Exhibit 10.3

 

NONQUALIFIED STOCK OPTION AGREEMENT

 

KIPS BAY MEDICAL, INC.

2013 EQUITY INCENTIVE PLAN

 

THIS AGREEMENT is made effective as of this         day of
                      , 20    , by and between Kips Bay Medical, 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 of, 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 Common Stock pursuant to the Kips Bay Medical, Inc. 2013
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 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 effective as of the date set forth above (the “Date of
Grant”), the right and option (this “Option”) under the Plan 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 14 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]

 

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Once this 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 this 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.

 

b.                                      Termination of Employment or Service
Relationship for Cause.  If Participant ceases to be an Employee of, a Director
of or a Consultant to 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 or
guilty plea by 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, (iii) a disciplinary
discharge or termination of service relationship pursuant to the terms of the
Company’s management handbooks or policies as in effect at the time, or
(iv) Participant has engaged in any conduct that would constitute “cause” under
the terms of his or her employment, consulting or other agreement, if any;
provided, however, that if, subsequent to Participant’s voluntary termination
for any reason or involuntary termination by the Company or any Subsidiary
without Cause, it is discovered that Participant’s employment or service
relationship could have been terminated for Cause, such Participant’s employment
or service relationship shall be deemed to have been terminated for Cause for
all purposes under this Agreement.

 

c.                                       Termination of Employment or Service
Relationship (other than for Cause, Disability or Death).  If Participant ceases
to be an Employee of, a Director of or a Consultant to 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 Participant’s termination; and (ii) the
expiration date of this Option stated in Paragraph 2(a) above. In such period
following Participant’s termination, this Option shall be exercisable only to
the extent this 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 this 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 of, a Director of or a Consultant to the Company 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 Participant’s
termination; and (ii) the expiration date of this Option stated in Paragraph
2(a) above.  In such period following Participant’s termination, this Option
shall be exercisable only to the extent this 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

 

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Participant does not exercise this 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
this 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.

 

3.                                      Manner of Exercise.

 

a.                                      General.  This 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 of Common Stock as to which this 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 this 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.  This
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.  Payment of the
exercise price by Participant may be in cash, or with a personal check or
certified check, or subject to the approval of the Administrator, (i) other cash
equivalent, (ii) by the surrender by Participant to the Company of previously
acquired unencumbered shares of Common Stock (through physical delivery or
attestation), (iii) through the withholding of shares of Common Stock from the
number of shares otherwise issuable upon the exercise of this 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 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 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 Participant owns on the date of
exercise (or for such period of time, if any, required by applicable accounting
principles).

 

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c.                                       Stock Transfer Records.  As soon as
practicable after the effective exercise of all or any part of this Option,
Participant shall be recorded on the stock transfer books of the Company as the
owner of the shares of Common Stock purchased, and the Company shall deliver to
Participant one or more duly issued stock certificates evidencing such
ownership, or, if requested by 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.

 

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 by or any other relationship with the
Company or any of its Affiliates, 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 of
Common Stock 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 14 of the Plan.

 

b.                                      Change of Control.  If there is a Change
of Control, this Option shall be subject to the provisions of Section 14(c) of
the Plan with respect to such Change of Control.

 

c.                                       Securities Law Compliance.  The
exercise of all or any parts of this Option shall only be effective at such time
as 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, 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 this 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 this
Option to be tolled during such

 

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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.

 

e.                                       Mergers, Recapitalizations, Stock
Splits, Etc.  Except as otherwise specifically provided in any employment,
change of control, severance or similar agreement executed by Participant and
the Company, pursuant and subject to Section 14 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
this Option (i.e., Participant shall have such “anti-dilution” rights under this
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 option period reserve and keep available such number of
shares of Common Stock 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 attributable to this Option are withheld from any amounts payable by the
Company to Participant.  If the Company is unable to withhold such federal and
state taxes, for whatever reason, 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 Participant as a result of the exercise of
this 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.  In no event may Participant deliver shares having a Fair Market Value
in excess of such statutory minimum required tax withholding. 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 as of 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.                                      Non-transferability.  Unless otherwise
permitted by the Administrator in its sole discretion, during the lifetime of
Participant, this Option shall be exercisable only by Participant or by
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.

 

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i.                                          2013 Equity Incentive Plan.  This
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.

 

j.                                         Lock-up Period Limitation. 
Participant agrees that in the event the Company advises Participant that it
plans an underwritten public offering of its Common Stock in compliance with the
Securities Act of 1933, as amended, 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(e) 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

 

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failure to execute this Agreement shall not relieve Participant from complying
with such terms and conditions.

 

o.                                      Choice of Law.  The law of the state of
Minnesota 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 for Hennepin
County, Minnesota, 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 Hennepin
County, Minnesota.

 

r.                                         Nature of the Grant.  In accepting
this Option, Participant acknowledges that:

 

(1)                                 the Plan has been established voluntarily by
the Company, it is discretionary in nature and it may be modified, amended,
suspended or terminated by the Company at any time, unless otherwise provided in
the Plan;

 

(2)                                 the grant of this Option is voluntary and
occasional and does not create any contractual or other right to receive future
Options or other Awards, or benefits in lieu of Options or other Awards, even if
Options or other Awards have been granted repeatedly in the past;

 

(3)                                 all decisions with respect to future Options
or other Awards, if any, will be at the sole discretion of the Administrator;

 

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(4)                                 Participant is voluntarily participating in
the Plan;

 

(5)                                 this Option is an extraordinary item that
does not constitute compensation of any kind for services of any kind rendered
to the Company or any Affiliate, and which is outside the scope of Participant’s
employment or consulting contract, if any;

 

(6)                                 this Option is not part of normal or
expected compensation or salary for any purposes, including, but not limited to,
calculating any severance, resignation, termination, redundancy, end of service
payments, bonuses, long-service awards, pension or retirement benefits or
similar payments and in no event should be considered as compensation for, or
relating in any way to, past services for the Company;

 

(7)                                 in the event that Participant is not an
Employee of the Company or any Affiliate, this Award will not be interpreted to
form an employment contract or relationship with the Company or any Affiliate;
and furthermore, this Award will not be interpreted to form an employment
contract with the Company or any Affiliate;

 

(8)                                 the future value of the underlying shares of
Common Stock subject to this Option is unknown and cannot be predicted with
certainty and if this Option vests and Participant exercises this Option, the
value of those shares may increase or decrease;

 

(9)                                 in consideration of the grant of this
Option, no claim or entitlement to compensation or damages shall arise from
termination of this Option or diminution in value of this Option or shares of
Common Stock subject to this Option resulting from termination of Participant’s
employment or other service relationship by the Company or any Affiliate (for
any reason whatsoever and whether or not in breach of local labor laws) and
Participant irrevocably releases the Company and any Affiliate from any such
claim that may arise; if, notwithstanding the foregoing, any such claim is found
by a court of competent jurisdiction to have arisen, then, by signing this
Agreement, Participant shall be deemed irrevocably to have waived his or her
entitlement to pursue such claim;

 

(10)                          the Company is not providing any tax, legal or
financial advice, nor is the Company making any recommendations regarding
Participant’s participation in the Plan, or Participant’s acquisition or sale of
the underlying shares of Common Stock; and

 

(11)                          Participant is hereby advised to consult with his
or her own personal tax, legal and financial advisors regarding his or her
participation in the Plan before taking any action related to the Plan or this
Option.

 

***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.

 

 

KIPS BAY MEDICAL, INC.

 

 

 

 

 

By:

 

 

Its:

 

 

By execution of this Agreement, Participant acknowledges receipt of a copy of
the Plan, represents that he or she is familiar with the terms and provisions
thereof, and hereby accepts this Option subject to all of the terms and
provisions hereof and thereof.  Participant has reviewed this Agreement and the
Plan in their entirety, has had an opportunity to obtain the advice of counsel
and fully understands all provisions of this Agreement and the Plan.

 

 

 

 

 

 

Participant

 

[Nonqualified Stock Option Agreement Signature Page]

 

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