Document:

Exhibit
10.13

 

INCENTIVE
STOCK OPTION AGREEMENT

 

THIS AGREEMENT is entered
into and effective as of this       day of         ,
      (the “Date of Grant”), by and between Transoma
Medical, Inc. (the “Company”) and                 
(the “Optionee”).

 

A. The Company has adopted
the Transoma Medical, Inc. 2007 Stock Incentive Plan (the “Plan”) authorizing
the Board of Directors of the Company, or a committee (the Board or such a
committee to be referred to as the “Committee”), to grant incentive stock
options to employees (including officers) of the Company and any Subsidiary (as
defined in the Plan).

 

B. The Company desires to
give the Optionee an inducement to acquire a proprietary interest in the
Company and an added incentive to advance the interests of the Company by
granting to the Optionee an option to purchase shares of the Company’s common
stock, $.001 par value (“Common Stock”), pursuant to the Plan.

 

Accordingly, the parties
agree as follows:

 

Section 1. Grant of Option. The Company hereby
grants to the Optionee the right, privilege and option (the “Option”) to
purchase                             
shares (the “Option Shares”) of Common Stock according to the terms and subject
to the conditions hereinafter set forth and as set forth in the Plan. The Option
is intended to be an “incentive stock option,” as that term is used in Section
422 of the Internal Revenue Code of 1986, as amended (the “Code”).

 

Section 2. Option Exercise Price. The per share
price to be paid by Optionee in the event of an exercise of this Option will be $       .

 

Section 3. Duration of Option and Time of Exercise.

 

(a)  Exercisability and
Expiration. This Option will become exercisable, on a cumulative basis,
according to the following schedule:

 

	
  On or after each of the 

  following dates

  	
   

  	
  Cumulative percentage of shares with respect to

  which the Option is exercisable

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

 

This Option will remain exercisable as to all
unexercised Option Shares until 5:00 p.m. (St. Paul, Minnesota time) on the tenth
(10th) anniversary of the Date of Grant (the “Time of Termination”).

 

(b)  Termination of
Employment or Other Service.

 

(i)  Termination Due to
Death, Disability or Retirement. In the event that the Optionee’s
employment or other service with the Company and all Subsidiaries is terminated
by reason of the Optionee’s death, Disability or Retirement (as such terms are
defined in the Plan), this Option will remain exercisable to the extent
exercisable as of such termination for a period of twelve months after such
termination (but in no event after the Time of Termination). Options not
exercisable as of such termination will be forfeited and terminated.

 

(ii)   Termination for
Reasons Other Than Death, Disability or Retirement. In the event the
Optionee’s employment or other service with the Company and all Subsidiaries is
terminated for any reason other than death, Disability or Retirement, or the
Optionee is in the employ or service of a Subsidiary and the Subsidiary ceases
to be a Subsidiary of the Company (unless the Optionee continues in the employ
or service of the Company or another Subsidiary), this Option will remain
exercisable to the extent exercisable as of such termination for a period of
three months after such termination (but in no event after the Time of
Termination). Options not exercisable as of such termination will be forfeited
and terminated. Notwithstanding the foregoing, if the Optionee’s employment or
other service with the Company and all Subsidiaries is terminated for Cause, all
rights of the Optionee under the Plan and this Agreement will immediately
terminate without notice of any kind, and this Option will no longer be
exercisable.

 

Section 4. Manner of Option Exercise.

 

(a)  Notice. This
Option may be exercised by the Optionee in whole or in part from time to time,
subject to the conditions contained in the Plan and in this Agreement, by
delivery, in person, by facsimile or electronic transmission or through the
mail of written notice of exercise, to the Company (Attention: Secretary) at
its principal executive office in St. Paul, Minnesota. Such notice must be in a
form satisfactory to the Committee, must identify the Option, must specify the
number of Option Shares with respect to which the Option is being exercised,
and must be signed by the person or persons so exercising the Option. Such
notice must be accompanied by payment in full of the total purchase price of
the Option Shares purchased. In the event that the Option is being exercised,
as provided by the Plan and Section 3(b) above, by any person or persons other
than the Optionee, the notice must be accompanied by appropriate proof of right
of such person or persons to exercise the Option. As soon as practicable after
the effective exercise of the Option, the Optionee will be recorded on the stock
transfer books of the Company as the owner of the Option Shares purchased, and
the Company will deliver to the Optionee one or more duly issued stock
certificates evidencing such ownership.

 

(b)  Payment. At the
time of exercise of this Option, the Optionee must pay the total purchase price
of the Option Shares to be purchased entirely in cash (including check, bank
draft or money order, payable to the order of the Company); provided, however,
that the Committee, in its sole discretion and upon terms and conditions
established by the Committee, may allow such payment to be made, in whole or in
part, by tender of a Broker Exercise Notice, by promissory note (to the extent
permissible under applicable law) or Previously Acquired Shares (as such terms
are defined in the Plan), by a “net exercise” (as described in the Plan), or by
a combination of such methods. In the event the Optionee is permitted to pay
the total purchase price of this Option in whole or in part with Previously
Acquired Shares, the value of such shares will be equal to their Fair Market
Value on the date of exercise of this Option.

 

2

 

Section 5. Forfeiture of Option and Option Gain
Resulting from Certain Activities

 

(a)  If, at any time within the longer of two (2)
years after the date that Optionee has exercised this Option or two (2) years
after the date of the termination of Optionee’s employment with the Company and
all Subsidiaries for any reason whatsoever while this Agreement is in effect, Optionee
engages in any Forfeiture Activity (as defined below) then (i) this Option
shall immediately terminate effective as of the date any such activity first
occurred, and (ii) any gain received by Optionee pursuant to the exercise of
the Option granted hereunder must be paid to the Company within 30 days of
demand by the Company. For purposes hereof, the gain on any exercise of this
Option shall be determined by multiplying the number of shares purchased
pursuant to this Option times the excess of the Fair Market Value of a share of
common stock on the date of exercise (without regard to any subsequent increase
or decrease in the Fair Market Value) over the Exercise Price.

 

(b)  As used herein, Optionee shall be deemed to
have engaged in a Forfeiture Activity if Optionee: (i) directly or indirectly
engages in any business activity on his or her own behalf or as a partner,
shareholder, director, trustee, principal, agent, employee, consultant or
otherwise of any person or entity which is in any respect in competition with
or competitive with the Company or any Subsidiary, or solicits, entices or
induces any employee or representative of the Company or any Subsidiary to
engage in any such activity; (ii) directly or indirectly solicits, entices or
induces (or assists any other person or entity in soliciting, enticing or
inducing) any customer or potential customer (or agent, employee or consultant
of any customer or potential customer) with whom Optionee had contact in the
course of his or her employment with the Company or any Subsidiary to deal with
a competitor of the Company or any Subsidiary; or (iii) fails to hold in a
fiduciary capacity for the benefit of the Company and it Subsidiaries all
confidential information, knowledge and data, including customer lists and
information, business plans and business strategy (“Confidential Data”)
relating in any way to the business of the Company and its Subsidiaries for so
long as such Confidential Data remains confidential.

 

(c)  If any court of competent jurisdiction shall
determine that the foregoing forfeiture provision is invalid in any respect,
the court so holding may limit such covenant either in time, in area or in
both, or in any other manner which the court determines, such that the covenant
shall be enforceable against Optionee. Optionee shall acknowledge that the
remedy of law for any breach of the foregoing covenant not to compete will be
inadequate, and that the Company shall be entitled, in addition to any remedy
of law, to preliminary and permanent injunctive relief.

 

Section 6.               Company’s Option to Repurchase Shares.

 

(a)           Subject to the provisions of Section 6(h) hereof, upon and after the
occurrence of any one or more of the Option Events, as hereinafter defined, the
Company shall have the irrevocable right and option (the “Call Option”) to
purchase from Optionee or Optionee’s heirs, successors, personal
representatives or assigns, and Optionee on behalf of his or her heirs,
successors, personal representatives or assigns, agrees to sell to the Company
upon the exercise of the Call Option all or any part of the shares acquired by Optionee
pursuant to this Option. (The Company’s Call Option, and any reference to
shares acquired by Optionee pursuant to this Option, shall be deemed to include
all other shares of any class or series of the Company’s capital stock acquired
by Optionee on account of or with respect to shares acquired pursuant to this
Option, whether the acquisition of such shares is by stock dividend, stock
split, recapitalization or any other similar means.) The Company may exercise
the Call Option in whole or in part and from time to time in its sole
discretion; provided, however, the Company may exercise the Call Option no
earlier than six months and one day after the exercise of the Option pursuant
to which the shares subject to the Call Option were issued. No delay in the
exercise of the Call Option by the Company will diminish or terminate the
Company’s rights pursuant to the Call Option. The Option Events, as they relate
to any Optionee, shall be:

 

3

 

(i)  The express desire of Optionee to sell,
assign, pledge, transfer, give or otherwise dispose of or encumber any shares
acquired by Optionee pursuant to this Option or any attempt by Optionee to
transfer any such shares except in strict compliance with the terms and
conditions of this Agreement, whether or not for value. Notwithstanding any
other provision of this Agreement, a transfer by Optionee during the lifetime
of Optionee for bona fide estate or tax planning purposes, including but not
limited to any transfer by gift to a spouse, child, sibling or parent of Optionee
or a transfer to a trust, and a transfer following the death of the Optionee
pursuant to the terms of the Optionee’s will or the laws of descent and
distribution or intestate succession shall not be an Option Event within the
meaning of this Section 6(a), provided such transfer complies with the terms
and conditions set forth in Section 6(f) hereof. A transfer described in the
preceding sentence shall be referred to as a “Permitted Transfer” and a person
who acquires shares in a Permitted Transfer as a “Permitted Transferee.”

 

(ii)  Any attempt by or desire of the Optionee to
sell, transfer or dispose of shares acquired pursuant to this Option in any
manner whatsoever pursuant to a bona fide offer by a third party to purchase
such shares. (Such event shall constitute an Option Event solely with respect
to those shares of common stock that the Optionee attempts to or desires to
sell, transfer or dispose of to such bona fide third party.)

 

(iii)  The appointment by a court of competent
jurisdiction or otherwise of a receiver, trustee or assignee of Optionee or Optionee’s
property.

 

(iv)  The expiration of thirty (30) days immediately
following the date upon which a money judgment entered in a court of record
against Optionee becomes final, provided such judgment remains unsatisfied.

 

(v)  Voluntary application of Optionee for relief
under any act of Congress or any of the laws of the several states now or
hereafter enacted providing for the relief of debtors.

 

(vi)  Institution of a levy, garnishment or
attachment involving any of the shares acquired by Optionee pursuant to this
Option, unless released or discharged within a period of thirty (30) days.

 

(vii)  Optionee’s termination of employment with the
Company or any Subsidiary for Cause.

 

(viii)  Any purported transfer of all or any part of
the shares acquired by Optionee pursuant to this Option upon termination of Optionee’s
marital relationship. (Such event shall constitute an Option Event solely with
respect to those shares purported to be transferred.)

 

(ix)  Optionee’s engaging in a Forfeiture Activity
as defined in Section 5(b) of this Agreement.

 

(b)           Within thirty (30) days of the occurrence of anyone or more of the
Option Events described in Section 6(a), the Optionee or his or her legal
representative, as the case may be, shall notify the Company of the occurrence
of the Option Event or Events, the number of shares subject to such Option
Event and the address to which the Company shall send any notice in connection
with its Call Option.

 

(c)           Upon the occurrence of the Option Event described in Section 6(a)(ii), Optionee
(or his or her legal representative) shall deliver a written notice thereof to
the Company, which notice shall specify 

 

4

 

the Option Event, the bona fide third party
purchaser to whom the shares are to be sold, transferred or disposed of, the
purchase price or other consideration to be received by Optionee for such
shares, and the terms upon which such purchase price or other consideration is
to be paid, if applicable. The Company may then exercise its Call Option with
respect to all or any part of such shares by delivering a written election to
exercise to Optionee (or his or her legal representative) within thirty (30)
days after receipt of the written notice from Optionee; provided, however, that
such written election to exercise shall provide for a date of exercise and
repurchase of the shares subject to the Company’s Call Option that is no
earlier than the day that is six months and one day after the exercise of the
Option pursuant to which the shares subject to the Call Option were issued. The
purchase price for the shares that the Company elects to purchase pursuant to
this Section 6(c) shall be the purchase price (or the fair market value of
other consideration) to be paid for such shares by the bona fide third party
purchaser. If the Company elects not to exercise its Call Option with respect
to all or a portion of the shares, Optionee (or his or her legal
representative) shall have the right to sell, transfer or dispose of such
shares on the terms specified in the written notice to the Company, but only if
such transaction is consummated within ninety (90) days after the date on which
Company received the written notice of the Option Event from the Optionee.

 

(d)           Upon
the occurrence of anyone or more Option Events, other than the Option Event
described in Section 6(a)(ii), the purchase price for the shares that are
repurchased by the Company pursuant to the exercise of its Call Option shall be
the Fair Market Value thereof, as determined in accordance with the provisions
of the Plan. Notwithstanding any other provisions of this Agreement, with
respect to any exercise by the Company of its Call Option in connection with an
Option Event described in Section 6(a)(ix) hereof, the Company shall be
entitled to offset and reduce the total purchase price of the repurchased
shares by any amount that Optionee is required to pay to the Company pursuant
to Section 5(a)(ii) of this Agreement.

 

(e)           As
determined by the Company in its sole and absolute discretion, the Company
shall make payment of the purchase price (determined under Section 6(c) or 6(d)
hereof) for any shares that it reacquires pursuant to its exercise of the Call
Option by delivering to Optionee or Optionee’s heirs, successors, assigns or
personal representatives, as the case may be: (i) the Company’s check in the
amount of the purchase price; (ii) the Company’s promissory note in the amount
of the purchase price, which promissory note shall provide for a term not to
exceed five (5) years and interest on the unpaid balance thereof at a rate
which is not less than the incremental borrowing rate of the Company on a note
of similar characteristics, and in no case less than the minimum rate required
to avoid the imputation of income, original issue discount or a below market
rate loan pursuant to Sections 483, 1274 and 11872 of the Code or any successor
provisions thereto, as determined by the Company; or (iii) a combination of
cash and the Company’s promissory note, as described in (ii), the total of
which is equal to such purchase price. Upon receipt of such payment from the
Company, Optionee or his or her heirs, successors, assigns or personal
representatives, as the case may be, shall deliver to the Company for
cancellation the stock certificate or certificates evidencing the shares of
common stock being repurchased by the Company pursuant to the exercise of its
Call Option, which certificate or certificates shall be duly endorsed for
cancellation by the Company. Optionee or his or her heirs, successors, assigns
or personal representatives shall have no rights as a shareholder after receipt
of payment (whether in cash, a promissory note or a combination thereof) from
the Company.

 

(f)            A
Permitted Transferee who acquires shares in a Permitted Transfer, as set forth
in Section 6(a)(i) of this Agreement, shall be bound by the terms, conditions,
restrictions and obligations of this Section 6 and Section 7 of this Agreement
as if such Permitted Transferee were Optionee. As a condition precedent of a
Permitted Transfer, the Permitted Transferee shall execute a counterpart of
this Agreement or such other and further documents or agreements that the
Company in consultation with its counsel deems necessary. Any purported
Permitted Transfer that is not in compliance with this Section 6(f) shall be
null and void.

 

5

 

(g)           Optionee shall not
voluntarily or involuntarily sell, exchange, transfer, pledge, or otherwise
dispose of any of the shares acquired pursuant to the exercise of this Option
unless Optionee shall first offer to sell such shares to the Company pursuant
to the Company’s Call Option as described above.

 

(h)           The provisions of this Section 6 shall terminate and be of no further
force and effect as of the earliest date on which the Company registers a class
or series of its common stock under the Securities Exchange Act of 1934, as
amended (a “Public Offering”).

 

Section 7. Rights of
Optionee; Transferability.

 

(a)  Employment
or Service. Nothing in this Agreement or the Plan will interfere with or
limit in any way the right of the Company or any Subsidiary to terminate the
employment or service of the Optionee at any time, nor confer upon the Optionee
any right to continue in the employ or service of the Company or any Subsidiary
at any particular position or rate of pay or for any particular period of time.

 

(b)  Rights as a
Shareholder. The Optionee will have no rights as a shareholder unless and
until all conditions to the effective exercise of this Option (including,
without limitation, the conditions set forth in Section 4 of this Agreement and
Section 14 of the Plan) have been satisfied and the Optionee has become the
holder of record of such shares. No adjustment will be made for dividends or
distributions with respect to this Option as to which there is a record date
preceding the date the Optionee becomes the holder of record of such shares,
except as may otherwise be provided in the Plan or determined by the Committee
in its sole discretion.

 

(c)  Restrictions on
Transfer. Except pursuant to testamentary will or the laws of descent and
distribution or as otherwise expressly permitted by the Plan, no right or
interest of the Optionee in this Option prior to exercise may be assigned or
transferred, or subjected to any lien, during the lifetime of the Optionee, either
voluntarily or involuntarily, directly or indirectly, by operation of law or
otherwise. The Optionee will, however, be entitled to designate a beneficiary
to receive this Option upon such Optionee’s death, and, in the event of the
Optionee’s death, exercise of this Option (to the extent permitted pursuant to
Section 3(b)(i) of this Agreement) may be made by the Optionee’s legal
representatives, heirs and legatees.

 

Section 8. Withholding
Taxes. The Company is entitled to (a) withhold and deduct from future wages
of the Optionee (or from other amounts that may be due and owing to the
Optionee from the Company or any Subsidiary), or make other arrangements for
the collection of, all legally required amounts necessary to satisfy any
federal, state and local withholding and employment-related tax requirements
attributable to the grant or exercise of, or disqualifying disposition with
respect to, this Option or otherwise incurred with respect to this Option, (b)
withhold shares of Common Stock from the shares issued or otherwise issuable to
Optionee in connection with the Option, or (c) require the Optionee promptly to
remit the amount of such withholding to the Company before acting on the
Optionee’s notice of exercise of this Option. In the event that the Company is
unable to withhold such amounts, for whatever reason, the Optionee agrees to
pay to the Company an amount equal to the amount the Company would otherwise be
required to withhold under federal, state or local law. If the Optionee
disposes of any of the shares of Common Stock acquired upon exercise of this
Option within two (2) years from the date this Option was granted or within one
(1) year after the date of exercise of this Option, then, in order to provide
the Company with the opportunity to claim the benefit of any income tax
deduction, the Optionee shall promptly notify the Company of the dates of
acquisition and disposition of such shares, the number of shares so disposed
of, and the consideration, if any, received for such shares.

 

6

 

Section 9. Adjustments.
In the event of any reorganization, merger, consolidation, recapitalization,
liquidation, reclassification, stock dividend, stock split, combination of
shares, rights offering, divestiture or extraordinary dividend (including a
spin-off), or any other change in the corporate structure or shares of the
Company, the Committee (or, if the Company is not the surviving corporation in
any such transaction, the board of directors of the surviving corporation), in
order to prevent dilution or enlargement of the rights of the Optionee, will
make appropriate adjustment (which determination will be conclusive) as to the
number, kind and exercise price of securities subject to this Option.

 

Section 10. Subject to
Plan. The Option and the Option Shares granted and issued pursuant to this
Agreement have been granted and issued under, and are subject to the terms of,
the Plan. The terms of the Plan are incorporated by reference in this Agreement
in their entirety, and the Optionee, by execution of this Agreement,
acknowledges having received a copy of the Plan. The provisions of this
Agreement will be interpreted as to be consistent with the Plan, and any
ambiguities in this Agreement will be interpreted by reference to the Plan. In
the event that any provision of this Agreement is inconsistent with the terms
of the Plan, the terms of the Plan will prevail.

 

Section 11. Miscellaneous.

 

(a)  Binding Effect. This
Agreement will be binding upon the heirs, executors, administrators and
successors of the parties to this Agreement.

 

(b)  Governing Law. This
Agreement and all rights and obligations under this Agreement will be construed
in accordance with the Plan and governed by the laws of the State of Minnesota,
without regard to conflicts of laws provisions. Any legal proceeding related to
this Agreement will be brought in an appropriate Minnesota court, and the
parties to this Agreement consent to the exclusive jurisdiction of the court
for this purpose.

 

(c)  Entire Agreement. This
Agreement and the Plan set forth the entire agreement and understanding of the
parties to this Agreement with respect to the grant and exercise of this Option
and the administration of the Plan and supersede all prior agreements, arrangements,
plans and understandings relating to the grant and exercise of this Option and
the administration of the Plan.

 

(d)  Amendment and Waiver.
Other than as provided in the Plan, this Agreement may be amended, waived,
modified or canceled only by a written instrument executed by the parties to
this Agreement or, in the case of a waiver, by the party waiving compliance.

 

(e)  Counterparts. For convenience of the
parties hereto, this Agreement may be executed in any number of counterparts,
each such counterpart to be deemed an original instrument, and all such
counterparts together constitute the same agreement.

 

[Remainder of Page Intentionally Left Blank]

 

7

 

The parties to this
Agreement have executed this Agreement effective the day and year first above
written.

 

	
   

  	
  TRANSOMA MEDICAL, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Its:

  	
  Chief Financial Officer

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By execution of this
  Agreement,

  	
  OPTIONEE

  
	
  The Optionee acknowledges
  having

  	
   

  	
   

  
	
  received a copy of the
  Plan.

  	
   

  
	
   

  	
   

  	
  (Signature)

  
	
   

  	
   

  	
   

  
	
   

  	
  [Name
  of Optionee]

  
	
   

  	
  [Address]

  
	
   

  	
  [Address]

  

 

8Exhibit
10.14

 

NON-STATUTORY
STOCK OPTION AGREEMENT

 

THIS AGREEMENT is entered
into and effective as of this       day of         ,
      (the “Date of Grant”), by and between Transoma
Medical, Inc. (the “Company”) and                 
(the “Optionee”).

 

A. The Company has adopted
the Transoma Medical, Inc. 2007 Stock Incentive Plan (the “Plan”) authorizing
the Board of Directors of the Company, or a committee (the Board or such a
committee to be referred to as the “Committee”), to grant non-statutory stock
options to employees (including officers and directors who are also employees)
and non-employee directors, consultants, advisors and independent contractors
of the Company and any Subsidiary (as defined in the Plan).

 

B. The Company desires to
give the Optionee an inducement to acquire a proprietary interest in the
Company and an added incentive to advance the interests of the Company by
granting to the Optionee an option to purchase shares of the Company’s common
stock, $.001 par value (“Common Stock”), pursuant to the Plan.

 

Accordingly, the parties
agree as follows:

 

Section 1. Grant of Option. The Company hereby
grants to the Optionee the right, privilege and option (the “Option”) to
purchase                             
shares (the “Option Shares”) of Common Stock according to the terms and subject
to the conditions hereinafter set forth and as set forth in the Plan. The
Option is not intended to be an “incentive stock option,” as that term is used
in Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”).

 

Section 2. Option Exercise Price. The per share
price to be paid by Optionee in the event of an exercise of this Option will be $       .

 

Section 3. Duration of Option and Time of Exercise.

 

(a)  Exercisability and
Expiration. This Option will become exercisable, on a cumulative basis,
according to the following schedule:

 

	
  On or after each of the

  following dates

  	
   

  	
  Cumulative percentage of shares with respect to 

  which the Option is exercisable

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

 

This Option will remain exercisable as to all
unexercised Option Shares until 5:00 p.m. (St. Paul, Minnesota time) on the tenth
(10th) anniversary of the Date of Grant (the “Time of Termination”).

 

(b)  Termination of
Employment or Other Service.

 

(i)  Termination Due to Death,
Disability or Retirement. In the event that the Optionee’s employment or
other service with the Company and all Subsidiaries is terminated by reason of
the Optionee’s death, Disability or Retirement (as such terms are defined in
the Plan), this Option will remain exercisable to the extent exercisable as of
such termination for a period of twelve months after such termination (but in
no event after the Time of Termination). Options not exercisable as of such
termination will be forfeited and terminated.

 

(ii)   Termination for
Reasons Other Than Death, Disability or Retirement. In the event the
Optionee’s employment or other service with the Company and all Subsidiaries is
terminated for any reason other than death, Disability or Retirement, or the
Optionee is in the employ or service of a Subsidiary and the Subsidiary ceases
to be a Subsidiary of the Company (unless the Optionee continues in the employ
or service of the Company or another Subsidiary), this Option will remain
exercisable to the extent exercisable as of such termination for a period of
three months after such termination (but in no event after the Time of
Termination). Options not exercisable as of such termination will be forfeited
and terminated. Notwithstanding the foregoing, if the Optionee’s employment or
other service with the Company and all Subsidiaries is terminated for Cause, all
rights of the Optionee under the Plan and this Agreement will immediately
terminate without notice of any kind, and this Option will no longer be
exercisable.

 

Section 4. Manner of Option Exercise.

 

(a)  Notice. This
Option may be exercised by the Optionee in whole or in part from time to time,
subject to the conditions contained in the Plan and in this Agreement, by
delivery, in person, by facsimile or electronic transmission or through the
mail of written notice of exercise, to the Company (Attention: Secretary) at
its principal executive office in St. Paul, Minnesota. Such notice must be in a
form satisfactory to the Committee, must identify the Option, must specify the
number of Option Shares with respect to which the Option is being exercised,
and must be signed by the person or persons so exercising the Option. Such
notice must be accompanied by payment in full of the total purchase price of
the Option Shares purchased. In the event that the Option is being exercised,
as provided by the Plan and Section 3(b) above, by any person or persons other
than the Optionee, the notice must be accompanied by appropriate proof of right
of such person or persons to exercise the Option. As soon as practicable after
the effective exercise of the Option, the Optionee will be recorded on the
stock transfer books of the Company as the owner of the Option Shares
purchased, and the Company will deliver to the Optionee one or more duly issued
stock certificates evidencing such ownership.

 

(b)  Payment. At the
time of exercise of this Option, the Optionee must pay the total purchase price
of the Option Shares to be purchased entirely in cash (including check, bank
draft or money order, payable to the order of the Company); provided, however,
that the Committee, in its sole discretion and upon terms and conditions
established by the Committee, may allow such payment to be made, in whole or in
part, by tender of a Broker Exercise Notice, by promissory note (to the extent
permissible under applicable law) or Previously Acquired Shares (as such terms
are defined in the Plan), by a “net exercise” (as described in the Plan), or by
a combination of such methods. In the event the Optionee is permitted to pay
the total purchase price of this Option in whole or in part with Previously
Acquired Shares, the value of such shares will be equal to their Fair Market
Value on the date of exercise of this Option.

 

2

 

Section 5. Forfeiture of Option and Option Gain
Resulting from Certain Activities

 

(a)  If, at any
time within the longer of two (2) years after the date that Optionee has
exercised this Option or two (2) years after the date of the termination of Optionee’s
employment with the Company and all Subsidiaries for any reason whatsoever
while this Agreement is in effect, Optionee engages in any Forfeiture Activity
(as defined below) then (i) this Option shall immediately terminate effective
as of the date any such activity first occurred, and (ii) any gain received by Optionee
pursuant to the exercise of the Option granted hereunder must be paid to the
Company within 30 days of demand by the Company. For purposes hereof, the gain
on any exercise of this Option shall be determined by multiplying the number of
shares purchased pursuant to this Option times the excess of the Fair Market Value
of a share of common stock on the date of exercise (without regard to any
subsequent increase or decrease in the Fair Market Value) over the Exercise
Price.

 

(b)  As used
herein, Optionee shall be deemed to have engaged in a Forfeiture Activity if Optionee:
(i) directly or indirectly engages in any business activity on his or her own
behalf or as a partner, shareholder, director, trustee, principal, agent,
employee, consultant or otherwise of any person or entity which is in any
respect in competition with or competitive with the Company or any Subsidiary,
or solicits, entices or induces any employee or representative of the Company or
any Subsidiary to engage in any such activity; (ii) directly or indirectly
solicits, entices or induces (or assists any other person or entity in
soliciting, enticing or inducing) any customer or potential customer (or agent,
employee or consultant of any customer or potential customer) with whom Optionee
had contact in the course of his or her employment with the Company or any
Subsidiary to deal with a competitor of the Company or any Subsidiary; or
(iii) fails to hold in a fiduciary capacity for the benefit of the Company
and it Subsidiaries all confidential information, knowledge and data, including
customer lists and information, business plans and business strategy (“Confidential
Data”) relating in any way to the business of the Company and its Subsidiaries for
so long as such Confidential Data remains confidential.

 

(c)  If any court of
competent jurisdiction shall determine that the foregoing forfeiture provision
is invalid in any respect, the court so holding may limit such covenant either
in time, in area or in both, or in any other manner which the court determines,
such that the covenant shall be enforceable against Optionee. Optionee shall
acknowledge that the remedy of law for any breach of the foregoing covenant not
to compete will be inadequate, and that the Company shall be entitled, in
addition to any remedy of law, to preliminary and permanent injunctive relief.

 

Section 6.               Company’s
Option to Repurchase Shares.

 

(a)           Subject
to the provisions of Section 6(h) hereof, upon and after the occurrence of any one
or more of the Option Events, as hereinafter defined, the Company shall have
the irrevocable right and option (the “Call Option”) to purchase from Optionee
or Optionee’s heirs, successors, personal representatives or assigns, and Optionee
on behalf of his or her heirs, successors, personal representatives or assigns,
agrees to sell to the Company upon the exercise of the Call Option all or any
part of the shares acquired by Optionee pursuant to this Option. (The Company’s
Call Option, and any reference to shares acquired by Optionee pursuant to this
Option, shall be deemed to include all other shares of any class or series of
the Company’s capital stock acquired by Optionee on account of or with respect
to shares acquired pursuant to this Option, whether the acquisition of such
shares is by stock dividend, stock split, recapitalization or any other similar
means.) The Company may exercise the Call Option in whole or in part and from
time to time in its sole discretion; provided, however, the Company may
exercise the Call Option no earlier than six months and one day after the
exercise of the Option pursuant to which the shares subject to the Call Option
were issued. No delay in the exercise of the Call Option by the Company will
diminish or terminate the Company’s rights pursuant to the Call Option. The
Option Events, as they relate to any Optionee, shall be:

 

3

 

(i)  The express
desire of Optionee to sell, assign, pledge, transfer, give or otherwise dispose
of or encumber any shares acquired by Optionee pursuant to this Option or any
attempt by Optionee to transfer any such shares except in strict compliance
with the terms and conditions of this Agreement, whether or not for value.
Notwithstanding any other provision of this Agreement, a transfer by Optionee
during the lifetime of Optionee for bona fide estate or tax planning purposes,
including but not limited to any transfer by gift to a spouse, child, sibling
or parent of Optionee or a transfer to a trust, and a transfer following the
death of the Optionee pursuant to the terms of the Optionee’s will or the laws
of descent and distribution or intestate succession shall not be an Option
Event within the meaning of this Section 6(a), provided such transfer complies
with the terms and conditions set forth in Section 6(f) hereof. A transfer
described in the preceding sentence shall be referred to as a “Permitted
Transfer” and a person who acquires shares in a Permitted Transfer as a “Permitted
Transferee.”

 

(ii)  Any attempt by
or desire of the Optionee to sell, transfer or dispose of shares acquired
pursuant to this Option in any manner whatsoever pursuant to a bona fide offer
by a third party to purchase such shares. (Such event shall constitute an
Option Event solely with respect to those shares of common stock that the Optionee
attempts to or desires to sell, transfer or dispose of to such bona fide third
party.)

 

(iii)  The
appointment by a court of competent jurisdiction or otherwise of a receiver,
trustee or assignee of Optionee or Optionee’s property.

 

(iv)  The expiration
of thirty (30) days immediately following the date upon which a money judgment
entered in a court of record against Optionee becomes final, provided such
judgment remains unsatisfied.

 

(v)  Voluntary
application of Optionee for relief under any act of Congress or any of the laws
of the several states now or hereafter enacted providing for the relief of
debtors.

 

(vi)  Institution of
a levy, garnishment or attachment involving any of the shares acquired by Optionee
pursuant to this Option, unless released or discharged within a period of
thirty (30) days.

 

(vii)  Optionee’s
termination of employment with the Company or any Subsidiary for Cause.

 

(viii)  Any purported
transfer of all or any part of the shares acquired by Optionee pursuant to this
Option upon termination of Optionee’s marital relationship. (Such event shall
constitute an Option Event solely with respect to those shares purported to be
transferred.)

 

(ix)  Optionee’s
engaging in a Forfeiture Activity as defined in Section 5(b) of this Agreement.

 

(b)           Within
thirty (30) days of the occurrence of anyone or more of the Option Events
described in Section 6(a), the Optionee or his or her legal representative, as
the case may be, shall notify the Company of the occurrence of the Option Event
or Events, the number of shares subject to such Option Event and the address to
which the Company shall send any notice in connection with its Call Option.

 

(c)           Upon
the occurrence of the Option Event described in Section 6(a)(ii), Optionee (or
his or her legal representative) shall deliver a written notice thereof to the
Company, which notice shall specify 

 

4

 

the Option Event, the bona fide third party purchaser to whom the
shares are to be sold, transferred or disposed of, the purchase price or other
consideration to be received by Optionee for such shares, and the terms upon
which such purchase price or other consideration is to be paid, if applicable.
The Company may then exercise its Call Option with respect to all or any part
of such shares by delivering a written election to exercise to Optionee (or his
or her legal representative) within thirty (30) days after receipt of the
written notice from Optionee; provided, however, that such written election to
exercise shall provide for a date of exercise and repurchase of the shares
subject to the Company’s Call Option that is no earlier than the day that is
six months and one day after the exercise of the Option pursuant to which the
shares subject to the Call Option were issued. The purchase price for the
shares that the Company elects to purchase pursuant to this Section 6(c) shall
be the purchase price (or the fair market value of other consideration) to be
paid for such shares by the bona fide third party purchaser. If the Company
elects not to exercise its Call Option with respect to all or a portion of the
shares, Optionee (or his or her legal representative) shall have the right to
sell, transfer or dispose of such shares on the terms specified in the written
notice to the Company, but only if such transaction is consummated within
ninety (90) days after the date on which Company received the written notice of
the Option Event from the Optionee.

 

(d)           Upon
the occurrence of anyone or more Option Events, other than the Option Event
described in Section 6(a)(ii), the purchase price for the shares that are
repurchased by the Company pursuant to the exercise of its Call Option shall be
the Fair Market Value thereof, as determined in accordance with the provisions
of the Plan. Notwithstanding any other provisions of this Agreement, with
respect to any exercise by the Company of its Call Option in connection with an
Option Event described in Section 6(a)(ix) hereof, the Company shall be
entitled to offset and reduce the total purchase price of the repurchased
shares by any amount that Optionee is required to pay to the Company pursuant
to Section 5(a)(ii) of this Agreement.

 

(e)           As
determined by the Company in its sole and absolute discretion, the Company
shall make payment of the purchase price (determined under Section 6(c) or 6(d)
hereof) for any shares that it reacquires pursuant to its exercise of the Call
Option by delivering to Optionee or Optionee’s heirs, successors, assigns or
personal representatives, as the case may be: (i) the Company’s check in the
amount of the purchase price; (ii) the Company’s promissory note in the amount
of the purchase price, which promissory note shall provide for a term not to
exceed five (5) years and interest on the unpaid balance thereof at a rate
which is not less than the incremental borrowing rate of the Company on a note
of similar characteristics, and in no case less than the minimum rate required
to avoid the imputation of income, original issue discount or a below market
rate loan pursuant to Sections 483, 1274 and 11872 of the Code or any successor
provisions thereto, as determined by the Company; or (iii) a combination of
cash and the Company’s promissory note, as described in (ii), the total of
which is equal to such purchase price. Upon receipt of such payment from the
Company, Optionee or his or her heirs, successors, assigns or personal
representatives, as the case may be, shall deliver to the Company for
cancellation the stock certificate or certificates evidencing the shares of
common stock being repurchased by the Company pursuant to the exercise of its
Call Option, which certificate or certificates shall be duly endorsed for
cancellation by the Company. Optionee or his or her heirs, successors, assigns
or personal representatives shall have no rights as a shareholder after receipt
of payment (whether in cash, a promissory note or a combination thereof) from
the Company.

 

(f)            A
Permitted Transferee who acquires shares in a Permitted Transfer, as set forth
in Section 6(a)(i) of this Agreement, shall be bound by the terms, conditions,
restrictions and obligations of this Section 6 and Section 7 of this Agreement
as if such Permitted Transferee were Optionee. As a condition precedent of a
Permitted Transfer, the Permitted Transferee shall execute a counterpart of
this Agreement or such other and further documents or agreements that the
Company in consultation with its counsel deems necessary. Any purported
Permitted Transfer that is not in compliance with this Section 6(f) shall be
null and void.

 

5

 

(g)           Optionee
shall not voluntarily or involuntarily sell, exchange, transfer, pledge, or
otherwise dispose of any of the shares acquired pursuant to the exercise of
this Option unless Optionee shall first offer to sell such shares to the
Company pursuant to the Company’s Call Option as described above.

 

(h)           The
provisions of this Section 6 shall terminate and be of no further force and
effect as of the earliest date on which the Company registers a class or series
of its common stock under the Securities Exchange Act of 1934, as amended (a “Public
Offering”).

 

Section 7. Rights of
Optionee; Transferability.

 

(a)  Employment or Service.
Nothing in this Agreement or the Plan will interfere with or limit in any way
the right of the Company or any Subsidiary to terminate the employment or
service of the Optionee at any time, nor confer upon the Optionee any right to
continue in the employ or service of the Company or any Subsidiary at any
particular position or rate of pay or for any particular period of time.

 

(b)  Rights as a
Shareholder. The Optionee will have no rights as a shareholder unless and
until all conditions to the effective exercise of this Option (including,
without limitation, the conditions set forth in Section 4 of this Agreement and
Section 14 of the Plan) have been satisfied and the Optionee has become the
holder of record of such shares. No adjustment will be made for dividends or
distributions with respect to this Option as to which there is a record date
preceding the date the Optionee becomes the holder of record of such shares,
except as may otherwise be provided in the Plan or determined by the Committee
in its sole discretion.

 

(c)  Restrictions on
Transfer. Except pursuant to testamentary will or the laws of descent and
distribution or as otherwise expressly permitted by the Plan, no right or
interest of the Optionee in this Option prior to exercise may be assigned or
transferred, or subjected to any lien, during the lifetime of the Optionee,
either voluntarily or involuntarily, directly or indirectly, by operation of
law or otherwise. The Optionee will, however, be entitled to designate a
beneficiary to receive this Option upon such Optionee’s death, and, in the
event of the Optionee’s death, exercise of this Option (to the extent permitted
pursuant to Section 3(b)(i) of this Agreement) may be made by the Optionee’s
legal representatives, heirs and legatees.

 

Section 8. Withholding
Taxes. The Company is entitled to (a) withhold and deduct from future wages
of the Optionee (or from other amounts that may be due and owing to the
Optionee from the Company or any Subsidiary), or make other arrangements for
the collection of, all legally required amounts necessary to satisfy any
federal, state and local withholding and employment-related tax requirements
attributable to the grant or exercise of this Option or otherwise incurred with
respect to this Option, (b) withhold shares of Common Stock from the shares
issued or otherwise issuable to Optionee in connection with the Option, or (c)
require the Optionee promptly to remit the amount of such withholding to the
Company before acting on the Optionee’s notice of exercise of this Option. In
the event that the Company is unable to withhold such amounts, for whatever
reason, the Optionee agrees to pay to the Company an amount equal to the amount
the Company would otherwise be required to withhold under federal, state or
local law.

 

Section 9. Adjustments.
In the event of any reorganization, merger, consolidation, recapitalization,
liquidation, reclassification, stock dividend, stock split, combination of
shares, rights offering, divestiture or extraordinary dividend (including a
spin-off), or any other change in the corporate structure or shares of the
Company, the Committee (or, if the Company is not the surviving corporation in
any such transaction, the board of directors of the surviving corporation), in
order to prevent dilution or 

 

6

 

enlargement of the rights of the Optionee,
will make appropriate adjustment (which determination will be conclusive) as to
the number, kind and exercise price of securities subject to this Option.

 

Section 10. Subject to
Plan. The Option and the Option Shares granted and issued pursuant to this
Agreement have been granted and issued under, and are subject to the terms of,
the Plan. The terms of the Plan are incorporated by reference in this Agreement
in their entirety, and the Optionee, by execution of this Agreement,
acknowledges having received a copy of the Plan. The provisions of this
Agreement will be interpreted as to be consistent with the Plan, and any
ambiguities in this Agreement will be interpreted by reference to the Plan. In
the event that any provision of this Agreement is inconsistent with the terms
of the Plan, the terms of the Plan will prevail.

 

Section 11. Miscellaneous.

 

(a)  Binding Effect. This
Agreement will be binding upon the heirs, executors, administrators and
successors of the parties to this Agreement.

 

(b)  Governing Law. This
Agreement and all rights and obligations under this Agreement will be construed
in accordance with the Plan and governed by the laws of the State of Minnesota,
without regard to conflicts of laws provisions. Any legal proceeding related to
this Agreement will be brought in an appropriate Minnesota court, and the
parties to this Agreement consent to the exclusive jurisdiction of the court
for this purpose.

 

(c)  Entire Agreement. This
Agreement and the Plan set forth the entire agreement and understanding of the
parties to this Agreement with respect to the grant and exercise of this Option
and the administration of the Plan and supersede all prior agreements,
arrangements, plans and understandings relating to the grant and exercise of
this Option and the administration of the Plan.

 

(d)  Amendment and Waiver.
Other than as provided in the Plan, this Agreement may be amended, waived,
modified or canceled only by a written instrument executed by the parties to
this Agreement or, in the case of a waiver, by the party waiving compliance.

 

(e)  Counterparts. For convenience of the
parties hereto, this Agreement may be executed in any number of counterparts,
each such counterpart to be deemed an original instrument, and all such
counterparts together constitute the same agreement.

 

[Remainder of Page Intentionally Left Blank]

 

7

 

The parties to this
Agreement have executed this Agreement effective the day and year first above
written.

 

	
   

  	
  TRANSOMA MEDICAL, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Its:

  	
  Chief Financial Officer

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By execution of this
  Agreement,

  	
  OPTIONEE

  
	
  The Optionee acknowledges
  having

  	
   

  	
   

  
	
  received a copy of the
  Plan.

  	
   

  
	
   

  	
   

  	
  (Signature)

  
	
   

  	
   

  	
   

  
	
   

  	
  [Name
  of Optionee]

  
	
   

  	
  [Address]

  
	
   

  	
  [Address]

  

 

8

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