Document:

EX-10.3

EXHIBIT 10.3

ATS MEDICAL, INC.

NON-QUALIFIED STOCK OPTION AGREEMENT

     ATS Medical, Inc. (the “Company”) has adopted the ATS Medical, Inc. 2000 Stock Incentive Plan
(the “Plan”) which permits the issuance of stock options for the purchase of shares of common
stock, $.01 par value, of the Company (the “Common Stock”), and the Company has taken all necessary
actions to grant this Option to you (the “Optionee”) pursuant and subject to the terms of the Plan,
as follows:

     1. Grant of Option. The Company grants as of the date of this agreement, the right
and option (hereinafter called the “Option”) to purchase all or any part of an aggregate number of
shares of Common Stock (the “Shares”) at the price per share provided pursuant to the Notice of
Grant of Stock Options and Option Agreement (the “Notice”), which constitutes the first page of
this agreement, and on the terms and conditions set forth herein and in the Plan. It is understood
and agreed that the Option price is not less than the per share fair market value of such Shares on
the date this Option was granted. The Company intends that this Option shall not be an
incentive stock option governed by the provisions of Section 422 of the Internal Revenue Code of
1986, as amended (the “Code”). A copy of the Plan will be furnished upon request of the Optionee.

     2. Termination of Option and Vesting of Option Rights.

     (a) This Option shall in all events terminate at the close of business on the date of
expiration contained in the Notice (the “Termination Date”) or such shorter period as is prescribed
herein. The Option may be exercised during the Option period only as described in the vesting
schedule contained in the Notice.

     (b) During the lifetime of the Optionee, this Option shall be exercisable only by Optionee
(except as otherwise provided in Section 3(c)) and shall not be assignable or transferable by
Optionee, other than by will or the laws of descent and distribution or pursuant to a qualified
domestic relations order as defined by the Code.

     3. Exercise of Option after Death or Termination of Employment. This Option shall
terminate and may no longer be exercised if the Optionee ceases to be employed by the Company or
its subsidiaries, if any, except that:

     (a) In the event that the Optionee shall cease to be employed by the Company or its
subsidiaries, if any, for the reason other than the Optionee’s gross and willful misconduct or
death or disability, the Optionee shall have the right to exercise this Option at any time within
three months after such termination of employment to the extent of the full number of Shares the
Optionee was entitled to purchase under this Option on the date of termination.

     (b) In the event that the Optionee shall cease to be employed by the Company or its
subsidiaries, if any, by reason of the Optionee’s gross and willful misconduct during the course of
employment, including but not limited to wrongful appropriation of funds of the Company or

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the commission of a gross misdemeanor or felony, this Option shall be terminated as of the
date of the misconduct.

     (c) In the event that the Optionee shall die while in the employ of the Company or any
subsidiary, if any, or within three months after termination of employment for any reason other
than gross and willful misconduct, or become disabled (within the meaning of Section 22(e)(3) of
the Code) while in the employ of the Company or a subsidiary, if any, and the Optionee shall not
have fully exercised this Option, this Option may be exercised at any time within twelve months
after the Optionee’s death or disability by the Optionee, the personal representatives,
administrators, or, if applicable, guardian of the Optionee or by any person or persons to whom
this Option is transferred by will or the applicable laws of descent and distribution to the extent
of the full number of Shares the Optionee was entitled to purchase under this Option on the date of
death, disability or termination of employment, if earlier.

     (d) Notwithstanding the above, in no case may this Option be exercised to any extent by anyone
after the Termination Date.

     4. Method of Exercise of Option. Subject to the foregoing, this Option may be
exercised in whole or in part from time to time by serving written notice of exercise on the
Company at its principal office within the Option period. The notice shall state the number of
Shares as to which the Option is being exercised and shall be accompanied by payment of the
exercise price. Payment of the exercise price shall be made by certified or bank cashier’s check
payable to the Company, or by tender of shares of the Company’s Common Stock, previously owned by
the Optionee, having a fair market value on the date of exercise equal to the exercise price of the
Option, or a combination of cash and shares equal to such exercise price.

     5. Miscellaneous.

     (a) Plan Provisions Control. In the event that any provision of this agreement
conflicts with or is inconsistent in any respect with the terms of the Plan, the terms of the Plan
shall control.

     (b) No Rights of Shareholders. Neither Optionee, Optionee’s legal representative nor
a permissible assignee of this Option shall have any of the rights and privileges of a shareholder
of the Company with respect to the Shares, unless and until such Shares have been issued in the
name of the Optionee, Optionee’s legal representative or permissible assignee, as applicable.

     (c) No Right to Employment. This agreement shall not confer on the Optionee any right
with respect to continuance of employment with the Company or any subsidiary of the Company, nor
will it interfere in any way with the right of the Company to terminate such employment at any
time.

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

     (e) Severability. If any provision of this agreement is or becomes or is deemed to be
invalid, illegal or unenforceable in any jurisdiction or would disqualify this agreement under any
law deemed applicable by the Committee (as defined in the Plan), such provision shall be construed
or deemed amended to conform to applicable laws, or if it cannot be so construed or

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deemed amended without, in the determination of the Committee, materially altering the purpose
or intent of the Plan or this agreement, such provision shall be stricken as to such jurisdiction
or this agreement, and the remainder of this agreement shall remain in full force and effect.

     (f) No Trust or Fund Created. Neither the Plan 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 affiliate and the Optionee or any other person.

     (g) 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
thereof.

     (h) Conditions Precedent to Issuance of Shares. Shares shall not be issued pursuant
to the exercise of the Option unless such exercise and the issuance and delivery of the applicable
Shares pursuant thereto shall comply with all relevant provisions of law, including, without
limitation, the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, the requirements of the NASDAQ Global
Market or any other applicable stock exchange and the Minnesota Business Corporation Act. As a
condition to the exercise of the purchase price relating to the Option, the Company may require
that the person exercising or paying the purchase price represent and warrant that the Shares are
being purchased only for investment and without any present intention to sell or distribute such
Shares if, in the opinion of counsel for the Company, such a representation and warranty is
required by law.

     (i) Withholding. In order to provide the Company with the opportunity to claim the
benefit of any income tax deduction which may be available to it upon the exercise of the Option
and 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 assure that, if necessary, all applicable
federal or state payroll, withholding, income or other taxes are withheld or collected from the
Optionee.

     (j) Consultation With Professional Tax and Investment Advisors. The Optionee
acknowledges that the grant, exercise, vesting or any payment with respect to this Option, and the
sale or other taxable disposition of the Shares acquired pursuant to the exercise thereof, may have
tax consequences pursuant to the Code or under local, state or international tax laws. The
Optionee further acknowledges that such Optionee is relying solely and exclusively on the
Optionee’s own professional tax and investment advisors with respect to any and all such matters
(and is not relying, in any manner, on the Company or any of its employees or representatives).
Finally, the Optionee understands and agrees that any and all tax consequences resulting from this
Option and its grant, exercise, vesting or any payment with respect thereto, and the sale or other
taxable disposition of the Shares acquired pursuant to the Plan, is solely and exclusively the
responsibility of the Optionee without any expectation or understanding that the Company or any of
its employees or representatives will pay or reimburse such holder for such taxes or other items.

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Exhibit
10.1

AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.

2005 STOCK INCENTIVE PLAN (AS AMENDED AND RESTATED)

(AS
AMENDED THROUGH APRIL 30, 2009)

1. Purpose of Plan.

          The purpose of the American Medical Systems Holdings, Inc. 2005 Stock Incentive Plan (the
“Plan”) is to advance the interests of American Medical Systems Holdings, Inc. (the “Company”) and
its stockholders by enabling the Company and its Subsidiaries to attract and retain qualified
individuals through opportunities for equity participation in the Company, and to reward those
individuals who contribute to the achievement of the Company’ economic objectives.

2. Definitions.

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

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

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

          2.3 “Cause” means (i) dishonesty, fraud, misrepresentation, embezzlement or deliberate
injury or attempted injury, in each case related to the Company or any Subsidiary, (ii) any
unlawful or criminal activity of a serious nature, (iii) any intentional and deliberate breach of a
duty or duties that, individually or in the aggregate, are material in relation to the
Participant’s overall duties, or (iv) any material breach of any confidentiality, non-compete or
non-solicitation agreement entered into with the Company or any Subsidiary.

          2.4 “Change in Control” means an event described in Section 14.1 of the Plan;
provided, however, if distribution of an Incentive Award subject to Section 409A of the Code is
triggered by a Change in Control, the term Change in Control will mean a change in the ownership or
effective control of the Company, or in the ownership of a substantial portion of the assets of the
Company, as such term is defined in Section 409A of the Code and the regulations and rulings issued
thereunder.

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

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

          2.7 “Common Stock” means the voting common stock of the Company, par value $0.01 per
share, or the number and kind of shares of stock or other securities into which such Common Stock
may be changed in accordance with Section 4.3 of the Plan.

          2.8 “Disability” means the disability of the Participant such as would entitle the
Participant to receive disability income benefits pursuant to the long term disability plan of the
Company or Subsidiary then covering the Participant or, if no such plan exists or is applicable to
the Participant, the permanent and total disability of the Participant within the meaning of
Section 22(e)(3) of the Code; provided, however, if distribution of an Incentive Award subject to
Section 409A of the Code is triggered by an Eligible Recipient’s Disability, such term will mean
that the Eligible Recipient is disabled as defined by Section 409A of the Code and the regulations
and rulings issued thereunder.

          2.9 “Eligible Recipients” means all employees (including, without limitation, officers
and directors who are also employees) of the Company or any Subsidiary, and any non-employee
directors, consultants, advisors and independent contractors of the Company or any Subsidiary.
Nothwithstanding the foregoing, for purposes of granting Incentive Stock Options, the term Eligible
Recipients shall be limited to all employees (including without limitation, officers and directors
who are also employees) of the Company or any Subsidiary.

 

 

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

          2.11 “Fair Market Value” means, with respect to the Common Stock, as of any date: (i)
the closing sale price of the Common Stock as of such date during the regular daily trading
session, as reported on the Nasdaq National Market System or on any national exchange (or, if no
shares were traded or quoted on such date, as of the next preceding date on which there was such a
trade or quote); or (ii) if the Common Stock is not so listed, admitted to unlisted trading
privileges, or reported on any national exchange or on the Nasdaq National Market System, the mean
between the reported high and low sale prices as of such date during the regular daily trading
session, as reported by the Nasdaq SmallCap Market, OTC Bulletin Board, the Bulletin Board Exchange
(BBX) or the National Quotation Bureaus, Inc., or other comparable service (or, if no shares were
traded or quoted on such date, as of the next preceding date on which there was such a trade or
quote); or (iii) if the Common Stock is not so listed or reported, such price as the Committee
determines in good faith in the exercise of its reasonable discretion.

          2.12 “Good Reason,” unless otherwise defined in an agreement evidencing an Incentive
Award, means the occurrence of any of the following in connection with a Change in Control: (i) a
substantial diminution in the Participant’s authority, duties or responsibilities as in effect
prior to the Change in Control, (ii) a reduction by the Company in the Participant’s base salary,
or an adverse change in the form or timing of the payment thereof, as in effect immediately prior
to the Change in Control or as thereafter increased, or (iii) the Company’s requiring the
Participant to be based at any office or location that is more than fifty (50) miles further from
the office or location thereof immediately preceding the Change in Control; provided, however, Good
Reason shall not include any of the circumstances or events described above unless (A) the
Participant has first provided written notice of such circumstance or event to the Company or its
successor and the Company or such successor has not corrected such circumstance or event within
thirty (30) days thereafter; and (B) the Participant has not otherwise consented to the occurrence
in writing.

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

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

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

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

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

          2.18 “Performance Criteria” means the performance criteria that may be used by the
Committee in granting Incentive Awards contingent upon achievement of performance goals, consisting
of net sales, operating income, income before income taxes, net income, net income per share (basic
or diluted), profitability as measured by return ratios (including return on assets, return on
equity, return on investment and return on sales), cash flows, market share, cost reduction goals,
margins (including one or more of gross, operating and net income margins), stock price, total
return to stockholders, economic value added, working capital and strategic plan development and
implementation. The Committee may select one criterion or multiple criteria for measuring
performance, and the measurement may be based upon Company, Subsidiary or business unit
performance, either absolute or by relative comparison to other companies or any other external
measure of the selected criteria.

          2.19 “Performance Award” means a right granted to an Eligible Recipient pursuant to
Section 10 of the Plan to receive an amount of cash, a number of shares of Common Stock, or a
combination of both, contingent upon achievement of Performance Criteria or other objectives during
a specified period.

          2.20 “Previously Acquired Shares” means shares of Common Stock that are already owned
by the Participant.

          2.21 “Restricted Stock Award” means an award of Common Stock granted to an Eligible
Recipient pursuant to Section 8 of the Plan that are subject to restrictions on transferability and
a risk of forfeiture.

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          2.22 “Retirement” means termination of employment or service at age 55 or older and
completion of at least ten years of continuous service.

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

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

          2.25 “Stock Bonus” means an award of Common Stock granted to an Eligible Recipient
pursuant to Section 11 of the Plan.

          2.26 “Stock Unit Award” means a right granted to an Eligible Recipient pursuant to
Section 9 of the Plan to receive the Fair Market Value of one or more shares of Common Stock,
payable in cash, shares of Common Stock, or a combination of both, the payment, issuance, retention
and /or vesting of which is subject to the satisfaction of specified conditions, which may include
achievement of Performance Criteria or other objectives.

          2.27 “Subsidiary” means any entity in which the Company has a “controlling interest”
(as defined in Treas. Reg. Sec. 1.409A-1(b)(5)(ii)(E)(1)), either directly or through a chain of
corporations or other entities in which each corporation or other entity has a “controlling
interest” in another corporation or entity in the chain, as determined by the Committee.

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

3. Plan Administration.

          3.1 The Committee. The Plan will be administered by the Board or by a committee of
the Board. So long as the Company has a class of its equity securities registered under Section 12
of the Exchange Act, any committee administering the Plan will consist solely of two or more
members of the Board who are “non employee directors” within the meaning of Rule 16b 3 under the
Exchange Act, who are “independent” as required by the listing standards of the Nasdaq Stock Market
(or other applicable market or exchange on which the Company’s Common Stock may be quoted or
traded) and who are “outside directors” within the meaning of Section 162(m) of the Code. Such a
committee, if established, will act by majority approval of the members (unanimous approval with
respect to action by written consent), and a majority of the members of such a committee will
constitute a quorum. As used in the Plan, “Committee” will refer to the Board or to such a
committee, if established. To the extent consistent with applicable corporate law of the Company’s
jurisdiction of incorporation, the Committee may delegate to any officers of the Company the
duties, power and authority of the Committee under the Plan pursuant to such conditions or
limitations as the Committee may establish; provided, however, that only the Committee may exercise
such duties, power and authority with respect to Eligible Recipients who are subject to Section 16
of the Exchange Act or whose compensation in the fiscal year may be subject to the limits on
deductible compensation pursuant to Section 162(m) of the Code. The Committee may exercise its
duties, power and authority under the Plan in its sole and absolute discretion without the consent
of any Participant or other party, unless the Plan specifically provides otherwise. Each
determination, interpretation or other action made or taken by the Committee pursuant to the
provisions of the Plan will be conclusive and binding for all purposes and on all persons, and no
member of the Committee will be liable for any action or determination made in good faith with
respect to the Plan or any Incentive Award granted under the Plan.

          3.2 Authority of the Committee.

     (a) In accordance with and subject to the provisions of the Plan, the Committee will
have the authority to determine all provisions of Incentive Awards as the Committee may deem
necessary or desirable and as consistent with the terms of the Plan, including, without
limitation, the following: (i) the Eligible Recipients to be selected as Participants; (ii)
the nature and extent of the Incentive Awards to be made to each Participant (including the
number of shares of Common Stock to be subject to each Incentive Award, any exercise price,
the manner in which Incentive Awards will vest or become exercisable and whether Incentive
Awards will be granted in tandem with other Incentive Awards) and the form of written
agreement, if any, evidencing such Incentive Award; (iii) the time or times when Incentive
Awards will be granted; (iv) the duration of each Incentive Award;

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and (v) the restrictions and other conditions to which the payment or vesting of
Incentive Awards may be subject; provided, however, that notwithstanding any other provision
of the Plan: (A) any Incentive Award other than an Option or Stock Appreciation Right will
not vest or become payable over a period of less than three (3) years from the date of
grant, if vesting or payment is based solely upon the passage of time, and will have a
performance measurement period of not less than one (1) year, if vesting or payment is based
upon satisfaction of Performance Criteria or other objectives; and (B) all Incentive Awards
granted to non-employee directors shall be granted pursuant to bona fide formulas or
policies established by the Committee from time to time for the compensation of such
directors, as a group, in respect of service as a non-employee director, a member of a
committee of the Board or chair of the Board or a committee of the Board, and the Committee
shall not discriminate among individual non-employee directors in granting or establishing
the terms of Incentive Awards (except to the extent such formulas or policies may be
modified from time to time). In addition, the Committee will have the authority under the
Plan in its sole discretion to pay the economic value of any Incentive Award in the form of
cash, Common Stock or any combination of both.

     (b) Subject to Section 3.2(d), the Committee will have the authority under the Plan to
amend or modify the terms of any outstanding Incentive Award in any manner, including,
without limitation, the authority to modify the number of shares or other terms and
conditions of an Incentive Award, extend the term of an Incentive Award, accelerate the
exercisability or vesting or otherwise terminate any restrictions relating to an Incentive
Award, accept the surrender of any outstanding Incentive Award or, to the extent not
previously exercised or vested, authorize the grant of new Incentive Awards in substitution
for surrendered Incentive Awards; provided, however that (A) the Committee shall not be
authorized to accelerate the vesting or payment of any Incentive Award or terminate or waive
any restrictions relating to an Incentive Award without prior approval of the Company’s
stockholders, except in connection with the Participant’s death, Disability or Retirement,
or in connection with a Change in Control; (B) the amended or modified terms are permitted
by the Plan as then in effect; and (C) any Participant adversely affected by such amended or
modified terms has consented to such amendment or modification.

     (c) In the event of (i) any reorganization, merger, consolidation, recapitalization,
liquidation, reclassification, stock dividend, stock split, combination of shares, rights
offering, extraordinary dividend or divestiture (including a spin off) or any other change
in corporate structure or shares; (ii) any purchase, acquisition, sale, disposition or
write-down of a significant amount of assets or a significant business; (iii) any change in
accounting principles or practices, tax laws or other such laws or provisions affecting
reported results; (iv) any uninsured catastrophic losses or extraordinary non-recurring
items as described in Accounting Principles Board Opinion No. 30 or in management’s
discussion and analysis of financial performance appearing in the Company’s annual report to
stockholders for the applicable year; or (v) any other similar change, in each case with
respect to the Company or any other entity whose performance is relevant to the grant or
vesting of an Incentive Award, the Committee (or, if the Company is not the surviving
corporation in any such transaction, the board of directors of the surviving corporation)
may, without the consent of any affected Participant, amend or modify the vesting criteria
(including Performance Criteria) of any outstanding Incentive Award that is based in whole
or in part on the financial performance of the Company (or any Subsidiary or division or
other subunit thereof) or such other entity so as equitably to reflect such event, with the
desired result that the criteria for evaluating such financial performance of the Company or
such other entity will be substantially the same (in the sole discretion of the Committee or
the board of directors of the surviving corporation) following such event as prior to such
event; provided, however, that the amended or modified terms are permitted by the Plan as
then in effect, including the limitations in Section 3.2(a) and 3.2(b).

     (d) Notwithstanding any other provision of this Plan other than Section 4.3, the
Committee may not, without prior approval of the Company’s stockholders, seek to effect any
re-pricing of any previously granted, “underwater” Option or Stock Appreciation Right by:
(i) amending or modifying the terms of the Option or Stock Appreciation Right to lower the
exercise price; (ii) canceling the underwater Option or Stock Appreciation Right and
granting either (A) replacement Options or Stock Appreciation Rights having a lower exercise
price; (B) Restricted Stock Awards; or (C) Stock Unit Awards, Performance Awards or Stock
Bonuses in exchange; or (iii) repurchasing the underwater Options or Stock Appreciation
Rights and granting new Incentive Awards under this Plan. For purposes of this Section
3.2(d), Options and Stock Appreciation Rights will be deemed to be “underwater” at any time
when the Fair Market Value of the Common Stock is less than the exercise price of the Option
or Stock Appreciation Right.

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     (e) In addition to the authority of the Committee under Section 3.2(b) and
notwithstanding any other provision of the Plan, the Committee may, in its sole discretion,
amend the terms of the Plan or Incentive Awards with respect to Participants resident
outside of the United States or employed by a non-U.S. Subsidiary in order to comply with
local legal requirements, to otherwise protect the Company’s or Subsidiary’s interests, or
to meet objectives of the Plan, and may, where appropriate, establish one or more sub-plans
(including the adoption of any required rules and regulations) for the purposes of
qualifying for preferred tax treatment under foreign tax laws. The Committee shall have no
authority, however, to take action pursuant to this Section 3.2(e): (i) to reserve shares or
grant Incentive Awards in excess of the limitations provided in Section 4.1; (ii) to effect
any re-pricing in violation of Section 3.2(d); (iii) to grant Options having an exercise
price less than 100% of the Fair Market Value of one share of Common Stock on the date of
grant in violation of Section 6.2; or (iv) for which stockholder approval would then be
required pursuant to Section 19.

     (f) Notwithstanding anything in this Plan to the contrary, the Committee will determine
whether an Incentive Award is subject to the requirements of Section 409A of the Code and,
if determined to be subject to Section 409A of the Code, the Committee will make such
Incentive Award subject to such written terms and conditions determined necessary or
desirable to cause such Incentive Award to comply in form with the requirements of Section
409A of the Code. Further, the Plan, as it relates to Incentive Awards that are subject to
Section 409A of the Code, will be administered in a manner that is intended to comply with
the requirements of Section 409A of the Code and any regulations or rulings issued
thereunder.

4. Shares Available for Issuance.

          4.1 Maximum Number of Shares Available; Certain Restrictions on Awards. Subject to
adjustment as provided in Section 4.3 of the Plan, the maximum number of shares of Common Stock
that will be available for issuance under the Plan will be the sum of:

     (a) 11,600,000;

     (b) the number of shares subject to outstanding options under the Company’s 2000 Equity
Incentive Plan as of the Effective Date which are not thereafter issued or which have been
issued but are subsequently forfeited and which would otherwise have been available for
further issuance under such plan, assuming, however, that the provisions of Section 4.2 of
the Plan applied thereto;

     (c) the number of shares issued or Incentive Awards granted under the Plan in
connection with the settlement, assumption or substitution of outstanding awards or
obligations to grant future awards as a condition of the Company and/or any Subsidiary(ies)
acquiring, merging or consolidating with another entity; and

     (d) the number of shares that are unallocated and available for grant under a stock
plan assumed by the Company or any Subsidiary(ies) in connection with the merger,
consolidation, or acquisition of another entity by the Company and/or any of its
Subsidiaries, based on the applicable exchange ratio and other transaction terms, but only
to the extent that such shares may be utilized by the Company or its Subsidiaries following
the transaction pursuant to the rules and regulations of the Nasdaq Stock Market (or other
applicable market or exchange on which the Company’s Common Stock may be quoted or traded).

The shares available for issuance under the Plan may, at the election of the Committee, be either
treasury shares or shares authorized but unissued, and, if treasury shares are used, all references
in the Plan to the issuance of shares will, for corporate law purposes, be deemed to mean the
transfer of shares from treasury. Notwithstanding any other provisions of the Plan to the
contrary, (i) no Participant in the Plan may be granted Options and Stock Appreciation Rights
relating to more than 1,500,000 shares of Common Stock in the aggregate during any calendar year;
(ii) no Participant in the Plan may be granted Restricted Stock Awards, Stock Unit Awards,
Performance Awards and Stock Bonuses relating to more than 500,000 shares of Common Stock in the
aggregate during any calendar year; (iii) no Participant in the Plan may be granted Incentive
Awards denominated in cash in an amount in excess of $1,000,000 in the aggregate during any
calendar year; and (iv) no more than 11,600,000 shares of Common Stock may be issued pursuant to
the exercise of Incentive Stock Options granted under the Plan. All of the foregoing share limits
are subject, in each case, to adjustment as provided in Section 4.3 of the Plan. In addition, the
limits set forth in clauses (i) and (ii) above will not apply to Incentive Awards granted as a
result of the Company’s assumption or substitution of like awards issued by any acquired, merged or
consolidated entity pursuant to the applicable transaction terms, and the limit in clause (iv)
above will not apply to any Incentive Stock Options

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that are assumed or substituted pursuant to the applicable provisions of the Code in connection
with any acquisition, consolidation or merger.

          4.2 Accounting for Incentive Awards. Shares of Common Stock that are issued under the
Plan or that are potentially issuable pursuant to outstanding Incentive Awards will be applied to
reduce the maximum number of shares of Common Stock remaining available for issuance under the
Plan; provided, however, that the total number of shares that may be issued under the Plan shall be
reduced by one additional share for each share issued pursuant to an Incentive Award other than an
Option or a Stock Appreciation Right, or potentially issuable pursuant to an outstanding Incentive
Award other than an Option or a Stock Appreciation Right. All shares so subtracted from the amount
available under the Plan with respect to an Incentive Award that lapses, expires, is forfeited
(including issued shares forfeited under a Restricted Stock Award) or for any reason is terminated
unexercised or unvested or is settled or paid in cash or any form other than shares of Common Stock
will automatically again become available for issuance under the Plan; provided, however, that (i)
any shares which would have been issued upon any exercise of an Option but for the fact that the
exercise price was paid by a “net exercise” pursuant to Section 6.4(b) or the tender or attestation
as to ownership of Previously Acquired Shares will not again become available for issuance under
the Plan; and (ii) shares covered by a Stock Appreciation Right, to the extent exercised, will not
again become available for issuance under the Plan. Furthermore, shares withheld for the payment
of taxes in connection with an Incentive Award will not again become available for issuance under
the Plan.

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

5. Participation.

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

6. Options.

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

          6.2 Exercise Price. The per share price to be paid by a Participant upon exercise of
an Option will be determined by the Committee in its discretion at the time of the Option grant,
provided that such price will not be less than 100% of the Fair Market Value of one share of Common
Stock on the date of grant (or 110% of the Fair Market Value of one share of Common Stock on the
date of grant of an Incentive Stock Option if, at the time the Incentive Stock Option is granted,
the Participant owns, directly or indirectly, more than 10% of the total combined voting power of
all classes of stock of the Company or any parent or subsidiary corporation of the Company).
Notwithstanding the foregoing, to the extent that Options are granted under the Plan as a result of
the Company’s assumption or substitution of options issued by any acquired, merged or consolidated
entity, the exercise price for such Options shall be the price determined by the Committee pursuant
to the conversion terms applicable to the transaction.

          6.3 Exercisability and Duration. An Option will become exercisable at such times and
in such installments and upon such terms and conditions as may be determined by the Committee in
its sole discretion at the time of grant ,

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including without limitation (i) the achievement of one or more of the Performance Criteria;
and/or that (ii) the Participant remain in the continuous employ or service of the Company or a
Subsidiary for a certain period; provided, however, that no Option may be exercisable after seven
(7) years from its date of grant (five years from its date of grant in the case of an Incentive
Option if, at the time the Incentive Stock Option is granted, the Participant owns, directly or
indirectly, more than 10% of the total combined voting power of all classes of stock of the Company
or any parent or subsidiary corporation of the Company).

          6.4 Payment of Exercise Price.

     (a) The total purchase price of the shares to be purchased upon exercise of an Option
will be paid entirely in cash (including check, bank draft or money order); provided,
however, that the Committee, in its sole discretion and upon terms and conditions
established by the Committee, may allow such payments to be made, in whole or in part, by
(i) tender of a Broker Exercise Notice; (ii) by tender, or attestation as to ownership, of
Previously Acquired Shares that have been held for the period of time necessary to avoid a
charge to the Company’s earnings for financial reporting purposes and that are otherwise
acceptable to the Committee; (iii) to the extent permissible under applicable law, by
delivery of a promissory note (on terms acceptable to the Committee in its sole discretion);
(iv) by a “net exercise of the Option (as further described in paragraph (b), below); or
(v) by a combination of such methods.

     (b) In the case of a “net exercise” of an Option, the Company will not require a
payment of the exercise price of the Option from the Participant but will reduce the number
of shares of Common Stock issued upon the exercise by the largest number of whole shares
that has a Fair Market Value that does not exceed the aggregate exercise price for the
shares exercised under this method. Shares of Common Stock will no longer be outstanding
under an Option (and will therefore not thereafter be exercisable) following the exercise of
such Option to the extent of (i) shares used to pay the exercise price of an Option under
the “net exercise,” (ii) shares actually delivered to the Participant as a result of such
exercise and (iii) any shares withheld for purposes of tax withholding pursuant to Section
13.1.

     (c) Previously Acquired Shares tendered or covered by an attestation as payment of an
Option exercise price will be valued at their Fair Market Value on the exercise date.

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

7. Stock Appreciation Rights.

          7.1 Grant. An Eligible Recipient may be granted one or more Stock Appreciation Rights
under the Plan, and such Stock Appreciation Rights will be subject to such terms and conditions,
consistent with the other provisions of the Plan, as may be determined by the Committee in its sole
discretion. The Committee will have the sole discretion to determine the form in which payment of
the economic value of Stock Appreciation Rights will be made to a Participant (i.e., cash, Common
Stock or any combination thereof) or to consent to or disapprove the election by a Participant of
the form of such payment.

          7.2 Exercise Price. The exercise price of a Stock Appreciation Right will be
determined by the Committee, in its discretion, at the date of grant but may not be less than 100%
of the Fair Market Value of one share of Common Stock on the date of grant, except as provided in
Section 7.4, below. Notwithstanding the foregoing, to the extent that Stock Appreciation Rights
are granted under the Plan as a result of the Company’s assumption or substitution of stock
appreciation rights issued by any acquired, merged or consolidated entity, the exercise price for
such Stock Appreciation Rights shall be the price determined by the Committee pursuant to the
conversion terms applicable to the transaction.

          7.3 Exercisability and Duration. A Stock Appreciation Right will become exercisable
at such time and in such installments as may be determined by the Committee in its sole discretion
at the time of grant; provided, however, that no Stock Appreciation Right may be exercisable after
seven (7) years from its date of grant. A Stock Appreciation Right will be exercised by giving
notice in the same manner as for Options, as set forth in Section 6.5 of the Plan.

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          7.4 Grants in Tandem with Options. Stock Appreciation Rights may be granted alone or
in addition to other Incentive Awards, or in tandem with an Option, either at the time of grant of
the Option or at any time thereafter during the term of the Option. A Stock Appreciation Right
granted in tandem with an Option shall cover the same number of shares of Common Stock as covered
by the Option (or such lesser number as the Committee may determine), shall be exercisable at such
time or times and only to the extent that the related Option is exercisable, have the same term as
the Option and shall have an exercise price equal to the exercise price for the Option. Upon the
exercise of a Stock Appreciation Right granted in tandem with an Option, the Option shall be
canceled automatically to the extent of the number of shares covered by such exercise; conversely,
upon exercise of an Option having a related Stock Appreciation Right, the Stock Appreciation Right
shall be canceled automatically to the extent of the number of shares covered by the Option
exercise.

8. Restricted Stock Awards.

          8.1 Grant. An Eligible Recipient may be granted one or more Restricted Stock Awards
under the Plan, and such Restricted Stock Awards will be subject to such terms and conditions,
consistent with the other provisions of the Plan, as may be determined by the Committee in its sole
discretion. The Committee may impose such restrictions or conditions, not inconsistent with the
provisions of the Plan, to the vesting of such Restricted Stock Awards as it deems appropriate,
including, without limitation, (i) the achievement of one or more of the Performance Criteria;
and/or that (ii) the Participant remain in the continuous employ or service of the Company or a
Subsidiary for a certain period.

          8.2 Rights as a Stockholder; Transferability. Except as provided in Sections 8.1,
8.3, 8.4 and 15.3 of the Plan, a Participant will have all voting, dividend, liquidation and other
rights with respect to shares of Common Stock issued to the Participant as a Restricted Stock Award
under this Section 8 upon the Participant becoming the holder of record of such shares as if such
Participant were a holder of record of shares of unrestricted Common Stock.

          8.3 Dividends and Distributions. Unless the Committee determines otherwise in its
sole discretion (either in the agreement evidencing the Restricted Stock Award at the time of grant
or at any time after the grant of the Restricted Stock Award), any dividends or distributions
(other than regular quarterly cash dividends) paid with respect to shares of Common Stock subject
to the unvested portion of a Restricted Stock Award will be subject to the same restrictions as the
shares to which such dividends or distributions relate. The Committee will determine in its sole
discretion whether any interest will be paid on such dividends or distributions.

          8.4 Enforcement of Restrictions. To enforce the restrictions referred to in this
Section 8, the Committee may place a legend on the stock certificates referring to such
restrictions and may require the Participant, until the restrictions have lapsed, to keep the stock
certificates, together with duly endorsed stock powers, in the custody of the Company or its
transfer agent, or to maintain evidence of stock ownership, together with duly endorsed stock
powers, in a certificateless book entry stock account with the Company’s transfer agent.

9. Stock Unit Awards.

          An Eligible Recipient may be granted one or more Stock Unit Awards under the Plan, and such
Stock Unit Awards will be subject to such terms and conditions, consistent with the other
provisions of the Plan, as may be determined by the Committee in its sole discretion. The
Committee may impose such restrictions or conditions, not inconsistent with the provisions of the
Plan, to the payment, issuance, retention and/or vesting of such Stock Unit Awards as it deems
appropriate, including, without limitation, (i) the achievement of one or more of the Performance
Criteria; and/or that (ii) the Participant remain in the continuous employ or service of the
Company or a Subsidiary for a certain period; provided, however, that in all cases payment of a
Stock Unit Award will be made within two and one-half months following the end of the Eligible
Recipient’s tax year during which receipt of the Stock Unit Award is no longer subject to a
“substantial risk of forfeiture” within the meaning of Section 409A of the Code.

	10.	 	Performance Awards.

          An Eligible Recipient may be granted one or more Performance Awards under the Plan, and such
Performance Awards will be subject to such terms and conditions, if any, consistent with the other
provisions of the Plan, as may be determined by the Committee in its sole discretion, including,
but not limited to, the achievement of one or more of the Performance Criteria; provided, however,
that in all cases payment of the Performance Award will be made within two and one-half months
following the end of the Eligible Recipient’s tax year during which receipt of the Performance
Award is no longer subject to a “substantial risk of forfeiture” within the meaning of Section 409A
of the Code.

A-8

 

11. Stock Bonuses.

          An Eligible Recipient may be granted one or more Stock Bonuses under the Plan, and such Stock
Bonuses will be subject to such terms and conditions, if any, consistent with the other provisions
of the Plan, as may be determined by the Committee in its sole discretion, including, but not
limited to, the achievement of one or more of the Performance Criteria; provided, however, that in
all cases payment of the Performance Award will be made within two and one-half months following
the end of the Eligible Recipient’s tax year during which receipt of the Performance Award is no
longer subject to a “substantial risk of forfeiture” within the meaning of Section 409A of the
Code.

12. Effect of Termination of Employment or Other Service. The following provisions shall
apply upon termination of a Participant’s employment or other service with the Company and all
Subsidiaries, except to the extent that the Committee provides otherwise in an agreement evidencing
an Incentive Award at the time of grant or determines pursuant to Section 12.4.

          12.1 Termination of Employment Due to Death or Retirement. Subject to Section 12.5 of
the Plan, in the event a Participant’s employment or other service with the Company and all
Subsidiaries is terminated by reason of death or Retirement:

     (a) All outstanding Options and Stock Appreciation Rights then held by the Participant
will, to the extent exercisable as of such termination, remain exercisable in full for a
period of twelve months after such termination (but in no event after the expiration date of
any such Option or Stock Appreciation Right). Options and Stock Appreciation Rights not
exercisable as of such termination will be forfeited and terminate;

     (b) All Restricted Stock Awards then held by the Participant that have not vested as of
such termination will be terminated and forfeited; and

     (c) All outstanding but unpaid Stock Unit Awards, Performance Awards and Stock Bonuses
then held by the Participant will be terminated and forfeited.

          12.2 Termination of Employment Due to Disability. Subject to Section 12.5 of the
Plan, in the event a Participant’s employment or other service with the Company and all
Subsidiaries is terminated by reason of Disability:

     (a) All outstanding Options and Stock Appreciation Rights then held by the Participant
will, to the extent exercisable as of such termination, remain exercisable in full for a
period of six months after such termination (but in no event after the expiration date of
any such Option or Stock Appreciation Right). Options and Stock Appreciation Rights not
exercisable as of such termination will be forfeited and terminate;

     (b) All Restricted Stock Awards then held by the Participant that have not vested as of
such termination will be terminated and forfeited; and

     (c) All outstanding but unpaid Stock Unit Awards, Performance Awards and Stock Bonuses
then held by the Participant will be terminated and forfeited.

          12.3 Termination of Employment for Reasons Other than Death, Disability or Retirement.
Subject to Section 12.5 of the Plan, in the event a Participant’s employment or other service is
terminated with the Company and all Subsidiaries for any reason other than death, Disability or
Retirement, or a Participant is in the employ or service of a Subsidiary and the Subsidiary ceases
to be a Subsidiary of the Company (unless the Participant continues in the employ or service of the
Company or another Subsidiary):

     (a) All outstanding Options and Stock Appreciation Rights then held by the Participant
will, to the extent exercisable as of such termination, remain exercisable in full for a
period of three months after such termination (but in no event after the expiration date of
any such Option or Stock Appreciation Right). Options and Stock Appreciation Rights not
exercisable as of such termination will be forfeited and terminate;

     (b) All Restricted Stock Awards then held by the Participant that have not vested as of
such termination will be terminated and forfeited; and

A-9

 

     (c) All outstanding but unpaid Stock Unit Awards, Performance Awards and Stock Bonuses
then held by the Participant will be terminated and forfeited.

          12.4 Modification of Rights Upon Termination. Notwithstanding the other provisions of
this Section 12, upon a Participant’s termination of employment or other service with the Company
and all Subsidiaries, the Committee may, in its sole discretion (which may be exercised at any time
on or after the date of grant, including following such termination), cause Options or Stock
Appreciation Rights (or any part thereof) then held by such Participant to terminate, become or
continue to become exercisable and/or remain exercisable following such termination of employment
or service, and Restricted Stock Awards, Stock Unit Awards or Performance Awards then held by such
Participant to terminate, vest and/or continue to vest or become free of restrictions and
conditions to payment, as the case may be, following such termination of employment or service, in
each case in the manner determined by the Committee; provided, however, that (i) no Incentive Award
may remain exercisable or continue to vest for more than two years beyond the date such Incentive
Award would have terminated if not for the provisions of this Section 12.4 but in no event beyond
its expiration date; (ii) the Committee shall not be authorized to accelerate the vesting or
payment of any Incentive Award or terminate or waive any restrictions relating to an Incentive
Award without prior approval of the Company’s stockholders, except in connection with the
Participant’s death, Disability or Retirement, or in connection with a Change in Control; and (iii)
any such action adversely affecting any outstanding Incentive Award will not be effective without
the consent of the affected Participant (subject to the right of the Committee to take whatever
action it deems appropriate under Sections 3.2(c), 4.3 and 14 of the Plan).

          12.5 Effects of Actions Constituting Cause. Notwithstanding anything in the Plan to
the contrary, in the event that a Participant is determined by the Committee, acting in its sole
discretion, to have committed any action which would constitute Cause as defined in Section 2.3,
irrespective of whether such action or the Committee’s determination occurs before or after
termination of such Participant’s employment with the Company or any Subsidiary, all rights of the
Participant under the Plan and any agreements evidencing an Incentive Award then held by the
Participant shall terminate and be forfeited without notice of any kind. The Company may defer the
exercise of any Option, the vesting of any Restricted Stock Award or the payment of any Stock Unit
Award, Performance Award or Stock Bonus for a period of up to forty-five (45) days in order for the
Committee to make any determination as to the existence of Cause.

          12.6 Determination of Termination of Employment or Other Service.

     (a) The change in a Participant’s status from that of an employee of the Company or any
Subsidiary to that of a non-employee consultant or advisor of the Company or any Subsidiary
will, for purposes of the Plan, be deemed to result in a termination of such Participant’s
employment with the Company and its Subsidiaries, unless the Committee otherwise determines
in its sole discretion.

     (b) The change in a Participant’s status from that of a non-employee consultant or
advisor of the Company or any Subsidiary to that of an employee of the Company or any
Subsidiary will not, for purposes of the Plan, be deemed to result in a termination of such
Participant’s service as a non-employee consultant or advisor with the Company and its
Subsidiaries, and such Participant will thereafter be deemed to be an employee of the
Company or its Subsidiaries until such Participant’s employment is terminated, in which
event such Participant will be governed by the provisions of this Plan relating to
termination of employment (subject to paragraph (a), above).

     (c) Unless the Committee otherwise determines in its sole discretion, a Participant’s
employment or other service will, for purposes of the Plan, be deemed to have terminated on
the date recorded on the personnel or other records of the Company or the Subsidiary for
which the Participant provides employment or other service, as determined by the Committee
in its sole discretion based upon such records; provided, however, if distribution of an
Incentive Award subject to Section 409A of the Code is triggered by a termination of a
Participant’s employment or service, such termination must also constitute a “separation
from service” within the meaning of Section 409A of the Code.

          12.7 Breach of Confidentiality, Non-Compete or Non-Solicitation Agreements.
Notwithstanding anything in the Plan to the contrary and in addition to the rights of the Committee
under Section 12.5, in the event that a Participant materially breaches the terms of any
confidentiality, non-compete or non-solicitation agreement entered into with the Company or any
Subsidiary (including a confidentiality, non-compete or non-solicitation agreement made in
connection with the grant of an Incentive Award), whether such breach occurs before or after
termination of such Participant’s

A-10

 

employment or other service with the Company or any Subsidiary, the Committee in its sole
discretion may require the Participant to surrender shares of Common Stock received, and to
disgorge any profits (however defined by the Committee), made or realized by the Participant in
connection with any Incentive Awards or any shares issued upon the exercise or vesting of any
Incentive Awards.

13. Payment of Withholding Taxes.

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

          13.2 Special Rules. The Committee may, in its sole discretion and upon terms and
conditions established by the Committee, permit or require a Participant to satisfy, in whole or in
part, any withholding or employment related tax obligation described in Section 13.1 of the Plan by
electing to tender, or by attestation as to ownership of, Previously Acquired Shares that have been
held for the period of time necessary to avoid a charge to the Company’s earnings for financial
reporting purposes and that are otherwise acceptable to the Committee, by delivery of a Broker
Exercise Notice or a combination of such methods. For purposes of satisfying a Participant’s
withholding or employment-related tax obligation, Previously Acquired Shares tendered or covered by
an attestation will be valued at their Fair Market Value.

14. Change in Control.

          14.1 A “Change in Control” shall be deemed to have occurred if the event set forth in
any one of the following paragraphs shall have occurred:

     (a) The acquisition by any individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Exchange Act (a “Person”) of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more (on a
fully diluted basis) of either (A) the then outstanding shares of Common Stock, taking into
account as outstanding for this purpose shares of Common Stock issuable upon the exercise of
options or warrants, the conversion of convertible stock or debt, and the exercise of any
similar right to acquire shares of Common Stock (the “Outstanding Company Common
Stock”) or (B) the combined voting power of the then outstanding voting securities of
the Company entitled to vote generally in the election of directors (the “Outstanding
Company Voting Securities”); provided, however, that for purposes of this subsection
(i), the following acquisitions shall not constitute a Change of Control: (x) any
acquisition by the Company or any “affiliate” of the Company, within the meaning of 17
C.F.R. ss. 230.405 (an “Affiliate”), (y) any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by the Company or any Affiliate of the
Company, (z) any acquisition by any corporation pursuant to a transaction which complies
with clauses (A), (B) and (C) of subsection (b) of this Section 14.1 (persons and entities
described in clauses (x), (y) and (z) being referred to herein as “Permitted
Holders”); or

     (b) The consummation of a reorganization, merger or consolidation or sale or other
disposition of all or substantially all of the assets of the Company (a “Business
Combination”), in each case, unless, following such Business Combination, (A) all or
substantially all of the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such Business Combination beneficially own, directly or
indirectly, more than 60% of, respectively, the then outstanding shares of Stock and the
combined voting power of the then outstanding voting securities entitled to vote generally
in the election of directors, as the case may be, of the corporation resulting from such
Business Combination (including, without limitation, a corporation which as a result of such
transaction owns the Company or all or substantially all of the Company’s assets either
directly or through one or more subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be, and (B) no Person
(excluding any Permitted Holder) beneficially owns, directly or indirectly, 50% or

A-11

 

more (on a fully diluted basis) of, respectively, the then outstanding shares of common
stock of the corporation resulting from such Business Combination, taking into account as
outstanding for this purpose such common stock issuable upon the exercise of options or
warrants, the conversion of convertible stock or debt, and the exercise of any similar right
to acquire such common stock, or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership existed prior to the
Business Combination and (C) at least a majority of the members of the board of directors of
the corporation resulting from such Business Combination were members of the incumbent Board
of Directors of the Company at the time of the execution of the initial agreement providing
for such Business Combination; or

     (c) Approval by the shareholders of the Company of a complete liquidation or
dissolution of the Company; or

     (d) The sale of at least 80% of the assets of the Company to an unrelated party, or
completion of a transaction having a similar 

effect; or

     (e) The individuals who on the Effective Date constitute the Board of Directors
thereafter cease to constitute at least a majority thereof; provided that any person
becoming a member of the Board of Directors subsequent to the Effective Date whose election
or nomination was approved by a vote of at least two-thirds of the directors who then
comprised the Board of Directors immediately prior to such vote shall be considered a member
of the Board of Directors on the Effective Date.

          14.2 Acceleration of Vesting. Without limiting the authority of the Committee under
Sections 3.2 and 4.3 of the Plan, if a Change in Control of the Company occurs, then, if approved
by the Committee in its sole discretion either in an agreement evidencing an Incentive Award at the
time of grant or at any time after the grant of an Incentive Award: (a) all Options and Stock
Appreciation Rights will become immediately exercisable in full and will remain exercisable in
accordance with their terms; (b) all Restricted Stock Awards will become immediately fully vested
and non forfeitable; and (c) any conditions to the payment of Stock Unit Awards, Performance Awards
and Stock Bonuses will lapse. The Committee may make any such acceleration subject to further
conditions, including, but not limited to, conditions relating to (i) the failure of any successor
to assume the Incentive Awards in connection with a Change in Control, or (ii) the Participant’s
involuntary termination, other than for Cause, or voluntary termination for Good Reason, in each
case within a specified period of time following a Change in Control.

          14.3 Cash Payment. If a Change in Control of the Company occurs, then the Committee,
if approved by the Committee in its sole discretion either in an agreement evidencing an Incentive
Award at the time of grant or at any time after the grant of an Incentive Award, and without the
consent of any Participant affected thereby, may determine that: (i) some or all Participants
holding outstanding Options will receive, with respect to some or all of the shares of Common Stock
subject to such Options, as of the effective date of any such Change in Control of the Company,
cash in an amount equal to the excess of the Fair Market Value of such shares immediately prior to
the effective date of such Change in Control of the Company over the exercise price per share of
such Options (or, in the event that there is no excess, that such Options will be terminated); and
(ii) some or all Participants holding Performance Awards will receive, with respect to some or all
of the shares of Common Stock subject to such Performance Awards, as of the effective date of any
such Change in Control of the Company, cash in an amount equal the Fair Market Value of such shares
immediately prior to the effective date of such Change in Control.

          14.4 Limitation on Change in Control Payments. Notwithstanding anything in Section
14.2 or 14.3 of the Plan to the contrary, if, with respect to a Participant, the acceleration of
the vesting of an Incentive Award as provided in Section 14.2 or the payment of cash in exchange
for all or part of an Incentive Award as provided in Section 14.3 (which acceleration or payment
could be deemed a “payment” within the meaning of Section 280G(b)(2) of the Code), together with
any other “payments” that such Participant has the right to receive from the Company or any
corporation that is a member of an “affiliated group” (as defined in Section 1504(a) of the Code
without regard to Section 1504(b) of the Code) of which the Company is a member, would constitute a
“parachute payment” (as defined in Section 280G(b)(2) of the Code), then the “payments” to such
Participant pursuant to Section 13.3 or 13.4 of the Plan will be reduced to the largest amount as
will result in no portion of such “payments” being subject to the excise tax imposed by Section
4999 of the Code; provided, that such reduction shall be made only if the aggregate amount of the
payments after such reduction exceeds the difference between (A) the amount of such payments absent
such reduction minus (B) the aggregate amount of the excise tax imposed under Section 4999 of the
Code attributable to any such excess parachute payments. Notwithstanding the foregoing sentence,
if a Participant is subject to a separate agreement with the Company or a

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Subsidiary that expressly addresses the potential application of Sections 280G or 4999 of the
Code (including, without limitation, that “payments” under such agreement or otherwise will be
reduced, that the Participant will have the discretion to determine which “payments” will be
reduced, that such “payments” will not be reduced or that such “payments” will be “grossed up” for
tax purposes), then this Section 14.4 will not apply, and any “payments” to a Participant pursuant
to Section 14.2 or 14.3 of the Plan will be treated as “payments” arising under such separate
agreement.

15. Rights of Eligible Recipients and Participants; Transferability.

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

          15.2 Rights as a Stockholder; Dividends. As a holder of Incentive Awards (other than
Restricted Stock Awards), a Participant will have no rights as a stockholder unless and until such
Incentive Awards are exercised for, or paid in the form of, shares of Common Stock and the
Participant becomes the holder of record of such shares. Except as otherwise provided in the Plan
or otherwise provided by the Committee, no adjustment will be made in the amount of cash payable or
in the number of shares of Common Stock issuable under Incentive Awards denominated in or based on
the value of shares of Common Stock as a result of cash dividends or distributions paid to holders
of Common Stock prior to the payment of, or issuance of shares of Common Stock under, such
Incentive Awards. In its discretion, the Committee may provide in an agreement evidencing an
Incentive Award (other than Options and Stock Appreciation Rights) that the Participant will be
entitled to receive dividend equivalents, in the form of a cash credit to an account for the
benefit of the Participant, for any such dividends and distributions; provided, however, that no
such dividend equivalents will be paid on unvested Performance Awards. The terms of any rights to
dividend equivalents will be determined by the Committee and set forth in the agreement evidencing
the Incentive Award (other than Options and Stock Appreciation Rights), including the time and form
of payment and whether such equivalents will be credited with interest or deemed to be reinvested
in Common Stock.

          15.3 Restrictions on Transfer.

     (a) Except pursuant to testamentary will or the laws of descent and distribution or as
otherwise expressly permitted by subsections (b) and (c) below, no right or interest of any
Participant in an Incentive Award prior to the exercise (in the case of Options) or vesting
or issuance (in the case of Restricted Stock Awards and Performance Awards) of such
Incentive Award will be assignable or transferable, or subjected to any lien, during the
lifetime of the Participant, either voluntarily or involuntarily, directly or indirectly, by
operation of law or otherwise.

     (b) A Participant will be entitled to designate a beneficiary to receive an Incentive
Award upon such Participant’s death, and in the event of such Participant’s death, payment
of any amounts due under the Plan will be made to, and exercise of any Options (to the
extent permitted pursuant to Section 12 of the Plan) may be made by, such beneficiary. If
a deceased Participant has failed to designate a beneficiary, or if a beneficiary designated
by the Participant fails to survive the Participant, payment of any amounts due under the
Plan will be made to, and exercise of any Options (to the extent permitted pursuant to
Section 12 of the Plan) may be made by, the Participant’s legal representatives, heirs and
legatees. If a deceased Participant has designated a beneficiary and such beneficiary
survives the Participant but dies before complete payment of all amounts due under the Plan
or exercise of all exercisable Options, then such payments will be made to, and the exercise
of such Options may be made by, the legal representatives, heirs and legatees of the
beneficiary.

     (c) Upon a Participant’s request, the Committee may, in its sole discretion, permit a
transfer of all or a portion of a Non-Statutory Stock Option, other than for value, to such
Participant’s child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former
spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law, or sister-in-law, any person sharing such Participant’s household (other
than a tenant or employee), a trust in which any of the foregoing have more than fifty
percent of the beneficial interests, a foundation in which any of the foregoing (or the
Participant) control the management of assets, and any other entity in which these persons
(or the Participant) own more than fifty percent of the voting interests. Any permitted
transferee will remain subject to all the terms and conditions applicable to the Participant
prior to the transfer. A permitted transfer may be conditioned upon such requirements as
the Committee may, in its sole

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discretion, determine, including, but not limited to execution and/or delivery of
appropriate acknowledgements, opinion of counsel, or other documents by the transferee.

          15.4 Non-Exclusivity of the Plan. Nothing contained in the Plan is intended to modify
or rescind any previously approved compensation plans or programs of the Company or create any
limitations on the power or authority of the Board to adopt such additional or other compensation
arrangements as the Board may deem necessary or desirable.

16. Securities Law and Other Restrictions.

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

17. Performance-Based Compensation Provisions.

          The Committee, when it is comprised solely of two or more outside directors meeting the
requirements of Section 162(m) of the Code (“Section 162(m)”), in its sole discretion, may
designate whether any Incentive Awards are intended to be “performance-based compensation” within
the meaning of Section 162(m). Any Incentive Awards so designated will, to the extent required by
Section 162(m), be conditioned upon the achievement of one or more Performance Criteria, and such
Performance Criteria will be established by the Committee within the time period prescribed by, and
will otherwise comply with the requirements of, Section 162(m) giving due regard to the disparate
treatment under Section 162(m) of Options and Stock Appreciation Rights (where compensation is
determined based solely on an increase in the value of the underlying stock after the date of grant
or award), as compared to other forms of compensation, including Restricted Stock Awards, Stock
Unit Awards and Performance Awards. The Committee shall also certify in writing that such
Performance Criteria have been met prior to payment of compensation to the extent required by
Section 162(m).

18. Compliance with Section 409A.

          The Committee is authorized to adopt rules or regulations deemed necessary or appropriate to
qualify for an exception from or to comply with the requirements of Section 409A of the Code
(including any transition or grandfather rules relating thereto). It is intended that the Plan and
all Incentive Awards hereunder will comply in form and operation with the requirements for an
exception from, or the requirements of, Section 409A of the Code, including proposed, temporary or
final regulations or any other guidance issued by the Secretary of the Treasury and the Internal
Revenue Service with respect thereto. Notwithstanding anything in this Section 18 to the contrary,
with respect to any Incentive Award subject to Section 409A of the Code, no amendment to or payment
under such Incentive Award will be made unless permitted under Section 409A and the regulations or
rulings issued thereunder.

19. Plan Amendment, Modification and Termination.

          The Board may suspend or terminate the Plan or any portion thereof at any time. In addition
to the authority of the Committee to amend the Plan under Section 3.2(e), the Board may amend the
Plan from time to time in such respects as the Board may deem advisable in order that Incentive
Awards under the Plan will conform to any change in applicable laws or regulations or in any other
respect the Board may deem to be in the best interests of the Company; provided, however, that no
such amendments to the Plan will be effective without approval of the Company’s stockholders if:
(i) stockholder approval of the amendment is then required pursuant to Section 422 of the Code or
Section 162(m) of the Code or the rules of the Nasdaq Stock Market (or other applicable market or
exchange on which the Company’s Common Stock may be quoted or traded); or (ii) such amendment seeks
to increase the number of shares authorized for issuance hereunder (other than by virtue of an
adjustment under Section 4.3) or to modify Section 3.2(d) hereof. No termination, suspension or
amendment of the Plan may adversely affect any outstanding Incentive Award without the consent of
the affected Participant; provided, however, that this sentence will not impair the right of the
Committee to take whatever action it deems appropriate under Sections 3.2(c), 4.3 and 14 of the
Plan.

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20. Effective Date and Duration of the Plan.

          The Plan will be effective as of May 5, 2005, or such later date on which the Plan is
initially approved by the Company’s stockholders. The Plan will terminate at midnight on the tenth
(10th) anniversary of such effective date, and may be terminated prior to such time by Board
action. No Incentive Award will be granted after termination of the Plan. Incentive Awards
outstanding upon termination of the Plan may continue to be exercised, earned or become free of
restrictions, according to their terms.

21. Miscellaneous.

          21.1 Governing Law. Except to the extent expressly provided herein or in connection
with other matters of corporate governance and authority (all of which shall be governed by the
laws of the Company’s jurisdiction of incorporation), the validity, construction, interpretation,
administration and effect of the Plan and any rules, regulations and actions relating to the Plan
will be governed by and construed exclusively in accordance with the laws of the State of
Minnesota, notwithstanding the conflicts of laws principles of any jurisdictions.

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

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