Exhibit 10.4

 

NONQUALIFIED STOCK OPTION AGREEMENT

 

NEPHROS, INC.

2015 EQUITY INCENTIVE PLAN

 

THIS AGREEMENT, made effective as of this ____ day of ____________, 20__, by and
between Nephros, Inc., a Delaware corporation (the “Company”), and
_________________ (“Participant”).

 

W I T N E S S E T H:

 

WHEREAS, Participant on the date hereof is an Employee, Director of, or
Consultant to the Company or one of its Subsidiaries; and

 

WHEREAS, the Company wishes to grant a nonqualified stock option to Participant
to purchase shares of the Company’s Common Stock pursuant to the Company’s 2015
Equity Incentive Plan (the “Plan”); and

 

WHEREAS, the Administrator of the Plan has authorized the grant of a
nonqualified stock option to Participant and has determined that, as of the
effective date of this Agreement, the fair market value of the Company’s Common
Stock is $            per share;

 

NOW, THEREFORE, in consideration of the premises and of the mutual covenants
herein contained, the parties hereto agree as follows:

 

1. Grant of Option. The Company hereby grants to Participant on the date set
forth above (the “Date of Grant”), the right and option (the “Option”) to
purchase all or portions of an aggregate of (   ) shares of Common Stock at a
per share price of $ on the terms and conditions set forth herein, and subject
to adjustment pursuant to Section 16 of the Plan. This Option is a nonqualified
stock option and will not be treated as an incentive stock option, as defined
under Section 422, or any successor provision, of the Internal Revenue Code of
1986, as amended (the “Code”), and the regulations thereunder.

 

2. Duration and Exercisability.

 

a. General. The term during which this Option may be exercised shall terminate
at the close of business on      , 20__, except as otherwise provided in
Paragraphs 2(b) through 2(e) below. This Option shall become exercisable
according to the following schedule:

 

[INSERT VESTING SCHEDULE]

 

Once the Option becomes exercisable to the extent of one hundred percent (100%)
of the aggregate number of shares specified in Paragraph 1, Participant may
continue to exercise this Option under the terms and conditions of this
Agreement until the termination of the Option as provided herein. If, upon an
exercise of this Option, Participant does not purchase the full number of shares
which Participant is then entitled to purchase, Participant may purchase upon
any subsequent exercise prior to this Option’s termination such previously
unpurchased shares in addition to those Participant is otherwise entitled to
purchase.

 

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b. Termination of Employment or Service Relationship for Cause. If Participant
ceases to be [an Employee] [a Consultant] [a Director] of the Company or any
Subsidiary for Cause, as defined below, the unexercised portion of this Option
shall immediately expire, and all rights of Participant under this Option shall
be forfeited.

 

For purposes of this Section 2, “Cause” shall mean (i) the conviction of
Participant for the commission of any felony, (ii) the commission by Participant
of any crime involving moral turpitude (e.g., larceny, embezzlement) which
results in harm to the business, reputation, prospects or financial condition of
the Company or any Affiliate, or (iii) a disciplinary discharge pursuant to the
terms of the Company’s management handbooks or policies as in effect at the
time.

 

c. Termination of Employment or Service Relationship (other than for Cause,
Disability or Death). If Participant ceases to be [an Employee] [a Consultant]
[a Director] of the Company or any Subsidiary for any reason other than for
Cause, disability or death, this Option shall completely terminate on the
earlier of: (i) the close of business on the three-month anniversary date of the
Participant’s termination; and (ii) the expiration date of this Option stated in
Paragraph 2(a) above. In such period following the Participant’s termination,
this Option shall be exercisable only to the extent the Option was exercisable
on the vesting date immediately preceding such termination but had not
previously been exercised. To the extent this Option was not exercisable upon
such termination, or if Participant does not exercise the Option within the time
specified in this Paragraph 2(c), all rights of Participant under this Option
shall be forfeited.

 

d. Disability. If Participant ceases to be [an Employee] [a Consultant] [a
Director] of the Company or any Subsidiary because of disability (as defined in
Code Section 22(e), or any successor provision), this Option shall terminate on
the earlier of: (i) the close of business on the twelve-month anniversary date
of the Participant’s termination; and (ii) the expiration date of this Option
stated in Paragraph 2(a) above. In such period following the Participant’s
termination, this Option shall be exercisable only to the extent the Option was
exercisable on the vesting date immediately preceding such termination but had
not previously been exercised. To the extent this Option was not exercisable
upon such termination, or if Participant does not exercise the Option within the
time specified in this Paragraph 2(d), all rights of Participant under this
Option shall be forfeited.

 

e. Death. In the event of Participant’s death, this Option shall terminate on
the earlier of: (i) the close of business on the twelve-month anniversary of the
date of Participant’s death; and (ii) the expiration date of this Option stated
in Paragraph 2(a) above. In such period following Participant’s death, this
Option may be exercised by the person or persons to whom Participant’s rights
under this Option shall have passed by Participant’s will or by the laws of
descent and distribution only to the extent the Option was exercisable on the
vesting date immediately preceding the date of Participant’s death, but had not
previously been exercised. To the extent this Option was not exercisable upon
the date of Participant’s death, or if such person or persons fail to exercise
this Option within the time specified in this Paragraph 2(e), all rights under
this Option shall be forfeited.

 

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3. Manner of Exercise.

 

a. General. The Option may be exercised only by Participant (or other proper
party in the event of death or incapacity), subject to the conditions of the
Plan and subject to such other administrative rules as the Administrator may
deem advisable, by delivering within the option period written notice of
exercise to the Company at its principal office. The notice shall state the
number of shares as to which the Option is being exercised and shall be
accompanied by payment in full of the option price for all shares designated in
the notice. The exercise of the Option shall be deemed effective upon receipt of
such notice by the Company and upon payment that complies with the terms of the
Plan and this Agreement. The Option may be exercised with respect to any number
or all of the shares as to which it can then be exercised and, if partially
exercised, may be so exercised as to the unexercised shares any number of times
during the option period as provided herein.

 

b. Form of Payment. Subject to the approval of the Administrator, payment of the
exercise price by Participant may be (i) in cash, or with a personal check or
certified check, (ii) by the transfer from the Participant to the Company of
previously acquired unencumbered shares of Common Stock, (iii) through the
withholding of shares of Common Stock from the number of shares otherwise
issuable upon the exercise of the Option (e.g., a net share settlement), (iv)
through broker-assisted cashless exercise if such exercise complies with
applicable securities laws and any insider trading policy of the Company, (v)
such other form of payment as may be authorized by the Administrator, or (vi) by
a combination thereof. In the event the Participant elects to pay the exercise
price in whole or in part with previously acquired shares of Common Stock or
through a net share settlement, the then-current Fair Market Value of the Common
Stock delivered or withheld shall equal the total exercise price for the shares
being purchased in such manner. For purposes of this Agreement, “previously
acquired shares of Common Stock” means shares of Common Stock which the
Participant has owned for at least six (6) months prior to the exercise of the
option (or for such period of time, if any, required by applicable accounting
principles).

 

c. Stock Transfer Records. As soon as practicable after the effective exercise
of all or any part of the Option, Participant shall be recorded on the stock
transfer books of the Company as the owner of the shares purchased, and the
Company shall deliver to Participant one or more duly issued stock certificates
evidencing such ownership, or, if requested by the Participant and permitted by
the Company’s governing documents, its designated agent, and applicable law,
shall cause the purchased shares to be issued in book-entry form. All requisite
original issue or transfer documentary stamp taxes shall be paid by the Company.

 

 

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4. General Provisions.

 

a. Employment or Other Relationship; Rights as Stockholder. This Agreement shall
not confer on Participant any right with respect to the continuance of
employment or any other relationship with the Company or any of its
Subsidiaries, nor will it interfere in any way with the right of the Company to
terminate such employment or relationship. Nothing in this Agreement shall be
construed as creating an employment or service contract for any specified term
between Participant and the Company or any Affiliate. Participant shall have no
rights as a stockholder with respect to shares subject to this Option until such
shares have been issued to Participant (or, if permitted, a book entry made)
upon exercise of this Option. No adjustment shall be made for dividends
(ordinary or extraordinary, whether in cash, securities or other property),
distributions or other rights for which the record date is prior to the date
such shares are issued, except as provided in Section 15 of the Plan.

 

b. 280G Limitations. Notwithstanding anything in the Plan, this Agreement or in
any other agreement, plan, contract or understanding entered into from time to
time between Participant and the Company or any of its Subsidiaries to the
contrary (except an agreement that expressly modifies or excludes the
application of this Paragraph 4(b)), the exercisability of this Option shall not
be accelerated in connection with a Change of Control to the extent that such
acceleration, taking into account all other rights, payments and benefits to
which Participant is entitled under any other plan or agreement,
would  constitute a "parachute payment" or an "excess parachute payment" for
purposes of Code Sections 280G and 4999, or any successor provisions, and the
regulations issued thereunder; provided, however, that the Administrator, in its
sole discretion and in accordance with applicable law, may modify or exclude the
application of this Paragraph 4(b).

 

c. Securities Law Compliance. The exercise of all or any parts of this Option
shall only be effective at such time the Company and its counsel shall have
determined that the issuance and delivery of Common Stock pursuant to such
exercise will not violate any state or federal securities or other laws. If the
issuance of such shares upon exercise is not registered under a then-currently
effective registration statement under the Securities Act of 1933, as amended,
the Participant may be required by the Company, as a condition of the
effectiveness of any exercise of this Option, to give any written assurances
that are necessary or desirable in the opinion of the Company and its counsel to
ensure the issuance complies with applicable securities laws, including that all
Common Stock to be acquired pursuant to such exercise shall be held, until such
time that such Common Stock is registered and freely tradable under applicable
state and federal securities laws, for Participant’s own account without a view
to any further distribution thereof; that the certificates (or, if permitted,
book entries) for such shares shall bear an appropriate legend or notation to
that effect; and that such shares will be not transferred or disposed of except
in compliance with applicable state and federal securities laws.

 

d. Extension of Expiration Date.  In the event that the exercise of this Option
would be prohibited solely because the issuance of shares of Common Stock
pursuant to the Option would violate applicable securities laws, the
Administrator may, in its sole discretion and in accordance with Code Section
409A and the regulations, notices and other guidance of general applicability
thereunder, permit the expiration of the Option to be tolled during such time as
its exercise is so prohibited; provided, however, that the expiration date may
not thereby be extended more than 30 days after the date the exercise first
would no longer violate applicable securities laws.

 

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e. Mergers, Recapitalizations, Stock Splits, Etc. Except as otherwise
specifically provided in any employment, change of control, severance or similar
agreement executed by the Participant and the Company, pursuant and subject to
Section 15 of the Plan, certain changes in the number or character of the Common
Stock of the Company (through sale, merger, consolidation, exchange,
reorganization, divestiture (including a spin-off), liquidation,
recapitalization, stock split, stock dividend or otherwise) shall result in an
adjustment, reduction or enlargement, as appropriate, in Participant’s rights
with respect to any unexercised portion of the Option (i.e., Participant shall
have such “anti-dilution” rights under the Option with respect to such events,
but, subject to the Administrator’s discretion, shall not have “preemptive”
rights).

 

f. Shares Reserved. The Company shall at all times during the term of this
Agreement reserve and keep available such number of shares as will be sufficient
to satisfy the requirements of this Agreement.

 

g. Withholding Taxes. To permit the Company to comply with all applicable
federal and state income tax laws or regulations, the Company may take such
action as it deems appropriate to ensure that, if necessary, all applicable
federal and state payroll, income, or other taxes are withheld from any amounts
payable by the Company to the Participant. If the Company is unable to withhold
such federal and state taxes, for whatever reason, the Participant hereby agrees
to pay to the Company an amount equal to the amount the Company would otherwise
be required to withhold under federal or state law. Subject to such rules as the
Administrator may adopt, the Administrator may, in its sole discretion, permit
Participant to satisfy such withholding tax obligations, in whole or in part by:
(i) delivering shares of Common Stock, or (ii) electing to have the Company
withhold shares of Common Stock otherwise issuable to the Participant as a
result of the exercise of the Option. In either case, such shares shall have a
Fair Market Value, as of the date the amount of tax to be withheld is determined
under applicable tax law, equal to the statutory minimum amount required to be
withheld for tax purposes. The Participant’s request to deliver shares or to
have shares withheld for purposes of such withholding tax obligations shall be
made on or before the date that triggers such obligations, or, if later, the
date that the amount of tax to be withheld is determined under applicable tax
law, and shall be irrevocable on such date if approved by the Administrator.
Participant’s request shall comply with such rules as the Administrator may
adopt to assure compliance with Rule 16b-3, if applicable.

 

h. Nontransferability. Unless otherwise permitted by the Administrator in its
sole discretion, during the lifetime of Participant, the Option shall be
exercisable only by Participant or by the Participant’s guardian or other legal
representative, and shall not be assignable or transferable by Participant, in
whole or in part, other than by will or by the laws of descent and distribution.

 

i. 2015 Equity Incentive Plan. The Option evidenced by this Agreement is granted
pursuant to the Plan, a copy of which Plan has been made available to
Participant and is hereby incorporated into this Agreement. This Agreement is
subject to and in all respects limited and conditioned as provided in the Plan.
All capitalized terms in this Agreement not defined herein shall have the
meanings ascribed to them in the Plan. The Plan governs this Option and, in the
event of any questions as to the construction of this Agreement or in the event
of a conflict between the Plan and this Agreement, the Plan shall govern, except
as the Plan otherwise provides.

 

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j. Lockup Period Limitation. Participant agrees that in the event the Company
advises the Participant that it plans an underwritten public offering of its
Common Stock in compliance with the Securities Act of 1933, as amended, the
Participant will execute any lock-up agreement the Company and the
underwriter(s) deem necessary or appropriate, in their sole discretion, in
connection with such public offering.

 

k. Blue Sky Limitation. Notwithstanding anything in this Agreement to the
contrary, in the event the Company makes any public offering of its securities
and it is determined that it is necessary to reduce the number of issued but
unexercised stock purchase rights so as to comply with any state securities or
Blue Sky law limitations with respect thereto, and such determination is
affirmed by the Board of Directors, unless the Board of Directors determines
otherwise, (i) the exercisability of this Option and the date on which this
Option must be exercised shall be accelerated, provided that the Company agrees
to give Participant 15 days’ prior written notice of such acceleration, and (ii)
any portion of this Option or any other option granted to Participant pursuant
to the Plan which is not exercised prior to or contemporaneously with such
public offering shall be canceled. Notice shall be deemed given when delivered
personally or when deposited in the United States mail, first class postage
prepaid and addressed to Participant at the address of Participant on file with
the Company.

 

l. Affiliates. Participant agrees that, if Participant is an “affiliate” of the
Company or any Affiliate (as defined in applicable legal and accounting
principles) at the time of a Change of Control (as defined in Section 1(f) of
the Plan), Participant will comply with all requirements of Rule 145 of the
Securities Act of 1933, as amended, and the requirements of such other
applicable legal or accounting principles, and will execute any documents
necessary to ensure such compliance.

 

m. Stock Legend. The Administrator may require that the certificates (or, if
permitted, book entries) for any shares of Common Stock purchased by Participant
(or, in the case of death, Participant’s successors) shall bear an appropriate
legend or notation to reflect the restrictions of Paragraph 4(c) and Paragraphs
4(j) through 4(l) of this Agreement; provided, however, that failure to so
endorse any of such certificates shall not render invalid or inapplicable
Paragraph 4(c) or Paragraphs 4(j) through 4(l).

 

n. Scope of Agreement. This Agreement shall bind and inure to the benefit of the
Company and its successors and assigns and Participant and any successor or
successors of Participant permitted by Paragraph 2 or Paragraph 4(h) above. This
Award is expressly subject to all terms and conditions contained in the Plan and
in this Agreement, and Participant’s failure to execute this Agreement shall not
relieve Participant from complying with such terms and conditions.

 

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o. Choice of Law. The law of the state of Delaware shall govern all questions
concerning the construction, validity, and interpretation of this Plan, without
regard to that state’s conflict of laws rules.

 

p. Severability. In the event that any provision of this Plan shall be held
illegal or invalid for any reason, such illegality or invalidity shall not
affect the remaining provisions of this Plan, and the Plan shall be construed
and enforced as if the illegal or invalid provision had not been included.

 

q. Arbitration. Any dispute arising out of or relating to this Agreement or the
alleged breach of it, or the making of this Agreement, including claims of fraud
in the inducement, shall be discussed between the disputing parties in a good
faith effort to arrive at a mutual settlement of any such controversy. If,
notwithstanding, such dispute cannot be resolved, such dispute shall be settled
by binding arbitration. Judgment upon the award rendered by the arbitrator may
be entered in any court having jurisdiction thereof. The arbitrator shall be a
retired state or federal judge or an attorney who has practiced securities or
business litigation for at least 10 years. If the parties cannot agree on an
arbitrator within 20 days, any party may request that the chief judge of the
District Court of [_______] County, select an arbitrator. Arbitration will be
conducted pursuant to the provisions of this Agreement, and the commercial
arbitration rules of the American Arbitration Association, unless such rules are
inconsistent with the provisions of this Agreement. Limited civil discovery
shall be permitted for the production of documents and taking of depositions.
Unresolved discovery disputes may be brought to the attention of the arbitrator
who may dispose of such dispute. The arbitrator shall have the authority to
award any remedy or relief that a court of this state could order or grant;
provided, however, that punitive or exemplary damages shall not be awarded. The
arbitrator may award to the prevailing party, if any, as determined by the
arbitrator, all of its costs and fees, including the arbitrator’s fees,
administrative fees, travel expenses, out-of-pocket expenses and reasonable
attorneys’ fees. Unless otherwise agreed by the parties, the place of any
arbitration proceedings shall be [___________] County, [_____________].

 

***Signature Page Follows***

 

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ACCORDINGLY, the parties hereto have caused this Agreement to be executed on the
day and year first above written.

 

  NEPHROS, INC.         By:      Its:                Participant

  

[Nonqualified Stock Option Agreement Signature Page]

  

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