Document:

Exhibit 4.1

 

 

CANTERBURY
PARK HOLDING CORPORATION

STOCK PLAN

 

as amended through July 30,
2004

 

                SECTION
1.  General Purpose of Plan;
Definitions.

 

                The
name of this plan is the Canterbury Park Holding Corporation Stock Plan (the “Plan”).  The purpose of the Plan is to enable
Canterbury Park Holding Corporation (the “Company”) and its Subsidiaries, if
any, to retain and attract executives, other key employees, non-employee
directors and others who contribute to the Company’s success by their ability,
ingenuity and industry, and to enable such persons to participate in the
long-term success and growth of the Company by giving them a proprietary
interest in the Company.

 

                For
purposes of the Plan, the following terms shall be defined as set forth below:

 

	
  a.

  	
   

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

  
	
   

  	
   

  	
   

  
	
  b.

  	
   

  	
  “Cause” means a
  felony conviction of a participant or the failure of a participant to contest
  prosecution for a felony, or a participant’s willful misconduct or
  dishonesty, any of which is directly and materially harmful to the business
  or reputation of the Company.

  
	
   

  	
   

  	
   

  
	
  c.

  	
   

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

  
	
   

  	
   

  	
   

  
	
  d.

  	
   

  	
  “Committee” means
  the Committee referred to in Section 2 of the Plan. If at any time no
  Committee shall be in office, then the functions of the Committee specified
  in the Plan shall be exercised by the Board, unless the Plan specifically
  states otherwise.

  
	
   

  	
   

  	
   

  
	
  e.

  	
   

  	
  “Company” means the
  Canterbury Park Holding Corporation, a corporation organized under the laws of
  the State of Minnesota (or any successor corporation).

  
	
   

  	
   

  	
   

  
	
  f.

  	
   

  	
  “Deferred Stock”
  means an award made pursuant to Section 8 below of the right to receive Stock
  at the end of a specified deferral period.

  
	
   

  	
   

  	
   

  
	
  g.

  	
   

  	
  “Disability” means
  permanent and total disability as determined by the Committee.

  
	
   

  	
   

  	
   

  
	
  h.

  	
   

  	
  “Disinterested Person”
  shall have the meaning set forth in Rule 16b-3(d)(3) as promulgated by the
  Securities and Exchange Commission under the Securities Exchange Act of 1934,
  or any successor definition adopted by the Commission.

  
	
   

  	
   

  	
   

  
	
  i.

  	
   

  	
  “Early Retirement”
  means retirement, with consent of the Committee at the time of retirement,
  from active employment with the Company or any Subsidiary or Parent
  Corporation of the Company.

  
	
   

  	
   

  	
   

  
	
  j.

  	
   

  	
  “Fair Market Value”
  means the value of the Stock on a given date as determined by the Committee
  in accordance with the applicable Treasury Department regulations under
  Section 422 of the Code with respect to “incentive stock options.”

  
	
   

  	
   

  	
   

  
	
  k.

  	
   

  	
  “Incentive Stock Option”
  means any Stock Option intended to be and designated as an “Incentive Stock
  Option” within the meaning of Section 422 of the Code.

  
	
   

  	
   

  	
   

  
	
  l.

  	
   

  	
  “Non-Employee Director”
  means any member of the Board who is not an employee of the Company, any
  Parent Corporation or Subsidiary.

  
	
   

  	
   

  	
   

  
	
  m.

  	
   

  	
  “Non-Qualified Stock
  Option” means any Stock Option that is not an Incentive Stock Option, and
  is intended to be and is designated as a “Non-Qualified Stock Option.”

  

 

 

	
  n.

  	
   

  	
  “Normal Retirement”
  means retirement from active employment with the Company and any Subsidiary
  or Parent Corporation of the Company on or after age 60.

  
	
   

  	
   

  	
   

  
	
  o.

  	
   

  	
  “Optionee” means a
  person who receives a Stock Option or other award under this Plan.

  
	
   

  	
   

  	
   

  
	
  p.

  	
   

  	
  “Parent Corporation”
  means any corporation (other than the Company) in an unbroken chain of
  corporations ending with the Company if each of the corporations (other than
  the Company) owns stock possessing 50% or more of the total combined voting
  power of all classes of stock in one of the other corporations in the chain.

  
	
   

  	
   

  	
   

  
	
  q.

  	
   

  	
  “Restricted Stock”
  means an award of shares of Stock that are subject to restrictions under
  Section 7 below.

  
	
   

  	
   

  	
   

  
	
  r.

  	
   

  	
  “Retirement” means
  Normal Retirement or Early Retirement.

  
	
   

  	
   

  	
   

  
	
  s.

  	
   

  	
  “Stock” means the
  Common Stock, $.01 par value per share, of the Company.

  
	
   

  	
   

  	
   

  
	
  t.

  	
   

  	
  “Stock
  Appreciation Right” means the right pursuant to an award granted under
  Section 6 below to surrender to the Company all or a portion of a Stock
  Option in exchange for an amount equal to the difference between (i) the Fair
  Market Value, as of the date such Stock Option or such portion thereof is
  surrendered, of the shares of Stock covered by such Stock Option or such
  portion thereof, and (ii) the aggregate exercise price of such Stock Option
  or such portion thereof.

  
	
   

  	
   

  	
   

  
	
  u.

  	
   

  	
  “Stock Option”
  means any option to purchase shares of Stock granted pursuant to Section 5
  below.

  
	
   

  	
   

  	
   

  
	
  v.

  	
   

  	
  “Subsidiary” means
  any corporation (other than the Company) in an unbroken chain of corporations
  beginning with the Company if each of the corporations (other than the last
  corporation in the unbroken chain) owns stock possessing 50% or more of the
  total combined voting power of all classes of stock in one of the other
  corporations in the chain.

  

 

                SECTION
2.  Administration.

 

                The
Plan shall be administered by the Board of Directors or by a Committee of not
less than three Disinterested Persons, who shall be appointed by the Board of
Directors of the Company and who shall serve at the pleasure of the Board.  If such a Committee is not appointed, each
and every reference to “Committee” herein shall mean the Board of Directors of
the Company.  Unless otherwise determined
by the Board, the Compensation Committee of the Board of Directors shall be the
Committee for purposes of this Plan.

 

                The
Committee shall have the power and authority to grant to eligible employees,
pursuant to the terms of the Plan:  (i)
Stock Options, (ii) Stock Appreciation Rights, (iii) Restricted Stock, or (iv)
Deferred Stock awards.

 

                In
particular, the Committee shall have the authority:

 

	
  (i)

  	
   

  	
  to select the officers and
  other key employees of the Company and its Subsidiaries to whom Stock
  Options, Stock Appreciation Rights, Restricted Stock and/or Deferred Stock
  awards may from time to time be granted hereunder;

  
	
   

  	
   

  	
   

  
	
  (ii)

  	
   

  	
  to determine whether and
  to what extent Incentive Stock Options, Non-Qualified Stock Options, Stock
  Appreciation Rights, Restricted Stock or Deferred Stock awards, or a
  combination of the foregoing, are to be granted hereunder;

  
	
   

  	
   

  	
   

  
	
  (iii)

  	
   

  	
  to determine the number of
  shares to be covered by each such award granted hereunder;

  
	
   

  	
   

  	
   

  
	
  (iv)

  	
   

  	
  to determine the terms and
  conditions, not inconsistent with the terms of the Plan, of any award granted
  hereunder (including, but not limited to, any restriction on any Stock Option
  or other award and/or the shares of Stock relating thereto), which authority
  shall be exclusively vested in the Committee (and not the Board) for purposes
  of establishing performance criteria used with Restricted Stock and Deferred
  Stock awards; and

  
	
   

  	
   

  	
   

  
	
  (v)

  	
   

  	
  to determine whether, to
  what extent and under what circumstances Stock and other amounts 

  

 

2

 

	
   

  	
   

  	
  payable with respect to an
  award under this Plan shall be deferred either automatically or at the
  election of the participant.

  

 

                The
Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable; to interpret the terms and provisions of the
Plan and any award issued under the Plan (and any agreements relating thereto);
and to otherwise supervise the administration of the Plan.  The Committee may delegate its authority to
officers of the Company for the purpose of selecting employees who are not
officers of the Company for purposes of (i) above.

 

                All
decisions made by the Committee pursuant to the provisions of the Plan shall be
final and binding on all persons, including the Company and Plan participants.

 

                SECTION
3.  Stock Subject to Plan.

 

                The
total number of shares of Stock reserved and available for issuance and
distribution under the Plan shall be One Million Four Hundred Fifty Thousand
(1,450,000) shares.(1) Such shares may consist, in whole or in part, of
authorized and unissued shares.

 

                Subject
to paragraph (b)(iv) of Section 6 below, if any shares that have been optioned
ceased to be subject to Options, or if any shares subject to any Restricted
Stock or Deferred Stock award granted hereunder are forfeited or such award
otherwise terminates without a payment being made to the participant, such
shares shall again be available for distribution in connection with future
awards under the Plan.

 

                In
the event of any merger, reorganization, consolidation, recapitalization, stock
dividend, other change in corporate structure affecting the Stock, or spin-off
or other distribution of assets to shareholders, such substitution or
adjustment shall be made in the aggregate number of shares reserved for
issuance under the Plan, in the number and option price of shares subject to
outstanding options granted under the Plan, and in the number of shares subject
to Restricted Stock or Deferred Stock awards granted under the Plan as may be
determined to be appropriate by the Committee, in its sole discretion, provided
that the number of shares subject to any award shall always be a whole
number.  Such adjusted option price shall
also be used to determine the amount payable by the Company upon the exercise
of any Stock Appreciation Right associated with any Option.

 

                SECTION
4.  Eligibility.

 

                Officers,
other key employees of the Company and Subsidiaries and Non-Employee Directors,
and consultants and other persons having a contractual relationship with the
Company or its Subsidiaries who are responsible for or contribute to the
management, growth and/or profitability of the business of the Company and its
Subsidiaries are eligible to be granted Stock Options, Stock Appreciation
Rights, Restricted Stock or Deferred Stock awards under the Plan.  Except for Non-Employee Directors, whose
participation in the Plan shall be limited as provided in paragraph (k) of
Section 5, the Optionees and participants under the Plan shall be selected from
time to time by the Committee, in its sole discretion, from among those
eligible, and the Committee shall determine, in its sole discretion, the number
of shares covered by each award.

 

                SECTION
5.  Stock Options.

 

                Any
Stock Option granted under the Plan shall be in such form as the Committee may
from time to time approve.

 

                The
Stock Options granted under the Plan may be of two types:  (i) Incentive Stock Options and (ii)
Non-Qualified Stock Options.  No
Incentive Stock Options shall be granted under the Plan after June 1, 2014.

 

                The
Committee shall have the authority to grant any Optionee Incentive Stock
Options, Non-Qualified Stock Options, or both types of options (in each case
with or without Stock Appreciation Rights). 
To the extent that any option does not qualify as an Incentive Stock
Option, it shall constitute a separate Non-Qualified Stock Option.

 

                Anything
in the Plan to the contrary notwithstanding, no term of this Plan relating to
Incentive Stock Options shall be interpreted, amended or altered, nor shall any
discretion or authority granted under the Plan be so exercised, so as to 

 

(1)     Amendments to increase
authorized shares approved by shareholders as follows:  June, 1997 (increasing authorized shares from
250,000 to 500,000); June, 1999 (increasing authorized shares to 850,000); June
6, 2002 (increasing authorized shares to 1,150,000);  June 3, 2004 (increasing authorized shares to
1,450,000).

 

3

 

disqualify either the Plan or any Incentive
Stock Option under Section 422 of the Code. 
The preceding sentence shall not preclude any modification or amendment
to an outstanding Incentive Stock Option, whether or not such modification or
amendment results in disqualification of such Option as an Incentive Stock
Option, provided the Optionee consents in writing to the modification or
amendment.

 

                Options
granted under the Plan shall be subject to the following terms and conditions
and shall contain such additional terms and conditions, not inconsistent with
the terms of the Plan, as the Committee shall deem desirable.

 

                (a)           Option Price.  The option price per share of Stock
purchasable under a Stock Option shall be determined by the Committee at the
time of grant.  In no event shall the
option price per share of Stock purchasable under an Incentive Stock Option or
a Non-Qualified Stock Option be less than 100% of the Fair Market Value of the
Stock on the date of the grant of the option. 
If an employee owns or is deemed to own (by reason of the attribution
rules applicable under Section 425(d) of the Code) more than 10% of the combined
voting power of all classes of stock of the Company or any Parent Corporation
or Subsidiary and an Incentive Stock Option is granted to such employee, the
option price shall be no less than 110% of the Fair Market Value of the Stock
on the date the option is granted.

 

                (b)           Option Term.  The term of each Stock Option shall be fixed
by the Committee, but no Incentive Stock Option shall be exercisable more than
ten years after the date the option is granted. 
If an employee owns or is deemed to own (by reason of the attribution
rules of Section 425(d) of the Code) more than 10% of the combined voting power
of all classes of stock of the Company or any Parent Corporation or Subsidiary
and an Incentive Stock Option is granted to such employee, the term of such
option shall be no more than five years from the date of grant.

 

                (c)           Exercisability.  Stock Options shall be exercisable at such
time or times as determined by the Committee at or after grant.  If the Committee provides, in its discretion,
that any option is exercisable only in installments, the Committee may waive
such installment exercise provisions at any time.  Notwithstanding the foregoing, unless the
Stock Option Agreement provides otherwise, any Stock Option granted under this
Plan shall be exercisable in full, without regard to any installment exercise
provisions, for a period specified by the Company, but not to exceed sixty (60)
days, prior to the occurrence of any of the following events:  (i) dissolution or liquidation of the Company
other than in conjunction with a bankruptcy of the Company or any similar
occurrence, (ii) any merger, consolidation, acquisition, separation,
reorganization, or similar occurrence, where the Company will not be the
surviving entity or (iii) the transfer of substantially all of the assets of
the Company or 75% or more of the outstanding Stock of the Company.

 

                (d)           Method of Exercise.  Stock Options may be exercised in whole or in
part at any time during the option period by giving written notice of exercise
to the Company specifying the number of shares to be purchased.  Such notice shall be accompanied by payment
in full of the purchase price, either by certified or bank check, or by any
other form of legal consideration deemed sufficient by the Committee and consistent
with the Plan’s purpose and applicable law, including promissory notes or a
properly executed exercise notice together with irrevocable instructions to a
broker acceptable to the Company to promptly deliver to the Company the amount
of sale or loan proceeds to pay the exercise price.  As determined by the Committee, in its sole
discretion, payment in full or in part may also be made in the form of
unrestricted Stock already owned by the Optionee or, in the case of the
exercise of a Non-Qualified Stock Option, Restricted Stock or Deferred Stock
subject to an award hereunder (based, in each case, on the Fair Market Value of
the Stock on the date the option is exercised, as determined by the Committee),
provided, however, that, in the case of an Incentive Stock Option, the right to
make a payment in the form of already owned shares may be authorized only at
the time the option is granted, and provided further that in the event payment
is made in the form of shares of Restricted Stock or a Deferred Stock award,
the Optionee will receive a portion of the option shares in the form of, and in
an amount equal to, the Restricted Stock or Deferred Stock award tendered as
payment by the Optionee.  If the terms of
an option so permit, an Optionee may elect to pay all or part of the option
exercise price by having the Company withhold from the shares of Stock that
would otherwise be issued upon exercise that number of shares of Stock having a
Fair Market Value equal to the aggregate option exercise price for the shares
with respect to which such election is made. 
No shares of Stock shall be issued until full payment therefor has been
made.  An Optionee shall generally have
the rights to dividends and other rights of a shareholder with respect to
shares subject to the option when the Optionee has given written notice of
exercise, has paid in full for such shares, and, if requested, has given the
representation described in paragraph (a) of Section 12.

 

(e)                                  Limited
Transferability of Options.

 

(i)            Incentive Stock Options.  No Incentive Stock Option shall be
transferable by the Optionee otherwise than by will or by the laws of dissent
and distribution, and all Incentive Stock Options shall be exercisable during
the Optionee’s lifetime, only by the Optionee.

 

4

 

(ii)           Non-Qualified Stock Options.  Non-Qualified Stock Options (“NQSOs”) may be
transferred to and exercised by a Family Member (hereinafter defined) of an
Optionee who acquired the NQSOs directly or indirectly from the Optionee if no
consideration is given to the Optionee by the transferee for effecting such
transfer.

 

For
purposes of this subsection (e)(ii) the term “Family Member” means any of the
following:  any 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, of the Optionee, including adoptive
relationships, any person sharing the Optionee’s household (other than a tenant
or employee), a trust in which these persons have more than fifty percent of
the beneficial interest, a foundation in which these persons (or the Optionee)
control the management of assets, and any other entity in which these persons
(or the Optionee) own more than fifty percent of the voting interests.

 

In
addition, an Optionee may transfer NQSOs to a trust that does not qualify as a
Family Member (“Non-Qualifying Trust”), if (x) no consideration is given to the
Optionee by the trust for effecting such transfer; (y) at the time of such
transfer the Committee receives reasonable assurances that the NQSOs will be
subsequently transferred to a Family Member; and, (y) the Non-Qualifying Trust
acknowledges and agrees, concurrent with such transfer, that, under the terms
of the Stock Plan, it has no right to exercise the NQSOs.

 

Notwithstanding
the foregoing, no NQSO shall be exercisable by a Family Member during the
Optionee’s lifetime and all such NQSOs shall be exercisable during the Optionee’s
lifetime only by the Optionee.

 

(iii)          Committee Discretion.  The Committee may approve other transfers of
Stock Options and approve exercises of Stock Options following the death of an
Optionee that would otherwise not be permitted under this Plan if (x) it
determines in its sole discretion the proposed transfer or option exercise
would not violate applicable law, would not cause other Stock Options that are
designated as Incentive Stock Options under this Plan to become NQSOs by
operation of law, and would not affect the availability of any registration
statement pertaining to exercise of Stock Options and resale of the acquired
shares; and, (y) the Committee concludes in its sole discretion that permitting
such transfer or exercise (conditioned upon such undertakings, if any, it may
require) is consistent with the purposes of this Plan and in the best interest
of the Company.

 

(f)            Termination by Death.  If an Optionee’s employment by the Company or
other service to the Company and any Subsidiary or Parent Corporation
terminates by reason of death, the Stock Option may thereafter be exercised, to
the extent exercisable at death (or on such accelerated basis as the Committee
shall determine at or after grant), by the legal representative of the estate
or by a Family Member that receives the Stock Option, directly or indirectly,
under a will or trust of the Optionee for a period of three years (or such
shorter period as the Committee shall specify at grant) from the date of such
death or until the expiration of the stated term of the option, whichever
period is shorter.  In the event of
termination of employment by reason of death, if an Incentive Stock Option is
exercised after the expiration of the exercise period that apples for purposes
of Section 422 of the Code, the option will thereafter be treated as a
Non-Qualified Stock Option.

 

                (g)           Termination by Reason of
Disability.  If an Optionee’s
employment by the Company and any Subsidiary or Parent Corporation terminates
by reason of Disability, any Stock Option held by such Optionee may thereafter
be exercised, to the extent it was exercisable at the time of termination due
to Disability (or on such accelerated basis as the Committee shall determine at
or after grant), but may not be exercised after three years (or such shorter
period as the Committee shall specify at grant) from the date of such
termination of employment or the expiration of the stated term of the option,
whichever period is the shorter.  In the
event of termination of employment by reason of Disability, if an Incentive
Stock Option is exercised after the expiration of the exercise periods that
apply for purposes of Section 422 of the Code, the option will thereafter be
treated as a Non-Qualified Stock Option.

 

                (h)           Termination by Reason of
Retirement.  If an Optionee’s
employment by the Company and any Subsidiary 

 

5

 

or Parent Corporation terminates by reason of
Retirement, any Stock Option held by such Optionee may thereafter be exercised
to the extent it was exercisable at the time of such Retirement, but may not be
exercised after three years (or such shorter period as Committee shall specify
at grant) from the date of such termination of employment or the expiration of
the stated term of the option, whichever period is the shorter.  In the event of termination of employment by
reason of Retirement, if an Incentive Stock Option is exercised after the
expiration of the exercise periods that apply for purposes of Section 422 of
the Code, the option will thereafter be treated as a Non-Qualified Stock
Option.

 

                (i)            Other Termination.  Unless otherwise determined by the Committee,
if an Optionee’s employment by the Company and any Subsidiary or Parent
Corporation terminates for any reason other than death, Disability or
Retirement, the Stock Option shall thereupon terminate, except that the option
may be exercised to the extent it was exercisable at such termination for the
lesser of three months or the balance of the option’s term if the Optionee is
involuntarily terminated without Cause by the Company and any Subsidiary or
Parent Corporation.

 

                (j)            Annual Limit on Incentive Stock
Options.  The aggregate Fair Market
Value (determined as of the time the Option is granted) of the Common Stock
with respect to which an Incentive Stock Option under this Plan or any other
plan of the Company and any Subsidiary or Parent Corporation is exercisable for
the first time by an Optionee during any calendar year shall not exceed
$100,000.

 

                (k)           Non-Employee Directors.  Each Non-Employee Director shall be
automatically granted an option to purchase 2,500 shares upon first being
elected to the Board.  In addition,  each Non-Employee Director on January 31 of
each calendar year who has served in that capacity during at least the six
preceding months shall automatically be granted an Option to purchase 3,000
shares of Stock on the first business day of February immediately following
(the “Grant Date”) at an option price per share equal to 100% of fair market
value as defined in this sub-section (k), except that the automatic grant to be
granted on February 4, 2002 shall be 2000 shares.  For purposes of this sub-section (i) only, “fair
market value” shall mean the average closing price per share of the Company’s
Stock during the month of January immediately preceding the Grant Date in the
principal trading market or exchange for the Company’s stock.  All such Options shall be designated as
Non-Qualified Options and shall be subject to the same terms and provisions as
are then in effect with respect to the granting of Non-Qualified Options to
officers and key employees of the Company, except that (i) the term of each
such Option shall be equal to ten (10) years, which term shall not expire upon
the termination of service as a director, (ii) the Option shall become
exercisable as to all or any part of the shares subject to the Option beginning
six (6) months after the date the Option is granted, and (iii) no Stock
Appreciation Rights may be granted to any Non-Employee Director under this paragraph
(k) or in any other manner under this Plan. 
Subject to the foregoing, all provisions of this Plan not inconsistent
with the foregoing shall apply to Options granted to Non-Employee Directors.(2)

 

                SECTION
6.  Stock Appreciation Rights.

 

                (a)           Grant and Exercise.  Except as set forth in paragraph (k) of
Section 5, Stock Appreciation Rights may be granted in conjunction with all or
part of any Stock Option granted under the Plan.  In the case of a Non-Qualified Stock Option,
such rights may be granted either at or after the time of the grant of such
Option.  In the case of an Incentive
Stock Option, such rights may be granted only at the time of the grant of the
option.

 

                A
Stock Appreciation Right or applicable portion thereof granted with respect to
a given Stock Option shall terminate and no longer be exercisable upon the
termination or exercise of the related Stock Option, except that a Stock
Appreciation Right granted with respect to less than the full number of shares
covered by a related stock Option shall not be reduced until the exercise or
termination of the related Stock Option exceeds the number of shares not
covered by the Stock Appreciation Right.

 

                A
Stock Appreciation Right may be exercised by an Optionee, in accordance with
paragraph (b) of this Section 6, by surrendering the applicable portion of the
related Stock Option.  Upon such exercise
and surrender, the Optionee shall be entitled to receive an amount determined
in the manner prescribed in paragraph (b) of this Section 6.  Stock Options which have been so surrendered,
in whole or in part, shall no longer be exercisable to the extent the related
Stock Appreciation Rights have been exercised.

 

                (b)           Terms and Conditions.  Stock Appreciation Rights shall be subject to
such terms and conditions, not inconsistent with the provisions of the Plan, as
shall be determined from time to time by the Committee, including the
following:

 

(2)     Amended June, 1996 to
increase the annual share grant from 1000 to 2000 shares and amended June, 2000
to increase the annual share grant to 3000 shares; amended January 30, 2002 to
change the date of the annual share grant to the first business day in February
of each year.

 

6

 

                (i)            Stock
Appreciation Rights shall be exercisable only at such time or times and to the
extent that the Stock Options to which they relate shall be exercisable in
accordance with the provisions of Section 5 and this Section 6 of the Plan.

 

                (ii)           Upon
the exercise of a Stock Appreciation Right, an Optionee shall be entitled to
receive up to, but not more than, an amount in cash or shares of Stock equal in
value to the excess of the Fair Market Value of one share of Stock over the
option price per share specified in the related option multiplied by the number
of shares in respect of which the Stock Appreciation Right shall have been
exercised, with the Committee having the right to determine the form of
payment.

 

                (iii)          Stock
Appreciation Rights shall be transferable only when and to the extent that the
underlying Stock Option would be transferable under Section 5 of the Plan.

 

                (iv)          Upon
the exercise of a Stock Appreciation Right, the Stock Option or part thereof to
which such Stock Appreciation Right is related shall be deemed to have been exercised
for the purpose of the limitation set forth in Section 3 of the Plan on the
number of shares of Stock to be issued under the Plan, but only to the extent
of the number of shares issued or issuable under the Stock Appreciation Right
at the time of exercise based on the value of the Stock Appreciation Right at
such time.

 

                (v)           A
Stock Appreciation Right granted in connection with an Incentive Stock Option
may be exercised only if and when the market price of the Stock subject to the
Incentive Stock Option exceeds the exercise price of such Option.

 

                SECTION
7.  Restricted Stock.

 

                (a)           Administration.  Shares of Restricted Stock may be issued
either alone or in addition to other awards granted under the Plan.  The Committee shall determine the officers
and key employees of the Company and Subsidiaries to whom, and the time or
times at which, grants of Restricted Stock will be made, the number of shares
to be awarded, the time or times within which such awards may be subject to
forfeiture, and all other conditions of the awards.  The Committee may also condition the grant of
Restricted Stock upon the attainment of specified performance goals.  The provisions of Restricted Stock awards
need not be the same with respect to each recipient.

 

                (b)           Awards and Certificates.  The prospective recipient of an award of
shares of Restricted Stock shall not have any rights with respect to such
award, unless and until such recipient has executed an agreement evidencing the
award and has delivered a fully executed copy thereof to the Company, and has
otherwise complied with the then applicable terms and conditions.

 

                (i)  Each
participant shall be issued a stock certificate in respect of shares of
Restricted Stock awarded under the Plan. 
Such certificate shall be registered in the name of the participant, and
shall bear an appropriate legend referring to the terms, conditions, and
restrictions applicable to such award, substantially in the following form:

 

                                                                “The transferability of this
certificate and the shares of stock represented hereby are subject to the terms
and conditions (including forfeiture) of the Canterbury Park Holding
Corporation 1994 Stock Plan and an Agreement entered into between the
registered owner and Canterbury Park Holding Corporation.  Copies of such Plan and Agreement are on file
in the offices of Canterbury Park Holding Corporation, 1100 Canterbury Drive,
Shakopee, Minnesota 55379.”

 

                (ii)  The
Committee shall require that the stock certificates evidencing such shares be
held in custody by the Company until the restrictions thereon shall have
lapsed, and that, as a condition of any Restricted Stock award, the participant
shall have delivered a stock power, endorsed in blank, relating to the Stock
covered by such award.

 

                (c)           Restrictions
and Conditions.  The shares of
Restricted Stock awarded pursuant to the Plan shall be subject to the following
restrictions and conditions:

 

                (i)  Subject to
the provisions of this Plan and the award agreement, during a period set by the
Committee commencing with the date of such award (the “Restriction Period”),
the participant shall not be permitted to sell, 

 

7

 

transfer, pledge or assign
shares of Restricted Stock awarded under the Plan.  In no event shall the Restriction Period be
less than one (1) year.  Within these
limits, the Committee may provide for the lapse of such restrictions in
installments where deemed appropriate.

 

                (ii)  Except as
provided in paragraph (c)(i) of this Section 7, the participant shall have,
with respect to the shares of Restricted Stock, all of the rights of a
shareholder of the Company, including the right to vote the shares and the
right to receive any cash dividends.  The
Committee, in its sole discretion, may permit or require the payment of cash
dividends to be deferred and, if the Committee so determines, reinvested in
additional shares of Restricted Stock (to the extent shares are available under
Section 3 and subject to paragraph (f) of Section 12).  Certificates for shares of unrestricted Stock
shall be delivered to the grantee promptly after, and only after, the period of
forfeiture shall have expired without forfeiture in respect of such shares of
Restricted Stock.

 

                (iii)  Subject
to the provisions of the award agreement and paragraph (c)(iv) of this Section
7, upon termination of employment for any reason during the Restriction Period,
all shares still subject to restriction shall be forfeited by the participant.

 

                (iv)  In the
event of special hardship circumstances of a participant whose employment is
terminated (other than for Cause), including death, Disability or Retirement,
or in the event of an unforeseeable emergency of a participant still in
service, the Committee may, in its sole discretion, 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 such participant’s shares of
Restricted Stock.

 

                (v) 
Notwithstanding the foregoing, all restrictions with respect to any
participant’s shares of Restricted Stock shall lapse, on the date determined by
the Committee, prior to, but in no event more than sixty (60) days prior to,
the occurrence of any of the following events: 
(i) dissolution or liquidation of the Company, other than in conjunction
with a bankruptcy of the Company or any similar occurrence, (ii) any merger,
consolidation, acquisition, separation, reorganization, or similar occurrence,
where the Company will not be the surviving entity or (iii) the transfer of
substantially all of the assets of the Company or 75% or more of the
outstanding Stock of the Company.

 

                SECTION
8.  Deferred Stock Awards.

 

                (a)           Administration.  Deferred Stock may be awarded either alone or
in addition to other awards granted under the Plan.  The Committee shall determine the officers
and key employees of the Company and Subsidiaries to whom and the time or times
at which Deferred Stock shall be awarded, the number of Shares of Deferred
Stock to be awarded to any participant or group of participants, the duration
of the period (the “Deferral Period”) during which, and the conditions under
which, receipt of the Stock will be deferred, and the terms and conditions of
the award in addition to those contained in paragraph (b) of this Section
8.  The Committee may also condition the
grant of Deferred Stock upon the attainment of specified performance
goals.  The provisions of Deferred Stock
awards need not be the same with respect to each recipient.

 

                (b)           Terms and Conditions.

 

                (i)  Subject to
the provisions of this Plan and the award agreement, Deferred Stock awards may
not be sold, assigned, transferred, pledged or otherwise encumbered during the
Deferral Period.  In no event shall the
Deferral Period be less than one (1) year. 
At the expiration of the Deferral Period (or Elective Deferral Period,
where applicable), share certificates shall be delivered to the participant, or
his legal representative, in a number equal to the shares covered by the
Deferred Stock award.

 

                (ii)  Amounts
equal to any dividends declared during the Deferral Period with respect to the
number of shares covered by a Deferred Stock award will be paid to the
participant currently or deferred and deemed to be reinvested in additional
Deferred Stock or otherwise reinvested, all as determined at the time of the
award by the Committee, in its sole discretion.

 

                (iii)  Subject
to the provisions of the award agreement and paragraph (b)(iv) of this Section
8, upon termination of employment for any reason during the Deferral Period for
a given award, the Deferred Stock in question shall be forfeited by the
participant.

 

                (iv)  In the
event of special hardship circumstances of a participant whose employment is
terminated (other than for Cause) including death, Disability or Retirement, or
in the event of an unforeseeable emergency of a participant still in service,
the Committee may, in its sole discretion, when it finds that a waiver would be
in the 

 

8

 

best interest of the
Company, waive in whole or in part any or all of the remaining deferral
limitations imposed hereunder with respect to any or all of the participant’s
Deferred Stock.

 

                (v)  A
participant may elect to further defer receipt of the award for a specified
period or until a specified event (the “Elective Deferral Period”), subject in
each case to the Committee’s approval and to such terms as are determined by
the Committee, all in its sole discretion. 
Subject to any exceptions adopted by the Committee, such election must
generally be made prior to completion of one half of the Deferral Period for a
Deferred Stock award (or for an installment of such an award).

 

                (vi)  Each
award shall be confirmed by, and subject to the terms of, a Deferred Stock
agreement executed by the Company and the participant.

 

                SECTION
9.  Transfer, Leave of Absence, etc.

 

                For
purposes of the Plan, the following events shall not be deemed a termination of
employment:

 

                (a)           a transfer of an employee from the
Company to a Parent Corporation or Subsidiary, or from a Parent Corporation or
Subsidiary to the Company, or from one Subsidiary to another;

 

                (b)           a leave of absence, approved in
writing by the Committee, for military service or sickness, or for any other
purpose approved by the Company if the period of such leave does not exceed
ninety (90) days (or such longer period as the Committee may approve, in its
sole discretion); and

 

                (c)           a leave of absence in excess of
ninety (90) days, approved in writing by the Committee, but only if the
employee’s right to reemployment is guaranteed either by a statute or by
contract, and provided that, in the case of any leave of absence, the employee
returns to work within 30 days after the end of such leave.

 

                SECTION
10.  Amendments and Termination.

 

                The
Board may amend, alter, or discontinue the Plan, but no amendment, alteration,
or discontinuation shall be made (i) which would impair the rights of an
Optionee or participant under a Stock Option, Stock Appreciation Right,
Restricted Stock, Deferred Stock or other Stock-based award theretofore
granted, without the Optionee’s or participant’s consent, or (ii) which without
the approval of the stockholders of the Company would cause the Plan to no
longer comply with Rule 16b-3 under the Securities Exchange Act of 1934,
Section 422 of the Code or any other regulatory requirements.

 

                The
Committee may amend the terms of any award or option theretofore granted,
prospectively or retroactively, but, subject to Section 3 above, no such
amendment shall impair the rights of any holder without his consent.  The Committee may also substitute new Stock
Options for previously granted options, including previously granted options
having higher option prices.

 

                SECTION 11.        
Unfunded Status of Plan.

 

                The Plan is
intended to constitute an “unfunded” plan for incentive and deferred
compensation.  With respect to any
payments not yet made to a participant or Optionee by the Company, nothing
contained herein shall give any such participant or Optionee any rights that
are greater than those of a general creditor of the Company.  In its sole discretion, the Committee may
authorize the creation of trusts or other arrangements to meet the obligations
created under the Plan to deliver Stock or payments in lieu of or with respect
to awards hereunder, provided, however, that the existence of such trusts or
other arrangements is consistent with the unfunded status of the Plan.

 

                SECTION
12.  General Provisions.

 

                (a)           The Committee may require each person
purchasing shares pursuant to a Stock Option under the Plan to represent to and
agree with the Company in writing that the Optionee is acquiring the shares
without a view to distribution thereof. 
The certificates for such shares may include any legend which the
Committee deems appropriate to reflect any restrictions on transfer.

 

                All
certificates for shares of Stock delivered under the Plan pursuant to any
Restricted Stock, Deferred Stock or other Stock-based awards shall be subject
to such stock-transfer orders and other restrictions as the Committee may deem
advisable under the rules, regulations, and other requirements of the
Securities and Exchange Commission, any stock exchange upon which the Stock is
then listed, and any applicable Federal or state securities laws, and the
Committee may 

 

9

 

cause a legend or legends to be put on any
such certificates to make appropriate reference to such restrictions.

 

                (b)           Subject to paragraph (d) below,
recipients of Restricted Stock, Deferred Stock and other Stock-based awards
under the Plan (other than Stock Options) are not required to make any payment
or provide consideration other than the rendering of services.

 

                (c)           Nothing contained in this Plan shall
prevent the Board of Directors from adopting other or additional compensation
arrangements, subject to stockholder approval if such approval is required; and
such arrangements may be either generally applicable or applicable only in
specific cases.  The adoption of the Plan
shall not confer upon any employee of the Company or any Subsidiary any right
to continued employment with the Company or a Subsidiary, as the case may be,
nor shall it interfere in any way with the right of the Company or a Subsidiary
to terminate the employment of any of its employees at any time.

 

                (d)           Each participant shall, no later than
the date as of which any part of the value of an award first becomes includible
as compensation in the gross income of the participant for Federal income tax
purposes, pay to the Company, or make arrangements satisfactory to the
Committee regarding payment of, any Federal, state, or local taxes of any kind
required by law to be withheld with respect to the award.  The obligations of the Company under the Plan
shall be conditional on such payment or arrangements and the Company and
Subsidiaries shall, to the extent permitted by law, have the right to deduct
any such taxes from any payment of any kind otherwise due to the
participant.  With respect to any award
under the Plan, if the terms of such award so permit, a participant may elect
by written notice to the Company to satisfy part or all of the withholding tax
requirements associated with the award by (i) authorizing the Company to retain
from the number of shares of Stock that would otherwise be deliverable to the
participant, or (ii) delivering to the Company from shares of Stock already
owned by the participant, that number of shares having an aggregate Fair Market
Value equal to part or all of the tax payable by the participant under this
Section 12(d).  Any such election shall
be in accordance with, and subject to, applicable tax and securities laws,
regulations and rulings.

 

                (e)           At the time of grant, the Committee
may provide in connection with any grant made under this Plan that the shares
of Stock received as a result of such grant shall be subject to a repurchase
right in favor of the Company, pursuant to which the participant shall be
required to offer to the Company upon termination of employment for any reason
any shares that the participant acquired under the Plan, with the price being
the then Fair Market Value of the Stock or, in the case of a termination for
Cause, an amount equal to the cash consideration paid for the Stock, subject to
such other terms and conditions as the Committee may specify at the time of
grant.  The Committee may, at the time of
the grant of an award under the Plan, provide the Company with the right to
repurchase, or require the forfeiture of, shares of Stock acquired pursuant to
the Plan by any participant who, at any time within two years after termination
of employment with the Company, directly or indirectly competes with, or is
employed by a competitor of, the Company.

 

                (f)            The reinvestment of dividends in
additional Restricted Stock (or in Deferred Stock or other types of Plan
awards) at the time of any dividend payment shall only be permissible if the
Committee (or the Company’s chief financial officer) certifies in writing that
under Section 3 sufficient shares are available for such reinvestment (taking
into account then outstanding Stock Options and other Plan awards).

 

                SECTION 13.  Effective
Date of Plan.

 

                The Plan shall be effective on the date it is
approved by a vote of the holders of a majority of the Stock present and
entitled to vote at a meeting of the Company’s shareholders.

 

10Exhibit 10.23

 

INSIGHT HEALTH SERVICES HOLDINGS CORP.

STOCK OPTION AGREEMENT

 

THIS AGREEMENT is entered into as of August 12, 2004 (the “Grant Date”)
by and between InSight Health Services Holdings Corp., a Delaware corporation
(the “Company”), and Michael N. Cannizzaro (the “Optionee”).

 

WHEREAS, the Company desires to grant the Optionee a stock option to
acquire shares of the Company’s common stock, $0.001 par value per share (“Common
Stock”); and

 

WHEREAS, the Optionee desires to accept such option subject to the
terms and conditions of this Agreement.

 

NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein, the Company and the Optionee,
intending to be legally bound, hereby agree as follows:

 

1.             Grant of Option. 
As of the Grant Date, the Company grants to the Optionee a nonqualified
stock option (the “Option”) to purchase all (or any part) of twenty thousand
(20,000) shares of Common Stock (the “Shares”) on the terms and conditions
hereinafter set forth. The Option is not intended to be treated as an incentive
stock option under Section 422 of the Internal Revenue Code of 1986, as
amended (the “Code”).

 

2.             Exercise Price of Option.  The exercise price (“Exercise Price”) for the
Shares covered by the Option shall be $19.80 
per share.

 

3.             Vesting and Exercisability of Option.  The Option shall be fully vested and
exercisable as of the Grant Date.

 

4.             Term
of Option.  The Option shall expire
on the tenth anniversary of the Grant Date.

 

5.             Manner of Exercise
of Option.

 

(a)           The Optionee may
exercise the Option by giving written notice to the Company stating the number
of Shares (which shall not be less than 100) to be purchased and accompanied by
payment in full of the Exercise Price for such Shares.  Payment shall be either in cash or by a
certified or bank cashier’s check or checks payable to the Company.

 

At any time when Common Stock is registered under Section 12 of the
Securities Exchange Act of 1934, as amended, the Option may also be exercised
by means of a “broker cashless exercise” procedure approved in all respects in
advance by the Board of Directors of the Company (the “Board”), in which a
broker:  (i) transmits the Exercise
Price for any Shares to the Company in cash or acceptable cash equivalents,
either (1) against the Optionee’s notice of

 

 

exercise and the Company’s confirmation that it will deliver to the
broker stock certificates issued in the name of the broker for at least that
number of Shares having a fair market value equal to the Exercise Price
therefore, or (2) as the proceeds of a margin loan to the Optionee; or
(ii) agrees to pay the Exercise Price therefore to the Company in cash or
acceptable cash equivalents upon the broker’s receipt from the Company of stock
certificates issued in the name of the broker for at least that number of
Shares having a fair market value equal to the Exercise Price therefore.  The Optionee’s written notice of exercise of
the Option pursuant to a “cashless exercise” procedure must include the name
and address of the broker involved, a clear description of the procedure, and
such other information or undertaking by the broker as the Board shall
reasonably require.  If payment is to be
made in whole or in part in Shares underlying the Option, the Optionee shall
direct the Company to subtract from the number of Shares underlying the Option,
that number of Shares having a fair market value (as determined in good faith
by the Board) equal to the purchase price (or portion thereof) to be paid with
such underlying Shares.  Notwithstanding
the forgoing, if a “broker cashless exercise” would be deemed an extension of
credit for purposes of the Sarbanes-Oxley Act of 2002 or violate any other law
or regulation, Optionee may not exercise the Option in such manner.

 

Upon such purchase, delivery of a certificate for paid-up,
non-assessable Shares shall be made at the principal office of the Company to
the Optionee (or the person entitled to exercise the Option pursuant to Section
7), not more than ten (10) days from the date of receipt of the notice by the
Company.

 

(b)           The Company shall at
all times during the term of the Option reserve and keep available such number
of Shares as will be sufficient to satisfy the requirements of the Option.

 

(c)           Notwithstanding
Section 5(a) of this Agreement, the Company may delay the issuance of Shares
covered by the Option and the delivery of a certificate for such Shares until
one of the following conditions is satisfied:  
(i) the Shares purchased pursuant to the Option are at the time of the
issuance of such Shares effectively registered or qualified under applicable
federal and state securities laws or (ii) such Shares are exempt from
registration and qualification under applicable federal and state securities
laws.

 

6.             Administration.  This Agreement shall be administered by the
Board.  The Board shall be authorized to
interpret this Agreement and to make all other determinations necessary or
advisable for the administration of this Agreement.  The determinations of the Board in the
administration of this Agreement, as described herein, shall be final and
conclusive.  The Secretary of the Company
shall be authorized to implement this Agreement in accordance with its terms
and to take such actions of a ministerial nature as shall be necessary to
effectuate the intent and purposes thereof.

 

7.             Non-Transferability
of Option.  The right of the Optionee
to exercise the Option shall not be assignable or transferable by the Optionee
otherwise than by will or the laws of descent and distribution, and such Shares
may be purchased during the lifetime of the Optionee only by him.  Any other such transfer shall be null and
void and without effect upon any attempted assignment or transfer, except as
hereinabove provided, including without limitation

 

2

 

any purported assignment, whether voluntary or by operation of law,
pledge, hypothecation or other disposition contrary to the provisions hereof,
or levy of execution, attachment, trustee process or similar process, whether
legal or equitable, upon the Option.

 

8.             Representation
Letter and Investment Legend.

 

(a)           In the event that
for any reason the Shares to be issued upon exercise of the Option shall not be
effectively registered under the Securities Act of 1933, as amended (the “1933
Act”), upon any date on which the Option is exercised, the Optionee (or the
person exercising the Option pursuant to Section 7) shall give a written
representation to the Company in the form attached hereto as Exhibit A, and the
Company shall place the legend described on Exhibit A, upon any
certificate for the Shares issued by reason of such exercise.

 

(b)           The Company shall be
under no obligation to qualify Shares or to cause a registration statement or a
post-effective amendment to any registration statement to be prepared for the
purposes of covering the issuance of the Shares; provided, that the Company
will use its reasonable best efforts to comply with any available exemption
from registration and qualification of the Shares under applicable federal and
state securities laws.

 

9.             Adjustments upon
Changes in Capitalization.

 

(a)           In the event that
the outstanding shares of the Common Stock of the Company are changed into or
exchanged for a different number or kind of shares or other securities of the
Company or of another corporation by reason of any reorganization, merger,
consolidation, recapitalization, reclassification, stock split-up, combination
of shares, or dividends payable in capital stock, appropriate adjustment shall
be made in the number and kind of the Shares, and the Exercise Price therefore,
as to which the Option, to the extent not theretofore exercised, shall be
exercisable.

 

In addition, unless otherwise determined by the Board in its sole
discretion, in the case of a Change in Control (as hereinafter defined) of the
Company, the purchaser of the Company’s assets or stock may, in its discretion,
deliver to the Optionee the same kind of consideration (net of the Exercise
Price for such Shares) that is delivered to the stockholders of the Company as
a result of the Change in Control, or the Board may, in its sole determination,
cancel the Option, to the extent not theretofore exercised, in exchange for
consideration in cash or in kind, which consideration in either case shall be
equal in value to the value of those shares of stock or other consideration the
Optionee would have received had the Option been exercised (to the extent it
has not been exercised) and no disposition of the shares acquired upon such
exercise had been made prior to the Change in Control, less the Exercise Price
therefore.  Upon receipt of such
consideration by the Optionee, the Option shall immediately terminate and be of
no further force and effect.  The value
of the stock or other securities the Optionee would have received if the Option
had been exercised shall be determined in good faith by the Board.  A “Change in Control” shall be deemed to have
occurred if (i) any person, or any two or more persons acting as a group, and
all affiliates of such person or persons (a “Group”) who prior to such time
beneficially owned less than 50% of the then outstanding capital stock of the
Company shall acquire shares of the Company’s capital stock in one or more
transactions or series of

 

3

 

transactions, including by merger, and after such transaction or
transactions such person or Group and affiliates beneficially own 50% or more
of the Company’s outstanding capital stock, or (ii) the Company shall sell all
or substantially all of its assets to any Group which, immediately prior to the
time of such transaction, beneficially owned less than 50% of the then
outstanding capital stock of the Company.

 

(b)           Upon dissolution or
liquidation of the Company, the Option shall terminate, but the Optionee shall
have the right, immediately prior to such dissolution or liquidation, to
exercise the Option.

 

(c)           No fraction of a
share of Common Stock shall be purchasable or deliverable upon the exercise of
the Option, but in the event any adjustment hereunder of the number of shares
covered by the Option shall cause such number to include a fraction of a share,
such fraction shall be adjusted to the nearest smaller whole number of shares.

 

10.           Rights as a
Stockholder.  The Optionee shall have
no rights as a stockholder with respect to any Shares which may be purchased
pursuant to the Option unless and until a certificate or certificates
representing such Shares are duly issued and delivered to the Optionee.  Except as otherwise expressly provided
herein, no adjustment shall be made for dividends or other rights for which the
record date is prior to the date the stock certificate is issued.

 

11.           Withholding Taxes.  The Optionee hereby agrees, as a condition to
any exercise of the Option, to provide to the Company an amount sufficient to
satisfy its obligation to withhold certain federal, state and local taxes
arising by reason of such exercise (the “Withholding Amount”), if any, by
remitting the Withholding Amount to the Company in cash; provided that, to the
extent that the Withholding Amount is not so provided, the Company may at its
election withhold from the Shares delivered upon exercise of the Option that
number of Shares having a fair market value (in the good faith judgment of the
Board) equal to the Withholding Amount.

 

12.           Execution of
Stockholders’ Agreement.  The
Optionee acknowledges that he has previously executed and delivered the
stockholders agreement by and among the Company and the stockholders of the Company
named therein (the “Stockholders’ Agreement”). 
The Optionee further agrees that this Agreement, the Option and all
Shares acquired by him upon exercise of the Option will be subject to the terms
and conditions of the Stockholders’ Agreement, as the same may have been
amended or modified in accordance with its terms.

 

13.           Governing Law.  This Agreement shall be governed by the laws
of the State of Delaware, without regard to any conflicts of law principles
thereof that would call for the application of the laws of any other
jurisdiction.  Any action or proceeding
seeking to enforce any provision of, or based on any right arising out of, this
Agreement may be brought against either of the parties in the courts of the
State of Delaware, or if it has or can acquire jurisdiction, in the United
States District Court for the District of Delaware, and each of the parties
hereby consents to the jurisdiction of such courts (and of the appropriate
appellate courts) in any such action or proceeding and waives any objection to
venue laid therein.  Process in any
action or

 

4

 

proceeding referred to in the preceding sentence may be served on any
party anywhere in the world, whether within or without the State of Delaware.

 

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

 

	
  INSIGHT HEALTH SERVICES

  	
  OPTIONEE

  	
   

  
	
  HOLDINGS CORP.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By: 

  	
    /s/
  Brian G. Drazba 

  	
   

  	
  /s/ Michael N. Cannizzaro

  	
   

  	
   

  
	
   

  	
  Name: Brian G. Drazba

  	
  Name: Michael N. Cannizzaro

  	
   

  
	
   

  	
  Title: Executive Vice President and

  	
   

  	
   

  
	
   

  	
  Chief Financial Officer

  	
  Address: 1531 South Telegraph Rd.

  	
   

  
	
   

  	
   

  	
  Lake Forest, IL
  60045

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Social Security Number:

  	
   

  
							

 

5

 

EXHIBIT A

TO STOCK OPTION AGREEMENT

 

Ladies and Gentlemen:

 

In connection with the purchase by me of                                        
shares of common stock, $0.001 par value per share, of InSight Health Services
Holdings Corp., a Delaware corporation (the “Company”) under the nonqualified
stock option granted to me pursuant to that certain Stock Option Agreement
dated as of          August 12, 2004 (the “Option
Agreement”), I hereby acknowledge that I have been informed as follows:

 

1.             The shares of
common stock of the Company to be issued to me upon exercise of said option
have not been registered under the Securities Act of 1933, as amended (the “Act”),
and accordingly, must be held indefinitely unless such shares are subsequently
registered under the Act, or an exemption from such registration is available.

 

2.             Routine sales of
securities made in reliance upon Rule 144 under the Act can be made only
after the holding period and in limited amounts in accordance with the terms
and conditions provided by that Rule, and with respect to which that Rule is
not applicable, registration or compliance with some other exemption under the
Act will be required.

 

3.             The Company is
under no obligation to me to register the shares or to comply with any such
exemptions under the Act, other than as set forth in the Stockholders’
Agreement referenced and defined in Section 12 of the Option Agreement (the “Stockholders’
Agreement”).

 

4.             The availability of
Rule 144 is dependent upon adequate current public information with respect to
the Company being available and, at the time that I may desire to make a sale
pursuant to the Rule, the Company may neither wish nor be able to comply with
such requirement.

 

5.             The shares of
common stock of the Company to be issued to me upon the exercise of said option
are subject to the terms and conditions, including restrictions on transfer, of
the Stockholders’ Agreement.

 

In consideration of the issuance of certificates for the shares to me,
I hereby represent and warrant that I am acquiring such shares for my own
account for investment, and that I will not sell, pledge, hypothecate or
otherwise transfer such shares in the absence of an effective registration statement
covering the same, except as permitted by an applicable exemption under the
Act.  In view of this representation and
warranty, I agree that there may be affixed to the certificates for the shares
to be issued to me, and to all certificates issued hereafter representing such
shares (until in the opinion of counsel, which opinion must be reasonably
satisfactory in form and substance to counsel for the Company, it is no longer
necessary or required) a legend as follows:

 

“The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the “Act”), and may
not be sold, transferred, offered

 

A-1

 

for sale, pledged or hypothecated in the absence of an effective
registration statement as to the securities under the Act or an opinion of
counsel satisfactory to the Company and its counsel that such registration is
not required.”

“The securities represented by this certificate are subject to the
terms and conditions, including restrictions on transfer, of a Third Amended
and Restated Stockholders’ Agreement among the Company and its stockholders
dated as of October 10, 2002, as amended from time to time, a copy of which is
on file at the principal office of the Company.”

 

I further agree that the Company may place a stop order with its
transfer agent, prohibiting the transfer of such shares, so long as the legend
remains on the certificates representing the shares.

 

I hereby represent and warrant that: 
My financial situation is such that I can afford to bear the economic
risk of holding the shares issued to me upon exercise of said option for an
indefinite period of time, I have no need for liquidity with respect to my
investment and I have adequate means to provide for my current needs and
personal contingencies, and I can afford to suffer the complete loss of my
investment in such shares.

 

(a)           I am an “accredited
investor” within the meaning of Rule 501 under the Act and I, either alone or
with my purchaser representative (as such term is defined in Rule 501 under the
Act) have such knowledge and experience in financial and business matters that
I am capable of evaluating the merits and risks of my investment in the shares
issued to me upon exercise of said option.

 

(b)           I have been afforded
the opportunity to ask questions of, and to receive answers from, the Company
and its representatives concerning the shares issued to me upon exercise of
said option and to obtain any additional information I have deemed necessary.

 

(c)           I have a high degree
of familiarity with the business, operations, financial condition and prospects
of the Company.

 

	
   

  	
  Very truly yours,

  
	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  [Optionee]

  

 

A-2

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