the effectiveness of this restricted stock award, to provide any written assurances that are necessary 

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Exhibit 10.3

or desirable in the opinion of the Company and its counsel to ensure the issuance complies with the applicable securities laws, including that all Common Stock subject to this Agreement shall be held, until such time that such Common Stock is registered and freely tradable under applicable state and federal securities laws, for Participant’s own account without a view to any further distribution thereof, that the certificates (or, if permitted book entries) for such shares shall bear an appropriate legend or notation to that effect and that such shares will be not transferred or disposed of except in compliance with applicable state and federal securities laws.  

d.    Mergers, Recapitalizations, Stock Splits, Etc.  Except as otherwise specifically provided in any employment, change of control, severance or similar agreement executed by the Participant and the Company, pursuant and subject to Section 15 of the Plan, certain changes in the number or character of the shares of capital stock of the Company (through sale, merger, consolidation, exchange, reorganization, divestiture (including a spin-off), liquidation, recapitalization, stock split, stock dividend, or otherwise) shall result in an adjustment, reduction, or enlargement, as appropriate, in the number of shares subject to this Award (i.e., Participant shall have such “anti-dilution” rights under the Award with respect to such events, but, subject to the Administrator’s discretion, shall not have any “preemptive” rights).  Any additional shares that are credited pursuant to such adjustment shall be subject to the same restrictions as are applicable to the shares with respect to which the adjustment relates.

e.    Shares Reserved.  The Company shall at all times during the term of this Award reserve and keep available such number of shares as will be sufficient to satisfy the requirements of this Agreement.

f.    Withholding Taxes.  To permit the Company to comply with all applicable federal and state income tax laws or regulations, the Company may take such action as it deems appropriate to ensure that, if necessary, all applicable federal and state payroll, income or other taxes attributable to this Award are withheld from any amounts payable by the Company to the Participant.  If the Company is unable to withhold such federal and state taxes, for whatever reason, the Participant hereby agrees to pay to the Company an amount equal to the amount the Company would otherwise be required to withhold under federal or state law prior to the transfer of any certificates for the shares of Common Stock subject to this Award.  Subject to such rules as the Administrator may adopt, the Administrator may, in its sole discretion, permit Participant to satisfy such withholding tax obligations, in whole or in part, by delivering shares of Common Stock, including shares of Common Stock received pursuant to this Award having a Fair Market Value, as of the date the amount of tax to be withheld is determined under applicable tax law, equal to the statutory minimum amount required to be withheld for tax purposes.  In no event may the Participant deliver shares of Common Stock having a Fair Market Value in excess of such statutory minimum required tax withholding.  Participant’s election to deliver shares for purposes of such withholding tax obligations shall be made on or before the date that triggers such obligations or, if later, the date that the amount of tax to be withheld is determined under applicable tax law.  Participant’s election to deliver shares for purposes of such withholding tax obligations shall be irrevocable and shall be approved by the Administrator and otherwise comply with such rules as the Administrator may adopt to assure compliance with Rule 16b-3 or any successor provision, as then in effect, of the General Rules and Regulations under the Securities and Exchange Act of 1934, if applicable.

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Exhibit 10.3

g.    Nontransferability.  No portion of this Award for which the risks of forfeiture have not lapsed may be assigned or transferred, in whole or in part, other than by will or by the laws of descent and distribution.

h.    2014 Equity Incentive Plan.  The Award evidenced by this Agreement is granted pursuant to the Plan, a copy of which has been made available to the Participant and is hereby incorporated into this Agreement.  This Agreement is subject to and in all respects limited and conditioned as provided in the Plan.  All capitalized terms in this Agreement not defined herein shall have the meanings ascribed to them in the Plan.  The Plan governs this Award and, in the event of any questions as to the construction of this Agreement or in the event of a conflict between the Plan and this Agreement, the Plan shall govern, except as the Plan otherwise provides.

i.    Lockup Period Limitation.  Participant agrees that in the event the Company advises Participant that it plans an underwritten public offering of its Common Stock in compliance with the Securities Act of 1933, as amended, Participant will execute any lock-up agreement the Company and the underwriter(s) deem necessary or appropriate, in their sole discretion, with such public offering.

j.    Blue Sky Limitation.  Notwithstanding anything in this Agreement to the contrary, in the event the Company makes any public offering of its securities and determines, in its sole discretion, that it is necessary to reduce the number of Restricted Stock Awards so as to comply with any state securities or Blue Sky law limitations with respect thereto, the Board of Directors of the Company shall accelerate the vesting of this Award (in full or in part) provided that the Company gives Participant 15 days’ prior written notice of such acceleration.  Notice shall be deemed given when delivered personally or when deposited in the United States mail, first class postage prepaid and addressed to Participant at the address of Participant on file with the Company.

k.    Accounting Compliance.  Participant agrees that, if Participant is an “affiliate” of the Company or any Affiliate (as defined in applicable legal and accounting principles) at the time of a Change of Control, Participant will comply with all requirements of Rule 145 of the Securities Act of 1933, as amended, and the requirements of such other legal or accounting principles, and will execute any documents necessary to ensure such compliance.

l.    Stock Legend.  The Administrator may require that the certificates for any shares of Common Stock purchased by Participant (or, in the case of death, Participant’s successors) shall bear an appropriate legend to reflect the restrictions of Paragraph 4(c) and Paragraphs 4(i) through 4(k) of this Agreement; provided, however, that failure to so endorse any of such certificates shall not render invalid or inapplicable Paragraph 4(c) or Paragraph 4(i) through 4(k).

m.    Scope of Agreement.  This Agreement shall bind and inure to the benefit of the Company and its successors and assigns and of the Participant and any successor or successors of the Participant.  This Award is expressly subject to all terms and conditions contained in the Plan and in this Agreement, and Participant’s failure to execute this Agreement shall not relieve Participant from complying with such terms and conditions.  

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Exhibit 10.3

n.    Choice of Law.  The law of the state of Minnesota shall govern all questions concerning the construction, validity, and interpretation of this Plan, without regard to that state’s conflict of laws rules. 

o.    Severability.  In the event that any provision of this Plan shall be held illegal or invalid for any reason, such illegality or invalidity shall not affect the remaining provisions of this Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included.

p.    Arbitration.  Any dispute arising out of or relating to this Agreement or the alleged breach of it, or the making of this Agreement, including claims of fraud in the inducement, shall be discussed between the disputing parties in a good faith effort to arrive at a mutual settlement of any such controversy.  If, notwithstanding, such dispute cannot be resolved, such dispute shall be settled by binding arbitration.  Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof.  The arbitrator shall be a retired state or federal judge or an attorney who has practiced securities or business litigation for at least 10 years.  If the parties cannot agree on an arbitrator within 20 days, any party may request that the chief judge of the District Court for Hennepin County, Minnesota, select an arbitrator.  Arbitration will be conducted pursuant to the provisions of this Agreement, and the commercial arbitration rules of the American Arbitration Association, unless such rules are inconsistent with the provisions of this Agreement.  Limited civil discovery shall be permitted for the production of documents and taking of depositions.  Unresolved discovery disputes may be brought to the attention of the arbitrator who may dispose of such dispute.  The arbitrator shall have the authority to award any remedy or relief that a court of this state could order or grant; provided, however, that punitive or exemplary damages shall not be awarded.  The arbitrator may award to the prevailing party, if any, as determined by the arbitrator, all of its costs and fees, including the arbitrator’s fees, administrative fees, travel expenses, out-of-pocket expenses and reasonable attorneys’ fees.  Unless otherwise agreed by the parties, the place of any arbitration proceedings shall be Hennepin County, Minnesota.

    
ACCORDINGLY, by accepting the Award, the Participant acknowledges and agrees to all of the terms and conditions set forth in the Award Summary and this Agreement.

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 Exhibit 10.3 

ARCTIC CAT INC. 

INDUCEMENT NON-QUALIFIED STOCK OPTION AGREEMENT 

FOR EXECUTIVE OFFICER 

THIS INDUCEMENT NON-QUALIFIED STOCK OPTION AGREEMENT is made as of the 3rd day of December, 2014 (the “Option Date”), between
ARCTIC CAT INC., a Minnesota corporation (the “Company”), and Christopher T. Metz, an employee of the Company or one or more of its subsidiaries (the “Optionee”). 

WHEREAS, the Company desires, by affording the Optionee an opportunity to purchase shares of its Common Stock, $.01 par value (the
“Common Stock”), as hereinafter provided, to enable the Company and its Subsidiaries to induce the employment of the Optionee and to enable such individual to participate in the long-term success and growth of the Company by giving him a
proprietary interest in the Company, thereby aligning the interests of such person with the Company’s shareholders; 
 NOW,
THEREFORE, in consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration, the parties hereto have agreed, and do hereby agree, as follows: 

1. Grant of Option. The Company hereby grants to the Optionee the right and option (hereinafter called the “Option”) to
purchase from the Company all or any part of an aggregate amount of 151,837 shares of the Common Stock of the Company on the terms and conditions herein set forth. The number of shares granted under this Stock Option is calculated to equate to a
value of two million dollars ($2,000,000) based on the closing price of the Company’s stock (represented by symbol “ACAT” on the NASDAQ Exchange) on the Option Date and on an assumed Black-Scholes ratio of forty percent (40%). This
grant does not qualify as an incentive stock option under Section 422 of the Internal Revenue Code of 1986, as amended. 
 2.
Purchase Price. The purchase price of the shares of the Common Stock covered by this Option shall be $32.93 per share, which is equal to 100% of the Fair Market Value of a Share on the Option Date. 

3. Term of Option. The term of the Option shall be for a period of ten (10) years from the Option Date, subject to earlier
termination as hereinafter provided. In no event shall the Option be exercisable after the expiration of the term of the Option. 
 4.
Exercise of Option. During the first year the Option is outstanding it may not be exercised with respect to any of the shares covered thereby. Subject to the provisions of Sections 6 and 7 hereof, the Option may thereafter be exercised during
the term specified in Section 3 as follows: 
 a. from and after 12 months from the Option Date, the Option may be
exercised as to 50,612 (1/3 of the total grant) shares; 

 b. from and after 24 months from the Option Date, the Option may be exercised as
to an additional 50,613 (1/3 of the total grant) shares; 
 c. from and after 36 months from the Option Date, the Option may
be exercised as to an additional 50,612 (1/3 of the total grant) shares. 
 5. Non-Transferability. The Option shall not be
transferable otherwise than by will or the laws of descent and distribution, and the Option may be exercised, during the lifetime of the Optionee, only by the Optionee or, if permissible under applicable law, by the Optionee’s guardian or legal
representative; provided, that the Committee, in its discretion and subject to such additional terms and conditions as it determines, may permit Optionee to transfer the Option to any “family member” (as such term is defined in the General
Instructions to Form S-8 (or any successor to such Instructions or such Form) under the Securities Act of 1933, as amended) at any time that Optionee holds such Option, provided that such transfers may not be for value (i.e., the transferor may not
receive any consideration therefore) and the family member may not make any subsequent transfers other than by will or by the laws of descent and distribution. More particularly (but without limiting the generality of the foregoing), the Option may
not be assigned, transferred (except as provided above), pledged, or hypothecated in any way; shall not be assignable by operation of law; and shall not be subject to execution, attachment, or similar process. Any attempted assignment, transfer,
pledge, hypothecation, or other disposition of the Option contrary to the provisions hereof, and the levy of any execution, attachment, or similar process upon the Option, shall be null and void and without effect. The Committee may establish
procedures as it deems appropriate for Optionee to designate a Person or Persons, as beneficiary or beneficiaries, to exercise the rights of Optionee and receive any property distributable with respect to the Option in the event of Optionee’s
death. 
 6. Termination of Employment. In the event the employment of the Optionee shall be terminated for any reason whatsoever,
the Option may be exercised by the Optionee at any time (i) until expiration of the term specified in Section 3, if such termination was by reason of Retirement at any time following the first anniversary of the date of this Agreement,
(ii) within one (1) month after such termination if such termination was for any reason other than Retirement following the first anniversary of the date of this Agreement, Cause (as defined in the Optionee’s Employment Agreement (the
“Employment Agreement”)) or due to death or Disability (as defined in the Employment Agreement), and (iii) no later than the date of termination if such termination was for Cause; provided, however, that in no event may the
Option be exercised later than the expiration of the term specified in Section 3; and provided further, that (A) upon termination by reason of Retirement at any time following the first anniversary of the date of this Agreement, all
outstanding Options then held by the Optionee that have not vested will continue to vest in accordance with their terms, (B) upon termination by the Company without Cause, or resignation by Optionee for Good Reason (as defined in the Employment
Agreement), or due to death or Disability, all Options immediately will become vested as of the date of such termination, resignation or separation event, and (C) upon termination by the Company for Cause or resignation by Optionee other than
for Good Reason, all Options held by the Optionee shall be exercisable only to the extent the Optionee shall have been entitled to do so at the date of his or her termination of employment. 

  
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 7. Death or Permanent Disability of Optionee; Change in Control. If the Optionee shall die
while still employed by the Company or one or more of its subsidiaries, or shall become permanently and totally disabled (as determined by the Committee) while still employed by the Company or one or more of its subsidiaries, the Option may be
exercised by the Optionee, his or her legal representative or the person to whom the Option is transferred by will or the applicable laws of descent and distribution, at any time within twelve (12) months after the Optionee’s death or
termination by reason of permanent and total disability, but in no event later than the expiration of the term specified in Section 3 hereof. If a Change in Control (as defined in the Employment Agreement) occurs, all outstanding Options which
have not otherwise vested, shall immediately vest in full and become exercisable. 
 8. Method of Exercising Option. Subject to the
terms and conditions of this Option Agreement, the Option may be exercised by written notice to the Chief Financial Officer of the Company at the principal office of the Company. Such notice shall state the election to exercise the Option and the
number of shares in respect of which it is being exercised, and shall be signed by the person so exercising the Option. Such notice shall be accompanied by payment of the full purchase price of such shares which payment shall be made (i) in
cash or by certified check or bank draft payable to the Company, (ii) by any other form of legal consideration deemed sufficient by the Company and consistent with the purpose of this Agreement and applicable law, (iii) in the sole
discretion of the Company, by delivery of shares of Common Stock of the Company having a Fair Market Value equal to the purchase price, or (iv) by a combination of cash and shares of Common Stock, whose Fair Market Value shall equal the
purchase price. For purposes of this Section 8, the “Fair Market Value” of the Common Stock of the Company shall be established in the manner set forth in Section 20 of this Agreement. The certificate or certificates for the
shares as to which the Option shall have been so exercised shall be registered in the name of the person so exercising the Option, or if the Optionee so elects, in the name of the Optionee or one other person as joint tenants, and shall be delivered
as soon as practicable after the notice shall have been received. The Option and rights thereunder shall be exercisable during the Optionee’s lifetime only by the Optionee (except as provided herein) or, if permissible under applicable law, by
the Optionee’s guardian or legal representative. In the event the Option shall be exercised by any person other than the Optionee, such notice shall be accompanied by appropriate proof of the right of such person to exercise the Option. All
shares that shall be purchased upon the exercise of the Option as provided herein shall be fully paid and nonassessable. 
 9.
Withholding Requirements. Upon exercise of the Option by the Optionee and prior to the delivery of shares purchased pursuant to such exercise, the Company shall have the right to require the Optionee to remit to the Company cash in an amount
sufficient to satisfy applicable federal and state tax withholding requirements. The Company shall inform the Optionee as to whether it will require the Optionee to remit cash for withholding taxes in accordance with the preceding sentence within
two (2) business days after receiving from the Optionee notice that such Optionee intends to exercise, or has exercised, all or a portion of the Option. Alternatively, in order to assist Optionee with paying all or a portion of applicable taxes
to be withheld or collected upon exercise, the Committee, in its discretion and subject to such additional terms and conditions as it may adopt, may permit the Optionee to satisfy such tax obligation by (i) electing to have the Company withhold
a portion of the shares otherwise to be delivered upon exercise of the Option having a Fair Market Value (determined in the manner set 

  
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forth in Section 20 of this Agreement) equal to the amount of such taxes, provided that the maximum amount shall not exceed the amount of the required withholding, or (ii) delivering to
the Company shares of Common Stock other than shares issuable upon exercise having a Fair Market Value (determined in the manner set forth in Section 20 of this Agreement) equal to the amount of such taxes. 

10. Administration. 

a. Power and Authority of the Committee. The Agreement shall be administered by the Committee. Subject to the express
provisions of the Agreement and to applicable law, the Committee shall have full power and authority to: (i) accelerate the exercisability or waive any restrictions relating to the Option; (ii) extend the exercise period;
(iii) determine whether, to what extent and under what circumstances the Option may be exercised in cash, Shares, other securities, other Company equity awards held by Optionee or other property, or canceled, forfeited or suspended;
(iv) interpret and administer the Agreement; (v) establish, amend, suspend or waive such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of this Option and this Agreement;
(vi) delegate to one or more executive officers of the Company the authority to administer this Option and this Agreement or any aspect of them; and (vii) make any other determination and take any other action, prospectively or
retrospectively, that the Committee deems necessary or desirable for the administration of this Option and this Agreement. Unless otherwise expressly provided herein, all designations, determinations, interpretations and other decisions under or
with respect to this Option and this Agreement shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive and binding upon the Optionee and any holder or beneficiary of the Option. 

b. Power and Authority of the Board. Notwithstanding anything to the contrary contained herein, the Board may, at any
time and from time to time, exercise the powers and duties of the Committee hereunder without any further action of the Committee, and in that event, any reference to Committee shall also refer to the Board. 

11. Adjustments. In the event that the Committee shall determine that any dividend or other distribution (whether in the form of cash,
Shares, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of Shares or other securities of the Company, issuance of
warrants or other rights to purchase Shares or other securities of the Company or any other similar corporate transaction, equity restructuring or event affects the Shares underlying the Option, then the Committee shall make an appropriate
adjustment that will equalize the fair value of such Shares or Options before and after the transaction, restructuring or event, including but not limited to making adjustment to any or all of (i) the number and type of Shares (or other
securities or other property) subject to this Option, and (ii) the purchase price or exercise price with respect to this Option. 
 12.
General. The Company shall at all times during the term of the Option reserve and keep available such number of shares of Common Stock as will be sufficient to satisfy the requirements of this Option Agreement, shall pay all original issue
and transfer taxes with 

  
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respect to the issue and transfer of shares pursuant hereto and all other fees and expenses necessarily incurred by the Company in connection therewith, and will from time to time use its best
efforts to comply with all laws and regulations which, in the opinion of counsel for the Company, shall be applicable thereto. 
 13.
Investment Certificate. Prior to the receipt of the certificates pursuant to the exercise of the Option granted hereunder, the Optionee shall, if required in the Company’s discretion, demonstrate an intent to hold the shares acquired by
exercise of the Option for investment and not with a view to resale or distribution thereof to the public by delivering to the Company an investment certificate or letter in such form as the Company may require. 

14. Restrictions: Securities Exchange Listing. All Shares or other securities delivered under the Agreement pursuant to the Option or
the exercise thereof shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Agreement, applicable federal or state securities laws and regulatory requirements, and the Committee may direct
appropriate stop transfer orders and cause other legends to be placed on the certificates for such Shares or other securities to reflect such restrictions. The Company shall not be required to deliver any Shares or other securities covered by an
Award unless and until such Shares or other securities have been and continue to be admitted for trading on the NASDAQ Exchange. 
 15.
Status. Neither the Optionee nor the Optionee’s executor, administrator, heirs, or legatees shall be or have any rights or privileges of a shareholder of the Company in respect of the shares transferable upon exercise of the Option
granted hereunder, unless and until certificates representing such shares shall be endorsed, transferred, and delivered and the transferee has caused the Optionee’s name to be entered as the shareholder of record on the books of the Company.

 16. Company Authority. The existence of the Option herein granted shall not affect in any way the right or power of the Company or
its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the Company’s capital structure or its business, or any merger or consolidation of the Company, or any issue of bonds,
debentures, preferred or prior preference stock ahead of or affecting the Common Stock of the Company or the rights thereof, or dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any
other corporate act or proceeding, whether of a similar character or otherwise. 
 17. No Employment Rights. Nothing in this Option
Agreement shall confer upon the Optionee any right to continue in the employ of the Company or of any of its subsidiaries or interfere in any way with the right of the Company or any such subsidiary to terminate the employment of the Optionee at any
time with or without Cause. 
 18. Income Tax Compliance. 

a. “Deferred Compensation” means the Option, to the extent it provides for the “deferral of compensation”
under a “nonqualified deferred compensation plan” (as those terms are defined under Code Section 409A) and that would be subject to the taxes 

  
 -5- 

 
specified in Code Section 409A(a)(l) if and to the extent that this Agreement does not meet or is not operated in compliance with the requirements of Code Section 409A(a)(2),
(3) and (4) and the regulations promulgated thereunder, Deferred Compensation shall not include any amount that is otherwise exempt from the requirements of Code Section 409A and the regulations promulgated thereunder. Nothing in this
Section 18 shall prohibit the Company from establishing a deferred compensation plan that allows for the deferral of salary, bonuses or other cash-based performance awards. 

b. “Specified Employee” means the Optionee, so long as he is a key employee as described in Code
Section 416(i)(l) (A)(i), (ii) and (iii) (and disregarding paragraph (5) thereof) at any time during the 12 months ending on each December 31, or such other “identification date” that applies consistently for all
plans that provide “deferred compensation” that is subject to the requirements of Code Section 409A and regulations promulgated thereunder. The Optionee will be identified as a Specified Employee in accordance with the regulations
promulgated under Code Section 409A, including with respect to the spin-off or merger of the company with any other company, and such identification shall apply for the twelve (12) month period commencing on the first day of the fourth
month following the identification date. Notwithstanding the foregoing, the Optionee shall not be a Specified Employee unless the stock of the Company (or other member of a “controlled group of corporations” as determined under Code
Section 1563) is publicly traded on an established securities market as of the date of Optionee’s “separation from service” as defined in Code Section 409A and the regulations promulgated thereunder. 

c. Except to the extent such acceleration or deferral is permitted or complies with the requirements of Code Section 409A
and the regulations promulgated thereunder, neither the Committee nor Optionee may accelerate or defer the time or schedule of any payment of, or the amount scheduled to be paid under, the Option to the extent that it constitutes Deferred
Compensation; provided, however, that payment shall be permitted if it is in accordance with a fixed date or schedule or on account of “separation from service,” “disability,” “death,” “change in
control” or “unforeseeable emergency” as those items are defined under Code Section 409A and the regulations promulgated thereunder. 

d. Except as specifically provided otherwise herein, the Committee may not make payment to a Specified Employee of any portion
of the Option that constitutes Deferred Compensation earlier than six (6) months following the Optionee’s “separation from service” as defined for purposes of Code Section 409A (or if earlier, upon the Specified
Employee’s death), except as permitted under Code Section 409A. Any payments that otherwise would be payable to the Specified Employee during the foregoing six (6) month period will be accumulated and payment will be delayed until the
first date after the six (6) month period. 
 e. The Committee may reform any provision in the Option to the extent it
is intended to be exempt from Code Section 409A to maintain to the maximum extent practicable the original intent of the applicable provisions without violating the provisions of Code Section 409A and to preserve the economic benefits
intended by the Award. 

  
 -6- 

 19. Amendment. The Board and the Committee may amend this Agreement, but no amendment
shall be made (i) which would impair the rights of Optionee with respect to the Option, without Optionee’s consent, or (ii) which without the approval of the shareholders of the Company would cause the Agreement to no longer comply
with Rule 16b-3 or any other regulatory requirements. Further, the Board and the Committee may, with Optionee’s consent, correct any defect, supply any omission or reconcile any inconsistency in the Agreement in the manner and to the extent it
shall deem desirable to implement or maintain the effectiveness of the Options or the Agreement. 
 20. Definitions. As used herein,
the following terms shall have the meanings set forth below: 
 a. “Cause” shall have the meaning set forth in the
Employment Agreement. 
 b. “Change in Control” shall have the meaning set forth in the Employment Agreement. 

c. “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time, and any regulations promulgated
thereunder. 
 d. “Committee” shall mean the Compensation and Human Resources Committee of the Board of Directors
of the Company (each a “Director” and collectively the “Board”) or any other committee of the Board designated by the Board to administer this Agreement or any portion hereof. 

e. “Deferred Compensation” shall have the meaning set forth in Section 18 of this Agreement. 

f. “Disability” shall have the meaning set forth in the Employment Agreement. 

g. “Early Retirement” shall mean retirement, with consent of the Committee at the time of retirement, from active
employment with the Company and any Subsidiary or Parent Corporation of the Company. 
 h. “Fair Market Value”
shall mean the value of the Shares on a given date as determined by the Committee that, if applicable, will result in the Option being exempt from the requirements of a “deferred compensation plan” under Section 409A of the Code. 

i. “Good Reason” shall have the meaning set forth in the Employment Agreement. 

j. “Normal Retirement” shall mean retirement from active employment with the Company and any Subsidiary or Parent
Corporation of the Company on or after (i) age 65 or (ii) age 55 if the Optionee has ever served the Company as a full-time employee for at least 15 years. 

  
 -7- 

 k. “Parent Corporation” shall mean any corporation (other than the
Company) in an unbroken chain of corporations ending with the Company if each of the corporations (other than the Company) owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations
in the chain. 
 l. “Person” shall mean any individual or entity, including a corporation, partnership, limited
liability company, association, joint venture or trust. 
 m. “Retirement” shall mean Normal Retirement or Early
Retirement. 
 n. “Rule 16b-3” shall mean Rule 16b-3 promulgated by the Securities and Exchange Commission under
the Securities Exchange Act of 1934, as amended, or any successor rule or regulation. 
 o. “Share” or
“Shares” shall mean the common stock, $.01 par value per share, of the Company (the “Common Stock”) or such other securities or property as may become subject to Awards pursuant to an adjustment made under Section 11 of this
Agreement. 
 p. “Specified Employee” shall have the meaning set forth in Section 18(b) hereof. 

q. “Subsidiary” shall mean any current or future corporation which would be a “subsidiary corporation” of
the Company, as that term is defined in Section 424 of the Internal Revenue Code of 1986, as amended. 
 r. “Total
Market Value” shall have the meaning set forth in Section 17(b) hereof. 
 21. General Provisions.  

a. Governing Law. The validity, construction and effect of this Option and this Agreement, and any rules and regulations
relating to this Option and this Agreement, shall be determined in accordance with the internal laws, and not the law of conflicts, of the State of Minnesota. 

b. Severability. If any provision of this Option or this Agreement is or becomes or is deemed to be invalid, illegal or
unenforceable in any jurisdiction or would disqualify this Option or this Agreement under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed
or deemed amended without, in the determination of the Committee, materially altering the purpose or intent of this Option or this Agreement, such provision shall be stricken as to such jurisdiction or Option, and the remainder of this Option or
this Agreement shall remain in full force and effect. 

  
 -8- 

 c. No Fractional Shares. No fractional Shares shall be issued or delivered
pursuant to this Option or this Agreement, and the Committee shall determine whether cash shall be paid in lieu of any fractional Shares or whether such fractional Shares or any rights thereto shall be canceled, terminated or otherwise eliminated.

 d. Headings. Headings are given to the Sections and subsections of this Agreement solely as a convenience to
facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of this Agreement or any provision hereof. 

e. No Trust or Fund Created. The Agreement is intended to constitute an “unfunded” plan for incentive and
deferred compensation. Neither this Option nor this Agreement shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Subsidiary and Optionee or any other Person. To the
extent that any Person acquires a right to receive payments from the Company or any Subsidiary pursuant to the Option, such right shall be no greater than the right of any unsecured general creditor of the Company or any Subsidiary. In its sole
discretion, the Committee may authorize the creation of trusts or other arrangements to meet the obligations created hereunder to deliver Shares or payments in lieu of or with respect to the Option granted hereunder; provided, however,
that the existence of such trusts or other arrangements is consistent with the unfunded status of the Agreement. 
 f.
Disputes. As a condition of the granting of the Option herein granted, the Optionee agrees, for the Optionee and the Optionee’s personal representatives, that any dispute or disagreement which may arise under or as a result of or
pursuant to this Option Agreement shall be determined by the Board of Directors of the Company, in its sole discretion, and that any interpretation by the Board of the terms of this Option Agreement shall be final, binding and conclusive; provided,
however, that any dispute over the reason for the Optionee’s termination of employment shall be determined in accordance with the provisions of the Employment Agreement. 

g. Binding Effect. This Option Agreement shall be binding upon the heirs, executors, administrators and successors of
the parties hereto. 
 [Signature Page Follows] 

  
 -9- 

 IN WITNESS WHEREOF, the Company has caused this Option Agreement to be duly executed by an
officer thereunto duly authorized, and the Optionee has hereunto set his hand, all as of the day and year first above written. 
  

			
	ARCTIC CAT INC.
		
	By:	 	 /s/ CHRISTOPHER A. TWOMEY

		 	Christopher A. Twomey
		 	Its Chairman of the Board
		
	By:	 	 /s/ CHRISTOPHER T. METZ

		 	Christopher T. Metz, Optionee

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