Document:

exv10w46

Exhibit 10.46

SETTLEMENT STIPULATION AND RELEASE

     This Settlement Stipulation and Release (“Stipulation”) is made and entered into as of June
28, 2007 (the “Settlement Date”), by and among FOUNDATION INSURANCE COMPANY (“Foundation”), STEVE
M. MARIANO (“Mariano”), NEW PACIFIC INTERNATIONAL, INC. (“New Pacific”), (collectively, “First
Party”) and PETERSON, GOLDMAN & VILLANI, INC., (“Second Party”) (First Party and Second Party each
being a “Party” to this Stipulation), with reference to the following facts:

(Wherever used herein the terms “Party” or “Parties” shall include singular and plural, their
representatives, legal representatives, assigns, transferees, successors, heirs, partners,
affiliates, parents, subsidiaries, venturers, principals, attorneys, agents, officers,
directors, shareholders, former and present employees, and predecessors wherever the context
so admits or requires.)

     WHEREAS, on or around January 28, 2003, Wachovia Bank, National Association obtained a Default
Judgment against Foundation and Mariano in the State of North Carolina, County of Mecklenburg, In
the General Court of Justice, Superior Court Division, Case No. 2002-CVS-13779 (the “Wachovia
Judgment”);

     WHEREAS, on or around September 20, 2006, Second Party recorded the Wachovia Judgment in the
public records of Broward County, Florida OR Book 24939, Page 2001;

     WHEREAS, on or around September 20, 2006, Second Party commenced an action to domesticate the
Wachovia Judgment in the Circuit Court of the Eleventh Judicial Circuit in and for Miami-Dade
County, Florida, Case No. 06-19064 CA 05 (the “Domestication Action”);

     WHEREAS, Second Party owns and holds the Wachovia Judgment;

     WHEREAS, although First Party disputes that any obligation is owed to Second Party under the
Wachovia Judgment, First Party and Second Party wish to completely, finally, and amicably resolve
all claims asserted or that could have been asserted against each other in the

 

 

Domestication Action and/or in connection with the Wachovia Judgment and to thereby avoid the
burden and expense of same; and

     WHEREAS, neither First Party nor Second Party, by entering into this Stipulation, make any
admissions of any unlawful conduct whatsoever as against the other.

     NOW, THEREFORE, in consideration of the promises, covenants, warranties, and representations
set forth herein, First Party and Second Party agree as follows:

          1. Recitals. All of the foregoing Recitals are true and correct.

          2. Payment By First Party. On or before July 12, 2007, First Party shall pay
to Second Party $75,000. Thereafter, on or before July 27, 2007, First Party shall pay to Second
Party an additional payment of $75,000. Additionally, beginning on July 12, 2007 and thereafter on
the first day of each successive month, First Party shall also pay to Second Party twenty nine (29)
equal monthly payments in the amount of $l5,000 per month. Accordingly, the total amount due under
this Paragraph 2 shall be $585,000. Each of the foregoing payments shall be made either by
cashier’s check or by wire transfer. If First Party breaches its obligation to timely make any of
the foregoing payments under this Paragraph, then Second Party shall provide written notice of any
such breach to First Party and ten business days to cure the first such breach, and Second Party
shall provide to First Party written notice and five business days to cure any subsequent breaches.
If First Party has failed to cure any such breach within the applicable cure period, then the full
balance owed under the Wachovia Judgment shall be due and owing to Second Party, less any payments
made to Second Party under this Stipulation, and Second Party shall have whatever rights and
remedies which may be available to it under that Wachovia Judgment.

2

 

          3. Satisfaction of Judgments. In consideration for making the foregoing disputed
payments with respect to the Wachovia Judgment, immediately upon receipt of payment in full under
Paragraph 2 above ($585,000), Second Party shall: (a) record satisfactions of judgments for the
Wachovia Judgment in each and every county in which the Wachovia Judgment has been recorded to the
knowledge of Second Party, and in any other county as may be directed
by First Party: and also (b)
record satisfactions of judgments for each of the following judgments owned and held by Second
Party in each and every county in which either of those judgments has been recorded to the
knowledge of Second Party, and in any other county as may be directed
by First Party: (i) a Default
Judgment against Mariano obtained on January 28, 2003, by Wachovia Bank, National Association in
the State of North Carolina, County of Mecklenburg, In the General Court of Justice, Superior Court
Division, Case No. 02-CVS-13780, and (ii) a Default Judgment obtained by Wachovia Bank on or about
October 14, 2002 against New Pacific and Mariano, in the State of North Carolina, County of
Mecklenburg, In the General Court of Justice, Superior Court Division, Case No. 01-CVS-588
(collectively, the “Undomesticated Judgments”).

          4. Removal of Negative Credit History. Immediately upon receipt of payment in full
under Paragraph 2 above, Second Party shall use its best efforts to attempt to remove from First
Party’s credit history as reported on all major credit reporting agencies all negative information
attributable to the Wachovia Judgment, the Undomesticated Judgments and/or the Domestication
Action. Additionally, Second Party shall fully cooperate with First Party to cause all major credit
reporting agencies to remove any such negative credit histories or information. Any correspondence
to a credit reporting agency that may be necessary to satisfy the obligations of this paragraph
shall be approved in form by counsel for both First Party and

3

 

Second Party, which approval shall not be unreasonably withheld. Upon request, Second Party shall
provide to First Party copies of any and all correspondence, e-mail, and any other documentation
which Second Party believes reflects its compliance with its “best efforts” and “full cooperation”
obligations under this Paragraph.

          5. Dismissal of Domestication Action. Immediately upon receipt of payment in full
under Paragraph 2 above, Second Party shall dismiss with prejudice the Domestication Action.

          6. Withdrawal of Garnishments. Immediately upon receipt in full of the two $75,000
payments (totaling $150,000) by July 27, 2007, in cleared funds as provided in Paragraph 2 above,
Second Party shall withdraw the Garnishments served in the Domestication Action and shall
immediately release all garnishees from any such garnishments. So long as First Party has not
failed to cure any breach of the payment obligations in Paragraph 2, above, within the applicable
cure period, Second Party will not cause any further garnishment to be issued or served in
connection with the Domestication Action.

          7. Mutual Release of Claims and Covenant Not to Sue. Upon receipt of payment in full
under Paragraph 2 above, each Party absolutely and forever releases, acquits and discharges the
other Party from any and all potential or actual claims, rights, demands, covenants, agreements,
contracts, duties, obligations, responsibilities, representations, warranties, promises, liens,
mechanic’s liens, accounts, debts, liabilities, damages, expenses, attorneys’ fees, costs and
causes of action, known or unknown, of whatever kind and howsoever arising, past or present, which
either Party now has, ever has had, or may have had from the beginning of the world to the day of
these presents against the other Party, whether at law or in equity, in connection with or arising
out of any and all claims asserted or which could have been

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asserted by either Party against the other Party in the Domestication Action and/or in connection
with or arising out of the Wachovia Judgment or any of the Undomesticated Judgments, except
that this Release shall not release or limit any of the obligations, duties, liabilities,
ability or right to enforce, or rights under this Stipulation or any obligations relating to this
Stipulation (the “Released Claims”). Each Party additionally covenants not to sue the other Party
or to file any complaint of any kind whatsoever arising out of or in any way relating to any of the
Released Claims.

          8. Statute of Limitations. If First Party breaches its payment obligations under
Paragraph 2, above, and fails to cure that breach after having received written notice from Second
Party within the time period provided in Paragraph 2, then (but only then) First Party waives any
statute of limitations defense First Party may have with respect to any action filed by Second
Party seeking to domesticate in Florida the Undomesticated Judgments.

          9. Attorneys’ Fees. Each Party shall bear its own attorneys’ fees and costs,
except that, in any legal action or other proceeding arising oat of or relating to
this Stipulation the prevailing Party shall be entitled to recover their reasonable attorneys’ fees
and court costs from the non-prevailing Party including reasonable attorneys’ fees incurred in
connection with such dispute (including costs and fees incurred prior to the filing of any lawsuit,
and also those costs including fees incurred at the trial court and appellate court levels, and
fees incurred litigating entitlement to, or the amount of, any fees awarded under this provision),
in addition to any other relief to which such Party or Parties may be entitled.

          10. Choice of Law. The laws of the State of Florida shall govern the construction,
enforcement and interpretation of this Stipulation, regardless of and without

5

 

reference to whether any applicable conflicts of laws principles may point to the application of
the laws of another jurisdiction.

          11. Venue and Jurisdiction. The Parties hereby agree that the exclusive venue and
jurisdiction for all suits or proceedings arising out of or relating to this Stipulation shall be
in Circuit Court for the Seventeenth Judicial Circuit in and for Broward County, Florida.

          12. Entire Agreement. This Stipulation embodies the entire Stipulation and
understanding between First Party and Second Party, and supersedes any and all prior or concurrent
Stipulations, understandings, statements, assurances, assumptions, premises, promises, agreements,
discussions or representations, oral or written, relating to the subject matter of this
Stipulation, including oral stipulations or representations, if any. Neither First Party nor Second
Party has made any representations upon which either Party has relied that are not contained in
this Stipulation. Neither First Party nor Second Party is relying on an unstated assumption,
premise or condition not contained in this Stipulation.

          13. Construction. It is understood that this Stipulation was negotiated and prepared
by First Party and Second Party through their respective counsel as a combined effort designed to
meet their desires and needs. This Stipulation shall be interpreted without regard to any
presumption or rule requiring interpretation against the drafter or the Party causing this
Stipulation to be prepared.

          14. No Modification or Waiver. No modification or waiver of any of the terms of this
Stipulation shall be valid unless in writing and executed by First Party and Second Party with the
same formality as this Stipulation. No waiver of any breach hereof or default hereunder shall be
deemed a waiver of any subsequent breach or default of the same or similar or dissimilar nature. No
course of dealing or course of conduct shall be effective to amend, modify

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or change any provision of this Stipulation. Notwithstanding any applicable law, the terms of this
Paragraph may not be waived by any course of dealing or course of conduct.

          15. Counterparts/Copies. First Party and Second Party agree that this Stipulation may
be executed in counterparts and will become effective immediately upon execution by First Party and
Second Party, subject to exchange of signature pages and subject to the stipulations set forth
above, with a copy being deemed equivalent to an original.

          16. Notice. Any and all notices, demands or communications required or permitted to be
given hereunder shall be in writing and sent by facsimile (if provided below) or overnight mail to

	 	 	 
	First Party at:

	 	Kenneth A. Horky, Esq. and
	 

	 	Avi Benayoun, Esq.
	 

	 	401 East Las Olas Boulevard, Suite 2000
	 

	 	Fort Lauderdale, FL 33301
	 
	 	 
	Copy to:

	 	Theodore G. Bryant, Esq.
	 

	 	401 East Las Olas Boulevard, Suite 1540
	 

	 	Fort Lauderdale, FL 33301
	 
	 	 
	Second Party at:

	 	Richard Storfer.Esq,
	 

	 	401 East Las Olas Boulevard, Suite 1650
	 

	 	Fort Lauderdale, FL 33301

Or to such other addresses as either First Party or Second Party may hereafter provide to the other
in writing as a notice of change of address. Each, such notice, demand or other communication shall
be effective upon receipt

[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

[SIGNATURES APPEAR ON NEXT PAGE]

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For First Party

	 	 	 	 	 
	
 

Witness

	 	
 

STEVE M. MARIANO
	 	 
	 
	 	 	 	 
	
 

Witness
	 	 	 	 

	 	 	 	 	 	 	 
	STATE OF Florida

	 	 	)	 	 	 
	 

	 	     )ss
	 	 
	COUNTY
OF BROWARD

	 	 	)	 	 	 

     The foregoing instrument was acknowledged before me this 12th day of July  ,
2007, by STEVE M. MARIANO. He is presently known to me
or produced as identification.

	 	 	 	 	 
	[NOTARY SEAL]

	
	 	Notary: 

Print Name: Cynthia L. Campbell

Notary Public, State of Florida

My commission expires: June 4, 2009

8

 

	 	 	 	 	 	 	 
	 	 	For First Party	 	 
	 
	 	 	 	 	 	 
	(Corporate Seal)	 	FOUNDATION INSURANCE COMPANY	 	 
	 
	 	 	 	 	 	 
	Attest:                                                            
	 	 	 	 	 	 
	Secretary

	 	By:
	 	
	 	 
	 

	 	 	 	 	 	 
	- or -

	 	 	 	Name: Theodore G. Bryant *	 	 
	

	 	 	 	Title:	 	 
	 

Witness
	 	 	 	 	 	 
	
 

Witness
	 	 	 	 	 	 

 

			
	*	 	Foundation Insurance Company’s
corporate existence was dissolved in
March 2006 by operation of Court Order
issued by the South Carolina Court. The
Company had been under the control of the
South Carolina Department of Insurance
since May 2004.

	 	 	 	 	 	 	 
	STATE OF FLORIDA

	 	 	)	 	 	 
	 

	 	     ) ss
	 	 
	COUNTY OF                     

	 	 	)	 	 	 

     The foregoing instrument was acknowledged before me this 12th day of July, 2007, by
                                                            of FOUNDATION INSURANCE COMPANY, on behalf of the corporation. He/She is presently
known to me or has produced                                                              as identification.

	 	 	 	 	 	 	 
	 

	 	 	 	

 

	 	 
	[NOTARY SEAL]

	
	 	Signature- Notary Public

Printed Name of Notary : Cynthia L. Campbell

Notary Public, State of: Florida

My commission expires: June 4, 2009
	 	

9

 

	 	 	 	 	 	 	 
	 	 	For First Party	 	 
	 
	 	 	 	 	 	 
	(Corporate Seal)	 	NEW PACIFIC INTERNATIONAL, INC.	 	 
	 
	 	 	 	 	 	 
	Attest:                                                            
	 	 	 	 	 	 
	Secretary

	 	By:
	 	
	 	 
	 

	 	 	 	 	 	 
	- or -

	 	 	 	Name: Steven M. Mariano	 	 
	

	 	 	 	Title: President	 	 
	 

Witness
	 	 	 	 	 	 
	
 

Witness
	 	 	 	 	 	 

	 	 	 	 	 	 	 
	STATE OF FLORIDA

	 	 	)	 	 	 
	 

	 	     ) ss
	 	 
	COUNTY
OF BROWARD

	 	 	)	 	 	 

     The foregoing instrument was acknowledged before me this 12th day of July
2007, by Steven M. Mariano of NEW PACIFIC INTERNATIONAL, INC. on behalf of the corporation.
He/She is presently known to me or has produced                     as identification.

	 	 	 	 	 	 	 
	 

	 	 	 	

 

	 	 
	[NOTARY SEAL]

	
	 	Signature- Notary Public

Printed Name of Notary:  Cynthia L. Campbell

Notary Public, State of: Florida

My commission expires: June 4, 2009
	 	

10

 

	 	 	 	 	 	 	 
	 	 	For Second Party	 	 
	 
	 	 	 	 	 	 
	(Corporate Seal)	 	PETERSON, GOLDMAN & VILLANI, INC.	 	 
	 
	 	 	 	 	 	 
	Attest:                                                            
	 	 	 	 	 	 
	Secretary

	 	By:
	 	
	 	 
	 

	 	 	 	 	 	 
	- or -

	 	 	 	Name: J. C. CARPENTER	 	 
	

	 	 	 	Title: SUP	 	 
	 

Witness
	 	 	 	 	 	 
	
 

Witness
	 	 	 	 	 	 

	 	 	 	 	 	 	 
	STATE OF FLORIDA

	 	 	)	 	 	 
	 

	 	     ) ss
	 	 
	COUNTY OF DALLAS

	 	 	)	 	 	 

     The foregoing instrument was acknowledged before me this 11TH day of JULY 2007, by
J. CARPENTER of PETERSON, GOLDMAN & VILLANI, INC. on behalf of the corporation. He/She is presently
known to me or has produced TX DRIVER LICENSE as identification.

	 	 	 	 	 	 	 
	 

	 	[NOTARY SEAL]
	 	

 

	 	 
	 

	 	
	 	Signature- Notary Public

Printed Name of Notary : DEBBIE PIATZ

Notary Public, State of TEXAS

My commission expires: 02.25.2010
	 	

11exv10w1

EXHIBIT 10.1

ATS MEDICAL, INC.

2000 STOCK INCENTIVE PLAN, AS AMENDED

Section 1. Purpose.

     The purpose of the Plan is to promote the interests of the Company and its shareholders by
aiding the Company in attracting and retaining employees, officers, consultants, independent
contractors and non-employee directors capable of assuring the future success of the Company, to
offer such persons incentives to put forth maximum efforts for the success of the Company’s
business and to afford such persons an opportunity to acquire a proprietary interest in the
Company.

Section 2. Definitions.

     As used in the Plan, the following terms shall have the meanings set forth below:

     (a) “Affiliate” shall mean (i) any entity that, directly or indirectly through one or more
intermediaries, is controlled by the Company and (ii) any entity in which the Company has a
significant equity interest, in each case as determined by the Committee.

     (b) “Award” shall mean any Option, Stock Appreciation Right, Restricted Stock Unit,
Performance Award, Other Stock Grant or Other Stock-Based Award granted under the Plan.

     (c) “Award Agreement” shall mean any written agreement, contract or other instrument or
document evidencing any Award granted under the Plan.

     (d) “Board” shall mean the Board of Directors of the Company.

     (e) “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time, and any
regulations promulgated thereunder.

     (f) “Committee” shall mean a committee of Directors designated by the Board to administer the
Plan. The Committee shall be comprised of not less than such number of Directors as shall be
required to permit Awards granted under the Plan to qualify under Rule 16b-3, and each member of
the Committee shall be a “Non-Employee Director” within the meaning of Rule 16b-3 and an “outside
director” within the meaning of Section 162(m) of the Code. The Company expects to have the Plan
administered in accordance with the requirements for the award of “qualified performance-based
compensation” within the meaning of Section 162(m) of the Code.

     (g) “Company” shall mean ATS Medical, Inc., a Minnesota corporation, and any successor
corporation.

     (h) “Director” shall mean a member of the Board.

 

 

     (i) “Eligible Person” shall mean any employee, officer, consultant, independent contractor or
Director providing services to the Company or any Affiliate whom the Committee determines to be an
Eligible Person.

     (j) “Fair Market Value” shall mean, with respect to any property (including, without
limitation, any Shares or other securities), the fair market value of such property determined by
such methods or procedures as shall be established from time to time by the Committee.
Notwithstanding the foregoing, unless otherwise determined by the Committee, the Fair Market Value
of Shares as of a given date shall be, if the Shares are then quoted on the NASDAQ Global Market
System, the closing price as reported on the NASDAQ Global Market System on such date or, if the
NASDAQ Global Market System is not open for trading on such date, on the most recent preceding date
when it is open for trading.

     (k) “Incentive Stock Option” shall mean an option granted under Section 6(a) of the Plan that
is intended to meet the requirements of Section 422 of the Code or any successor provision.

     (l) “Non-Qualified Stock Option” shall mean an option granted under Section 6(a) of the Plan
that is not intended to be an Incentive Stock Option.

     (m) “Option” shall mean an Incentive Stock Option or a Non-Qualified Stock Option.

     (n) “Other Stock Grant” shall mean any right granted under Section 6(e) of the Plan.

     (o) “Other Stock-Based Award” shall mean any right granted under Section 6(f) of the Plan.

     (p) “Participant” shall mean an Eligible Person designated to be granted an Award under the
Plan.

     (q) “Performance Award” shall mean any right granted under Section 6(d) of the Plan.

     (r) “Person” shall mean any individual, corporation, partnership, association or trust.

     (s) “Plan” shall mean the ATS Medical, Inc. 2000 Stock Incentive Plan, as amended from time to
time, the provisions of which are set forth herein.

     (t) “Restricted Stock Unit” shall mean any unit granted under Section 6(c) of the Plan
evidencing the right to receive a Share (or a cash payment equal to the Fair Market Value of a
Share) at some future date.

     (u) “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.

 

 

     (v) “Shares” shall mean shares of Common Stock, $.01 par value per share, of the Company or
such other securities or property as may become subject to Awards pursuant to an adjustment made
under Section 4(c) of the Plan.

     (w) “Stock Appreciation Right” shall mean any right granted under Section 6(b)of the Plan.

Section 3. Administration.

     (a) Power and Authority of the Committee. The Plan shall be administered by the
Committee. Subject to the express provisions of the Plan and to applicable law, the Committee
shall have full power and authority to: (i) designate Participants; (ii) determine the type or
types of Awards to be granted to each Participant under the Plan; (iii) determine the number of
Shares to be covered by (or with respect to which payments, rights or other matters are to be
calculated in connection with) each Award; (iv) determine the terms and conditions of any Award or
Award Agreement; (v) amend the terms and conditions of any Award or Award Agreement and accelerate
the exercisability of Options or the lapse of restrictions relating to Restricted Stock Units or
other Awards; (vi) determine whether, to what extent and under what circumstances Awards may be
exercised in cash, Shares, other securities, other Awards or other property, or canceled, forfeited
or suspended; (vii) determine whether, to what extent and under what circumstances cash, Shares,
promissory notes, other securities, other Awards, other property and other amounts payable with
respect to an Award under the Plan shall be deferred either automatically or at the election of the
holder thereof or the Committee; (viii) interpret and administer the Plan and any instrument or
agreement, including an Award Agreement, relating to the Plan; (ix) establish, amend, suspend or
waive such rules and regulations and appoint such agents as it shall deem appropriate for the
proper administration of the Plan; and (x) make any other determination and take any other action
that the Committee deems necessary or desirable for the administration of the Plan. Unless
otherwise expressly provided in the Plan, all designations, determinations, interpretations and
other decisions under or with respect to the Plan or any Award shall be within the sole discretion
of the Committee, may be made at any time and shall be final, conclusive and binding upon any
Participant, any holder or beneficiary of any Award and any employee of the Company or any
Affiliate.

     (b) Delegation. The Committee may delegate its powers and duties under the Plan to
one or more Directors or a committee of Directors, subject to such terms, conditions and
limitations as the Committee may establish in its sole discretion.

     (c) Power and Authority of the Board of Directors. Notwithstanding anything to the
contrary contained herein, the Board may, at any time and from time to time, without any further
action of the Committee, exercise the powers and duties of the Committee under the Plan.

Section 4.  Shares Available for Awards.

     (a) Shares Available. Subject to adjustment as provided in Section 4(c) of the Plan,
the aggregate number of Shares that may be issued under all Awards under the Plan shall be
9,500,000. Shares to be issued under the Plan may be either authorized but unissued Shares or
Shares acquired in the open market or otherwise. Any Shares that are used by a Participant as

 

 

full or partial payment to the Company of the purchase price relating to an Award, or in
connection with the satisfaction of tax obligations relating to an Award, shall again be available
for granting Awards (other than Incentive Stock Options) under the Plan. In addition, if any
Shares covered by an Award or to which an Award relates are not purchased or are forfeited, or if
an Award otherwise terminates without delivery of any Shares, then the number of Shares counted
against the aggregate number of Shares available under the Plan with respect to such Award, to the
extent of any such forfeiture or termination, shall again be available for granting Awards under
the Plan. Notwithstanding the foregoing, the number of Shares available for granting Incentive
Stock Options under the Plan shall not exceed 9,500,000, subject to adjustment as provided in the
Plan and subject to the provisions of Section 422 or 424 of the Code or any successor provision.

     (b) Accounting for Awards. For purposes of this Section 4, if an Award entitles the
holder thereof to receive or purchase Shares, the number of Shares covered by such Award or to
which such Award relates shall be counted on the date of grant of such Award against the aggregate
number of Shares available for granting Awards under the Plan.

     (c) 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 other similar corporate transaction or event affects the Shares such that an adjustment is
determined by the Committee to be appropriate in order to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available under the Plan, then the Committee
shall, in such manner as it may deem equitable, adjust any or all of (i) the number and type of
Shares (or other securities or other property) that thereafter may be made the subject of Awards,
(ii) the number and type of Shares (or other securities or other property) subject to outstanding
Awards and (iii) the purchase or exercise price with respect to any Award; provided, however, that
the number of Shares covered by any Award or to which such Award relates shall always be a whole
number.

     (d) Award Limitations Under the Plan. No Eligible Person may be granted any Award or
Awards under the Plan, the value of which Award or Awards is based solely on an increase in the
value of the Shares after the date of grant of such Award or Awards, for more than 500,000 Shares
(subject to adjustment as provided for in Section 4(c) of the Plan), in the aggregate in any
calendar year. The foregoing annual limitation specifically includes the grant of any Award or
Awards representing “qualified performance-based compensation” within the meaning of Section 162(m)
of the Code.

Section 5. Eligibility.

     Any Eligible Person shall be eligible to be designated a Participant. In determining which
Eligible Persons shall receive an Award and the terms of any Award, the Committee may take into
account the nature of the services rendered by the respective Eligible Persons, their present and
potential contributions to the success of the Company or such other factors as the Committee, in
its discretion, shall deem relevant. Notwithstanding the foregoing, an Incentive

 

 

Stock Option may only be granted to full or part-time employees (which term as used herein
includes, without limitation, officers and Directors who are also employees), and an Incentive
Stock Option shall not be granted to an employee of an Affiliate unless such Affiliate is also a
“subsidiary corporation” of the Company within the meaning of Section 424(f) of the Code or any
successor provision.

Section 6. Awards.

     (a) Options. The Committee is hereby authorized to grant Options to Participants with
the following terms and conditions and with such additional terms and conditions not inconsistent
with the provisions of the Plan as the Committee shall determine:

     (i) Exercise Price. The purchase price per Share for Options granted under the
Plan shall be determined by the Committee; provided, however, that such purchase price shall
not be less than 100% of the Fair Market Value of the Shares on the date of grant of such
Option unless shareholder approval is obtained.

     (ii) Option Term. The term of each Option shall be fixed by the Committee, but
such term shall not exceed 7 years from the date on which such Option is granted.

     (iii) Time and Method of Exercise. The Committee shall determine the time or
times at which an Option may be exercised in whole or in part and the method or methods by
which, and the form or forms (including, without limitation, cash, Shares, promissory notes,
other securities, other Awards or other property, or any combination thereof, having a Fair
Market Value on the exercise date equal to the relevant exercise price) in which, payment of
the exercise price with respect thereto may be made or deemed to have been made.

     (b) Stock Appreciation Rights. The Committee is hereby authorized to grant Stock
Appreciation Rights to Participants subject to the terms of the Plan and any applicable Award
Agreement. A Stock Appreciation Right granted under the Plan shall confer on the holder thereof a
right to receive upon exercise thereof the excess of (i) the Fair Market Value of one Share on the
date of exercise (or, if the Committee shall so determine, at any time during a specified period
before or after the date of exercise) over (ii) the grant price of the Stock Appreciation Right as
specified by the Committee, which price shall not be less than 100% of the Fair Market Value of one
Share on the date of grant of the Stock Appreciation Right. Subject to the terms of the Plan and
any applicable Award Agreement, the grant price, term, methods of exercise, dates of exercise,
methods of settlement and any other terms and conditions of any Stock Appreciation Right shall be
as determined by the Committee. The Committee may impose such conditions or restrictions on the
exercise of any Stock Appreciation Right as it may deem appropriate.

     (c) Restricted Stock Units. The Committee is hereby authorized to grant Restricted
Stock Units to Participants with the following terms and conditions and with such additional terms
and conditions not inconsistent with the provisions of the Plan as the Committee shall determine:

 

 

     (i) Restrictions. Restricted Stock Units shall be subject to such restrictions
as the Committee may impose (including, without limitation, a waiver by the Participant of
the right to vote or to receive any dividend or other right or property with respect
thereto), which restrictions may lapse separately or in combination at such time or times,
in such installments or otherwise as the Committee may deem appropriate.

     (ii) Stock Certificates. No Shares shall be issued at the time Restricted
Stock Units are granted.

     (iii) Forfeiture. Except as otherwise determined by the Committee, upon
termination of employment (as determined under criteria established by the Committee) during
the applicable restriction period, all Restricted Stock Units at such time subject to
restriction shall be forfeited and reacquired by the Company; provided, however, that the
Committee may, when it finds that a waiver would be in the best interest of the Company,
waive in whole or in part any or all remaining restrictions with respect to Restricted Stock
Units. Upon the lapse or waiver of restrictions and the restricted period relating to
Restricted Stock Units evidencing the right to receive Shares, such Shares shall be issued
and delivered to the holders of the Restricted Stock Units.

     (d) Performance Awards. The Committee is hereby authorized to grant Performance
Awards to Participants subject to the terms of the Plan and any applicable Award Agreement. A
Performance Award granted under the Plan (i) may be denominated or payable in cash, Shares
(including, without limitation, Restricted Stock Units), other securities, other Awards or other
property and (ii) shall confer on the holder thereof the right to receive payments, in whole or in
part, upon the achievement of such performance goals during such performance periods as the
Committee shall establish. Subject to the terms of the Plan and any applicable Award Agreement,
the performance goals to be achieved during any performance period, the length of any performance
period, the amount of any Performance Award granted, the amount of any payment or transfer to be
made pursuant to any Performance Award and any other terms and conditions of any Performance Award
shall be determined by the Committee.

     (e) Other Stock Grants. The Committee is hereby authorized, subject to the terms of
the Plan and any applicable Award Agreement, to grant to Participants Shares without restrictions
thereon as are deemed by the Committee to be consistent with the purpose of the Plan.

     (f) Other Stock-Based Awards. The Committee is hereby authorized to grant to
Participants subject to the terms of the Plan and any applicable Award Agreement, such other Awards
that are denominated or payable in, valued in whole or in part by reference to, or otherwise based
on or related to, Shares (including, without limitation, securities convertible into Shares), as
are deemed by the Committee to be consistent with the purpose of the Plan. Shares or other
securities delivered pursuant to a purchase right granted under this Section 6(f) shall be
purchased for such consideration, which may be paid by such method or methods and in such form or
forms (including, without limitation, cash, Shares, promissory notes, other securities, other
Awards or other property or any combination thereof), as the Committee shall determine, the value
of which consideration, as established by the Committee, shall not be less than 100% of

 

 

the Fair Market Value of such Shares or other securities as of the date such purchase right is
granted.

     (g) General.

     (i) No Cash Consideration for Awards. Awards shall be granted for no cash
consideration or for such minimal cash consideration as may be required by applicable law.

     (ii) Awards May Be Granted Separately or Together. Awards may, in the
discretion of the Committee, be granted either alone or in addition to, in tandem with or in
substitution for any other Award or any award granted under any plan of the Company or any
Affiliate other than the Plan. Awards granted in addition to or in tandem with other Awards
or in addition to or in tandem with awards granted under any such other plan of the Company
or any Affiliate may be granted either at the same time as or at a different time from the
grant of such other Awards or awards.

     (iii) Forms of Payment under Awards. Subject to the terms of the Plan and of
any applicable Award Agreement, payments or transfers to be made by the Company or an
Affiliate upon the grant, exercise or payment of an Award may be made in such form or forms
as the Committee shall determine (including, without limitation, cash, Shares, promissory
notes, other securities, other Awards or other property or any combination thereof), and may
be made in a single payment or transfer, in installments or on a deferred basis, in each
case in accordance with rules and procedures established by the Committee. Such rules and
procedures may include, without limitation, provisions for the payment or crediting of
reasonable interest on installment or deferred payments or the grant or crediting of
dividend equivalents with respect to installment or deferred payments.

     (iv) Limits on Transfer of Awards. No Award (other than Other Stock Grants)
and no right under any such Award shall be transferable by a Participant otherwise than by
will or by the laws of descent and distribution; provided, however, that, if so determined
by the Committee, a Participant may, in the manner established by the Committee, transfer
Options (other than Incentive Stock Options) or designate a beneficiary or beneficiaries to
exercise the rights of the Participant and receive any property distributable with respect
to any Award upon the death of the Participant. Each Award or right under any Award shall
be exercisable during the Participant’s lifetime only by the Participant or, if permissible
under applicable law, by the Participant’s guardian or legal representative. No Award or
right under any such Award may be pledged, alienated, attached or otherwise encumbered, and
any purported pledge, alienation, attachment or encumbrance thereof shall be void and
unenforceable against the Company or any Affiliate.

     (v) Term of Awards. The term of each Award shall be for such period as may be
determined by the Committee; provided, however, that the term of an Option shall not exceed
7 years from the date on which such Option is granted.

 

 

     (vi) Restrictions; Securities Exchange Listing. All Shares or other securities
delivered under the Plan pursuant to any Award or the exercise thereof shall be subject to
such restrictions as the Committee may deem advisable under the Plan, applicable federal or
state securities laws and regulatory requirements, and the Committee may cause appropriate
entries to be made or legends to be affixed to reflect such restrictions. If any securities
of the Company are traded on a securities exchange, 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 admitted for trading on such securities exchange.

Section 7. Automatic Grants to Non-Employee Directors.

     Upon his or her initial election to the Board, each non-employee director of the Company shall
receive 3,000 Restricted Stock Units (the “Initial Grant”). In addition, upon each election of
such person as a director at the Company’s annual shareholder meeting, each non-employee director
shall receive a number of Restricted Stock Units equal to $45,000 divided by the Fair Market Value
of one share of the Company’s common stock on the date of grant (the “Annual Grant”). In the event
that a non-employee director’s initial election to the Board occurs at the Company’s annual
shareholder meeting, such non-employee director will receive both an Initial Grant and an Annual
Grant at that time. All Initial Grants shall vest in full on the second anniversary of the date of
grant. All Annual Grants shall vest in full at the earlier of (1) immediately prior to the
Company’s second annual shareholder meeting following the date of grant or (2) June 30 of the
second year following the year of grant. When a non-employee director ceases to serve as a
director of the Company, all Restricted Stock Units granted to such non-employee director and still
subject to restriction at the date of his or her termination as a director shall be forfeited and
reacquired by the Company as of that date. This Section 7 may not be amended more than once every
six months, other than to comport with changes in the Code or the rules thereunder.

Section 8. Amendment and Termination; Adjustments.

     (a) Amendments to the Plan. The Board may amend, alter, suspend, discontinue or
terminate the Plan at any time; provided, however, that, notwithstanding any other provision of the
Plan or any Award Agreement, without the approval of the shareholders of the Company, no such
amendment, alteration, suspension, discontinuation or termination shall be made that, absent such
approval: (i) would violate the rules or regulations of the NASDAQ Global Market System or any
securities exchange that are applicable to the Company; or (ii) would cause the Company to be
unable, under the Code, to grant Incentive Stock Options under the Plan.

     (b) Amendments to Awards. Except for Awards granted pursuant to Section 7, the
Committee may waive any conditions of or rights of the Company under any outstanding Award,
prospectively or retroactively. Except as otherwise provided herein or in the Award Agreement, the
Committee may not amend, alter, suspend, discontinue or terminate any outstanding Award,
prospectively or retroactively, if such action would adversely affect the rights of the holder of
such Award, without the consent of the Participant or holder or beneficiary thereof.

 

 

     (c) Prohibition on Option Repricing. The Committee shall not reduce the exercise
price of any outstanding Option, whether through amendment, cancellation or replacement grants, or
any other means, without shareholder approval.

     (d) Correction of Defects, Omissions and Inconsistencies. The Committee may correct
any defect, supply any omission or reconcile any inconsistency in the Plan or any Award in the
manner and to the extent it shall deem desirable to carry the Plan into effect.

Section 9. Income Tax Withholding; Tax Bonuses.

     (a) Withholding. In order to comply with all applicable federal or state income tax
laws or regulations, the Company may take such action as it deems appropriate to ensure that all
applicable federal or state payroll, withholding, income or other taxes, which are the sole and
absolute responsibility of a Participant, are withheld or collected from such Participant. In
order to assist a Participant in paying all or a portion of the federal and state taxes to be
withheld or collected upon exercise or receipt of (or the lapse of restrictions relating to) an
Award, the Committee, in its discretion and subject to such additional terms and conditions as it
may adopt, may permit the Participant to satisfy such tax obligation by (i) electing to have the
Company withhold a portion of the Shares otherwise to be delivered upon exercise or receipt of (or
the lapse of restrictions relating to) such Award with a Fair Market Value equal to the amount of
such taxes or (ii) delivering to the Company Shares other than Shares issuable upon exercise or
receipt of (or the lapse of restrictions relating to) such Award with a Fair Market Value equal to
the amount of such taxes. The election, if any, must be made on or before the date that the amount
of tax to be withheld is determined.

     (b) Tax Bonuses. The Committee, in its discretion, shall have the authority, at the
time of grant of any Award under this Plan or at any time thereafter, to approve cash bonuses to
designated Participants to be paid upon their exercise or receipt of (or the lapse of restrictions
relating to) Awards in order to provide funds to pay all or a portion of federal and state taxes
due as a result of such exercise or receipt (or the lapse of such restrictions). The Committee
shall have full authority in its discretion to determine the amount of any such tax bonus.

Section 10. General Provisions.

     (a) No Rights to Awards. No Eligible Person, Participant or other Person shall have
any claim to be granted any Award under the Plan, and there is no obligation for uniformity of
treatment of Eligible Persons, Participants or holders or beneficiaries of Awards under the Plan.
The terms and conditions of Awards need not be the same with respect to any Participant or with
respect to different Participants.

     (b) Award Agreements. No Participant will have rights under an Award granted to such
Participant unless and until an Award Agreement shall have been duly executed on behalf of the
Company and, if requested by the Company, signed by the Participant.

     (c) No Limit on Other Compensation Arrangements. Nothing contained in the Plan shall
prevent the Company or any Affiliate from adopting or continuing in effect other or

 

 

additional compensation arrangements, and such arrangements may be either generally applicable
or applicable only in specific cases.

     (d) No Right to Employment. The grant of an Award shall not be construed as giving a
Participant the right to be retained in the employ of the Company or any Affiliate, nor will it
affect in any way the right of the Company or an Affiliate to terminate such employment at any
time, with or without cause. In addition, the Company or an Affiliate may at any time dismiss a
Participant from employment free from any liability or any claim under the Plan or any Award,
unless otherwise expressly provided in the Plan or in any Award Agreement.

     (e) Governing Law. The validity, construction and effect of the Plan or any Award,
and any rules and regulations relating to the Plan or any Award, shall be determined in accordance
with the laws of the State of Minnesota.

     (f) Severability. If any provision of the Plan or any Award is or becomes or is
deemed to be invalid, illegal or unenforceable in any jurisdiction or would disqualify the Plan or
any Award 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 the
Plan or the Award, such provision shall be stricken as to such jurisdiction or Award, and the
remainder of the Plan or any such Award shall remain in full force and effect.

     (g) No Trust or Fund Created. Neither the Plan nor any Award shall create or be
construed to create a trust or separate fund of any kind or a fiduciary relationship between the
Company or any Affiliate and a Participant or any other Person. To the extent that any Person
acquires a right to receive payments from the Company or any Affiliate pursuant to an Award, such
right shall be no greater than the right of any unsecured general creditor of the Company or any
Affiliate.

     (h) No Fractional Shares. No fractional Shares shall be issued or delivered pursuant
to the Plan or any Award, 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.

     (i) Headings. Headings are given to the Sections and subsections of the Plan 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 the Plan or any provision thereof.

Section 11. Effective Date of the Plan.

     The Plan, as amended, shall be effective when approved by the shareholders of the Company.

Section 12. Term of the Plan.

     No Award shall be granted under the Plan after December 31, 2010 or any earlier date of
discontinuation or termination established pursuant to Section 8(a) of the Plan. However, unless
otherwise expressly provided in the Plan or in an applicable Award Agreement, any Award
theretofore granted may extend beyond such date.

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