**Exhibit 10.40**

 

FORM OF INCENTIVE STOCK OPTION AGREEMENT

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**NANOVIBRONIX, INC.**

**2014 LONG-TERM INCENTIVE PLAN**

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1.          Grantof Option. Pursuant to the NanoVibronix, Inc. 2014 Long-Term Incentive Plan (the “***Plan***”), as adoptedby NanoVibronix, Inc., a Delaware corporation (the “***Company***”),****the Company grants to

 

_________________________

(the “***Participant***”)

 

who is an Employee of the Company, an option(the “***Stock Option***”) to purchase a total of **_________________** (____________) full shares of CommonStock of the Company (the “***Optioned Shares***”) at an “***Option Price***” equal to$_________ per share (being equal to the Fair Market Value per share of the Common Stock on the Date of Grant or 110% of such FairMarket Value, in the case of a ten percent (10%) or more stockholder as provided in Section 422 of the Code), in the amounts, duringthe periods, and upon the terms and conditions set forth in this Incentive Stock Option Agreement (this “***Agreement***”).

 

The “***Date ofGrant***” of this Stock Option is**______________** 20____. The “***Option Period***” shallcommence on the Date of Grant and shall expire on the date immediately preceding the tenth (10th) anniversary of theDate of Grant (or the date immediately preceding the fifth (5th) anniversary of the Date of Grant, in the case of aten percent (10%) or more stockholder as provided in Section 422 of the Code) unless terminated earlier in accordance with Section4 below. The Stock Option is intended to be an Incentive Stock Option.

 

2.          Subjectto Plan. The Stock Option and its exercise are subject to the terms and conditions of the Plan, and the terms of the Plan shallcontrol to the extent not otherwise inconsistent with the provisions of this Agreement. The capitalized terms used herein thatare defined in the Plan shall have the same meanings assigned to them in the Plan. The Stock Option is subject to any rules promulgatedpursuant to the Plan by the Board or the Committee and communicated to the Participant in writing.

 

3.          Vesting;Time of Exercise. Except as specifically provided in this Agreement and subject to certain restrictions and conditions setforth in the Plan, the Optioned Shares shall be vested and the Stock Option shall be exercisable as follows:

 

a.           One-third(1/3) of the total Optioned Shares shall vest and that portion of the Stock Option shall become exercisable on the first anniversaryof the Date of Grant, provided the Participant is employed by the Company or a Subsidiary on that date.

 

b.           Anadditional one-third (1/3) of the total Optioned Shares shall vest and that portion of the Stock Option shall become exercisableon the second anniversary of the Date of Grant, provided the Participant is employed by the Company or a Subsidiary on that date.

 

c.           Theremaining one-third (1/3) of the total Optioned Shares shall vest and that portion of the Stock Option shall become exercisableon the third anniversary of the Date of Grant, provided the Participant is employed by the Company or a Subsidiary on that date.

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[**Notwithstanding theforegoing, upon the occurrence of a Change in Control, then immediately prior to the effective date of such Change in Control,the total Optioned Shares not previously vested shall thereupon immediately become vested and this Stock Option shall become fullyexercisable, if not previously so exercisable**.]

 

4.          Term;Forfeiture.

 

a.           Exceptas otherwise provided in this Agreement, to the extent the unexercised portion of the Stock Option relates to Optioned Shares whichare not vested on the date of the Participant’s Termination of Service, the Stock Option will be terminated on that date.The unexercised portion of the Stock Option that relates to Optioned Shares which are vested will terminate at the first of thefollowing to occur:

 

i.            5p.m. on the date the Option Period terminates;

 

ii.           5p.m. on the date which is twelve (12) months following the date of the Participant’s Termination of Service due to deathor Total and Permanent Disability;

 

iii.          immediatelyupon the Participant’s Termination of Service by the Company for Cause (as defined below);

 

iv.          immediatelyupon the Participant’s violation of any non-compete or non-solicitation agreement entered into between the Company and theParticipant;

 

v.           5p.m. on the date which is three (3) months following the date of the Participant’s Termination of Service for any reasonnot otherwise specified in this Section 4.a.; and

 

vi.          5p.m. on the date the Company causes any portion of the Stock Option to be forfeited pursuant to Section 7 hereof.

 

b.           Forpurposes of this Agreement, the term “***Cause***” shall have the meaning ascribed to such term in any employmentagreement in effect by and between the Company and the Participant; provided, however, at any time there is no suchagreement in effect, or if such agreement does not define such term, the term “***Cause***” shall mean (i)the Participant’s commission of a dishonest or fraudulent act in connection with the Participant’s employment, or themisappropriation of Company property; (ii) the Participant’s conviction of, or plea of nolo contendere to, a felony or crimeinvolving dishonesty; (iii) the Participant’s inattention to duties, unsatisfactory performance, or failure to perform theParticipant’s duties hereunder, provided in each case the Company gives the Participant written notice and thirty (30) daysto correct the Participant’s performance to the Company’s satisfaction; (iv) a substantial failure to comply with theCompany’s policies; (v) a material and willful breach of the Participant’s fiduciary duties in any material respect,provided in each case the Company gives the Participant written notice and thirty (30) days to correct the breach to the Company’ssatisfaction; (vi) the Participant’s failure to comply in any material respect with any legal written directive of the Board;or (vii) any act or omission of the Participant which is of substantial detriment to the Company because of the Participant’sintentional failure to comply with any statute, rule, or regulation, except any act or omission believed by the Participant ingood faith to have been in or not opposed to the best interests of the Company (without intent of the Participant to gain, directlyor indirectly, a profit to which the Participant was not legally entitled). Any determination of whether the Participant shouldbe terminated for Cause pursuant to this Agreement shall be made in the sole, good faith discretion of the Board, and shall bebinding upon all parties affected thereby.

 

 

5.          WhoMay Exercise. Subject to the terms and conditions set forth in Sections 3 and 4 above, during the lifetime of the Participant,the Stock Option may be exercised only by the Participant, or by the Participant’s guardian or personal or legal representative.If the Participant’s Termination of Service is due to his death prior to the dates specified in Section 4.a. hereof,and the Participant has not exercised the Stock Option as to the maximum number of vested Optioned Shares as set forth in Section 3hereof as of the date of death, the following persons may exercise the exercisable portion of the Stock Option on behalf of theParticipant at any time prior to the earliest of the dates specified in Section 4.a. hereof: the personal representativeof his estate or the person who acquired the right to exercise the Stock Option by bequest or inheritance or by reason of the deathof the Participant; provided that the Stock Option shall remain subject to the other terms of this Agreement, the Plan, and ApplicableLaws.

 

6.          NoFractional Shares. The Stock Option may be exercised only with respect to full shares, and no fractional share of Common Stockshall be issued.

 

7.          Mannerof Exercise. Subject to such administrative regulations as the Committee may from time to time adopt, the Stock Option maybe exercised by the delivery of written notice to the Committee setting forth the number of shares of Common Stock with respectto which the Stock Option is to be exercised, the date of exercise thereof (the “***Exercise Date***”) whichshall be at least three (3) days after giving such notice unless an earlier time shall have been mutually agreed upon, and whetherthe Optioned Shares to be exercised will be considered as deemed granted under an Incentive Stock Option as provided in Section11. On the Exercise Date, the Participant shall deliver to the Company consideration with a value equal to the total OptionPrice of the shares to be purchased, payable as follows: (a) cash, check, bank draft, or money order payable to the order of theCompany; (b) if the Company, in its sole discretion, so consents in writing, Common Stock (including Restricted Stock) owned bythe Participant on the Exercise Date, valued at its Fair Market Value on the Exercise Date, and which the Participant has not acquiredfrom the Company within six (6) months prior to the Exercise Date; (c) if the Company, in its sole discretion, so consents in writing,by delivery (including by FAX) to the Company or its designated agent of an executed irrevocable option exercise form togetherwith irrevocable instructions from the Participant to a broker or dealer, reasonably acceptable to the Company, to sell certainof the shares of Common Stock purchased upon exercise of the Stock Option or to pledge such shares as collateral for a loan andpromptly deliver to the Company the amount of sale or loan proceeds necessary to pay such purchase price; and/or (d) in any otherform of valid consideration that is acceptable to the Committee in its sole discretion. In the event that shares of RestrictedStock are tendered as consideration for the exercise of a Stock Option, a number of shares of Common Stock issued upon the exerciseof the Stock Option equal to the number of shares of Restricted Stock used as consideration therefor shall be subject to the samerestrictions and provisions as the Restricted Stock so tendered.

 

Upon payment of all amountsdue from the Participant, the Company shall cause the Common Stock then being purchased to be electronically registered in theParticipant’s name (or the name of the person exercising the Participant’s Stock Option in the event of his death),promptly after the Exercise Date. The Company shall not issue certificates for Common Stock unless the Participant (or the personexercising the Participant’s Stock Option in the event of his death) requests delivery of the certificates for the CommonStock in writing and in accordance with the procedures established by the Committee. The Company shall deliver the certificatesas soon as administratively practicable following the Company’s receipt of the written request from the Participant (or theperson exercising the Participant’s Stock Option in the event of his death) for delivery of the certificates. The obligationof the Company to register or deliver such shares of Common Stock shall, however, be subject to the condition that, if at any timethe Company shall determine in its discretion that the listing, registration, or qualification of the Stock Option or the CommonStock upon any securities exchange or inter-dealer quotation system or under any state or federal law, or the consent or approvalof any governmental regulatory body, is necessary as a condition of, or in connection with, the Stock Option or the issuance orpurchase of shares of Common Stock thereunder, then the Stock Option may not be exercised in whole or in part unless such listing,registration, qualification, consent, or approval shall have been effected or obtained free of any conditions not reasonably acceptableto the Committee.

 

 

If the Participant failsto pay for any of the Optioned Shares specified in such notice or fails to accept delivery thereof, then that portion of the Participant’sStock Option and the right to purchase such Optioned Shares may be forfeited by the Participant.

 

8.          Nonassignability.The Stock Option is not assignable or transferable by the Participant except by will or by the laws of descent and distribution.

 

9.          Rightsas Stockholder. The Participant will have no rights as a stockholder****with respect to any of the Optioned Shares untilthe issuance of a certificate or certificates to the Participant or the registration of such shares in the Participant’sname for the shares of Common Stock. The Optioned Shares shall be subject to the terms and conditions of this Agreement. Exceptas otherwise provided in Section 10 hereof, no adjustment shall be made for dividends or other rights for which therecord date is prior to the issuance of such certificate or certificates, or the registration of such shares in the Participant’sname. The Participant, by his execution of this Agreement, agrees to execute any documents requested by the Company in connectionwith the issuance of the shares of Common Stock.

 

10.        Adjustmentof Number of Optioned Shares and Related Matters. The number of shares of Common Stock covered by the Stock Option, and theOption Prices thereof, shall be subject to adjustment in accordance with Articles 11 – 13 of the Plan.

 

11.        IncentiveStock Option. Subject to the provisions of the Plan, the Stock Option is intended to be an Incentive Stock Option. To the extentthe number of Optioned Shares exceeds the limit set forth in Section 6.3 of the Plan, such Optioned Shares shall be deemed grantedpursuant to a Nonqualified Stock Option. Unless otherwise indicated by the Participant in the notice of exercise pursuant to Section7, upon any exercise of this Stock Option, the number of exercised Optioned Shares that shall be deemed to be exercised pursuantto an Incentive Stock Option shall equal the total number of Optioned Shares so exercised multiplied by a fraction, (i) the numeratorof which is the number of unexercised Optioned Shares that could then be exercised pursuant to an Incentive Stock Option, and (ii)the denominator of which is the then total number of unexercised Optioned Shares.

 

12.        DisqualifyingDisposition. In the event that Common Stock acquired upon exercise of this Stock Option is disposed of by the Participant ina “Disqualifying Disposition,” such Participant shall notify the Company in writing within thirty (30) days after suchdisposition of the date and terms of such disposition. For purposes hereof, “***Disqualifying Disposition***”shall mean a disposition of Common Stock that is acquired upon the exercise of this Stock Option (and that is not deemed grantedpursuant to a Nonqualified Stock Option under Section 11) prior to the expiration of either two (2) years from the Dateof Grant of this Stock Option or one (1) year from the transfer of shares to the Participant pursuant to the exercise of the StockOption.

 

13.        Voting.The Participant, as record holder of some or all of the Optioned Shares following exercise of this Stock Option, has the exclusiveright to vote, or consent with respect to, such Optioned Shares until such time as the Optioned Shares are transferred in accordancewith this Agreement; provided, however, that this Section shall not create any voting right where the holders ofsuch Optioned Shares otherwise have no such right.

 

 

14.        SpecificPerformance. The parties acknowledge that remedies at law will be inadequate remedies for breach of this Agreement and consequentlyagree that this Agreement shall be enforceable by specific performance. The remedy of specific performance shall be cumulativeof all of the rights and remedies at law or in equity of the parties under this Agreement.

 

15.        Participant’sRepresentations. Notwithstanding any of the provisions hereof, the Participant hereby agrees that he will not exercise theStock Option granted hereby, and that the Company will not be obligated to issue any shares to the Participant hereunder, if theexercise thereof or the registration or issuance of such shares shall constitute a violation by the Participant or the Companyof any provision of any law or regulation of any governmental authority. Any determination in this connection by the Company shallbe final, binding, and conclusive. The obligations of the Company and the rights of the Participant are subject to all ApplicableLaws.

 

16.        InvestmentRepresentation. Unless the shares of Common Stock are issued to the Participant in a transaction registered under applicablefederal and state securities laws, by his execution hereof, the Participant represents and warrants to the Company that all CommonStock which may be purchased hereunder will be acquired by the Participant for investment purposes for his own account and notwith any intent for resale or distribution in violation of federal or state securities laws. Unless the Common Stock is issuedto him in a transaction registered under the applicable federal and state securities laws, any certificates issued with respectto the Common Stock shall bear an appropriate restrictive investment legend and shall be held indefinitely, unless they are subsequentlyregistered under the applicable federal and state securities laws or the Participant obtains an opinion of counsel, in form andsubstance satisfactory to the Company and its counsel, that such registration is not required.

 

17.        Participant’sAcknowledgments. The Participant acknowledges that a copy of the Plan has been made available for his or her review by theCompany, and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts this Stock Optionsubject to all the terms and provisions thereof. The Participant hereby agrees to accept as binding, conclusive, and final alldecisions or interpretations of the Committee or the Board, as appropriate, upon any questions arising under the Plan or this Agreement.

 

18.        LawGoverning. This Agreement shall be governed by, construed, and enforced in accordance with the laws of the State of****Delaware(excluding any conflict of laws rule or principle of Delaware law that might refer the governance, construction, or interpretationof this Agreement to the laws of another state).

 

19.        NoRight to Continue Employment. Nothing herein shall be construed to confer upon the Participant the right to continue in theemployment of the Company or to interfere with or restrict in any way the right of the Company to discharge the Participant atany time (subject to any contract rights of the Participant).

 

20.        LegalConstruction. In the event that any one or more of the terms, provisions, or agreements that are contained in this Agreementshall be held by a court of competent jurisdiction to be invalid, illegal, or unenforceable in any respect for any reason, theinvalid, illegal, or unenforceable term, provision, or agreement shall not affect any other term, provision, or agreement thatis contained in this Agreement, and this Agreement shall be construed in all respects as if the invalid, illegal, or unenforceableterm, provision, or agreement had never been contained herein.

 

21.        Covenantsand Agreements as Independent Agreements. Each of the covenants and agreements that is set forth in this Agreement shall beconstrued as a covenant and agreement independent of any other provision of this Agreement. The existence of any claim or causeof action of the Participant against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defenseto the enforcement by the Company of the covenants and agreements that are set forth in this Agreement.

 

 

22.        EntireAgreement. This Agreement together with the Plan supersede any and all other prior understandings and agreements, either oralor in writing, between the parties with respect to the subject matter hereof and constitute the sole and only agreements betweenthe parties with respect to the said subject matter. All prior negotiations and agreements between the parties with respect tothe subject matter hereof are merged into this Agreement. Each party to this Agreement acknowledges that no representations, inducements,promises, or agreements, orally or otherwise, have been made by any party or by anyone acting on behalf of any party, which arenot embodied in this Agreement or the Plan and that any agreement, statement, or promise that is not contained in this Agreementor the Plan shall not be valid or binding or of any force or effect.

 

23.        PartiesBound. The terms, provisions, and agreements that are contained in this Agreement shall apply to, be binding upon, and inureto the benefit of the parties and their respective heirs, executors, administrators, legal representatives, and permitted successorsand assigns, subject to the limitation on assignment expressly set forth herein.

 

24.        Modification.No change or modification of this Agreement shall be valid or binding upon the parties unless the change or modification is inwriting and signed by the parties. Notwithstanding the preceding sentence, the Company may amend the Plan to the extent permittedby the Plan.

 

25.        Headings.The headings that are used in this Agreement are used for reference and convenience purposes only and do not constitute substantivematters to be considered in construing the terms and provisions of this Agreement.

 

26.        Genderand Number. Words of any gender used in this Agreement shall be held and construed to include any other gender, and words inthe singular number shall be held to include the plural, and vice versa, unless the context requires otherwise.

 

27.        Notice.Any notice required or permitted to be delivered hereunder shall be deemed to be delivered only when actually received by the Companyor by the Participant, as the case may be, at the addresses set forth below, or at such other addresses as they have theretoforespecified by written notice delivered in accordance herewith:

 

a.           Noticeto the Company shall be addressed and delivered as follows:

 

NanoVibronix, Inc.

525 Executive Boulevard

Elmsford, New York 10523

Attn:

Facsimile:

 

b.           Noticeto the Participant shall be addressed and delivered as set forth on the signature page.

 

 

28.        TaxRequirements. The Participant is hereby advised to consult immediately with his own tax advisor regarding the tax consequencesof this Agreement. The Company or, if applicable, any Subsidiary (for purposes of this Section 28, the term “***Company***”shall be deemed to include any applicable Subsidiary), shall have the right to deduct from all amounts paid in cash or other formin connection with the Plan, any federal, state, local, or other taxes required by law to be withheld in connection with this Award.The Company may, in its sole discretion, also require the Participant receiving shares of Common Stock issued under the Plan topay the Company the amount of any taxes that the Company is required to withhold in connection with the Participant’s incomearising with respect to this Award. Such payments shall be required to be made when requested by the Company and may be requiredto be made prior to the registration of such shares in the Participant’s name or the delivery of any certificate representingshares of Common Stock, if such certificate is requested by the Participant in accordance with Section 8.3(c) of the Plan. Suchpayment may be made by (i) the delivery of cash to the Company in an amount that equals or exceeds (to avoid the issuance of fractionalshares under (iii) below) the required tax withholding obligations of the Company; (ii) if the Company, in its sole discretion,so consents in writing, the actual delivery by the exercising Participant to the Company of shares of Common Stock that the Participanthas not acquired from the Company within six (6) months prior to the date of exercise, which shares so delivered have an aggregateFair Market Value that equals or exceeds (to avoid the issuance of fractional shares under (iii) below) the required tax withholdingpayment; (iii) if the Company, in its sole discretion, so consents in writing, the Company’s withholding of a number of sharesto be delivered upon the exercise of the Stock Option, which shares so withheld have an aggregate Fair Market Value that equals(but does not exceed) the required tax withholding payment; or (iv) any combination of (i), (ii), or (iii). The Company may, inits sole discretion, withhold any such taxes from any other cash remuneration otherwise paid by the Company to the Participant.

 

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IN WITNESS WHEREOF, theCompany has caused this Agreement to be executed by its duly authorized officer, and the Participant, to evidence his consent andapproval of all the terms hereof, has duly executed this Agreement, as of the date specified in Section 1 hereof.