Exhibit 10.1

 

 

 

Vaughan Foods, Inc.
Vaughan Foods, Inc. 2006 Equity Incentive Plan
Incentive Stock Option Agreement
(Employee)

 

 

 

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Vaughan Foods, Inc.
Vaughan Foods, Inc. 2006 Equity Incentive Plan
Incentive Stock Option Agreement
(Employee)

1.      Grant of Option. Vaughan Foods, Inc., an Oklahoma corporation (the
“Company”), hereby grants to the Optionee named in the Notice of Grant (the
“Optionee”), an option (the “Option”) to purchase the total number of shares of
Common Stock (the “Shares”) set forth in the Notice of Grant, at the exercise
price per share set forth in the Notice of Grant (the “Exercise Price”) subject
to the terms, definitions and provisions of the Vaughan Foods, Inc. 2006 Equity
Incentive Plan, as amended (the “Plan”), adopted by the Company, which is
incorporated in this Agreement by reference. In the event of a conflict between
the terms of the Plan and the terms of this Agreement, the terms of the Plan
shall govern. Unless otherwise defined in this Agreement, the terms used in this
Agreement shall have the meanings defined in the Plan. If designated as an
Incentive Stock Option in the Notice of Grant, this Option is intended to
qualify as an “incentive stock option” as such term is defined in Section 422 of
the Code.     The Notice of Grant is attached hereto as Exhibit “A” and is made
a part hereof for all purposes.   2.      Exercise of Option. This Option shall
be exercisable during its term in accordance with the Vesting Schedule set forth
in the Notice of Grant (the “Vesting Schedule”) and with the provisions of
Sections 9 and 10 of the Plan as follows:     i.      Right to Exercise.     
a)      This Option may not be exercised for a fraction of a share.      b)     
In the event of the Optionee’s death, Disability or other termination of
employment, the exercisability of the Option is governed by Sections 6, 7 and 8
below, subject to the limitations contained in Sections 2(i)(c) and (d), below.
     c)      In no event may this Option be exercised after the date of
expiration of the term of this Option as set forth in the Notice of Grant.     
d)      In the event that this Option becomes exercisable at a time or times
which, when this Option is aggregated with all other incentive stock options
granted to the Optionee by the Company or any Parent or Subsidiary, would result
in Shares having an aggregate fair market value (determined for each Share as of
the Date of Grant of the option covering such Share) in excess of $100,000
becoming first available for purchase upon exercise of one or more “incentive
stock options,” as defined in Section 422 of the Code, during any calendar year,
the amount in excess of $100,000 shall be treated as a Nonqualified Stock
Option.     ii.      Method of Exercise.         a)    This Option, to the
extent vested, shall be exercisable by delivering notice to the Company in such
form attached to this Agreement and through such delivery  

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    method as shall be acceptable to the Company (the “Exercise Notice”). The
Exercise Notice shall specify the election to exercise the Option and the number
of Shares in respect of which the Option is being exercised, and shall be
accompanied by payment, in cash, of the Exercise Price. This Option shall be
deemed to be exercised upon receipt by the Company of such notice accompanied by
full payment in cash of the Exercise Price.     b)      As a condition to the
exercise of this Option, the Optionee agrees to make adequate provision for
federal, state or other tax withholding obligations, if any, which arise upon
the exercise of the Option or disposition of Shares, whether by withholding,
direct payment to the Company, or otherwise.     c)      No Shares will be
issued pursuant to the exercise of an Option unless such issuance and such
exercise shall comply with all relevant provisions of law and the requirements
of any Stock Exchange. Assuming such compliance, for income tax purposes the
Shares shall be considered transferred to the Optionee on the date on which the
Option is exercised with respect to such Shares.   3.      Continuance of
Employment Required. The Vesting Schedule requires continued employment with the
Company, its Parent, or a Subsidiary through each applicable vesting date as a
condition to the vesting of the applicable installment of the Option and the
rights and benefits under this Agreement. Employment for only a portion of the
vesting period, even if a substantial portion, will not entitle the Optionee to
any proportionate vesting or avoid or mitigate a termination of rights and
benefits upon or following a termination of employment as provided in Sections
6, 7 and 8 below or under the Plan.   4.      Method of Payment. Payment of the
Exercise Price shall be paid in full, in cash, at the time of exercise.   5.   
  Securities Law Restrictions. This Option shall be exercised and Shares issued
only upon compliance with the Securities Act of 1933, as amended (the “Act”),
and any other applicable securities law, or pursuant to an exemption therefrom.
If deemed necessary by the Company to comply with the Act or any applicable laws
or regulations relating to the sale of securities, the Optionee, at the time of
exercise and as a condition imposed by the Company, shall represent, warrant and
agree that the Shares subject to the Option are being purchased for investment
and not with any present intention to resell the same and without a view to
distribution, and the Optionee shall, upon the request of the Company, execute
and deliver to the Company an agreement to such effect. The Optionee
acknowledges that any stock certificate representing Shares purchased under such
circumstances will be issued with a restricted securities legend.   6.     
Termination of Employment. In the event of termination of the Optionee’s
continuous status as an Employee of the Company, its Parent, or a Subsidiary
other than termination due to death, Disability or Cause the Optionee may, to
the extent otherwise so entitled at the date of such termination (the
“Termination Date”), exercise this Option within the ninety (90) day period
following the Termination Date. To the extent  

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  that the Optionee was not entitled to exercise this Option at the Termination
Date, or if the Optionee does not exercise this Option within the time specified
in the Notice of Grant, the Option shall terminate. If the Optionee’s continuous
status as an Employee of the Company, its Parent or a Subsidiary ceases due to
termination for Cause, then, any unexercised Options (vested or otherwise) shall
terminate on the Termination Date.   7.      Disability of Optionee.
Notwithstanding the provisions of Section 6 above, in the event of termination
of the Optionee’s continuous status as an Employee of the Company, its Parent,
or a Subsidiary as a result of Disability, the Optionee may, but only within
twelve (12) months from the Termination Date due to Disability (but in no event
later than the date of expiration of the term of this Option as set forth in
Section 10 below), exercise the Option to the extent otherwise so entitled at
the Termination Date. To the extent that the Optionee was not entitled to
exercise the Option at the Termination Date, or if the Optionee does not
exercise such Option (to the extent otherwise so entitled) within the time
specified in this Agreement, the Option shall terminate.   8.      Death of
Optionee. In the event of the death of the Optionee during the period of the
Optionee’s continuous status as an Employee of the Company, its Parent, or a
Subsidiary, or within ninety (90) days following the termination of the
Optionee’s continuous status as an Employee, the Option may be exercised, at any
time within twelve (12) months following the date of the Optionee’s death (but
in no event later than the date of expiration of the term of this Option as set
forth in Section 10 below), by the Optionee’s estate or by a person who acquired
the right to exercise the Option by bequest or inheritance, but only to the
extent the Optionee was entitled to exercise the Option at the date of death or,
if earlier, the date of termination of the Optionee’s continuous status as an
Employee. To the extent that the Optionee was not entitled to exercise the
Option at the date of death or termination, as the case may be, or if the
Optionee’s estate or the person who acquired the right to exercise the Option by
bequest or inheritance does not exercise such Option (to the extent otherwise so
entitled) within the time specified in this Agreement, the Option shall
terminate.   9.      Non-Transferability of Option. This Option may not be
transferred in any manner otherwise than by will or by the laws of descent or
distribution. The designation of a beneficiary does not constitute a transfer.
Except in the case of death, this Option may be exercised during the lifetime of
the Optionee only by the Optionee. The terms of this Option shall be binding
upon the executors, administrators, heirs, successors and assigns of the
Optionee.    10.      Term of Option. This Option may be exercised only within
the term set out in the Notice of Grant which is attached to this Agreement, and
may be exercised during such term only in accordance with the Plan and the terms
of this Option.   11.      No Additional Employment Rights. The Optionee
understands and agrees that the vesting of Shares pursuant to the Vesting
Schedule is earned only by continuing as an Employee at the will of the Company,
its Parent or a Subsidiary (not through the act of being hired, being granted
this Option or acquiring Shares under this Agreement). The Optionee further
acknowledges and agrees that nothing in this Agreement, nor in the  

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  Plan which is incorporated in this Agreement by reference, shall confer upon
the Optionee any right with respect to continuation as an Employee with the
Company, its Parent, or a Subsidiary, nor shall it interfere in any way with his
or her right or the Company’s right to terminate his or her employment
relationship at any time, with or without cause.   12.      Notice of
Disqualifying Disposition of Incentive Stock Option Shares. If the Optionee
sells or otherwise disposes of any of the Shares acquired pursuant to the
Incentive Stock Option on or before the later of (a) the date two years after
the Date of Grant, or (b) the date one year after transfer of such Shares to the
Optionee upon exercise of the Incentive Stock Option, the Optionee shall notify
the Company in writing within thirty (30) days after the date of any such
disposition. The Optionee agrees that the Optionee may be subject to the tax
withholding provisions of Section 13 below in connection with such sale or
disposition of such Shares.   13.      Tax Withholding. The Optionee shall pay
to the Company promptly upon request, and in any event at the time the Optionee
recognizes taxable income in respect of the Option, an amount equal to the taxes
the Company determines it is required to withhold under applicable tax laws with
respect to the Option. Such payment may be made by any of, or a combination of,
the following methods: (i) cash or check; (ii) out of the Optionee’s current
compensation; or (iii) surrender of other shares of Common Stock of the Company
which (a) in the case of shares initially acquired from the Company (upon
exercise of a stock option or otherwise), have been owned by the Optionee for
such period (if any) as may be required to avoid a charge to the Company’s
earnings, and (b) have a Fair Market Value on the date of surrender equal to the
amount required to be withheld; provided that the Administrator may from time to
time limit the availability of any non-cash payment alternative   14.     
Notices. Any and all notices, designations, consents, offers, acceptances and
any other communications provided for herein shall be given in writing and shall
be delivered either personally or by registered or certified mail, postage
prepaid, which shall be addressed, in the case of the Company to both the Chief
Financial Officer and the Secretary of the Company at the principal office of
the Company and, in the case of the Optionee, to the Optionee’s address
appearing on the books of the Company or to the Optionee’s residence or to such
other address as may be designated in writing by the Optionee.   15.      Bound
by Plan. By signing this Agreement, the Optionee acknowledges that he/she has
received a copy of the Plan and has had an opportunity to review the Plan and
agrees to be bound by all the terms and provisions of the Plan.   16.     
Successors. The terms of this Agreement shall be binding upon and inure to the
benefit of the Company, its successors and assigns, and of the Optionee and the
beneficiaries, executors, administrators, heirs and successors of the Optionee.
 

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17.      Invalid Provision. The invalidity or unenforceability of any particular
provision thereof shall not affect the other provisions hereof, and this
Agreement shall be construed in all respects as if such invalid or unenforceable
provision had been omitted.   18.      Entire Agreement. This Agreement, the
Notice of Grant and the Plan contain the entire agreement and understanding of
the parties hereto with respect to the subject matter contained herein and
therein and supersede all prior communications, representations and negotiations
in respect thereto.   19.      Governing Law. This Agreement and the rights of
the Optionee hereunder shall be construed and determined in accordance with the
laws of the State of Oklahoma.   20.      Headings. The headings of the Sections
hereof are provided for convenience only and are not to serve as a basis for
interpretation or construction, and shall not constitute a part, of this
Agreement.   21.      Signature. This Agreement shall be deemed executed by the
Company and the Optionee upon execution by such parties of the Notice of Grant
attached to this Agreement.  

OPTIONEE:       VAUGHAN FOODS, INC.,  
(print name)
    an Oklahoma corporation           By:          (signature)       Its:      
Dated:       Dated:    

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Notice of Grant of Incentive Stock Option

Dear ______________________,

In recognition of (i) the important contribution you are making to our success
and (ii) our belief that owners add more value to an organization, the
Compensation Committee of the Board of Directors of Vaughan Foods, Inc. would
like you to have the opportunity to become an owner of Vaughan Foods, Inc. (the
“Company”). We do this through an instrument called an incentive stock option.
Capitalized terms in this Notice of Grant shall have the same meaning as defined
in the Vaughan Foods, Inc. 2006 Equity Incentive Plan (the “Plan”) unless stated
to the contrary.

 

Incentive Stock Option Grant Number
 
    Date of Grant
 
              Stock Option Plan
 
  Vaughan Foods, Inc. 2006 Equity Incentive Plan               Option Price Per
Share
 
    Total Number of Shares Granted
 
    Term of Grant
 
    Vesting Schedule
 
  No. of Shares Vested   Vesting Date                      
 
 
 
                     
 
 
 
                     
 
 
 
                     
 
 
 
                     
 
 
 

Over time, your stock options will grant you the right, but never the
obligation, to acquire voting common stock in Vaughan Foods, Inc. at a
pre-determined price per share, regardless of market conditions or market price
at the time you exercise your option to acquire the shares. You have probably
read about stock options and how they have allowed many employees the
opportunity to build an investment in stock of the employer with little cost to
the individuals.

Once stock options are granted, you will acquire the right to the shares through
a process known as “vesting.” When your options are “vested,” so long as you
remain employed with the Company, its Parent or a Subsidiary on a full-time
basis, you may acquire an ownership interest in the Company at a later date for
today’s prices. Also, as incentive stock options, you’ll receive special tax
treatment on the transaction. However, you may be subject to the “alternative
minimum tax” at the time of exercise based upon the difference between the
exercise price and the Fair Market Value of the stock on such date. Generally,
no taxable income will be recognized to you at the time you exercise the
incentive stock options and buy the tock. Instead, you will be taxed at
favorable capital gains tax rates at the time you eventually sell the tock,
provided that you follow some basic rules of the Internal Revenue Code. First,
you must remain an employee of the Company, its Parent or a Subsidiary from the
time the incentive stock option is granted until ninety (90) days before the
incentive stock option is exercised except in the case of death or Disability,
in which case you will have twelve (12) months from your date of death or
Disability to exercise the vested portion of the incentive stock options. Once
stock has been purchased under the Plan, the common stock cannot be sold within
two years from the date the incentive stock option was granted or within one
year from the date the incentive stock option was exercised. There are also some
other tax rules you must follow; please consult your professional financial
advisor for more specific rules on incentive stock options

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and their requirements. If you do not meet the Internal Revenue Code
requirements, you may be taxed on the entire appreciation of the shares as
ordinary taxable income.

We hope that making you an owner will provide you further incentive to drive the
value of Vaughan Foods, Inc. stock.

Accompanying this letter is a form of Incentive Stock Option Agreement for you
to review and sign in connection with this grant. Please return this form to
Gene Jones, Chief Financial Officer in the accompanying envelope. If you have
any questions regarding stock options, please write or e-mail your questions to
Gene Jones.

Congratulations,

Vaughan Foods, Inc.

Herbert B. Grimes
Chairman of the Board and Chief Executive Officer

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INCENTIVE STOCK OPTION EXERCISE NOTICE

This Agreement is made on ____________ between Vaughan Foods, Inc., an Oklahoma
corporation (the "Company"), and the optionee named below ("Optionee") pursuant
to the Vaughan Foods, Inc. 2006 Equity Incentive Plan (the "Plan").

Optionee:         Social Security No.         Address:         Number of Shares
Purchased:             Price per Share:       Aggregate Purchase Price:    
$
        Date of Grant:             Vesting Commencement Date:         Vesting
Schedule No. of Shares Vested Vesting Date                                      
                                          Type of Stock Option: Incentive Stock
Option  

Optionee hereby delivers to the Company the Aggregate Purchase Price.

The Company and Optionee hereby agree as follows:

     1. Purchase of Shares. On this date and subject to the terms and conditions
of this Exercise Agreement, Optionee hereby exercises the option between the
Company and Optionee dated as of the Date of Grant set forth above, with respect
to the Number of Shares Purchased set forth above of the Company’s common stock
(the “Shares”) at an aggregate

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purchase price equal to the Aggregate Purchase Price set forth above (the
"Aggregate Purchase Price") and the Price Per Share set forth above (the
"Purchase Price Per Share"). The term "Shares" refers to the Shares purchased
under this Agreement and includes all securities received (a) in replacement of
the Shares, and (b) as a result of stock dividends or stock splits in respect of
the Shares. Capitalized terms used herein that are not defined herein have the
definitions ascribed to them in the Plan or the Notice of Grant.

     2. Representations of Purchaser. Optionee represents and warrants to the
Company that:

     (a) Optionee has received, read and understood the Plan and the Notice of
Grant and agrees to abide by and be bound by their terms and conditions.

      (b) Optionee is fully aware (i) the highly speculative nature of the
investment in the Shares; (ii) the financial hazards involved; and (iii) the
lack of liquidity of the Shares, and the restrictions on transferability of the
Shares (e.g., that Optionee may not be able to sell or dispose of the Shares or
use them as collateral for loans).

     (c) Optionee is capable of evaluating the merits and risks of this
investment, has the ability to protect Optionee’s own interests in this
transaction and is financially capable of bearing a total loss of this
investment.

     3. Tax Consequences. OPTIONEE UNDERSTANDS THAT OPTIONEE MAY SUFFER ADVERSE
TAX CONSEQUENCES AS A RESULT OF OPTIONEE’S PURCHASE OR DISPOSITION OF THE
SHARES. OPTIONEE REPRESENTS THAT OPTIONEE HAS CONSULTED WITH ANY TAX
CONSULTANT(S) OPTIONEE DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR
DISPOSITION OF THE SHARES AND THAT OPTIONEE IS NOT RELYING ON THE COMPANY FOR
ANY TAX ADVICE.

     4. Entire Agreement. The Plan, Notice of Grant and the Incentive Stock
Option Agreement are incorporated herein by reference. This Exercise Agreement,
the Plan and the Notice of Grant constitute the entire agreement of the parties
and supersede in their entirety all prior undertakings and agreements of the
Company and Optionee with respect to the subject matter hereof, and is governed
by Oklahoma law except for the body of law pertaining to conflict of laws.

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Submitted by:         Accepted by:       OPTIONEE:     VAUGHAN FOODS, INC.,  
(print name)
  an Oklahoma corporation       By:        
(signature)
  Its:     Dated:     Dated:  

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