Exhibit 10.2
TRI-ISTHMUS GROUP, INC.
OPTION GRANT AGREEMENT
     This Option Grant Agreement (this “Option Agreement”) is entered into as of
October 10, 2007 (the “Date of Grant”), by and between Dennis M. Smith
(“Optionee”) and Tri-Isthmus Group, Inc. (the “Company”). Capitalized terms not
otherwise defined herein shall have the meanings assigned to such terms in
Section 13 of this Option Agreement.
     1. Grant of Option. The Company hereby grants to Optionee an option (the
“Option”) to purchase the number of shares of the Company’s Common Stock set
forth below (the “Option Shares”), at the exercise price set forth below,
subject to the terms and conditions of the Plan and this Option Agreement, and
upon the occurrence of certain specified events, as follows:

         
Exercise Price Per Share
    0.3125  
Total Number of Option Shares Granted
    600,000  
Total Exercise Price
  $ 187,500  
Type of Option:
    Incentive Stock Option  
Term/Expiration Date:
    7 years from Date of Grant  

     This Option is intended to qualify as an Incentive Stock Option as defined
in Section 422(b) of the Code; provided, however, the Company has not made, and
will not be deemed to make hereby, any representations or warranties to Optionee
with respect to such qualification.
     2. Vesting Schedule. Optionee’s Option to purchase up to six hundred
thousand (600,000) Option Shares shall vest incrementally as follows: (1) the
option to purchase up to one hundred fifty thousand (150,000) Option Shares
shall vest immediately on the Date of Grant; (2) the option to purchase up to
one hundred fifty thousand (150,000) Option Shares shall vest on the first
anniversary of the Date of Grant; and (3) the option to purchase the remaining
three hundred thousand (300,000) Option Shares shall vest on the second
anniversary of the Date of Grant.
     3. Exercise of Option.
     (a) Right to Exercise; Term of Option. Generally, this Option shall be
exercisable by Optionee with respect to any or all vested Option Shares from the
time such Option Shares vest (in accordance with the vesting schedule in
Section 2) until the seventh anniversary of the Date of Grant (the “Term”),
subject to the terms and conditions set forth in the Plan and this Option
Agreement.
     (b) Method of Exercise. This Option shall be exercisable by written notice
(in substantially the form attached hereto as Exhibit A) which shall state the
election to exercise the Option, the number of Option Shares in respect of which
the Option is being exercised, and such other representations and agreements as
to the Optionee’s investment intent with respect to the Option Shares. Such
written notice shall be signed by the Optionee and shall be delivered in person
or by certified mail to the Secretary of the Company. The written notice shall
be accompanied by payment of the aggregate exercise price for the Option Shares
in respect of which the Option is being exercised, payable in the manner set
forth in Section 4.
     (c) Date of Exercise, Transfer. This Option shall be deemed to be exercised
upon receipt by the Company of such written notice accompanied by the aggregate
exercise price of the

 

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Option Shares in respect of which the Option is being exercised. Assuming
compliance with all other provisions of this Option Agreement, for income tax
purposes the Option Shares shall be considered transferred to the Optionee on
the date on which the Option is exercised with respect to such Option Shares.
     4. Payment of Aggregate Exercise Price.
     (a) Method of Payment. Payment of the aggregate exercise price for the
Option Shares in respect of which the Option is being exercised shall become
immediately due upon exercise of this Option and shall be payable:
     (i) in cash or check made payable to the Company;
     (ii) in shares of Common Stock held for the requisite period necessary to
avoid a charge to the Company’s earnings for financial reporting purposes and
valued at Fair Market Value on the date in which this Option is exercised; or
     (iii) through a special sale and remittance procedure pursuant to which the
Optionee shall concurrently provide irrevocable instructions (i) to a
Company-designated brokerage firm to effect the immediate sale of the purchased
shares and remit to the Company, out of the sale proceeds available on the
settlement date, sufficient funds to cover the aggregate exercise price payable
for the purchased shares plus all applicable federal, state and local income and
employment taxes required to be withheld by the Company by reason of such
exercise and (ii) to the Company to deliver the certificates for the purchased
shares directly to such brokerage firm in order to complete the sale.
     (b) Taxes. The Optionee shall, upon notification of the amount due (if any)
as a result of the exercise of the Option and prior to or concurrent with
delivery of the certificate representing the Option Shares, pay to the Company
the amounts necessary to satisfy applicable federal, state and local tax
withholding requirements.
     5. Restrictions on Exercise. This Option may not be exercised if the
issuance of such Option Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations as promulgated by the
Federal Reserve Board.
     6. Limited Transferability of Option. This Option shall be exercisable only
by the Optionee during his lifetime and shall not be assignable or transferable,
other than by will or by the applicable laws of inheritance and as permitted
under the Code following the Optionee’s death. The terms and conditions of this
Option Agreement, including (without limitation) the limited time period during
which this Option may be exercised following the Optionee’s death, shall be
binding upon the executors, administrators, heirs, successors and permitted
assigns of the Optionee.
     7. Effect of Termination or Death. The following provisions shall govern
the exercise of this Option at or after the time of cessation of Service or
death of the Optionee:
     (a) Should the Optionee cease to remain in Service for any reason other
than death, Disability or Misconduct, then the Optionee shall have a period of
three (3) months following the date of such cessation of Service during which to
exercise this Option as to shares that vested on or prior to the date of
cessation. Upon such cessation of Service, this Option shall immediately

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terminate and cease to be outstanding with respect to any and all Option Shares
which are not, at the time, vested.
     (b) Should Optionee’s Service terminate by reason of Disability while
holding this Option, the vesting of this Option will thereupon accelerate and
all of the unvested Option Shares subject thereto will immediately vest and
become exercisable. The Optionee shall have a period of twelve (12) months
following the date of such termination of Service during which to exercise this
Option.
     (c) If the Optionee dies while holding this Option, the vesting set forth
in Section 2 will thereupon accelerate and all of the unvested Option Shares
subject thereto will immediately vest and become exercisable. The personal
representative of the Optionee’s estate or the person or persons to whom this
Option is transferred pursuant to the Optionee’s will or the applicable laws of
inheritance shall have a period of twelve (12) months following the date of the
Optionee’s death to exercise this Option.
     (d) Under no circumstances, however, shall this Option be exercisable after
the expiration of the Term.
     (e) Upon the expiration of the applicable exercise period or (if earlier)
upon the expiration of the Term, this Option shall terminate and cease to be
outstanding for any vested Option Shares for which this Option has not been
exercised.
     (f) Should Optionee’s Service be terminated for Misconduct or should the
Optionee otherwise engage in Misconduct while holding this Option Agreement,
then the Option and this Option Agreement (whether any or all Option Shares are
vested or not) shall terminate immediately and cease to remain outstanding.
     8. Changes in Capital Structure. The Optionee agrees and acknowledges that
the Company shall have the right at any time and from time to time after the
date of this Option Agreement to authorize additional classes or series of
capital stock, some of which may entitle the holders thereof to greater rights
than the holders of the Common Stock into which this Option is convertible, and
to issue shares thereunder, subject only to the limits imposed by applicable
laws.
     9. Tax Consequences. The grant and/or exercise of the Option will have
federal and state income tax consequences. THE OPTIONEE SHOULD CONSULT A TAX
ADVISOR UPON THE GRANT OF THE OPTION AND BEFORE EXERCISING THE OPTION OR
DISPOSING OF THE SHARES ACQUIRED UPON EXERCISE.
     10. Entire Agreement; Governing Law. This Option Agreement constitutes the
entire agreement of the parties with respect to the subject matter hereof and
supersede in their entirety all prior undertakings and agreements of the Company
and Optionee with respect to the subject matter hereof, and this Option
Agreement may not be amended except by means of a writing signed by the Company
and Optionee. This Option Agreement is governed by Delaware law except for that
body of law pertaining to conflict of laws.
     11. Warranties, Representations and Covenants. The undersigned Optionee
warrants and represents that he: (a) has received, read and understood the
Option Agreement and the Plan and agrees to abide by and be bound by its terms
and conditions, (b) is acquiring such shares of Common Stock for his own account
for investment and not for resale or with a view to distribution thereof in
violation of the Securities Act of 1933, as amended, and the regulations
promulgated thereunder (the “Securities Act”);

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and (c) is an “accredited investor” as defined in Rule 501 of Regulation D
promulgated under the Securities Act. The undersigned’s financial condition is
such that he is able to bear the risk of holding such securities for an
indefinite period of time and the risk of loss of its entire investment. The
undersigned has sufficient knowledge and experience in investing in companies
similar to the Company so as to be able to evaluate the risks and merits of its
investment in the Company. Optionee hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Plan Administrator
upon any questions relating to the Plan or this Option Agreement. Optionee
further agrees to notify the Company upon any change in the residence address
indicated below. OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES
PURSUANT TO THE OPTION HEREOF IS EARNED ONLY BY CONTINUING EMPLOYMENT AT THE
WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS
OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES
THAT NOTHING IN THIS OPTION AGREEMENT SHALL CONFER UPON OPTIONEE ANY RIGHT WITH
RESPECT TO CONTINUATION OF EMPLOYMENT BY THE COMPANY, NOR SHALL IT INTERFERE IN
ANY WAY WITH OPTIONEE’S RIGHT OR THE COMPANY’S RIGHT TO TERMINATE OPTIONEE’S
EMPLOYMENT AT ANY TIME, WITH OR WITHOUT CAUSE.
     12. Relation to Other Benefits; Termination of Employment. Any economic or
other benefit to the Optionee under this Option Agreement will not be taken into
account in determining any benefits to which the Optionee may be entitled under
any profit-sharing, retirement or similar benefit or compensation plan
maintained by the Company and will not affect the amount of any life insurance
coverage available to any beneficiary under any life insurance plan covering
employees of the Company. No provision of this Option Agreement will limit in
any way whatsoever any right that the Company may otherwise have to terminate
the employment or adjust the compensation of the Optionee at any time.
     13. Certain Definitions. For purposes of this Option Agreement, the
following terms shall have the following meanings:
     (a) “Board” shall mean the Company’s Board of Directors.
     (b) “Code” shall mean the Internal Revenue Code of 1986, as amended.
     (c) “Committee” shall mean a committee of two or more Board members
appointed by the Board to exercise one or more administrative functions under
the Plan.
     (d) “Common Stock” shall mean the Company’s common stock, par value $0.01
per share.
     (e) “Disability” shall mean the inability of the Optionee, in the opinion
of a qualified physician acceptable to the Company, to perform the major duties
of the Optionee’s position with the Company because of the sickness or injury of
the Optionee.
     (f) “Fair Market Value” per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
     (i) If the Common Stock is at the time traded on the NASDAQ National
Market, then the Fair Market Value shall be the closing sales price per share of
Common Stock on the date in question, as such price is reported by the National
Association of Securities Dealers on the NASDAQ National Market. If there is no
closing sales price for the Common Stock on the date in question, then the Fair
Market Value shall be the closing sales price on the last preceding date for
which such quotation exists.

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     (ii) If the Common Stock is at the time listed on any Stock Exchange, then
the Fair Market Value shall be the closing sales price per share of Common Stock
on the date in question on the Stock Exchange determined by the Plan
Administrator to be the primary market for the Common Stock, as such price is
officially quoted in the composite tape of transactions on such exchange. If
there is no closing sales price for the Common Stock on the date in question,
then the Fair Market Value shall be the closing sales price on the last
preceding date for which such quotation exists.
     (iii) If the Common Stock is at the time neither listed on any Stock
Exchange nor traded on the NASDAQ National Market, then the Fair Market Value
shall be determined by the Plan Administrator after taking into account such
factors as the Plan Administrator shall deem appropriate.
     (g) “Misconduct” shall mean the commission of any act of fraud,
embezzlement or dishonesty by Optionee, any unauthorized use or disclosure by
Optionee of confidential information or trade secrets of the Company (or any
Parent or Subsidiary), or any other intentional misconduct by Optionee which has
a material adverse effect on the business or affairs of the Company (or any
Parent or Subsidiary). The foregoing definition shall not be deemed to be
inclusive of all the acts or omissions which the Company (or any Parent or
Subsidiary) may consider as grounds for the dismissal or discharge of Optionee
in the Service of the Company (or any Parent or Subsidiary).
     (h) “Parent” shall mean any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if each of such
corporations (other than the Company) owns, at the time of the determination,
stock possessing fifty percent (50%) or more of the total combined voting power
of all classes of stock in one of the other corporations in such chain.
     (i) “Plan” shall mean the Company’s 2001 Stock Option/Stock Issuance Plan.
     (j) “Plan Administrator” shall mean either the Board or the Committee
acting in its capacity as administrator of the Plan.
     (k) “Service” shall mean the services provided to the Company (or any
Parent or Subsidiary) by Optionee pursuant to the Employment Agreement between
Optionee and Company dated October 10, 2007.
     (l) “Stock Exchange” shall mean the American Stock Exchange or the New York
Stock Exchange.
     (m) "Subsidiary” shall mean any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of such
corporations other than the last corporation in the such chain owns, at the time
of the determination, stock possessing 50 percent or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.
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     IN WITNESS WHEREOF, the Company and Optionee have each caused this Option
Agreement to be executed as of the Date of Grant.

                  THE COMPANY:       TRI-ISTHMUS GROUP, INC.
 
           
 
  By:    
 
DAVID HIRSCHHORN    
 
  Its:   Chief Executive Officer    
 
                OPTIONEE:
 
                          Signature    
 
                          Print Name    
 
                          Residence Address    
 
                          Area Code/Telephone Number    

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Exhibit A to Option Grant Agreement
TRI-ISTHMUS GROUP, INC.
EXERCISE NOTICE
Tri-Isthmus Group, Inc.
149 South Barrington Avenue, Suite 808
Los Angeles, CA 90049
Attention: Secretary
     1. Exercise of Option. Effective as of today, ___, 20___, the undersigned
(“Purchaser”) hereby elects to purchase ___ shares (the “Option Shares”) of the
Common Stock of Tri-Isthmus, Inc. (the “Company”) under and pursuant to the
Option Grant Agreement dated October 10, 2007 (the “Option Agreement”). The
exercise price for the Option Shares shall be $0.3125 per share, as specified in
the Option Agreement.
     2. Delivery of Payment.
The undersigned Purchaser (check one and complete):
                     herewith encloses the cash or a certified or cashier’s
check (drawn in favor of the Company) in the amount of $                     in
payment of the aggregate exercise price.
                     elects to make payment by delivering a number of shares of
Common Stock held by Purchaser for the requisite period necessary to avoid a
charge to the Company’s earnings for financial reporting purposes and valued at
a Fair Market Value on the date in which this Option is exercised equal to the
aggregate exercise price of $                     in accordance with the
provisions of Section 4(a)(ii) of the Option Agreement, and includes
certificates and such other documentation necessary to effect such transfer,
including, but not limited to, a duly authorized stock power in balnk.
                     herewith encloses a copy of the applicable broker
instructions set forth in Section 4(a)(iii) of the Option Agreement.
     3. Representations of Purchaser. Purchaser hereby represents and warrants
as follows:
     (a) Purchaser acknowledges that he has received, read and understood the
Option Agreement and the Plan and agrees to abide by and be bound by its terms
and conditions.
     (b) Purchaser is acquiring such shares of Common Stock for its own account
for investment and not for resale or with a view to distribution thereof in
violation of the Securities Act of 1933, as amended, and the regulations
promulgated thereunder (the “Securities Act”); and
     (c) Purchaser is an “accredited investor” as defined in Rule 501 of
Regulation D promulgated under the Securities Act. The undersigned’s financial
condition is such that he is able to bear the risk of holding such securities
for an indefinite period of time and the risk of loss of its entire investment.
The undersigned has sufficient knowledge and experience in investing in

 

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companies similar to the Company so as to be able to evaluate the risks and
merits of its investment in the Company.
     4. Rights as Shareholder. The Purchaser shall not be deemed to be the
holder of, or to have any of the rights of a holder with respect to, any Option
Shares for which such Option is exercised, including, but not limited to, rights
to vote or to receive dividends, unless and until the Purchaser has satisfied
all requirements for exercise of the Option pursuant to its terms, the
certificates evidencing such Option Shares have been issued and the Purchaser
has become a record holder of such Option Shares. A share certificate for the
number of Option Shares so acquired shall be issued to the Purchaser as soon as
practicable after exercise of the Option. No adjustment will be made for a
dividend or other right for which the record date is prior to the date on which
all the conditions set forth above are satisfied, except.
     5. Tax Consultation. Purchaser understands that Purchaser may suffer
adverse tax consequences as a result of Purchaser’s purchase or disposition of
the Option Shares. Purchaser represents that Purchaser has consulted with any
tax consultant or consultants Purchaser deems advisable in connection with the
purchase or disposition of the Option Shares and that Purchaser is not relying
on the Company for any tax advice.
     6. Entire Agreement; Governing Law. The Option Agreement is incorporated
herein by reference. This Exercise Notice and the Option Agreement constitute
the entire agreement of the parties with respect to the subject matter hereof
and supersede in their entirety all prior undertakings and agreements of the
Company and Purchaser with respect to the subject matter hereof, and this
Exercise Notice may not be amended except by means of a writing signed by the
Company and Purchaser. This Exercise Notice is governed by Delaware law except
for that body of law pertaining to conflict of laws.

                  Submitted by:       Accepted by:    
 
                PURCHASER:       THE COMPANY:               TRI-ISTHMUS GROUP,
INC.    
 
               
 
 
Signature
      By:    
 
   
 
               
 
      Its:        
 
               
Print Name
               
 
                Address:       Address: