Document:

exv10w1

 

Exhibit 10.1

SUPPORT
AGREEMENT

     SUPPORT AGREEMENT (the “Agreement”) dated as of August 17, 2006, between BARRON CAPITAL
ADVISORS, LLC, a Delaware limited liability company (“Barron”), and CROWN CRAFTS, INC., a Delaware
corporation (the “Company”).

     WHEREAS, the Barron Group (as hereinafter defined) currently owns an aggregate of 223,900
shares of the Company’s Series A Common Stock, par value $1.00 per share (such class of common
stock being referred to herein as “Common Stock”);

     WHEREAS, the Barron Group wishes to acquire additional shares of Common Stock without
triggering the operation of the Company’s Shareholder Rights Plan (the “Rights Plan”), as set forth
in that certain Amended and Restated Rights Agreement dated as of August 6, 2003 between the
Company and Computershare Investor Services, LLC (as successor to SunTrust Bank), as amended, and
the Company is willing to permit Barron to do so as long as the Company can be assured of a
constructive and mutually beneficial relationship between it and Barron; and

     WHEREAS, in order to assure this type of relationship, the Company and Barron wish to enter
into this Agreement;

     NOW, THEREFORE, in consideration of the foregoing recitals and the mutual promises,
representations, warranties, covenants and agreements set forth herein, the parties, intending to
be legally bound, hereby agree as follows:

1.    TERM OF AGREEMENT

     The respective covenants and agreements of Barron and the Company contained in this
Agreement will continue in full force and effect until September 1, 2011 (the “Termination Date”),
unless earlier terminated pursuant to paragraph 5 or subparagraph 6(b) hereof or pursuant to the
mutual written consent of Barron and the Company.

2.    COVENANTS OF BARRON

     Prior to the Termination Date or earlier termination of this Agreement and subject to the
further provisions hereof:

     (a)      Neither Barron nor any person “controlled by” (within the meaning of Rule 12b-2 under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”)) Barron (collectively and together
with Barron, the “Barron Group”) will, directly or indirectly, acquire any Voting Securities (as
hereinafter defined) (except by way of stock dividends or other distributions or offerings made
available to holders of Voting Securities generally) if the effect of such acquisition would be to
increase the aggregate voting power of all Voting Securities then owned by all members of the
Barron Group to greater than 9.9% of such total combined voting power of all Voting Securities then
outstanding; provided that this subparagraph shall not apply if and to the extent that such
aggregate percentage ownership is increased as a result of a recapitalization or reincorporation of
the Company, any redemption of Voting Securities by the

 

 

Company, or any other action taken by the
Company or its affiliates (as hereinafter defined) other than the Barron Group.

     (b)      Barron shall take such action as may be required so that all Voting Securities owned by
any member of the Barron Group are voted (whether by proxy or otherwise) in favor of management’s
nominees to the Board of Directors of the Company (the “Board”) and, unless the Company otherwise
consents in writing, on all other matters to be voted on by the holders of Voting Securities in the
same proportion as the votes cast by the other holders of Voting Securities other than any holder
who is a member of a Prohibited Stockholder Group (as hereinafter defined). The members of the
Barron Group, as holders of Voting Securities, shall be present, in person or by proxy, at all
meetings of stockholders of the Company called with respect to the foregoing and of which the
Barron Group has received due notice, so that all Voting Securities beneficially owned by them may
be counted for the purpose of determining the presence of a quorum at such meetings.

     (c)      No member of the Barron Group shall deposit any Voting Securities in a voting trust or
subject any Voting Securities to any arrangement or agreement (other than this Agreement) with
respect to the voting of such Voting Securities to which any of the following persons
(collectively, the “Prohibited Stockholder Group”) is a party: (i) any holder of 5% or more of all
Voting Securities then outstanding (a “Prohibited Stockholder”) or any person who any member of the
Barron Group knows to be an affiliate, associate (as hereinafter defined) or relative of any
Prohibited Stockholder or any 13D Group (as hereinafter defined) of any Prohibited Stockholder; or
(ii) any person who, to the knowledge of any member of the Barron Group, is casting votes in
respect of Voting Securities beneficially owned by a Prohibited Stockholder. Notwithstanding the
foregoing, no officer or director of the Company who holds 5% or more of any Voting Securities
shall be deemed a Prohibited Stockholder for purposes of this Agreement.

     (d)      No member of the Barron Group shall solicit proxies or become a “participant” in a
“solicitation” (as such terms are defined in Regulation 14A under the Exchange Act) made by
any member of a Prohibited Stockholder Group or that is otherwise in opposition to the
recommendation of the majority of the directors of the Company with respect to any matter.

     (e)      No member of the Barron Group shall, for the purpose of, or in connection with, acquiring,
holding, voting or disposing of Voting Securities: (i) join a partnership, limited partnership,
syndicate or other group of which, to its knowledge, any member of a Prohibited Stockholder Group
is, directly or indirectly, a partner, member or participant; (ii) otherwise act in concert with
any person who it knows to be a member of a Prohibited Stockholder Group; or (iii) otherwise
become, together with any person who it knows to be a member of a Prohibited Stockholder Group, a
“person” within the meaning of Section 13(d)(3) of the Exchange Act (in each case other than solely
with members of the Barron Group).

     (f)      No member of the Barron Group shall, directly or indirectly, offer, sell or transfer any
Voting Securities to any person who it knows to be a member of a Prohibited Stockholder Group;
provided, however, that nothing herein shall restrict any member of the Barron Group from selling
(in open market transactions or otherwise) any Voting Securities to any person who it does not know
to be a member of a Prohibited Stockholder Group.

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     (g)      No member of the Barron Group shall otherwise seek to control the management or policies
of the Company, including taking any action to seek to obtain representation on the Board.

3.    REPRESENTATIONS AND WARRANTIES

     (a)      The Company hereby represents and warrants to Barron as follows:

     (i) The Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware.

     (ii) The Company has full legal right, power and authority to enter into and perform
this Agreement, and the execution and delivery of this Agreement by the Company and the
consummation of the transactions contemplated hereby have been duly authorized by the Board.

     (iii) This Agreement constitutes a valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, except that (A) such
enforcement may be subject to applicable bankruptcy, insolvency or other similar laws, now
or hereafter in effect, affecting creditors’ rights generally, and (B) the remedy of
specific performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any proceeding therefor
may be brought.

     (b)      Barron hereby represents and warrants to the Company as follows:

     (i)      Barron is a limited liability company duly organized, validly existing and in good
standing under the laws of the State of Delaware.

     (ii)      Barron has full legal right, power and authority to enter into and perform this
Agreement, and the execution and delivery of this Agreement by Barron and the consummation
by Barron of the transactions
contemplated hereby have been duly authorized by the managers of Barron.

     (iii)      This Agreement constitutes a valid and binding agreement of Barron, enforceable
against Barron in accordance with its terms, except that (A) such enforcement may be subject
to applicable bankruptcy, insolvency or other similar laws, now or hereafter in effect,
affecting creditors’ rights generally, and (B) the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable defenses and to
the discretion of the court before which any proceeding therefor may be brought.

     (iv)      As of the date hereof, the Barron Group owns of record and beneficially an
aggregate of 223,900 shares of Common Stock (the “Existing Shares”), and the Existing Shares
constitute all of the shares of the Company’s capital stock owned of record or beneficially
by the Barron Group. There are no outstanding options or other rights to acquire from
Barron, or obligations of Barron to sell or to acquire, any shares of the Company’s capital
stock. Barron has, directly or indirectly, the voting power, power

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of disposition and power
to agree to all of the matters set forth in this Agreement, in each case with respect to all
of the Existing Shares with no limitations, qualifications or restrictions of any kind
whatsoever, subject to applicable securities laws and the terms of this Agreement.

4.    CERTAIN DEFINITIONS

     For purposes of this Agreement, unless the context otherwise requires:

                (a)      “affiliate” and “associate” shall each have the meaning set forth with respect thereto in
Rule 12b-2 under the Exchange Act;

                (b)      “beneficially own”, “beneficial ownership” and “beneficial owner” with respect to any
securities means having “beneficial ownership” of such securities, as determined pursuant to Rule
13d-3 under the Exchange Act, without duplicative counting of the same securities by the same
holder (it being understood that securities beneficially owned by a person include securities
beneficially owned by all other persons with whom such person would constitute a “13D Group” with
respect to securities of the same issuer);

                (c)      “person” shall mean any individual, partnership, corporation, limited liability company,
trust or other entity or association;

                (d)      “13D Group” shall mean any group of persons formed for the purpose of acquiring, holding,
voting or disposing of Voting Securities which would be required under Section 13(d) of the
Exchange Act and the rules and regulations thereunder (as now in effect and based on present legal
interpretations thereof) to file a statement on Schedule 13D with the Securities and Exchange
Commission as a “person” within the meaning of Section 13(d)(3) of the Exchange Act if such group
beneficially owned Voting Securities representing more than 5% of the total combined voting power
of all Voting Securities then outstanding; and

                (e)      “Voting Securities” shall mean all classes of capital stock of the Company entitled to
vote generally in the election of directors.

5.    TERMINATION

     Notwithstanding any other provision of this Agreement, either party may terminate this
Agreement, in its sole discretion, if the members of the Barron Group own, in the aggregate, Voting
Securities representing less than 1% of all outstanding Voting Securities.

6.    MISCELLANEOUS

     (a)      Barron, on the one hand, and the Company, on the other, acknowledge and agree that
irreparable damage would occur in the event any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It is accordingly
agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of
the provisions of this Agreement and to enforce specifically the terms and provisions hereof in any
court of the United States or any state thereof having jurisdiction, in addition to any other
remedy to which they may be entitled at law or equity.

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     (b)      If any provision of this Agreement is in violation of any statute, rule, regulation, order
or decree of any governmental authority, court or agency, or subjects any member of the Barron
Group to governmental regulation to which it is not now subject, which violation or regulation
would have a material adverse impact on the operations of the Barron Group taken as a whole, then
such member of the Barron Group shall be relieved of its obligations under such provision to the
minimum extent necessary to cure such violation or eliminate the applicability of such regulation;
provided that this subparagraph shall not apply to any such violation or regulation resulting from
activities or operations of any member of the Barron Group other than its ownership of Voting
Securities and the consummation of the transactions contemplated by this Agreement; and provided
further that in the event any member of the Barron Group is relieved of its obligations under any
provision of this Agreement pursuant to this subparagraph, the Company may terminate this Agreement
in its sole discretion.

     (c)      This Agreement contains the entire understanding of the parties with respect to the
transactions contemplated hereby, and this Agreement may be amended only by an agreement in writing
executed by the parties hereto.

     (d)      Descriptive headings are for convenience only and shall not control or affect the meaning
or construction of any provision of this Agreement.

     (e)      For the convenience of the parties, any number of counterparts of this Agreement may be
executed by the parties hereto and each such executed counterpart shall be, and shall he deemed to
be, an original instrument. Executed counterparts may be delivered by facsimile transmission or
other electronic medium.

     (f)      All notices, consents, requests, instructions, approvals and other communications provided
for herein and all legal process in regard hereto shall be in writing and shall be deemed given
upon (i) transmitter’s confirmation of a receipt of a facsimile transmission, (ii) confirmed
delivery by a standard overnight carrier or when delivered by hand, or (iii) the expiration of five
(5) business days after the day when mailed by certified or registered mail, postage prepaid,
addressed at the following addresses (or at such other address for a party as shall be specified by
like notice):

	 	 	 
	THE COMPANY:
	 
	 	 
	 

	 	Crown Crafts, Inc.
	 

	 	P.O. Box 1028
	 

	 	Gonzales, Louisiana 70707-1028
	 

	 	Attn: E. Randall Chestnut
	 

	 	Facsimile No.: (225) 647-9112
	 
	 	 
	BARRON:
	 
	 	 
	 

	 	Barron Capital Advisors, LLC
	 

	 	730 Fifth Avenue, 25th Floor
	 

	 	New York, New York 10019
	 

	 	Attn: Andrew B. Worden
	 

	 	Facsimile No.: (212) 359-0222

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     (g)      This Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns.

     (h)      In the event of any stock split, stock dividend, merger, recapitalization, reorganization
or other change in the capital structure of the Company affecting the Common Stock, this Agreement
and the obligations hereunder shall attach to any additional shares of Common Stock issued to
Barron in connection therewith.

     (i)      From and after the Termination Date or earlier termination of this Agreement in accordance
with the terms hereof, the covenants of the parties set forth herein shall be of no further force
or effect, and the parties shall be under no further obligation with respect thereto.

     (j)      This Agreement shall be governed by and construed and enforced in accordance with the laws
of the State of Delaware applicable to contracts made and to be performed therein.

     (k)      This Agreement shall become effective as of the day first above written.

     IN WITNESS WHEREOF, Barron and the Company have caused this Agreement to be duly executed
by their respective officers, each of whom is duly authorized, all as of the day and year first
above written.

	 	 	 	 	 
	 	CROWN CRAFTS, INC.

 	 
	 	By:  	/s/ E. Randall Chestnut
 	 
	 	 	E. Randall Chestnut, President 	 
	 	 	and Chief Executive Officer 	 
	 

	 	 	 	 	 
	 	BARRON CAPITAL ADVISORS, LLC

 	 
	 	By:  	/s/ Andrew Barron Worden
 	 
	 	 	Name:  	Andrew Barron Worden 	 
	 	 	Title:  	Managing Partner 	 
	 

6exv10w1

 

Exhibit 10.1

HYPERTENSION DIAGNOSTICS, INC.

2003 STOCK PLAN

     Adopted by the Board of Directors on October 31, 2003

     Approved by the Shareholders on December 3, 2003

     Amended by the Board of Directors on November 10, 2005

 

 

TABLE OF CONTENTS

	 	 	 	 	 
	 	 	Page
	SECTION 1. General Purpose of Plan; Definitions

	 	 	 	1
	 
	 	 	 	 
	SECTION 2. Administration

	 	 	 	5
	 
	 	 	 	 
	SECTION 3. Stock Subject to Plan

	 	 	 	7
	 
	 	 	 	 
	SECTION 4. Eligibility

	 	 	 	7
	 
	 	 	 	 
	SECTION 5. Option Awards

	 	 	 	8
	 
	 	 	 	 
	SECTION 6. Stock Appreciation Rights

	 	 	 	11
	 
	 	 	 	 
	SECTION 7. Restricted Stock Awards

	 	 	 	12
	 
	 	 	 	 
	SECTION 8. Deferred Stock Awards

	 	 	 	14
	 
	 	 	 	 
	SECTION 9. Change in Control

	 	 	 	14
	 
	 	 	 	 
	SECTION 10. Dissolution, Liquidation, Merger

	 	 	 	15
	 
	 	 	 	 
	SECTION 11. Substitute Awards

	 	 	 	16
	 
	 	 	 	 
	SECTION 12. General Provisions

	 	 	 	17
	 
	 	 	 	 
	SECTION 13. Amendments and Termination

	 	 	 	19
	 
	 	 	 	 
	SECTION 14. Governing Law

	 	 	 	20
	 
	 	 	 	 
	SECTION 15. Effective Date of Plan

	 	 	 	20

 

 

HYPERTENSION DIAGNOSTICS, INC.

2003 STOCK PLAN

SECTION 1. General Purpose of Plan; Definitions.

     1.1 General Purpose. The name of this plan is the Hypertension Diagnostics, Inc. 2003
Stock Plan (the “Plan”). The purpose of the Plan is to enable Hypertension Diagnostics, Inc. (the
“Company”) and its Subsidiaries to retain and attract executives, other employees, members of the
Board of Directors, and Consultants who contribute to the Company’s success by their ability,
ingenuity and industry, and to enable such individuals to participate in the long-term success and
growth of the Company by giving them a proprietary interest in the Company.

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

     (a) “Agreement” means an agreement by and between the Company and a Recipient
under the Plan setting forth the terms and conditions of an Award.

     (b) “Award” means the grant of an Option, Restricted Stock, Deferred Stock or
Stock Appreciation Right or any combination thereof pursuant to the terms of this Plan.

     (c) “Board” means the Board of Directors of the Company as it may be comprised
from time to time.

     (d) “Cause” means, except as may otherwise be provided in the terms of the
Award or in a written employment agreement between the Company and the Recipient, a material
breach of any written employment agreement between the Company and the Recipient, a material
breach of any code of conduct established by the Company, a felony conviction of a Recipient
or the failure of a Recipient to contest prosecution for a felony, or a Recipient’s willful
misconduct, dishonesty or gross negligence involving the business or reputation of the
Company.

     (e) “Change in Control” means, except as may otherwise be provided in the terms
of the Award Agreement or in a written employment agreement between the Company and the
Recipient, any of the following:

     (i) Any “person” (as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934) acquires or becomes a “beneficial
owner” (as defined in Rule 13d-3 or any successor rule under the Exchange
Act), directly or indirectly, of securities of the Company representing 50%
or more of the combined voting power of the Voting

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Securities, provided, however, that the following shall not constitute a
Change in Control pursuant to this Section 1.2(e)(i):

(A) any acquisition of Voting Securities or
Stock of the Company directly from the Company other
than in connection with a transaction described in
Section 1.2(e)(iii) below;

	 	(B)	 	any acquisition or beneficial ownership by the Company or a
Subsidiary;

(C) any acquisition or beneficial ownership by
any employee benefit plan (or related trust)
sponsored or maintained by the Company or one or more
of its Subsidiaries;

	 	(D)	 	any acquisition or beneficial ownership by any corporation
with respect to which, immediately following such acquisition,
more than 50% of the combined voting power of the Company’s
then outstanding Voting Securities and the Stock of the Company
is then beneficially owned, directly or indirectly, by all or
substantially all of the persons who beneficially owned Voting
Securities and Stock of the Company immediately prior to such
acquisition in substantially the same proportions as their
ownership of such Voting Securities and Stock, as the case may
be, immediately prior to such acquisition;

     (ii) A majority of the members of the Board of the Company shall not be
Continuing Directors;

     (iii) Approval by the stockholders of the Company of a reorganization,
merger or consolidation of the Company or a statutory exchange of
outstanding Voting Securities of the Company, unless, immediately following
such reorganization, merger, consolidation or exchange, all or substantially
all of the persons who were the beneficial owners, respectively, of Voting
Securities and Stock of the Company immediately prior to such
reorganization, merger, consolidation or exchange beneficially own, directly
or indirectly, more than 50% of, respectively, the combined voting power of
the then outstanding voting securities entitled to vote generally in the
election of directors and the then outstanding shares of common stock, as
the case may be, of the corporation resulting from such reorganization,
merger, consolidation or exchange in substantially the same proportions as
their ownership, immediately prior to such reorganization, merger,
consolidation or exchange, of the Voting Securities and Stock of the
Company, as the case may be; or

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     (iv) Approval by the stockholders of the Company of (x) a complete
liquidation or dissolution of the Company or (y) the sale or other
disposition of all or substantially all of the assets of the Company (in one
or a series of transactions), other than to a corporation with respect to
which, immediately following such sale or other disposition, more than 50%
of, respectively, the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors and the then outstanding shares of common stock of such
corporation is then beneficially owned, directly or indirectly, by all or
substantially all of the persons who were the beneficial owners,
respectively, of the Voting Securities and Stock of the Company immediately
prior to such sale or other disposition in substantially the same
proportions as their ownership, immediately prior to such sale or other
disposition, of the Voting Securities and Stock of the Company, as the case
may be.

     (f) “Code” means the Internal Revenue Code of 1986, as amended from time to
time, or any successor statute.

     (g) “Committee” means the Committee referred to in Section 2.1 of the Plan.

     (h) “Company” means Hypertension Diagnostics, Inc., a corporation organized
under the laws of the State of Minnesota (or any successor corporation).

     (i) “Consultant” means any natural person providing bona fide services to the
Company or a Parent Corporation or a Subsidiary of the Company (other than persons either
providing services in connection with the offer or sale of securities in a capital raising
transaction or directly or indirectly promoting or maintaining a market for the Company’s
Stock), who is compensated for such services and who is not an employee of the Company or
any Parent Corporation or Subsidiary of the Company. A Non-Employee Director may serve as a
Consultant.

     (j) “Continuing Directors” means (i) individuals who, on the date hereof, are
directors of the Company, (ii) individuals elected as directors of the Company subsequent to
the date hereof for whose election proxies shall have been solicited by the Board or (iii)
any individual elected or appointed by the Board to fill vacancies on the Board caused by
death or resignation (but not by removal) or to fill newly-created directorships.

     (k) “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.

     (l) “Disability” means, except as may otherwise be provided in the terms of the
Award Agreement or in a written employment agreement between the Company and the Recipient,
permanent and total disability as determined by the Committee.

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     (m) “Event” means the actual effective date of (i) a transaction described in
Section 1.2(e)(iii), without regard to the exception contained therein; or (ii) a
transaction described in Section 1.2(e)(iv), without regard to the exception contained
therein.

     (n) “Event Proceeds per Share” means the cash plus the fair market value, as
determined in good faith by the Committee, of the non-cash consideration to be received per
share of Stock by the stockholders of the Company upon the occurrence of the Event.

     (o) “Fair Market Value” of Stock on any given date shall be determined by the
Committee as follows:

     (i) If the Stock is listed for trading on one or more national securities
exchanges, or is traded on the Nasdaq Stock Market (including the Nasdaq Small Cap
Market), the last reported sales price on such national securities exchange or the
Nasdaq Stock Market on the day prior to the date in question, or if such Stock shall
not have been traded on such principal exchange on such date, the last reported
sales price on such principal exchange on the first day prior thereto on which such
Stock was so traded; or

     (ii) If the Stock is not listed for trading on a national securities exchange
or the Nasdaq Stock Market, but is traded in the over-the-counter market, including
the Nasdaq OTC Bulletin Board, the closing bid price for such Stock on the day prior
to the date in question, or if there is no closing bid price for such Stock on such
date, the closing bid price on the first day prior thereto on which such price
existed; or

     (iii) If neither (i) nor (ii) is applicable, by any means fair and reasonable
by the Committee, which determination shall be final and binding on all parties.

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

     (q) “Non-Employee Director” means a non-employee director within the meaning of
Rule 16b-3(b)(3) under the Securities Exchange Act of 1934.

     (r) “Non-Qualified Option” means any Option that is not an Incentive Option.

     (s) “Option” means any Award to purchase Stock granted pursuant to Section 5
below.

     (t) “Outside Director” means a Director who: (i) is not a current employee of
the Company or any member of an affiliated group which includes the Company; (ii) is not a
former employee of the Company who receives compensation for prior services (other than
benefits under a tax-qualified retirement plan) during the taxable year; (iii) has not been
an officer of the Company; (iv) does not receive remuneration from the Company, either
directly or indirectly, in any capacity other than as a director, except as

-4-

 

otherwise permitted under Section 162(m) of the Code and regulations thereunder. For
this purpose, remuneration includes any payment in exchange for good or services. The
provisions of Section 162(m) of the Code and regulations promulgated thereunder shall
further govern this definition.

     (u) “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.

     (v) “Recipient” means any eligible person to whom an Award has been granted
under this Plan.

     (w) “Restricted Stock” means an Award of shares of Stock pursuant to Section 7
below that are subject to restrictions or performance goals.

     (x) “Stock” means the common stock, $.01 par value per share of the Company ,
as designated in the Agreement governing the Award.

     (y) “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 right in exchange
for an amount equal to the difference between (i) aggregate Fair Market Value, as of the
date the right or such portion thereof is exercised and surrendered, of the shares of Stock
covered by such right or such portion thereof, and (ii) the aggregate Fair Market Value of
such right or such portion thereof on the date such Award was made.

     (z) “Subsidiary” means any corporation (other than the Company), foreign or
domestic, 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.

     (aa) “Voting Securities” means the Company’s then outstanding securities
entitled to vote generally in the election of directors.

SECTION 2. Administration.

     2.1 Authority. The Plan shall be administered by the Board or by a Committee
appointed by the Board consisting of at least three members of the Board, all of whom shall be
Non-Employee Directors and Outside Directors, and each of whom shall serve at the pleasure of the
Board. If at any time no Committee shall be in office, then the Board shall exercise the functions
of the Committee specified in the Plan. Any or all of the functions of the Committee specified in
the Plan may be exercised by the Board, except for Awards intended to comply with regulations under
Section 162(m) of the Code and regulations promulgated thereunder. References in the Plan to the
Committee shall also include the Board, unless the context clearly indicates otherwise.

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     2.2 Powers. The Committee shall have the power and authority to grant Awards pursuant
to the terms of the Plan. In particular, the Committee shall have the authority:

     (a) Recipients. To select Recipients to whom Awards may from time to time be
granted hereunder;

     (b) Class. To determine whether and from what class of shares of Stock of the
Company Awards are to be granted hereunder;

     (c) Amount. To determine the number of shares of Stock to be covered by each
such Award granted hereunder;

     (d) Terms and Conditions. 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 Award and/or the Stock relating thereto)
provided, however, that upon the occurrence of an Event, the applicable
provisions of Section 9.1 of the Plan shall govern the acceleration of the vesting of any
Award;

     (e) Determination. To make any other determination and take any other action
that the Committee deems necessary or desirable for the administration of the Plan;

     (f) Rules. 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;

     (g) Amendment. To amend the terms of any Award theretofore granted,
prospectively or retroactively, to the extent such amendment is consistent with the terms of
the Plan, but no such amendment shall impair the rights of any Recipient without his or her
consent except to the extent authorized under the Plan; and

     (h) Substitution. To substitute new Awards for previously granted Awards,
including previously granted Options having higher exercise prices.

     2.3 Delegation. Except to the extent prohibited by applicable law or the applicable
rules of a stock exchange, the Committee may delegate to any officer of the Company the authority
to exercise the powers specified in Section 2.2(a), (b), (c) and (d) above; provided, however, that
such authority shall not be exercised by any officer with respect to persons who are either the
chief executive officer of the Company or the four highest paid officers of the Company other than
the chief executive officer.

     2.4 Decisions Binding. 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 all Recipients.

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SECTION 3. Stock Subject to Plan.

     3.1 Shares Reserved for Issuance. The total number of shares of Stock reserved and
available for distribution under the Plan shall be:

	 	(a)	 	with respect to the common stock of the Company, four million (4,000,000)
shares of Stock.

Such shares shall consist of authorized and unissued shares of Stock of the Company.

     3.2 Share Counting. If any shares of each class of Stock become available as a
result of canceled, unexercised, lapsed or terminated Awards under this Plan, such shares shall
again be available for distribution in connection with future awards under the Plan. Upon a
stock-for-stock exercise of an Award, the withholding of Stock for the payment of the Option price
or the withholding of Stock for the payment of taxes on an Award, only the net number of shares of
Stock issued to the Recipient shall be used to calculate the number of shares remaining available
for distribution under the Plan.

     3.3 Adjustments. In the event of a corporate transaction involving the Company
(including, without limitation, any merger, reorganization, consolidation, recapitalization, stock
dividend, stock split, other change in corporate structure affecting any class of Stock, or
spin-off or other distribution of assets to stockholders) or other event affecting any class of
Stock which would be reasonably likely to result in the diminution or enlargement of any of the
benefits intended to be made available under the Plan or an Award, the Committee may, without the
consent of any Recipient, make such adjustment as it determines in its discretion to be appropriate
as to the number and kind of shares of Stock subject to and reserved under this Plan, the purchase
price of each share subject to an outstanding Option and, in order to prevent dilution or
enlargement of rights of Recipients in this Plan, the exercise price of any outstanding Option; and
the number and kind of securities issuable upon exercise of an outstanding Option or payment of an
Award; provided that the number of shares of Stock subject to any Award shall always be a whole
number. Additional shares of Stock that may be credited pursuant to such adjustment shall be
subject to the same restrictions as are applicable to the Stock with respect to which the
adjustment relates.

     3.4 Effect of Award. The grant of an Award pursuant to the Plan shall not limit in
any way the right or power of the Company to make adjustments, reclassifications, reorganizations
or changes of its capital or business structure or to merge, exchange or consolidate or to
dissolve, liquidate or transfer all or any part of its business or assets.

SECTION 4. Eligibility.

     Officers, other employees of the Company and its Subsidiaries, members of the Board, and
Consultants 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 Awards under the Plan.
Recipients under the Plan shall be selected from time to time by the
Committee, in its sole discretion or as otherwise provided in Section 2.3, from among those
eligible.

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SECTION 5. Option Awards.

     5.1 Option Types. Each Option shall be evidenced by a written Agreement, in such form
as the Committee may approve from time to time, which Agreement shall designate each class of stock
to which the Option applies, and shall be subject to the provisions of this Plan and to such other
terms and conditions as the Committee may deem appropriate. The Options granted under the Plan may
be of two types: (i) Incentive Options and (ii) Non-Qualified Options. No Incentive Option may be
issued more than 10 years after the earlier of the date the Plan is adopted by the Board or is
approved by the shareholders.

     5.2 Non-Qualified Options. To the extent that any Option or portion of an Option does
not qualify as an Incentive Option, it shall constitute a separate Non-Qualified Option. A
Non-Qualified Option may be granted to an employee, in connection with hiring, retention or
otherwise, prior to the date the employee first performs services for the Company or the
Subsidiary, provided that such Option shall not become vested prior to the date the employee first
performs such services.

     5.3 Incentive Options; Interpretation. Notwithstanding anything in the Plan to the
contrary, no term of the Plan relating to an Incentive Option shall be interpreted, amended or
altered, nor shall any discretion or authority granted under the Plan be so exercised, so as to
disqualify either the Plan or any Incentive Option under Section 422 of the Code. The preceding
sentence shall not preclude any modification or amendment to an outstanding Incentive Option,
whether or not such modification or amendment results in disqualification of such Options as an
Incentive Option, provided the Recipient consents in writing to the modification or amendment.

     5.4 Terms and Conditions. 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) Limitation under Section 162(m) of the Code. No person shall receive
grants of Options under this Plan that exceed 750,000 shares of all classes of Stock during
any fiscal year of the Company.

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

     (c) Option Exercise Price. The exercise price per share of Stock purchasable
under an Option shall be determined by the Committee at the time of grant, except that the
exercise price of an Incentive Option shall not be less than 100% of the Fair Market Value
of the Stock on the date of grant of such Option (except as provided in the next
sentence); and (ii) the exercise price of a Non Qualified Option shall not be less than
50% of the Fair Market Value of the Stock of the Company as of the date of grant of such

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Option. If an employee owns or is deemed to own (by reason of the attribution rules
applicable under Section 424(d) of the Code) more than 10% of the combined voting power of
all classes of capital stock of the Company or any Parent Corporation or Subsidiary and an
Incentive Option is granted to such employee, the Option exercise price shall be no less
than 110% of the Fair Market Value of the Stock on the date of grant of such Option.

     (d) Option Term. The Committee shall fix the term of each Option, except that
no Incentive Option shall be exercisable more than ten years after the date of grant of such
Option (except as provided in the next sentence). Notwithstanding the foregoing, if an
employee owns or is deemed to own (by reason of the attribution rules of Section 424(d) of
the Code) more than 10% of the combined voting power of all classes of capital stock of the
Company or any Parent Corporation or Subsidiary and an Incentive Option is granted to such
employee, the term of such Option shall be no more than five years from the date of grant of
such Option. In the event that the Committee does not fix the term of an Option, the term
shall be ten years from the date the Option is granted or as otherwise provided in the
preceding sentence, subject to earlier termination as otherwise provided herein.

     (e) Exercisability. An Option shall be exercisable in accordance with such
terms and conditions and during such periods as determined by the Committee at or after
grant, subject to the restrictions stated in Section 5.4(b) above. In the event the
Committee does not determine the time at which an Option shall be exercisable, such Option
shall be exercisable in equal installments of 25% of the shares of Stock subject to the
Option on and after the first anniversary of the date of grant of the Option and an
additional 25% of the shares of Stock subject to the Option on and after the second, third
and forth anniversaries of the date of grant of the Option, subject to earlier termination
as otherwise provided herein.

     (f) Method of Exercise. An Option 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 of Stock 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 delivery of 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 entire exercise price and any tax withholding
resulting from such exercise. As determined by the Committee at the time of grant or
exercise, in its sole discretion, payment in full or in part may also be made by tendering,
by either actual delivery of Stock or attestation, Stock already owned by the Recipient and
valued at Fair Market Value (which, in the case of Stock acquired upon exercise of an
Option, the Committee may, in its discretion, require have been owned for more than six
months on the date of surrender); provided, however, that, in the case of an
Incentive Option, the right to make a payment in the form of already owned shares of Stock
may be authorized only at the time the Option is granted.
No Stock shall be issued until full payment herefore has been made. A Recipient shall
generally have the rights to dividends and other rights of a shareholder with respect to

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Stock subject to the Option when the Recipient has given written notice of exercise, has
paid in full for such Stock, and, if requested, has given the representation described in
Section 12.1.

     (g) Transferability of Options.

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

     (ii) The Committee may, in its discretion, authorize all or a portion of
any Nonqualified Option to be granted to a Recipient to be on terms which permit
transfer by such Recipient to: (A) the spouse, children or grandchildren of the
Recipient (“Immediate Family Members”), (B) a trust or trusts for the exclusive
benefit of such Immediate Family Members, or (C) a partnership or partnerships in
which such Immediate Family Members are the only partners, provided that: (1) there
may be no consideration for any such transfer, (2) the Option pursuant to which such
Stock is granted must be approved by the Committee, and must expressly provide for
transferability in a manner consistent with this Section 5.4(g)(ii), and (3)
subsequent transfers of a transferred Option shall be prohibited. Following
transfer, any such Option shall continue to be subject to the same terms and
conditions as were applicable immediately prior to transfer, provided that the term
“Recipient” herein shall in such event be deemed to refer to the transferee, except
that the events of termination of employment and the provisions of Sections 5.4(h),
(i) and (j) hereof shall continue to be applied with respect to the original
Recipient, following which the Option shall be exercisable by the transferee only to
the extent, and for the periods specified in such Sections.

     (iii) Non-Qualified Options may be transferred to the spouse or former spouse
of the Recipient to the extent provided in a domestic relations order issued in
accordance with applicable state law.

     (h) Termination by Death or Disability. Unless the Option Agreement
provides otherwise or the Committee determines, if a Recipient’s employment by the Company
or any Subsidiary or Parent Corporation terminates by reason of death or Disability, the
Option may thereafter be exercised, to the extent it was exercisable at the time of death or
Disability (or on such accelerated basis as the Committee shall determine at or after
grant), by the Recipient or the legal representative of the estate or by the legatee of the
Recipient under the will of the Recipient, but may not be exercised after three (3) years
from the date of such Disability or death or the expiration of the stated term of the
Option, whichever period is shorter. In the event of termination of employment by reason of
death or Disability, if an Incentive 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 Option.

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     (i) Other Termination. Unless the Option Agreement provides otherwise or the
Committee determines:

     (i) if a Recipient’s employment by the Company or any Subsidiary or Parent
Corporation terminates for any reason other than death, Disability or as provided in
Section 5.4(j)(ii), the Option shall immediately terminate; and

     (ii) if the Company or any Subsidiary or Parent Corporation terminates the
Recipient without Cause, the Option may thereafter be exercised to the extent it was
exercisable at the time of such termination for three months from the date of such
termination or the expiration of the stated period of the Option, whichever period
is shorter.

     5.5  Grant to Non-Employee Directors. The Committee may elect to grant a
Non-Qualified Option, consisting of such number of shares as the Committee deems appropriate under
the circumstances, to any person who is elected to the Board of Directors between annual meetings
of shareholders.

SECTION 6. Stock Appreciation Rights.

     6.1 Grant. Stock Appreciation Rights may be granted to a Recipient either alone or in
conjunction with all or part of any Option granted under the Plan. The Award shall designate each
class of Stock to which the right shall apply. In the case of a Non-Qualified Option, such rights
may be granted either at or after the time of the grant of such Option. In the case of an
Incentive Option, such rights may be granted only at the time of the grant of the Option.

     6.2 Exercise. The Recipient may exercise a Stock Appreciation Right by surrendering
the applicable portion of the Award. Upon such exercise and surrender, the Recipient shall be
entitled to receive an amount determined in the manner prescribed in Section 6.3(b). If the Award
of a Stock Appreciation Right is in connection with an Option, that portion of the Option
representing the Stock Appreciation Rights shall be surrendered upon exercise of the right.
Options that 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.

     6.3 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:

     (a) Award Related to Stock Options. Stock Appreciation Rights granted in
connection with an Option shall be exercisable only at such time or times and to the extent
that the Options to which they relate shall be exercisable in accordance with the provisions
of Section 5 and this Section 6 of the Plan. A Stock Appreciation Right or applicable
portion thereof granted in connection with an Option shall terminate and no longer be
exercisable upon the termination or exercise of the related Option, except that a Stock
Appreciation Right granted with respect to less than the full number of shares covered by a
related Option shall not be reduced until the exercise or termination of the

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related Option exceeds the number of shares not covered by the Stock Appreciation
Right.

     (b) Payment Upon Exercise. Upon the exercise of a Stock Appreciation Right,
the Recipient 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
on the date of exercise over the Fair Market Value on the date of grant of the Award (or, in
the case of an Award in connection with an Option, the exercise 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.

     (c) Transferability. Except as provided in the next sentence, Stock
Appreciation Rights shall not be transferable except pursuant to the laws of descent upon
death. Stock Appreciation Rights granted in connection with an Option shall be transferable
only when and to the extent that the underlying Option would be transferable under Section
5.4(g) of the Plan.

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

SECTION 7. Restricted Stock Awards.

     7.1 Grant. Shares of Restricted Stock may be issued either alone or in addition to
other Awards granted under the Plan. The Committee shall determine Restricted Stock will be made,
the class of shares to which the Award applies, the number of shares to be awarded, the time or
times within which an Award may be subject to forfeiture, and all other conditions of the Award in
addition to those contained in Section 7.4. The Committee may also grant Restricted Stock in which
the restrictions lapse upon the attainment of specified performance goals over a specified
performance period. The provisions of Restricted Stock Awards need not be the same with respect to
each Recipient.

     7.2 Award Agreement. The 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.

     7.3 Certificate. Each Recipient 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 Recipient, and shall bear an appropriate legend referring to the terms, conditions, and
restrictions applicable to the 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
Hypertension Diagnostics, Inc. 2003 Stock Plan and an Agreement entered into

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between the registered owner and the Company. Copies of such Plan and Agreement are
on file in the offices of the Secretary of the Company.”

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 Recipient shall have delivered a stock power, endorsed in blank,
relating to the Stock covered by such Award.

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

     (a) Restriction Period. 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 Recipient shall not be permitted to sell, transfer, pledge or
assign shares of Restricted Stock awarded under the Plan. Within these limits, the
Committee may provide for the lapse of such restrictions in installments where deemed
appropriate.

     (b) Rights as Shareholder. Except as provided in Section 7.4(a) and (c), the
Recipient 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
3.1). Certificates for shares of unrestricted Stock shall be delivered to the Recipient
promptly after, and only after, the period of forfeiture shall have expired without
forfeiture in respect of such shares of Restricted Stock.

     (c) Performance Restrictions. Notwithstanding Section 7.4(b) above, any Award
of Restricted Stock based on the achievement of performance goals shall not be considered
outstanding for any purpose, and no dividends, voting or other rights of a shareholder shall
attach to such shares until such time as the performance goals have been satisfied and the
shares are issued to the Recipient without restriction.

     (d) Forfeiture; Waiver. Except to the extent provided in the Award Agreement,
upon termination of employment for any reason during the Restriction Period, all shares
still subject to restriction shall be forfeited by the Recipient. 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 the Recipient’s
shares of Restricted Stock.

     (e) Transferability. Subject to the provisions of this Plan and the Award
Agreement, Restricted Stock Awards may not be sold, assigned, transferred, pledged or
otherwise encumbered during the Restriction Period.

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SECTION 8. Deferred Stock Awards.

     8.1 Grant. Deferred Stock may be awarded either alone or in addition to other
Awards granted under the Plan. The Committee shall determine the class of shares to which the
Award applies, 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 Section 8.2. 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. Each Award shall be confirmed by, and subject
to the terms of, a Deferred Stock Agreement executed by the Company and the Recipient.

     8.2 Terms and Conditions. The shares of Deferred Stock awarded pursuant to this Plan
shall be subject to the following terms and conditions:

     (a) Transferability. 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. At the expiration of the Deferral Period
(or Elective Deferral Period, where applicable), share certificates shall be delivered to
the Recipient, or his legal representative, in a number equal to the shares covered by the
Deferred Stock Award.

     (b) Rights as Shareholder. An Award of Deferred Stock shall not be considered
outstanding for any purpose, and no dividends, voting or other rights of a shareholder shall
attach to such shares until such time as the Deferral Period has ended and the shares are
issued to the Recipient.

     (c) Forfeiture; Waiver. Subject to the provisions of the Award Agreement, 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 Recipient. 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 of the remaining deferral limitations imposed hereunder
with respect to any or all of the Recipient’s Deferred Stock.

     (d) Elective Deferral. A Recipient 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).

SECTION 9. Change in Control.

     9.1 No Automatic Acceleration. Unless otherwise provided in an Agreement or by
Committee action with respect to any outstanding Award, no Option shall become exercisable and no
Award shall vest and become due and payable solely as a result of a Change in Control of

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the Company. Any such Option shall be exercisable only to the extent it was exercisable immediately
prior to the Change in Control or otherwise becomes exercisable after a Change in Control in
accordance with its terms and conditions. Any Award shall vest and become payable after a Change in
Control in accordance with its terms and conditions.

     9.2 Cash Payment. If a Change in Control of the Company described in Section
1.2(e)(i) occurs, then, so long as a majority of the members of the Board are Continuing Directors,
the Committee, in its sole discretion, and without the consent of the Recipient affected thereby,
may determine that some or all outstanding Awards shall be cancelled as of the effective date of
any such Change in Control and that the Recipient shall receive, with respect to all of the Stock
subject to such cancelled Awards, as of the date of such cancellation, cash in an amount equal to
the Fair Market Value of each Share subject to the Award, except that, with respect to a cancelled
Option or Stock Appreciation Right, the amount shall be equal to the excess of the per share Fair
Market Value of each such Stock immediately prior to such Change in Control of the Company over the
exercise price per share.

     9.3 Limitation on Change in Control Payments. Notwithstanding anything in Section 9.1
or 9.2 or Section 10 to the contrary, if, with respect to a Recipient, the acceleration of the
exercisability of an Option or the payment of cash in exchange for all or part of an Award as
provided in Section 9.1 or 9.2 or Section 10 (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
which such Recipient has the right to receive from the Company or any corporation which 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, unless otherwise provided in the applicable Award
Agreement, such acceleration of exercisability and payments pursuant to Section 9.1 or 9.2 or
Section 10 shall be reduced to the largest amount as, in the sole judgment of the Committee, will
result in no portion of such payments being subject to the excise tax imposed by Section 4999 of
the Code.

SECTION 10. Dissolution, Liquidation, Merger.

     10.1 Effect on Award. Upon an Event, the Committee may, but shall not be obligated
to, either:

     (a) Substitution of Award. If the Event is a merger, consolidation or
statutory share exchange, make appropriate provision for the protection of outstanding
Awards granted under this Plan by the substitution, in lieu of such Awards, of awards,
including options for the purchase, of appropriate voting common stock (the “Survivor’s
Stock”) of the corporation surviving any such merger or consolidation or, if appropriate,
the parent corporation of the Company or such surviving corporation, or, alternatively, by
the delivery of a number of shares of the Survivor’s Stock which has a Fair Market Value as
of the effective date of such merger, consolidation or statutory share exchange equal to
the Award, except that with respect to an Option, the number of shares of the Survivor’s
Stock shall be the product of: (i) the excess of (x) the Event Proceeds per Share covered
by the Option as of such effective date over (y) the exercise price per

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share of the Stock subject to such Option, times (ii) the number of shares of Stock
covered by such Option and subject to the same vesting and exercise provisions of the
original Award; or

     (b) Cancellation of Options. With respect to any Option, declare, at least
twenty days prior to the Event, and provide written notice to each Recipient of the
declaration, that each outstanding Option, whether or not then exercisable, shall be
cancelled at the time of, or immediately prior to the occurrence of, the Event (unless it
shall have been exercised prior to the occurrence of the Event); or

     (c) Cash Payment. Cause payment to be made, within twenty days after the
Event, in exchange for each cancelled Award to each Recipient of an Award that is
cancelled, of cash equal to the Fair Market Value for each share of Stock covered by the
cancelled Award, except that with respect to any cancelled Option, cash equal to the
amount, (if any), by which the Event Proceeds per Share exceeds the exercise price per
share of Stock covered by such Option; or

     (d) Exercise of Options. Accelerate the vesting and exercise of each Option
that has not previously expired or been cancelled pursuant to Section 9.2 and each
Recipient shall have the right, during the period preceding the time of cancellation of the
Option, to exercise the Option as to all or any part of the Stock covered thereby. Each
outstanding Option granted pursuant to this Plan that shall not have been exercised prior
to the Event shall be cancelled at the time of, or immediately prior to, the Event, as
provided in the declaration, and this Plan shall terminate at the time of such
cancellation, subject to the payment obligations of the Company provided in this Section
10.

Notwithstanding the foregoing, no Recipient of an Award shall be entitled to the payment provided
in this Section 10 if such Award shall have expired or been cancelled pursuant to Section 9.2 of
this Plan.

     10.2 Lapse of Repurchase Right. In the event of the proposed dissolution or
liquidation of the Company, the Committee may provide that any option of the Company to repurchase
the Stock covered by an Award described in Section 12.4 and 12.5 shall lapse as to all such Stock,
provided that the proposed dissolution or liquidation takes place at the time and in the manner
provided.

SECTION 11. Substitute Awards.

     11.1 Purpose. Awards may be granted under this Plan from time to time in substitution
for Awards held by employees of other corporations who are about to become employees of the
Company, or any Parent Corporation or Subsidiary thereof, or whose employer is about to become a
Subsidiary of the Company, as the result of a merger or consolidation of the Company or its
Subsidiary with another corporation, the acquisition by the Company or its Subsidiary of all or
substantially all the assets of another corporation or the acquisition by the Company or its
Subsidiary of at least 50% of the issued and outstanding stock of another corporation.

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     11.2 Terms and Conditions. The terms and conditions of the substitute Award so
granted may vary from the terms and conditions set forth in this Plan to such extent as the
Committee at the time of the grant may deem appropriate to conform, in whole or in part, to the
provisions of the stock Awards in substitution for which they are granted, but with respect to that
Incentive Options, no such variation shall be permitted that affects the status of any such
substitute Option as an Incentive Option without the consent of the Recipient.

SECTION 12. General Provisions.

     12.1 Compliance With Laws. No Stock will be issued pursuant to the Plan unless in
compliance with applicable legal requirements, including without limitation, those relating to
securities laws and stock exchange listing requirements. The Committee may require each Recipient
receiving Stock pursuant to an Award under the Plan to represent to and agree with the Company in
writing that such person is acquiring the Stock without a view to distribution thereof.

     12.2 Stop Transfer Order. All certificates for Stock delivered under the Plan shall
be subject to such stop 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 cause a legend or legends to be put on any such certificates to make
appropriate reference to such restrictions. The issuance of Stock may be effected on a
non-certificated basis to the extent not prohibited by applicable law or the applicable rules of
any stock exchange upon which the Stock is then listed.

     12.3 No Rights to Employment; No Rights as a Shareholder. The adoption of the Plan
shall not confer upon any employee or Consultant of the Company, any Parent Corporation, or any
Subsidiary any right to continued employment or contract with the Company, any Parent Corporation,
or any Subsidiary, as the case may be, nor shall it interfere in any way with the right of the
Company, any Parent Corporation, or any Subsidiary to terminate the employment of any of its
employees or Consultants at any time.

     12.4 Company Call Right. The Committee may, at the time of the grant of an Award,
provide the Company with the right to repurchase Stock acquired under the Plan, pursuant to which
the Recipient shall be required to offer to the Company upon termination of employment for any
reason any Stock that the Recipient 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 whichever is lesser, subject to such other terms and conditions as
the Committee may specify at the time of grant.

     12.5 Recipient Put Right. The Committee may, at the time of grant of an Award under
the Plan, obligate the Company to repurchase Stock acquired pursuant to the Plan at the election of
the Recipient. In such event, the Company may satisfy the purchase price in cash or by a
combination of cash and promissory note for not more than 75% of the total purchase price payable
over a period not to exceed five years, together with reasonable interest in installments no less
often than annually.

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     12.6 Forfeiture for Competition. 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, Stock acquired pursuant to the Plan by any Recipient who, at any time within a period of time
specified by the Committee not to exceed twelve (12) months after the Recipient’s termination of
services with the Company or any Subsidiary or Parent Corporation, directly or indirectly competes
with, or is employed by a competitor of, the Company or any Subsidiary or Parent Corporation or
solicits employees or customers of the Company or any Subsidiary or Parent Corporation.

     12.7 Restrictions on Transfer. As a further condition to the grant of any Award or
the issuance of Stock to the Recipient, the Recipient agrees to the following:

     (a) Underwriter Lockup Agreement. In the event the Company advises the
Recipient that it plans an underwritten public offering of its Stock in compliance with the
Securities Act of 1933, as amended, and the underwriter(s) seek to impose restrictions under
which certain shareholders may not sell or contract to sell or grant any option to buy or
otherwise dispose of part or all of their stock purchase rights of the underlying Stock, the
Recipient will not, for a period not to exceed 180 days from the prospectus, sell or
contract to sell or grant an option to buy or otherwise dispose of any Award granted to
Recipient pursuant to the Plan or any of the underlying Stock without the prior written
consent of the underwriter(s) or its representative(s).

     (b) Blue Sky Requirements. In the event the Company makes any public offering
of its securities and determines in its sole discretion that it is necessary to reduce the
number of issued but unexercised stock purchase rights so as to comply with any state’s
securities or Blue Sky law limitations with respect thereto, the Board shall have the right:
(A) to accelerate the vesting and payment of any Award and the exercisability of any Option
and the date on which such Option must be exercised, provided that the Company gives the
Recipient prior written notice of such acceleration, and (B) to cancel any Option or portion
of any Option thereof which the Recipient does not exercise prior to or contemporaneously
with such public offering.

     (c) Legend. The Company reserves the right to place a legend on any stock
certificate issued pursuant to an Award under the Plan to assure compliance with this
Section 12.7.

     12.8 Effect of Transfer/Leave of Absence. For purposes of any Incentive Option, the following
events shall not be deemed a termination of employment:

     (a) Transfer. A transfer of an employee from the Company to a Parent
Corporation or a Subsidiary, or a transfer of an employee from a Parent Corporation or a
Subsidiary to the Company or any other Parent Corporation or Subsidiary;

     (b) Leave Less Than 90 Days. A leave of absence, approved in writing by the
Committee, for military service or sickness, or for any other purpose approved by the

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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) Leave More Than 90 Days. 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.

     12.9 Tax Withholding. Each Recipient shall, no later than the date as of which any part of
the value of an award first becomes includable as compensation in the gross income of the Recipient
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, any Parent Corporation, and any
Subsidiary 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 Recipient. If the terms of an Award so permit, a
Recipient may elect by written notice to the Company to satisfy part or all of the withholding tax
requirements associated with the award by:

     (a) Retain Stock. Authorizing the Company to retain from the number of shares
of Stock that would otherwise be deliverable to the Recipient, or

     (b) Delivering of Held Stock. Delivering to the Company from Stock already
owned by the Recipient, that number of shares having an aggregate Fair Market Value equal to
part or all of the tax payable by the Recipient under this Section, and in the event shares
of Stock are withheld, the amount withheld shall not exceed the minimum required federal,
state and FICA withholding amount.

     (c) Any such election shall be in accordance with, and subject to, applicable tax and
securities laws, regulations and rulings.

SECTION 13. 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 a Recipient or Recipient under
an Award theretofore granted and vested, without the Recipient’s or Recipient’s consent; or (ii)
which, without the approval of the shareholders of the Company, would cause the Plan no longer to
comply with Rule 16b-3 under the Securities Exchange Act of 1934, Section 422 of the Code, or the
rules of the Nasdaq Stock Market or any stock exchange upon which the Stock is then traded, or any
other regulatory requirements. Adjustments made by the Committee pursuant to Section 3 (relating
to adjustments of Stock) and Section 10 shall not be subject to the limitations of this Section 13.

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SECTION 14. Governing Law.

     To the extent that federal laws do not otherwise control, this Plan and all determinations
made and actions taken under this Plan shall be governed by the laws of the State of Minnesota,
without regard to the conflicts of law provisions thereof, and construed accordingly.

SECTION 15. Effective Date of Plan.

     The Plan shall be effective on the date it is adopted by the Board. Adoption of the Plan is
subject to the condition of approval by the shareholders of the Company within 12 months before or
after the adoption of the Plan by the Board. Any Incentive Option granted after adoption of the
Plan by the Board will be treated as a Non-Qualified Option if shareholder approval is not obtained
within such 12-month period.

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