HILLS BANCORPORATION (Form: S-8, Received: 06/29/2012 16:43:19)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM S-8

REGISTRATION STATEMENT UNDER THE

SECURITIES ACT OF 1933

HILLS BANCORPORATION

(Exact Name of Registrant as specified in its Charter)

IOWA		42-1208067
(State of Incorporation)		(IRS Employer Identification No.)

131 Main Street

Hills, Iowa 52235

(Address of principal executive offices, including zip code)

HILLS BANCORPORATION

2010 STOCK OPTION AND INCENTIVE PLAN

(Full Title of the Plan)

Mr. James G. Pratt

Treasurer, Secretary and Chief Financial Officer

Hills Bancorporation

131 Main Street

Hills, Iowa 52235

(319) 679-2291

(800) 445-5725

(Name, address and telephone number of agent for service)

Copies to:

Thomas C. Blank, Esq.

Shumaker, Loop & Kendrick, LLP

1000 Jackson

Toledo, Ohio 43604

(419) 241-9000

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer þ	Non-accelerated filer o	Smaller reporting company o
		(Do not check if a smaller reporting company)

Calculation of Registration Fee

Title of Securities to be	Amount to be	Proposed Maximum	Proposed Maximum	Amount of
Registered	Registered	Offering Price per	Aggregate Offering	Registration Fee
		Share (1)	Price (1)

Common Shares, no par value	94,000	$67.50	$6,345,000	$727.14

(1) This figure has been estimated solely for the purpose of determining the registration fee. The figure was calculated pursuant to Rule 457(c) using the average of the high and low bid and asked prices for the common shares of Hills Bancorporation (the “Company” or “Registrant”) as of June 29, 2012 (a date within five business days prior to the filing of this registration statement).

PART I

INFORMATION REQUIRED IN THE SECTION 10(a) PROSPECTUS

The document or documents containing the information specified in Part I are not required to be filed with the Securities and Exchange Commission (the “Commission”) as part of this Form S-8 Registration Statement.

PART II

INFORMATION REQUIRED IN THE REGISTRATION STATEMENT

ITEM 3.

INCORPORATION OF DOCUMENTS BY REFERENCE

The following documents filed or to be filed by the Registrant or the Plan with the Commission are incorporated by reference in this Registration Statement:

(a)	The Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011 and Quarterly Report on Form 10-Q for the quarter ended March 31, 2012.

(b)	All reports filed by the Registrant pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), since the end of the fiscal year covered by the Form 10-K referred to in clause (a) above.

(c)	The description of the common shares of the Registrant contained in the Registrant’s registration statement on Form S-3, as originally filed with the Securities and Exchange Commission on May 12, 2011 and amended on July 5, 2011 and August 11, 2011.

(d)	All documents filed by the Registrant pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date hereof and prior to the filing of a post-effective amendment which indicates that all securities offered have been sold or which deregisters all securities then remaining unsold.

ITEM 4.

DESCRIPTION OF SECURITIES

Not applicable.

ITEM 5.

INTEREST OF NAMED EXPERTS AND COUNSEL

Not applicable.

ITEM 6.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

Article IX of the Registrant’s Restated Articles of Incorporation provides that each person who is a party or threatened to be made a party to legal or administrative actions by reason of the fact that the person is or was a director or officer of the Registrant shall be indemnified and have expenses for defense advanced to him or her and be held harmless by the Registrant as authorized by the Iowa Business Corporation Act (“IBCA”), subject to certain exceptions and limitations. The Restated Articles of Incorporation permit the Registrant to provide indemnification against all expenses, liability, and loss (including attorney’s fees, judgments, fines, and amounts paid or to be paid in settlement), reasonably incurred by the director or officer.

Section 490.852 of the IBCA (the successor provision to former Section 496A.4A of the IBCA referenced in the Registrant’s Restated Articles of Incorporation) requires a corporation to indemnify a director to the extent that he or she has been “wholly successful on the merits or otherwise” in the defense of any proceeding to which the director was a party because the director is or was a director of the corporation for reasonable expenses incurred in connection with the proceedings. Section 490.851 of the IBCA governs “permissive indemnification” of corporate directors and officers. It generally authorizes indemnification if the director acted: (1) in good faith; and (2)(a) if the conduct was performed in the individual’s “official capacity” with the corporation it must have been done with the reasonable belief that the actions were in the best interests of the corporation; and (b) if the action was not taken in the “official capacity” with the corporation, the director must have had reason to believe that the conduct was “at least not opposed to the best interests of the corporation.” With respect to criminal proceedings, the director or officer must have had “no reasonable cause to believe [his] conduct was unlawful.”

The Restated Articles of Incorporation also provide that a director of the Registrant shall not be personally liable to the Registrant or its shareholders for monetary damages for breach of a fiduciary duty as a director, except for liability: (1) for breach of the director's duty of loyalty to the Registrant or its shareholders; (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (3) for a transaction from which the director derives an improper personal benefit; or (4) for unlawful distributions under the IBCA.

Hills Bancorporation also carries directors’ and officers’ liability insurance coverage which insures its directors and officers and the directors and officers of its subsidiaries in certain circumstances.

ITEM 7.

EXEMPTION FROM REGISTRATION CLAIMED

Not applicable.

ITEM 8.

EXHIBITS

The following exhibits are filed with or incorporated by reference into this Registration Statement on Form S-8:

Number	Exhibit
4	Instruments defining the rights of security holders, including indentures (incorporated herein by reference to Exhibits 3.1 and 3.2 to the Registrant’s Registration Statement on Form S-3)
5	Opinion of Shumaker, Loop & Kendrick, LLP as to the legality of the Securities
23.1	Consent of Shumaker, Loop & Kendrick, LLP (contained in Exhibit 5 to this Registration Statement)
23.2	Consent of Independent Registered Public Accounting Firm
24	Power of Attorney
99	Hills Bancorporation 2010 Stock Option and Incentive Plan

ITEM 9.

UNDERTAKINGS

(a)	The undersigned Registrant hereby undertakes:

(1)

To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement to include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement.

(2)

That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(3)

To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

(4)

That, for purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant’s annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in this Registration Statement shall be deemed to be a new registration statement relating to the securities offered herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

SIGNATURES

The Registrant. Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-8 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Hills, State of Iowa, on June 29, 2012.

	HILLS BANCORPORATION

	By:	/s/ Dwight O. Seegmiller
		Dwight O. Seegmiller
		President and Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.

Signature	Title	Date

/s/ Dwight O.Seegmiller	President, Chief Executive Officer and Director	June 29, 2012
Dwight O. Seegmiller	(Principal Executive Officer)

/s/ James G. Pratt	Treasurer, Secretary and Chief Financial Officer	June 29, 2012
James G. Pratt	(Principal Financial and Accounting Officer)

Directors*

Michael S. Donovan

Thomas J. Gill, D.D.S.

Michael E. Hodge

Emily A. Hughes

James A. Nowak

Theodore H. Pacha

John W. Phelan

Ann Marie Rhodes

Thomas R. Wiele

Sheldon E. Yoder, D.V.M.

*	For each of the above directors pursuant to power of attorney filed with the Registration Statement.

By:	/s/ Dwight O. Seegmiller	June 29, 2012
	Dwight O. Seegmiller, President and Chief Executive Officer
	(pursuant to power of attorney)

EXHIBIT 5

SHUMAKER, LOOP & KENDRICK, LLP

1000 Jackson

Toledo, Ohio 43604

June 29, 2012

Hills Bancorporation

131 Main Street

Hills, Iowa 52235

Re:

Hills Bancorporation 2010 Stock Option and Incentive Plan – Issuance of Shares

To Whom It May Concern:

This letter is written in connection with the Registration Statement on Form S-8 (the “Registration Statement”) to be filed with the Securities and Exchange Commission, pursuant to the Securities Act of 1933, as amended, for the purpose of registering 94,000 common shares, no par value (the “Shares”) of Hills Bancorporation, to be offered and sold pursuant to the Hills Bancorporation 2010 Stock Option and Incentive Plan (the “Plan”).

In connection with the following opinion, we have examined and have relied upon such documents, records, certificates, statements and instruments as we have deemed necessary and appropriate to render the opinion herein set forth.

Based upon the foregoing, it is our opinion that the Shares, when and if issued in the manner described in the Plan, will be legally issued, fully paid and nonassessable.

The undersigned hereby consents to the filing of this opinion as Exhibit 5 to the Registration Statement.

	Sincerely,

	Shumaker, Loop & Kendrick, LLP

	/s/ Shumaker, Loop & Kendrick, LLP

EXHIBIT 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors

Hills Bancorporation:

We consent to the incorporation by reference in the Registration Statement on Form S-8 of Hills Bancorporation of our report dated March 9, 2012, with respect to the consolidated balance sheets of Hills Bancorporation and subsidiary as of December 31, 2011 and 2010, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2011, and the effectiveness of internal control over financial reporting as of December 31, 2011, which report appears in the December 31, 2011 annual report on Form 10-K of Hills Bancorporation.

/s/ KPMG LLP

Des Moines, Iowa

June 29, 2012

EXHIBIT 24

POWER OF ATTORNEY

DIRECTORS OF HILLS BANCORPORATION

Know all men by these presents that each person whose name is signed below has made, constituted and appointed, and by this instrument does make, constitute and appoint Dwight O. Seegmiller his true and lawful attorney with full power of substitution and resubstitution to affix for him and in his name, place and stead, as attorney-in-fact, his signature as director or officer, or both, of Hills Bancorporation, an Iowa corporation (the "Company"), to a Registration Statement on Form S-8 registering under the Securities Act of 1933, shares of common stock to be offered and sold under the Hills Bancorporation 2010 Stock Option and Incentive Plan, and to any and all amendments, post-effective amendments and exhibits to that Registration Statement, and to any and all applications and other documents pertaining thereto, giving and granting to such attorney-in-fact full power and authority to do and perform every act and thing whatsoever necessary to be done in the premises, as fully as he might or could do if personally present, and hereby ratifying and confirming all that said attorney-in-fact or any such substitute shall lawfully do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, this Power of Attorney has been signed at Hills, Iowa, this 29th day of June, 2012.

/s/ Dwight O. Seegmiller		President, Chief Executive Officer and Director (Principal Executive Officer)
Dwight O. Seegmiller

/s/ Michael S. Donovan		Director
Michael S. Donovan

/s/ Thomas J. Gill, D.D.S.		Director
Thomas J. Gill, D.D.S.

/s/ Michael E. Hodge		Director
Michael E. Hodge

/s/ Emily A. Hughes		Director
Emily A. Hughes

/s/ James A. Nowak		Director
James A. Nowak

/s/ Theodore H. Pacha		Director
Theodore H. Pacha

/s/ John W. Phelan		Director
John W. Phelan

/s/ Ann Marie Rhodes		Director
Ann Marie Rhodes

/s/ Thomas R. Wiele		Director
Thomas R. Wiele

/s/ Sheldon E. Yoder, D.V.M.		Director
Sheldon E. Yoder, D.V.M

EXHIBIT 99

HILLS BANCORPORATION

2010 STOCK OPTION AND INCENTIVE PLAN

1.	Purpose of the Plan.

The purpose of this Hills Bancorporation 2010 Stock Option and Incentive Plan (the “Plan”) is to advance the interests of the Company through providing select key Employees and Directors of the Company and its Affiliates with the opportunity to acquire Shares. By encouraging such stock ownership, the Company seeks to attract, retain and motivate the best available personnel for positions of substantial responsibility and to provide additional incentive to Directors and key Employees of the Company or any Affiliate to promote the success of the business.

2.	Definitions.

As used herein, the following definitions shall apply.

(a)

“Affiliate” shall mean any “parent corporation” or “subsidiary corporation” of the Company, as such terms are defined in Section 424(e) and (f), respectively, of the Code.

(b)

“Agreement” shall mean a written agreement entered into in accordance with Paragraph 5(c).

(c)

“Awards” shall mean Options, including ISO and Non-ISO Options and Restricted Stock as the context indicates.

(d)

“Board” shall mean the Board of Directors of the Company.

(e)

“Change in Control” shall mean any one of the following events: (i) the acquisition (A) of ownership, holding or power to vote more than 50% of the Company’s voting stock, (B) of the ability to control the election of a majority of the Company’s directors, or (C) of a controlling influence over the management or policies of the Company by any person or by persons acting as a group (within the meaning of Section 13(d) of the Securities Exchange Act of 1934), or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company (the Continuing Directors) cease for any reason to constitute at least two-thirds thereof, provided that any individual whose election or nomination for election as a member of the Board was approved by a vote of at least two-thirds of the Continuing Directors then in office shall be considered a Continuing Director. For purposes of this subparagraph only, the term “person” refers to an individual or a corporation, partnership, trust, association, joint venture, pool, syndicate, sole proprietorship, unincorporated organization or any other form of entity not specifically listed herein. The decision of the Committee as to whether a change in control has occurred shall be conclusive and binding.

(f)

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

(g)

“Committee” shall mean the Committee appointed by the Board in accordance with Paragraph 5(a) hereof.

(h)

“Common Stock” shall mean any class of the common stock, no par value per share, of the Company.

(i)

“Company” shall mean Hills Bancorporation.

(j)

“Continuous Service” shall mean the absence of any interruption or termination of service as an Employee or Director of the Company or an Affiliate. Continuous Service shall not be considered interrupted in the case of sick leave, military leave or any other leave of absence approved by the Company or in the case of transfers between payroll locations of the Company or between the Company, an Affiliate or a successor.

(k)

“Director” shall mean any member of the Board, and any member of the board of directors of any Affiliate.

(l)

“Disinterested Person” shall mean any non-employee member of the Board of Directors of the Company. For purposes of this Plan, a non-employee member of the Board of Directors shall have the same meaning as the term “Non-Employee Director” defined in Rule 16b-3.

(m)

“Effective Date” shall mean the date specified in Paragraph 14 hereof.

(n)

“Employee” shall mean any person employed by the Company or an Affiliate.

(o)

“Exercise Price” shall mean the price per Optioned Share at which an Option may be exercised.

(p)

“ISO” means an option to purchase Common Stock which meets the requirements set forth in the Plan, and which is intended to be and is identified as an “incentive stock option” within the meaning of Section 422 of the Code.

(q)

“Market Value” shall mean the fair market value of the Common Stock, as determined under Paragraph 7(b) hereof.

(r)

“Non-ISO” means an option to purchase Common Stock which meets the requirements set forth in the Plan but which is not intended to be and is not identified as an ISO.

(s)

“Option” means an ISO and/or a Non-ISO.

(t)

“Optioned Shares” shall mean Shares subject to an Award granted pursuant to this Plan.

(u)

“Participant” shall mean any person who receives an Award pursuant to the Plan.

(v)

“Plan” shall mean this Hills Bancorporation 2010 Stock Option and Incentive Plan.

(w)

“Restricted Stock” shall mean any Share granted under Section 9 of the Plan.

(x)

“Rule 16b-3” shall mean Rule 16b-3 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended.

(y)

“Share” shall mean one share of Common Stock.

3.	Term of the Plan and Awards.

(a)

Term of the Plan. The Plan shall continue in effect for a term of ten years from the Effective Date, unless sooner terminated pursuant to Paragraph 16 hereof. No Award shall be granted under the Plan after ten years from the Effective Date.

(b)

Term of Awards. The term of each Award granted under the Plan shall be established by the Committee, but shall not exceed 10 years; provided, however, that in the case of an Employee who owns Shares representing more than 10% of the outstanding Common Stock at the time an ISO is granted, the term of such ISO shall not exceed five years.

4.	Shares Subject to the Plan.

Except as otherwise required by the provisions of Paragraph 11 hereof, the aggregate number of Shares deliverable pursuant to Awards shall not exceed 94,000 Shares, which equals 2.13% of the Shares currently issued and outstanding on a fully diluted basis. If any Awards should expire, become unexercisable, or be forfeited for any reason without having been exercised or become vested in full, the Optioned Shares shall, unless the Plan shall have been terminated, be available for the grant of additional Awards under the Plan.

5.	Administration of the Plan.

(a)

Composition of the Committee. The Plan shall be administered by the Compensation and Incentive Committee of the Board of Directors. The Committee consists of all non-employee Directors of the Company.

(b)

Powers of the Committee. Except as limited by the express provisions of the Plan or by resolutions adopted by the Board, the Committee shall have sole and complete authority and discretion to: (i) select Participants and grant Awards, (ii) determine the form and content of Awards to be issued in the form of Agreements under the Plan, (iii) interpret the Plan, (iv) prescribe, amend and rescind rules and regulations relating to the Plan, and (v) make other determinations necessary or advisable for the administration of the Plan. The Committee shall have and may exercise such other power and authority as may be delegated to it by the Board from time to time. A majority of the entire Committee shall constitute a quorum and the action of a majority of the members present at any meeting at which a quorum is present, or acts approved in writing by a majority of the Committee without a meeting, shall be deemed the action of the Committee.

(c)

Agreement. Each Award shall be evidenced by a written agreement containing such provisions as may be approved by the Committee. Each such Agreement shall constitute a binding contract between the Company and the Participant, and every Participant, upon acceptance of such Agreement, shall be bound by the terms and restrictions of the Plan and of such Agreement. The terms of each such Agreement shall be in accordance with the Plan, but each Agreement may include such additional provisions and restrictions by the Committee, in its discretion, provided that such additional provisions and restrictions are not inconsistent with the terms of the Plan. In particular, the Committee shall set forth in each Agreement: (i) the Exercise Price of an Option, (ii) the number of Shares subject to, and the expiration date of, the Award, (iii) the manner, time and rate (cumulative or otherwise) of exercise or vesting of such Award, and (iv) the restrictions, if any, to be placed upon such Award or upon Shares which may be issued upon exercise of such Award.

The Chairman of the Committee and such other Directors and officers as shall be designated by the Committee are hereby authorized to execute Agreements on behalf of the Company and to cause them to be delivered to the recipients of Awards.

(d)

Effect of the Committee’s Decisions. All decisions, determinations and interpretations of the Committee shall be final and conclusive on all persons affected thereby.

(e)

Indemnification. In addition to such other rights of indemnification as they may have, the members of the Committee shall be identified by the Company in connection with any claim, action, suit or proceeding relating to any action taken or failure to act under or in connection with the Plan or any Award granted hereunder to the full extent provided for under the Company’s governing instruments with respect to the indemnification of Directors.

6.	Grant of Options.

(a)

General Rule. Only Employees shall be eligible to receive discretionary grants of ISO Options pursuant to the Plan. The Committee may make discretionary grants of Non-ISO Options to those Employees and Non-Employee Directors of the Company or its Affiliates who, in the opinion of the Committee, have the capacity for contributing to the successful performance of the Company or its Affiliates. Committee members may make grants of Non-ISO Options to themselves provided that such grants are approved by the vote of the entire Board of Directors. All grants of Non-ISO Options shall be subject to an Agreement with the Participants whereby one or more of the exemptions to Rule 16b-3 is met, which may include a requirement that the Participant not sell or otherwise dispose of such Option or Optioned Shares within six months from the date of grant of the Option to the Participant.

(b)

Special Rules for ISOs. The aggregate Market Value, as of the date the Option is granted, of the Shares with respect to which ISOs are exercisable for the first time by an Employee during any calendar year (under all incentive stock option plans, as defined in Section 422 of the Code, of the Company or any present or future Parent or Subsidiary of the Company) shall not exceed $100,000. Notwithstanding the foregoing, the Committee may grant Options in excess of the foregoing limitations, in which case such Options granted in excess of such limitation shall be Options which are Non-ISOs.

7.	Exercise Price for Options.

(a)

Limits on Committee Discretion. The Exercise Price as to any particular Non-ISO shall not be less than 100% of the Market Value of the Optioned Shares on the date of grant. The Exercise Price as to any particular ISO shall not be less than Market Value of the Optioned Shares on the date of grant. In the case of an Employee who owns Shares representing more than 10% of the Company’s outstanding Shares of Common Stock at the time an ISO is granted, the Exercise Price shall not be less than 110% of the Market Value of the Optioned Shares at the time the ISO is granted.

(b)

If the Common Stock is listed on a national securities exchange (including the NASDAQ Global Market System) on the date in question, then the Market Value per Share shall be the average of the highest and lowest selling price on such exchange on such date, or if there were no sales on such date, then the Exercise Price shall be the Mean between the bid and asked price on such date. If the Common Stock is traded otherwise than on a national securities exchange on the date in question, then the Market Value per Share shall be the mean between the bid and asked price on such date, or, if there is no bid and asked price on such date, then on the next prior business day on which there was a bid and asked price. If no such bid and asked price is available, then the Market Value per Share shall be its fair market value as determined by the Committee in its sole and absolute discretion.

8.	Exercise of Options.

(a)

Generally. Any Option granted hereunder shall be exercisable at such times and under such conditions as shall be permissible under the terms of the Plan and of the Agreement granted to a Participant. An Option may not be exercised for a fractional Share.

(b)

Procedure for Exercise. A Participant may exercise Options, subject to provisions relative to its termination and limitations on its exercise, only by (1) written notice of intent to exercise the Option with respect to a specified number of Shares, and (2) payment to the Company (contemporaneously with delivery of such notice) in cash, in Common Stock, or a combination of cash and Common Stock, of the amount of the Exercise Price for the number of Shares with respect to which the Option is then being exercised. Each such notice (and payment where required) shall be delivered, or mailed by prepaid registered or certified mail, addressed to the Treasurer of the Company at the Company’s executive offices. Common Stock utilized in full or partial payment of the Exercise Price for Options shall be valued at its Market Value at the date of exercise.

(c)

Period of Exercisability. Except to the extent otherwise provided in the terms of an Agreement, an ISO may be exercised by a Participant only while he or she is an Employee and has maintained Continuous Service from the date of the grant of the Option, or within three months after termination of such Continuous Service (but not later than the date on which the Option would otherwise expire), except if the Employee’s Continuous Service terminates by reason of:

(1)

“Just Cause” which for purposes hereof shall have the meaning set forth in any unexpired employment or severance agreement between the Participant and the Company (and, in the absence of any such agreement, shall mean termination because of the Employee’s personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease-and-desist order), then the Participant’s rights to exercise such Option shall expire on the date of such termination;

(2)

death, then to the extent that the Participant would have been entitled to exercise the Option immediately prior to his death, such Option of the deceased Participant may be exercised within two years from the date of his death (but not later than the date on which the Option would otherwise expire) by the personal representatives of his estate or person or persons to whom his rights under such Option shall have passed by will or by laws of descent and distribution;

(3)

Permanent and Total Disability (as such term is defined in Section 422(e)(3) of the Code), then to the extent that the Participant would have been entitled to exercise the Option immediately prior to his Permanent and Total Disability, such Option may be exercised within one year from the date of such Permanent and Total Disability, but not later than the date on which the Option would otherwise expire.

Notwithstanding the provisions of any Option permitting its exercise in installments as designated by the Committee, such Option shall become immediately exercisable upon the Participant’s death or Permanent and Total Disability.

(d)

Effect of the Committee’s Decisions. The Committee’s determination whether a Participant’s Continuous Service has ceased, and the effective date thereof shall be final and conclusive on all persons affected thereby.

9.	Grant of Restricted Stock.

Issuance. The Committee is hereby authorized to grant Awards of Restricted Stock to Participants.

Restrictions. Shares of Restricted Stock shall be subject to such restrictions as the Committee may impose (including, without limitation, any limitation on the right to vote a Share of Restricted Stock or the right to receive any dividend or other right or property), which restrictions may lapse separately or in combination at such time or times, in such installments or otherwise, as the Committee may deem appropriate.

Registration. Any Restricted Stock granted under the Plan may be evidenced in such manner as the Committee may deem appropriate, including, without limitation, book-entry registration or issuance of a stock certificate or certificates. In the event any stock certificate is issued in respect of Shares of Restricted Stock granted 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 Restricted Stock.

Forfeiture. Except as otherwise determined by the Committee, upon termination of employment (as determined under criteria established by the Committee) for any reason during the applicable restriction period, all Shares of Restricted Stock still subject to restriction shall be forfeited and reacquired by the Company; provided, however, that the Committee may, when it finds that a waiver would be in the best interests of the Company, waive in whole or in part any or all remaining restrictions with respect to Shares of Restricted Stock. Unrestricted Shares, evidenced in such manner as the Committee shall deem appropriate, shall be delivered to the holder of Restricted Stock promptly after such Restricted Stock shall become free of any applicable restrictions.

10.	Change in Control.

(a)

General Rule. Notwithstanding the provisions of any Award which provides for its exercise or vesting in installments, for a period of 60 days beginning on the date of a Change in Control, all Options shall be immediately exercisable and fully vested. The Participant shall, at the discretion of the Committee, be entitled to receive cash in an amount equal to the excess of the Market Value of the Common Stock subject to such Option over the Exercise Price of such Shares, in exchange for the cancellation of such Options by the Participant.

(b)

Exception to General Rule. Notwithstanding subparagraph (a) of this Paragraph, in no event may an Option be canceled in exchange for cash within the six-month period following the date of its grant.

11.	Effect of Changes in Common Stock Subject to the Plan.

(a)

Recapitalizations; Stock Splits, Etc. The number and kind of Shares reserved for issuance under the Plan, and the Exercise Price, number and kind of Shares subject to outstanding Awards shall be proportionately adjusted for any increase, decrease, change or exchange of Shares for a different number or kind of shares or other securities of the Company which results from a merger, consolidation, recapitalization, reorganization, reclassification, stock dividend, split-up, combination of shares, or similar event in which the number or kind of shares is changed without the receipt or payment of consideration by the Company.

(b)

Transactions in which the Company is Not the Surviving Entity. In the event of (i) the liquidation or dissolution of the Company, (ii) a merger or consolidation in which the Company is not the surviving entity, or (iii) the sale or disposition of all or substantially all of the Company’s assets (any of the foregoing to be referred to herein as a “Transaction”), all outstanding Awards shall be surrendered. With respect to each Award so surrendered, the Committee shall in its sole and absolute discretion determine whether the holder of the surrendered Award shall receive:

(1)

for each Share then subject to an outstanding Award the number and kind of shares into which each outstanding Share (other than Shares held by dissenting stockholders) is changed or exchanged, together with appropriate adjustments to the Exercise Price in the case of Options; or

(2)

a cash payment (from the Company or the successor corporation), in an amount equal to the Market Value of the Shares subject to the Award on the date of the Transaction, less the Exercise Price of the Award in the case of Options.

(c)

Special Rule for ISOs. Any adjustment made pursuant to subparagraphs (a) or (b)(1) hereof shall be made in such a manner as not to constitute, a modification, within the meaning, of Section 424(h) of the Code, of outstanding ISOs.

(d)

Conditions and Restrictions on New, Additional, or Different Shares or Securities. If, by reason of any adjustment made pursuant to this Paragraph, a Participant becomes entitled to new, additional, or different shares of stock or securities, such new, additional, or different shares of stock or securities shall thereupon be subject to all of the conditions and restrictions which were applicable to the Shares pursuant to the Award before the adjustment was made.

(e)

Other Issuances. Except as expressly provided in this Paragraph, the issuance by the Company or an Affiliate of shares of stock of any class, or of securities convertible into Shares or stock of another class, for cash or property or for labor or services either upon direct sale or upon the exercise of rights or warrants to subscribe therefore, shall not affect, and no adjustment shall be made with respect to, the number, class, or Exercise Price of Shares then subject to Awards or reserved for issuance under the Plan.

12.	Non-Transferability of Awards.

Awards may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent and distribution, or pursuant to the terms of a qualified domestic relations orders (within the meaning of Section 414(p) of the Code and the regulations and rulings thereunder).

13.	Time of Granting Awards.

The date of grant of an Award shall, for all purposes, be the later of the date on which the Committee makes the determination of granting such Award, and the Effective Date. Notice of the determination shall be given to each Participant to whom an Award is so granted within a reasonable time after the date of such grant.

14.	Effective Date.

The Plan shall become effective upon the adoption of the Plan by the Board provided that the Plan is ratified by the Shareholders of the Company within twelve months following the Board’s adoption of the Plan.

15.	Modification of Awards.

At any time, and from time to time, the Board may authorize the Committee to direct execution of an instrument providing for the modification of any outstanding Award, provided no such modification shall confer on the holder of said Award any right or benefit which could not be conferred on him by the grant of a new Award at such time, or impair the Award, without the consent of the holder of the Award.

16.	Amendment and Termination of the Plan.

The Board may from time to time amend the terms of the Plan and, with respect to any Shares at the time not subject to Awards, suspend or terminate the Plan.

No amendment, suspension or termination of the Plan shall, without the consent of any affected holders of an Award, alter or impair any rights or obligations under any Award theretofore granted.

17.	Conditions Upon Issuance of Shares.

(a)

Compliance with Securities Laws. Shares of Common Stock shall not be issued with respect to any Award unless the issuance and delivery of such Shares shall comply with any relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the rules and regulations promulgated thereunder, any applicable state securities law, and the requirements of any stock exchange upon which the Shares may then be listed. The Plan is intended to comply with Rule 16b-3, and any provision of the Plan which the Committee determines in its sole and absolute discretion to be inconsistent with said Rule shall, to the extent of such inconsistency, be inoperative and null and void, and shall not affect the validity of the remaining provisions of the Plan.

(b)

Special Circumstances. The inability of the Company to obtain approval from any regulatory body or authority deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder shall relieve the Company of any liability in respect of the non-issuance or sale of such Shares. As a condition to the exercise of an Option, the Company may require the person exercising the Option to make such representations and warranties as may be necessary to assure the availability of an exemption from the registration requirements of federal or state securities law.

(c)

Committee Discretion. The Committee shall have the discretionary authority to impose in Agreements such restrictions on Shares as it may deem appropriate or desirable, including but not limited to the authority to impose a right of first refusal or to establish repurchase rights or both of these restrictions.

18.	Reservation of Shares.

The Company, during the term of the Plan, will reserve and keep available a number of Shares sufficient to satisfy the requirements of the Plan.

19.	Withholding Tax.

The Company’s obligation to deliver Shares upon exercise of Options shall be subject to the Participant’s satisfaction of all applicable federal, state and local income and employment tax withholding obligations. The Committee, in its discretion, may permit the Participant to satisfy the obligation, in whole or in part, by irrevocably electing to have the Company withhold Shares, or to deliver to the Company Shares that the Participant already owns, having a value equal to the amount required to be withheld. The value of Shares to be withheld, or delivered to the Company, shall be based on the Market Value of the Shares on the date the amount of tax to be withheld is to be determined. As as alternative, the Company may retain, or sell without notice, a number of such Shares sufficient to cover the amount required to be withheld.

20.	No Employment or Other Rights.

In no event shall an Employee’s or Director’s eligibility to participate or participation in the Plan create or be deemed to create any legal or equitable right of the Employee, Director, or any other party to continue service with the Company or any Affiliate. No Employee or Director shall have a right to be granted an Award or, having received an Award, the right to again be granted an Award. However, an Employee or Director who has been granted an Award may, if otherwise eligible, be granted an additional Award or Awards.

21.	Governing Law.

The Plan shall be governed by and construed in accordance with the laws of the State of Iowa and applicable federal law.