Document:

Exhibit 10.4

 

Exhibit 10.4

Option No.     

TRANS1 INC.

STOCK OPTION AGREEMENT

     Type of Option (check one): o Incentive           o Nonqualified

     This Stock Option Agreement (the “Agreement”) is entered into as of
                                        , 20     , by and between TranS1 Inc., a Delaware corporation (the
“Company”), and                                          (the “Optionee”) pursuant to the Company’s 2007
Stock Incentive Plan (the “Plan”). Any capitalized term not defined herein
shall have the same meaning ascribed to it in the Plan.

     1. Grant of Option. The Company hereby grants to Optionee an option (the
“Option”) to purchase all or any portion of a total of                                         
(                    ) shares (the “Shares”) of the Common Stock of the Company at a purchase price
of                                          ($                    ) per share (the “Exercise Price”), subject to the
terms and conditions set forth herein and the provisions of the Plan. If the box marked
“Incentive” above is checked, then this Option is intended to qualify as an “incentive stock
option” as defined in Section 422 of the Internal Revenue Code of l986, as amended (the
“Code”). If this Option fails in whole or in part to qualify as an incentive stock option,
or if the box marked “Nonqualified” is checked, then this Option shall to that extent constitute a
nonqualified stock option.

     2. Vesting of Option. The right to exercise this Option shall vest in installments,
and this Option shall be exercisable from time to time in whole or in part as to any vested
installment. This Option shall be vested ___% on _________, following Optionee’s
completion of ______months of Continuous Service, and
thereafter commencing on ___, upon Optionee’s completion of each additional month of
Continuous Service, the remaining _________shares shall vest in ______(___) equal monthly
installments.

     No additional shares shall vest after the date of termination of Optionee’s Continuous
Service, but this Option shall continue to be exercisable in accordance with Section 3 hereof with
respect to that number of shares that have vested as of the date of termination of Optionee’s
Continuous Service.

     3. Term of Option. The right of the Optionee to exercise this Option shall terminate
upon the first to occur of the following:

          (a) the expiration of ten (10) years from the date of this Agreement;

          (b) the expiration of three (3) months from the date of termination of Optionee’s Continuous
Service if such termination occurs for any reason other than permanent disability, death or
voluntary resignation; provided, however, that if Optionee dies during such three-month period the
provisions of Section 3(e) below shall apply;

 

 

          (c) the expiration of one (1) month from the date of termination of Optionee’s Continuous
Service if such termination occurs due to voluntary resignation; provided, however, that if
Optionee dies during such one-month period the provisions of Section 3(e) below shall apply;

          (d) the expiration of one (1) year from the date of termination of Optionee’s Continuous
Service if such termination is due to permanent disability of the Optionee (as defined in Section
22(e)(3) of the Code);

          (e) the expiration of one (1) year from the date of termination of Optionee’s Continuous
Service if such termination is due to Optionee’s death or if death occurs during either the
three-month or one-month period following termination of Optionee’s Continuous Service pursuant to
Section 3(b) or 3(c) above, as the case may be; or

          (f) upon the consummation of a Change in Control, unless such Option is otherwise assumed or
replaced with a new option of comparable value or other New Incentives pursuant to Section 8 below.

     4. Exercise of Option. On or after the vesting of any portion of this Option in
accordance with Sections 2 or 8 hereof, and until termination of the right to exercise this Option
in accordance with Section 3 above, the portion of this Option which has vested may be exercised in
whole or in part by the Optionee (or, after his or her death, by the person designated in Section 5
below) upon delivery of the following to the Company at its principal executive offices:

          (a) a written notice of exercise which identifies this Agreement and states the number of
Shares then being purchased (but no fractional Shares may be purchased);

          (b) a check or cash in the amount of the Exercise Price (or payment of the Exercise Price in
such other form of lawful consideration as the Administrator may approve from time to time under
the provisions of Section 5.4 of the Plan);

          (c) a check or cash in the amount reasonably requested by the Company to satisfy the Company’s
withholding obligations under federal, state or other applicable tax laws with respect to the
taxable income, if any, recognized by the Optionee in connection with the exercise of this Option
(unless the Company and Optionee shall have made other arrangements for deductions or withholding
from Optionee’s wages, bonus or other compensation payable to Optionee, or by the withholding of
Shares issuable upon exercise of this Option or the delivery of Shares owned by the Optionee in
accordance with Section 12.1 of the Plan, provided such arrangements satisfy the requirements of
applicable tax laws); and

          (d) a letter, if requested by the Company, in such form and substance as the Company may
require, setting forth the investment intent of the Optionee, or person designated in Section 5
below, as the case may be.

     5. Death of Optionee; No Assignment. The rights of the Optionee under this Agreement
may not be assigned or transferred except by will or by the laws of descent and distribution, and
may be exercised during the lifetime of the Optionee only by such Optionee. Any attempt to sell,
pledge, assign, hypothecate, transfer or dispose of this Option in contravention of this Agreement
or the Plan shall be void and shall have no effect. If the Optionee’s Continuous Service

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terminates as a result of his or her death, and provided Optionee’s rights hereunder shall
have vested pursuant to Section 2 hereof, Optionee’s legal representative, his or her legatee, or
the person who acquired the right to exercise this Option by reason of the death of the Optionee
(individually, a “Successor”) shall succeed to the Optionee’s rights and obligations under
this Agreement. After the death of the Optionee, only a Successor may exercise this Option.

     6. Representation of Optionee. Optionee acknowledges receipt of a copy of the Plan
and understands that all rights and obligations connected with this Option are set forth in this
Agreement and the Plan.

     7. Adjustments Upon Changes in Capital Structure. In the event that the outstanding
shares of Common Stock of the Company are hereafter increased or decreased or changed into or
exchanged for a different number or kind of shares or other securities of the Company by reason of
a recapitalization, stock split, reverse stock split, reclassification, stock dividend or other
change in the capital structure of the Company, then appropriate adjustment shall be made by the
Administrator to the aggregate number and kind of Shares subject to the unexercised portion of this
Option and to the Exercise Price per share, in order to preserve, as nearly as practical, but not
to increase, the benefits of the Optionee under this Option, in accordance with the provisions of
Section 4.2 of the Plan.

     8. Change in Control. In the event of a Change in Control:

          (a) The vesting of this Option shall accelerate automatically effective as of immediately
prior to the consummation of the Change in Control unless the Options are to be assumed by
the acquiring or successor entity (or parent thereof) or new options under a new stock incentive
program (“New Incentives”) are to be issued in exchange therefor, as provided in subsection (b)
below. If vesting of outstanding Options will accelerate pursuant to this subsection (a), the
Administrator in its discretion may provide, in connection with the Change in Control transaction,
for the purchase or exchange of each Option for an amount of cash or other property having a value
equal to the difference (or “spread”) between: (x) the value of the cash or other property that
the Optionee would have received pursuant to the Change in Control transaction in exchange for the
shares issuable upon exercise of the Option had the Option been exercised immediately prior to the
Change in Control, and (y) the Exercise Price of the Option.

          (b) The vesting of this Option shall not accelerate if and to the extent that: (i)
this Option (including the unvested portion thereof) is to be assumed by the acquiring or successor
entity (or parent thereof) or a new option of comparable value is to be issued in exchange therefor
pursuant to the terms of the Change in Control transaction, or (ii) in the event the consideration
to be received by the stockholders of the Company in connection with the Change in Control does not
consist of securities, this Option (including the unvested portion thereof) is to be replaced by
the acquiring or successor entity (or parent thereof) with other incentives of comparable value
containing such terms and provisions as the Administrator in its discretion may consider equitable.
If this Option is assumed, or if a new option of comparable value is issued in exchange therefor,
then this Option or the new option shall be appropriately adjusted, concurrently with the Change in
Control, to apply to the number and class of securities or other property that the Optionee would
have received pursuant to the Change in Control transaction in exchange for the Shares issuable
upon exercise of this Option had this Option been exercised immediately prior to the Change in
Control, and appropriate adjustment also shall be made to the Exercise Price such that the
aggregate Exercise Price of this Option or the new option shall remain the same as nearly as
practicable.

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          (c) If this Option is assumed by an acquiring or successor entity (or parent thereof) or a New
Incentive is issued in exchange therefor pursuant to the terms of a Change in Control transaction,
the vesting of the Option or the New Incentive shall accelerate if and at such time as the
Optionee’s service as an employee, director, officer, consultant or other service provider to the
acquiring or successor entity (or a parent or subsidiary thereof) is Terminated Without Cause
within twelve (12) months following consummation of the Change in Control.

     9. No Employment Contract Created. Neither the granting of this Option nor the
exercise hereof shall be construed as granting to the Optionee any right with respect to
continuance of employment by the Company or any of its subsidiaries. The right of the Company or
any of its subsidiaries to terminate at will the Optionee’s employment at any time (whether by
dismissal, discharge or otherwise), with or without cause, is specifically reserved.

     10. Rights as Stockholder. The Optionee shall have no rights as a stockholder with
respect to any Shares covered by this Option until such person has duly exercised this Option, paid
the Exercise Price and become a holder of record of the Shares purchased.

     11. “Market Stand-Off” Agreement. Optionee agrees that, if requested by the Company
or the managing underwriter of any proposed public offering of the Company’s securities, Optionee
will not sell or otherwise transfer or dispose of any Shares held by Optionee without the prior
written consent of the Company or such underwriter, as the case may be, during such period of time,
not to exceed 180 days following the effective date of the registration statement filed by the
Company with respect to such offering, as the Company or the underwriter may specify.

     12. Interpretation. This Option is granted pursuant to the terms of the Plan, and
shall in all respects be interpreted in accordance therewith. The Administrator shall interpret
and construe this Option and the Plan, and any action, decision, interpretation or determination
made in good faith by the Administrator shall be final and binding on the Company and the Optionee.

     13. Limitation of Liability for Nonissuance. During the term of the Plan, the Company
agrees at all times to reserve and keep available, and to use its reasonable best efforts to obtain
from any regulatory body having jurisdiction any requisite authority in order to issue and sell,
such number of shares of its Common Stock as shall be sufficient to satisfy its obligations
hereunder and the requirements of the Plan. Inability of the Company to obtain, from any
regulatory body having jurisdiction, authority deemed by the Company’s counsel to be necessary for
the lawful issuance and sale of any shares of its Common Stock hereunder and under the Plan shall
relieve the Company of any liability in respect of the nonissuance or sale of such shares as to
which such requisite authority shall not have been obtained.

     14. Notices. Any notice, demand or request required or permitted to be given under
this Agreement shall be in writing and shall be deemed given when delivered personally or three (3)
days after being deposited in the United States mail, as certified or registered mail, with postage
prepaid, (or by such other method as the Administrator may from time to time deem appropriate), and
addressed, if to the Company, at its principal place of business, Attention: the Chief Financial
Officer, and if to the Optionee, at his or her most recent address as shown in the employment or
stock records of the Company.

     15. Governing Law. The validity, construction, interpretation, and effect of this
Option shall be governed by and determined in accordance with the laws of the State of Delaware.

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     16.  Severability. Should any provision or portion of this Agreement be held to be
unenforceable or invalid for any reason, the remaining provisions and portions of this Agreement
shall be unaffected by such holding.

     17. Counterparts. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original and all of which together shall be deemed one instrument.

     18. Tax Consequences and Reporting Obligation Upon Sale of Shares. If this Option is
an “incentive stock option,” the tax benefits afforded to incentive stock options will be obtained
by the Optionee only if the Shares received upon exercise of this Option are held for at least one
year after the date of exercise of this Option and two years after the date this Option was granted
to the Optionee. If the Optionee sells or otherwise transfers the Shares before the expiration of
either of these one- or two-year periods, the sale or transfer will be treated for tax purposes as
a “disqualifying disposition,” resulting in the following tax consequences: (a) the Optionee will
not obtain the tax benefits afforded to incentive stock options, (b) the “spread” as of the date of
exercise will be taxed to the Optionee at ordinary income tax rates, and (c) the amount of ordinary
income resulting from the disqualifying disposition will be included in the Optionee’s W-2. These
tax consequences are described in more detail in the prospectus that relates to the Company’s 2007
Stock Incentive Plan, as amended, a copy of which was delivered to the Optionee with this Option.
To assure that the Company has the information necessary to comply with its tax reporting
obligations, Optionee agrees to promptly notify the Company if any Shares are sold or transferred
less than one year after the date of exercise or less than two years after the date this Option was
granted, and report information regarding the disqualifying disposition in accordance with
procedures established by the Company for this purpose.

[The balance of this page intentionally left blank]

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     IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above
written.

	 	 	 	 	 	 	 
	TRANS1 INC.,	 	 	 	OPTIONEE
	a Delaware corporation	 	 	 	 
	 
	 	 	 	 	 	 
	By:

	 	 	 	 	 	 
	 

	 	 
	 	 	 	 
	 

	 	 	 	 	 	(Signature)
	 
	 	 	 	 	 	 
	Name:
	 	 	 	 	 	 
	 

	 	 
	 	 	 	 
	 

	 	 	 	 	 	(Type or print name)
	 
	 	 	 	 	 	 
	Its:

	 	 	 	 	 	Address:
	 

	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	 	 	 

6Exhibit 10.5

 

Exhibit 10.5

TRANS1 INC.

2007 EMPLOYEE STOCK PURCHASE PLAN

ARTICLE 1.

PURPOSES OF THE PLAN

     Section 1.1. Purpose. The purpose of the Plan is to provide employees of the Company and its
Designated Subsidiaries with an opportunity to purchase Common Stock through accumulated payroll
deductions. The Company’s intention is to have the Plan qualify as an “employee stock purchase
plan” under Section 423 of the Code. The provisions of the Plan, accordingly, will be construed so
as to extend and limit Plan participation in a uniform and nondiscriminatory basis consistent with
the requirements of Section 423 of the Code.

ARTICLE 2.

DEFINITIONS

     Section 2.1. “Administrator” means the Board or any Committee designated by the Board to
administer the Plan pursuant to Section 14.

     Section 2.2. “Applicable Laws” means the requirements relating to the administration of
equity-based awards under U.S. state corporate laws, U.S. federal and state securities laws, the
Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the
applicable laws of any foreign country or jurisdiction where options are, or will be, granted under
the Plan.

     Section 2.3. “Board” means the Board of Directors of the Company.

     Section 2.4. “Change in Control” means (i) the acquisition, directly or indirectly, by any
person or group (within the meaning of Section 13(d)(3) of the Exchange Act) of the beneficial
ownership of securities of the Company possessing more than fifty percent (50%) of the total
combined voting power of all outstanding securities of the Company; (ii) a merger or consolidation
in which the Company is not the surviving entity, except for a transaction the principal purpose of
which is to change the state in which the Company is incorporated; (iii) a reverse merger in which
the Company is the surviving entity but in which securities possessing more than fifty percent
(50%) of the total combined voting power of the Company’s outstanding securities are transferred to
or acquired by a person or persons different from the persons holding those securities immediately
prior to such merger; (iv) the sale, transfer or other disposition of all or substantially all of
the assets of the Company; or (v) a complete liquidation or dissolution of the Company.

     Section 2.5. “Code” means the Internal Revenue Code of 1986, as amended from time to time.

     Section 2.6. “Committee” means a committee of two or more members of the Board appointed to
administer the Plan, as set forth in Section 14 hereof.

     Section 2.7. “Common Stock” means the common stock of the Company.

 

 

     Section 2.8. “Company” means TranS1 Inc., a Delaware corporation, or any entity that is a
successor to the Company.

     Section 2.9. “Compensation” means an Employee’s base straight time gross earnings, commissions
(to the extent such commissions are an integral, recurring part of compensation), overtime and
shift premium, but exclusive of payments for incentive compensation, bonuses and other
compensation.

     Section 2.10. “Designated Subsidiary” means any Subsidiary that has been designated by the
Administrator from time to time in its sole discretion as eligible to participate in the Plan.

     Section 2.11. “Director” means a member of the Board.

     Section 2.12. “Eligible Employee” means any individual who is a common law employee of an
Employer and is customarily employed for at least twenty (20) hours per week and more than five (5)
months in any calendar year by the Employer. For purposes of the Plan, the employment relationship
will be treated as continuing intact while the individual is on sick leave or other leave of
absence that the Employer approves. Where the period of leave exceeds ninety (90) days and the
individual’s right to reemployment is not guaranteed either by statute or by contract, the
employment relationship will be deemed to have terminated on the ninety-first (91st) day of such
leave. The Administrator, in its discretion, from time to time may, prior to an Offering Date for
all options to be granted on such Offering Date, determine (on a uniform and nondiscriminatory
basis) that the definition of Eligible Employee will or will not include an individual if he or
she: (i) has not completed at least two years of service since his or her last hire date (or such
lesser period of time as may be determined by the Administrator in its discretion), (ii)
customarily works not more than twenty (20) hours per week (or such lesser period of time as may be
determined by the Administrator in its discretion), (iii) customarily works not more than five (5)
months per calendar year (or such lesser period of time as may be determined by the Administrator
in its discretion), (iv) is an officer or other manager, or (v) is a highly compensated employee
under Section 414(q) of the Code.

     Section 2.13. “Employer” means any one or all of the Company and its Designated Subsidiaries.

     Section 2.14. “Exchange Act” means the Securities Exchange Act of 1934, as amended, including
the rules and regulations promulgated thereunder.

     Section 2.15. “Exercise Date” means the last day of each Offering Period.

     Section 2.16. “Fair Market Value” means, as of any date and unless the Administrator
determines otherwise the value of Common Stock determined as follows:

          (a) If the Common Stock is then listed or admitted to trading on a stock exchange which
reports closing sale prices, the Fair Market Value shall be the closing sale price on the date of
valuation on such principal stock exchange on which the Common Stock is then listed or admitted to
trading, or, if no closing sale price is quoted on such day, then the Fair Market Value shall be
the closing sale price of the Common Stock on such exchange on the next preceding day on which a
closing sale price is reported;

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          (b) If the Common Stock is not then listed or admitted to trading on a stock exchange which
reports closing sale prices, the Fair Market Value shall be the average of the closing bid and
asked prices of the Common Stock in the over the counter market on the date of valuation;

          (c) If neither (a) nor (b) is applicable as of the date of valuation, then the Fair Market
Value shall be determined by the Administrator in good faith using any reasonable method of
evaluation, which determination shall be conclusive and binding on all interested parties; or

          (d) For purposes of the Offering Date of the first Offering Period under the Plan, the Fair
Market Value will be the initial price to the public as set forth in the final prospectus included
within the registration statement on Form S-1 filed with the Securities and Exchange Commission for
the initial public offering of the Common Stock (the “Registration Statement”).

     Section 2.17. “Fiscal Year” means the fiscal year of the Company.

     Section 2.18. “Offering Date” means the first day of each Offering Period.

     Section 2.19. “Offering Periods” means the periods of approximately six months during which an
option granted pursuant to the Plan may be exercised, (i) commencing on the first Trading Day on or
after June 1 of each year and terminating on the first Trading Day on or following November 30,
approximately six months later, and (ii) commencing on the first Trading Day on or after December 1
of each year and terminating on the first Trading Day on or following May 31, approximately six
months later; provided, however, that the first Offering Period under the Plan will commence with
the first Trading Day on or after the date on which the Securities and Exchange Commission declares
the Company’s Registration Statement effective and ending on the first Trading Day on or after May
31, 2008 and provided, further, that the second Offering Period under the Plan will commence on the
first Trading Day on or after May 31, 2008. The duration and timing of Offering Periods may be
changed pursuant to Sections 4 and 20.

     Section 2.20. “Parent” means a “parent corporation,” whether now or hereafter existing, as
defined in Section 424(e) of the Code.

     Section 2.21. “Plan” means this TranS1 Inc. 2007 Employee Stock Purchase Plan.

     Section 2.22. “Purchase Price” means an amount equal to ninety-five percent (95%) of the Fair
Market Value of a share of Common Stock on the Exercise Date; provided however, that the Purchase
Price may be determined for subsequent Offering Periods by the Administrator subject to compliance
with Section 423 of the Code (or any successor rule or provision or any other applicable law,
regulation or stock exchange rule) or pursuant to Section 20.

     Section 2.23. “Subsidiary” means a “subsidiary corporation,” whether now or hereafter
existing, as defined in Section 424(f) of the Code.

     Section 2.24. “Trading Day” means a day on which the national stock exchange upon which the
Common Stock is listed is open for trading.

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ARTICLE 3.

ELIGIBILITY

     Section 3.1. Any individual who is an Eligible Employee immediately prior to the first
Offering Period will be automatically enrolled in the first Offering Period.

     Section 3.2. Any Eligible Employee on a given Offering Date subsequent to the first Offering
Period will be eligible to participate in the Plan, subject to the requirements of Section 5.

     Section 3.3. Any provisions of the Plan to the contrary notwithstanding, no Eligible Employee
will be granted an option under the Plan (i) to the extent that, immediately after the grant, such
Eligible Employee (or any other person whose stock would be attributed to such Eligible Employee
pursuant to Section 424(d) of the Code) would own capital stock of the Company or any Parent or
Subsidiary of the Company and/or hold outstanding options to purchase such stock possessing five
percent (5%) or more of the total combined voting power or value of all classes of the capital
stock of the Company or of any Parent or Subsidiary of the Company, or (ii) to the extent that his
or her rights to purchase stock under all employee stock purchase plans (as defined in Section 423
of the Code) of the Company or any Parent or Subsidiary of the Company accrues at a rate which
exceeds twenty-five thousand dollars ($25,000) worth of stock (determined at the Fair Market Value
of the stock at the time such option is granted) for each calendar year in which such option is
outstanding at any time.

ARTICLE 4.

OFFERING PERIODS

     Section 4.1. The Plan will be implemented by consecutive Offering Periods with a new Offering
Period commencing on the first Trading Day on or after June 1 and December 1 each year, or on such
other date as the Administrator will determine; provided, however, that the first Offering Period
under the Plan will commence with the first Trading Day on or after the date upon which the
Company’s Registration Statement is declared effective by the Securities and Exchange Commission
and end on the first Trading Day on or after the earlier of (i) May 31, 2008, or (ii) twelve (12)
months from the beginning of the first Offering Period. The Administrator will have the power to
change the duration of Offering Periods (including the commencement dates thereof) with respect to
future offerings without stockholder approval if such change is announced prior to the scheduled
beginning of the first Offering Period to be affected thereafter.

ARTICLE 5.

PARTICIPATION

     Section 5.1. An Eligible Employee will be entitled to continue to participate in the first
Offering Period pursuant to Section 3.1 only if such individual submits a subscription agreement
authorizing payroll deductions in a form determined by the Administrator (which may be similar to
the form attached hereto as Exhibit A) to the Company’s designated plan administrator (i) no
earlier than the effective date of the Form S-8 registration statement with respect to the issuance
of Common Stock under this Plan and (ii) no later than five (5) business days following the
effective date of such S-8 registration statement or such other period of time as the Administrator
may determine (the

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“Enrollment Window”). An Eligible Employee’s failure to submit the subscription agreement
during the Enrollment Window will result in the automatic termination of such individual’s
participation in the first Offering Period.

     Section 5.2. An Eligible Employee may participate in the Plan pursuant to Section 3(b) by (i)
submitting to the Company’s payroll office (or its designee), on or before a date prescribed by the
Administrator prior to an applicable Offering Date, a properly completed subscription agreement
authorizing payroll deductions in the form provided by the Administrator for such purpose, or (ii)
following an electronic or other enrollment procedure prescribed by the Administrator.

ARTICLE 6.

PAYROLL DEDUCTIONS

     Section 6.1. At the time a participant enrolls in the Plan pursuant to Section 5, he or she
will elect to have payroll deductions made on each pay day during the Offering Period in an amount
not exceeding ten percent (10%) of the Compensation which he or she receives on each pay day during
the Offering Period; provided, however, that should a pay day occur on an Exercise Date, a
participant will have the payroll deductions made on such day applied to his or her account under
the subsequent Offering Period. A participant’s subscription agreement will remain in effect for
successive Offering Periods unless terminated as provided in Section 10 hereof.

     Section 6.2. Payroll deductions for a participant will commence on the first pay day following
the Offering Date and will end on the last pay day prior to the Exercise Date of such Offering
Period to which such authorization is applicable, unless sooner terminated by the participant as
provided in Section 10 hereof, provided, however, that for the first Offering Period, payroll
deductions will commence on the first pay day on or following the end of the Enrollment Window.

     Section 6.3. All payroll deductions made for a participant will be credited to his or her
account under the Plan and will be withheld in whole percentages only. A participant may not make
any additional payments into such account.

     Section 6.4. A participant may discontinue his or her participation in the Plan as provided in
Section 10, or may increase or decrease the rate of his or her payroll deductions during the
Offering Period by (i) properly completing and submitting to the Company’s payroll office (or its
designee), on or before a date prescribed by the Administrator prior to an applicable Exercise
Date, a new subscription agreement authorizing the change in payroll deduction rate in the form
provided by the Administrator for such purpose, or (ii) following an electronic or other procedure
prescribed by the Administrator; provided, however, that a participant may only make one payroll
deduction change during each Offering Period. If a participant has not followed such procedures to
change the rate of payroll deductions, the rate of his or her payroll deductions will continue at
the originally elected rate throughout the Offering Period and future Offering Periods (unless
terminated as provided in Section 10). The Administrator may, in its sole discretion, limit the
nature and/or number of payroll deduction rate changes that may be made by participants during any
Offering Period. Any change in payroll deduction rate made pursuant to this Section 6.4 will be
effective as of the first full payroll period following five (5) business days after the date on
which the change is made by the participant (unless the Administrator, in its sole discretion,
elects to process a given change in payroll deduction rate more quickly).

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     Section 6.5. Notwithstanding the foregoing, to the extent necessary to comply with Section
423(b)(8) of the Code and Section 3.3, a participant’s payroll deductions may be decreased to zero
percent (0%) at any time during a Offering Period. Subject to Section 423(b)(8) of the Code and
Section 3.3 hereof, payroll deductions will recommence at the rate originally elected by the
participant effective as of the beginning of the first Offering Period which is scheduled to end in
the following calendar year, unless terminated by the participant as provided in Section 10.

     Section 6.6. At the time the option is exercised, in whole or in part, or at the time some or
all of the Common Stock issued under the Plan is disposed of, the participant must make adequate
provision for the Company’s or Employer’s federal, state, or any other tax liability payable to any
authority, national insurance, social security or other tax withholding obligations, if any, which
arise upon the exercise of the option or the disposition of the Common Stock. At any time, the
Company or the Employer may, but will not be obligated to, withhold from the participant’s
compensation the amount necessary for the Company or the Employer to meet applicable withholding
obligations, including any withholding required to make available to the Company or the Employer
any tax deductions or benefits attributable to sale or early disposition of Common Stock by the
Eligible Employee.

ARTICLE 7.

GRANT OF OPTION

     Section 7.1. On the Offering Date of each Offering Period, each Eligible Employee
participating in such Offering Period will be granted an option to purchase on each Exercise Date
during such Offering Period (at the applicable Purchase Price) up to a number of shares of Common
Stock determined by dividing such Eligible Employee’s payroll deductions accumulated prior to such
Exercise Date and retained in the Eligible Employee’s account as of the Exercise Date by the
applicable Purchase Price; provided that in no event will an Eligible Employee be permitted to
purchase during each Offering Period more than 2,500 shares of the Common Stock (subject to any
adjustment pursuant to Section 19), and provided further that such purchase will be subject to the
limitations set forth in Sections 3.3 and 13. The Eligible Employee may accept the grant of such
option with respect to the first Offering Period by submitting a properly completed subscription
agreement in accordance with the requirements of Section 5.1 on or before the last day of the
Enrollment Window, and (ii) with respect to any future Offering Period under the Plan, by electing
to participate in the Plan in accordance with the requirements of Section 5.2. The Administrator
may, for future Offering Periods, increase or decrease, in its absolute discretion, the maximum
number of shares of Common Stock that an Eligible Employee may purchase during each Offering Period
of an Offering Period. Exercise of the option will occur as provided in Section 8, unless the
participant has withdrawn pursuant to Section 10. The option will expire on the last day of the
Offering Period.

ARTICLE 8.

EXERCISE OF OPTION

     Section 8.1. Unless a participant withdraws from the Plan as provided in Section 10, his or
her option for the purchase of shares of Common Stock will be exercised automatically on the
Exercise Date, and the maximum number of full shares subject to option will be purchased for such
participant at the applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares of Common Stock will be purchased; any payroll deductions

6

 

accumulated in a participant’s account which are not sufficient to purchase a full share will
be retained in the participant’s account for the subsequent Offering Period, subject to earlier
withdrawal by the participant as provided in Section 10. Any other funds left over in a
participant’s account after the Exercise Date will be returned to the participant. During a
participant’s lifetime, a participant’s option to purchase shares hereunder is exercisable only by
him or her.

     Section 8.2. If the Administrator determines that, on a given Exercise Date, the number of
shares of Common Stock with respect to which options are to be exercised may exceed the number of
shares of Common Stock available for sale under the Plan on such Exercise Date, the Administrator
may in its sole discretion provide that the Company will make a pro rata allocation of the shares
of Common Stock available for purchase on such Exercise Date, in as uniform a manner as will be
practicable and as it will determine in its sole discretion to be equitable among all participants
exercising options to purchase Common Stock on such Exercise Date, and continue all Offering
Periods then in effect or terminate all Offering Periods then in effect pursuant to Section 20.
The Company may make a pro rata allocation of the shares available on the Offering Date of any
applicable Offering Period pursuant to the preceding sentence, notwithstanding any authorization of
additional shares for issuance under the Plan by the Company’s stockholders subsequent to such
Offering Date.

ARTICLE 9.

DELIVERY

     Section 9.1. As soon as reasonably practicable after each Exercise Date on which a purchase of
shares of Common Stock occurs, the Company will arrange the delivery to each participant the shares
purchased upon exercise of his or her option in a form determined by the Administrator (in its sole
discretion) and pursuant to rules established by the Administrator. The Company may permit or
require that shares be deposited directly with a broker designated by the Company or to a
designated agent of the Company, and the Company may utilize electronic or automated methods of
share transfer. The Company may require that shares be retained with such broker or agent for a
designated period of time and/or may establish other procedures to permit tracking of disqualifying
dispositions of such shares. No participant will have any voting, dividend, or other stockholder
rights with respect to shares of Common Stock subject to any option granted under the Plan until
such shares have been purchased and delivered to the participant as provided in this Section 9.1.

ARTICLE 10.

WITHDRAWAL

     Section 10.1. A participant may withdraw all but not less than all the payroll deductions
credited to his or her account and not yet used to exercise his or her option under the Plan at any
time by (i) submitting to the Company’s payroll office (or its designee) a written notice of
withdrawal in the form prescribed by the Administrator for such purpose, or (ii) following an
electronic or other withdrawal procedure prescribed by the Administrator. All of the participant’s
payroll deductions credited to his or her account will be paid to such participant promptly after
receipt of notice of withdrawal and such participant’s option for the Offering Period will be
automatically terminated, and no further payroll deductions for the purchase of shares will be made
for such Offering Period. If a participant withdraws from an Offering Period, payroll deductions
will not resume at the

7

 

beginning of the succeeding Offering Period, unless the participant re-enrolls in the Plan in
accordance with the provisions of Section 5.

     Section 10.2. A participant’s withdrawal from an Offering Period will not have any effect upon
his or her eligibility to participate in any similar plan which may hereafter be adopted by the
Company or in succeeding Offering Periods which commence after the termination of the Offering
Period from which the participant withdraws.

ARTICLE 11.

TERMINATION OF EMPLOYMENT

     Section 11.1. Upon a participant’s ceasing to be an Eligible Employee, for any reason, he or
she will be deemed to have elected to withdraw from the Plan and the payroll deductions credited to
such participant’s account during the Offering Period but not yet used to purchase shares of Common
Stock under the Plan will be returned to such participant or, in the case of his or her death, to
the person or persons entitled thereto under Section 15, and such participant’s option will be
automatically terminated.

ARTICLE 12.

INTEREST

     Section 12.1. No interest will accrue on the payroll deductions of a participant in the Plan.

ARTICLE 13.

STOCK

     Section 13.1. Subject to adjustment upon changes in capitalization of the Company as provided
in Section 19 hereof, the maximum number of shares of Common Stock which will be made available for
sale under the Plan will be 250,000 shares, plus an annual increase to be added on the first day of
each Fiscal Year beginning with the 2008 Fiscal Year, equal to the least of (i) two percent (2%) of
the outstanding shares of Common Stock on such date or (ii) an amount determined by the
Administrator.

     Section 13.2. Until the shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), a participant will only have
the rights of an unsecured creditor with respect to such shares, and no right to vote or receive
dividends or any other rights as a stockholder will exist with respect to such shares.

     Section 13.3. Shares of Common Stock to be delivered to a participant under the Plan will be
registered in the name of the participant or in the name of the participant and his or her spouse.

ARTICLE 14.

ADMINISTRATION

     Section 14.1. The Plan will be administered by the Board or a Committee appointed by the
Board, which Committee will be constituted to comply with Applicable Laws. The Administrator

8

 

will have full and exclusive discretionary authority to construe, interpret and apply the
terms of the Plan, to determine eligibility and to adjudicate all disputed claims filed under the
Plan. Every finding, decision and determination made by the Administrator will, to the full extent
permitted by law, be final and binding upon all parties. Notwithstanding any provision to the
contrary in this Plan, the Administrator may adopt rules or procedures relating to the operation
and administration of the Plan to accommodate the specific requirements of local laws and
procedures for jurisdictions outside of the United States. Without limiting the generality of the
foregoing, the Administrator is specifically authorized to adopt rules and procedures regarding
eligibility to participate, the definition of Compensation, handling of payroll deductions, making
of contributions to the Plan (including, without limitation, in forms other than payroll
deductions), establishment of bank or trust accounts to hold payroll deductions, payment of
interest, conversion of local currency, obligations to pay payroll tax, determination of
beneficiary designation requirements, withholding procedures and handling of stock certificates
which vary with local requirements.

ARTICLE 15.

DESIGNATION OF BENEFICIARY

     Section 15.1. A participant may file a designation of a beneficiary who is to receive any
shares of Common Stock and cash, if any, from the participant’s account under the Plan in the event
of such participant’s death subsequent to an Exercise Date on which the option is exercised but
prior to delivery to such participant of such shares and cash. In addition, a participant may file
a designation of a beneficiary who is to receive any cash from the participant’s account under the
Plan in the event of such participant’s death prior to exercise of the option. If a participant is
married and the designated beneficiary is not the spouse, spousal consent will be required for such
designation to be effective.

     Section 15.2. Such designation of beneficiary may be changed by the participant at any time by
notice in a form determined by the Administrator. In the event of the death of a participant and
in the absence of a beneficiary validly designated under the Plan who is living at the time of such
participant’s death, the Company will deliver such shares and/or cash to the executor or
administrator of the estate of the participant, or if no such executor or administrator has been
appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such
shares and/or cash to the spouse or to any one or more dependents or relatives of the participant,
or if no spouse, dependent or relative is known to the Company, then to such other person as the
Company may designate.

     Section 15.3. All beneficiary designations will be in such form and manner as the
Administrator may designate from time to time.

ARTICLE 16.

TRANSFERABILITY

     Section 16.1. Neither payroll deductions credited to a participant’s account nor any rights
with regard to the exercise of an option or to receive shares of Common Stock under the Plan may be
assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of
descent and distribution or as provided in Section 15 hereof) by the participant. Any such attempt
at assignment, transfer, pledge or other disposition will be without effect, except that the
Company may

9

 

treat such act as an election to withdraw funds from an Offering Period in accordance with
Section 10 hereof.

ARTICLE 17.

USE OF FUNDS

     Section 17.1. The Company may use all payroll deductions received or held by it under the Plan
for any corporate purpose, and the Company will not be obligated to segregate such payroll
deductions. Until shares of Common Stock are issued, participants will only have the rights of an
unsecured creditor with respect to such shares.

ARTICLE 18.

REPORTS

     Section 18.1. Individual accounts will be maintained for each participant in the Plan.
Statements of account will be given to participating Eligible Employees at least annually, which
statements will set forth the amounts of payroll deductions, the Purchase Price, the number of
shares of Common Stock purchased and the remaining cash balance, if any.

ARTICLE 19.

ADJUSTMENTS, DISSOLUTION, LIQUIDATION,

MERGER OR CHANGE IN CONTROL

     Section 19.1. In the event that any dividend or other distribution (whether in the form of
cash, Common Stock, other securities, or other property), recapitalization, stock split, reverse
stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or
exchange of Common Stock or other securities of the Company, or other change in the corporate
structure of the Company affecting the Common Stock such that an adjustment is determined by the
Administrator (in its sole discretion) to be appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made available under the Plan,
then the Administrator will, in such manner as it may deem equitable, adjust the number and class
of Common Stock which may be delivered under the Plan, the Purchase Price per share and the number
of shares of Common Stock covered by each option under the Plan which has not yet been exercised,
and the numerical limits of Sections 7 and 13.

     Section 19.2. In the event of the proposed dissolution or liquidation of the Company, any
Offering Period then in progress will be shortened by setting a new Exercise Date (the “New
Exercise Date”), and will terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Administrator. The New Exercise Date
will be before the date of the Company’s proposed dissolution or liquidation. The Administrator
will notify each participant in writing, at least ten (10) business days prior to the New Exercise
Date, that the Exercise Date for the participant’s option has been changed to the New Exercise Date
and that the participant’s option will be exercised automatically on the New Exercise Date, unless
prior to such date the participant has withdrawn from the Offering Period as provided in Section 10
hereof.

10

 

     Section 19.3. In the event of a Change in Control, each outstanding option will be assumed or
an equivalent option substituted by the successor corporation or a Parent or Subsidiary of the
successor corporation. In the event that the successor corporation refuses to assume or substitute
for the option, the Offering Period with respect to which such option relates will be shortened by
setting a New Exercise Date and will end on the New Exercise Date. The New Exercise Date will
occur before the date of the Company’s proposed Change in Control. The Administrator will notify
each participant in writing prior to the New Exercise Date, that the Exercise Date for the
participant’s option has been changed to the New Exercise Date and that the participant’s option
will be exercised automatically on the New Exercise Date, unless prior to such date the participant
has withdrawn from the Offering Period as provided in Section 10 hereof.

ARTICLE 20.

AMENDMENT OR TERMINATION

     Section 20.1. The Administrator, in its sole discretion, may amend, suspend, or terminate the
Plan, or any part thereof, at any time and for any reason. If the Plan is terminated, the
Administrator, in its discretion, may elect to terminate the outstanding Offering Period either
immediately or upon completion of the purchase of shares of Common Stock on the next Exercise Date
(which may be sooner than originally scheduled, if determined by the Administrator in its
discretion), or may elect to permit the Offering Period to expire in accordance with its terms (and
subject to any adjustment pursuant to Section 19). If the Offering Period is terminated prior to
expiration, all amounts then credited to participants’ accounts which have not been used to
purchase shares of Common Stock will be returned to the participants (without interest thereon,
except as otherwise required under local laws) as soon as administratively practicable.

     Section 20.2. Without stockholder consent and without limiting Section 20.1, the Administrator
will be entitled to change the Offering Periods, limit the frequency and/or number of changes in
the amount withheld during an Offering Period, establish the exchange ratio applicable to amounts
withheld in a currency other than U.S. dollars, permit payroll withholding in excess of the amount
designated by a participant in order to adjust for delays or mistakes in the Company’s processing
of properly completed withholding elections, establish reasonable waiting and adjustment periods
and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of
Common Stock for each participant properly correspond with amounts withheld from the participant’s
Compensation, and establish such other limitations or procedures as the Administrator determines in
its sole discretion advisable which are consistent with the Plan.

     Section 20.3. In the event the Administrator determines that the ongoing operation of the Plan
may result in unfavorable financial accounting consequences, the Administrator may, in its
discretion and, to the extent necessary or desirable, modify, amend or terminate the Plan to reduce
or eliminate such accounting consequence including, but not limited to:

          (a) amending the Plan to conform with the safe harbor definition under Statement of Financial
Accounting Standards 123(R), including with respect to an Offering Period underway at the time;

          (b) altering the Purchase Price for any Offering Period including an Offering Period underway
at the time of the change in Purchase Price;

11

 

          (c) shortening any Offering Period so that Offering Period ends on a New Exercise Date,
including an Offering Period underway at the time of the Board action;

          (d) reducing the maximum percentage of Compensation a participant may elect to set aside as
payroll deductions; and

          (e) reducing the maximum number of Shares a participant may purchase during any Offering
Period.

     Such modifications or amendments will not require stockholder approval or the consent of any
Plan participants.

ARTICLE 21.

NOTICES

     Section 21.1. All notices or other communications by a participant to the Company under or in
connection with the Plan will be deemed to have been duly given when received in the form and
manner specified by the Company at the location, or by the person, designated by the Company for
the receipt thereof.

ARTICLE 22.

CONDITIONS UPON ON ISSUANCE OF SHARES

     Section 22.1. Shares of Common Stock will not be issued with respect to an option unless the
exercise of such option and the issuance and delivery of such shares pursuant thereto will comply
with all applicable provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the shares may then be listed,
and will be further subject to the approval of counsel for the Company with respect to such
compliance.

     Section 22.2. As a condition to the exercise of an option, the Company may require the person
exercising such option to represent and warrant at the time of any such exercise that the shares
are being purchased only for investment and without any present intention to sell or distribute
such shares if, in the opinion of counsel for the Company, such a representation is required by any
of the aforementioned applicable provisions of law.

ARTICLE 23.

TERM OF PLAN

     Section 23.1. The Plan will become effective upon the earlier to occur of its adoption by the
Board or its approval by the stockholders of the Company. It will continue in effect for a term of
twenty (20) years, unless sooner terminated under Section 20.

12

 

ARTICLE 24.

STOCKHOLDER APPROVAL

     Section 24.1. The Plan will be subject to approval by the stockholders of the Company within
twelve (12) months after the date the Plan is adopted by the Board. Such stockholder approval will
be obtained in the manner and to the degree required under Applicable Laws.

13

 

EXHIBIT A

TRANS1 INC.

2007 EMPLOYEE STOCK PURCHASE PLAN

SUBSCRIPTION AGREEMENT

                     Original Application Offering Date:                                         

                     Change in Payroll Deduction Rate

                     Change of Beneficiary(ies)

	1.	 	                                         hereby elects to participate in the TranS1 Inc. 2007 Employee Stock Purchase
Plan (the “Plan”) and subscribes to purchase shares of the Company’s Common Stock in
accordance with this Subscription Agreement and the Plan.

	2.	 	I hereby authorize payroll deductions from each paycheck in the amount of ___% of my
Compensation on each payday (from 0 to 10%) during the Offering Period in accordance with the
Plan. (Please note that no fractional percentages are permitted.)

	3.	 	I understand that said payroll deductions will be accumulated for the purchase of shares of
Common Stock at the applicable Purchase Price determined in accordance with the Plan. I
understand that if I do not withdraw from an Offering Period, any accumulated payroll
deductions will be used to automatically exercise my option and purchase Common Stock under
the Plan.

	4.	 	I have received a copy of the complete Plan and its accompanying prospectus. I understand
that my participation in the Plan is in all respects subject to the terms of the Plan.

	5.	 	Shares of Common Stock purchased for me under the Plan should be issued in the names of
(Eligible Employee or Eligible Employee and Spouse only).

	6.	 	I understand that if I dispose of any shares received by me pursuant to the Employee Stock
Purchase Plan within two (2) years after the Offering Date (the first day of the Offering
Period during which I purchased such shares) or one (1) year after the Exercise Date, I will
be treated for federal income tax purposes as having received ordinary income at the time of
such disposition in an amount equal to the excess of the fair market value of the shares at
the time such shares were purchased by me over the price which I paid for the shares. I
hereby agree to notify the Company in writing within thirty (30) days after the date of any
disposition of my shares and I will make adequate provision for Federal, state or other tax
withholding obligations, if any, which arise upon the disposition of the Common Stock. The
Company may, but will not be obligated to, withhold from my compensation the amount necessary
to meet any applicable withholding obligation including any withholding necessary to make
available to the Company any tax deductions or benefits attributable to sale or early
disposition of Common Stock by me. If I dispose of such shares at any time after the
expiration of the two (2)-year and one (1)-year holding periods, I understand that I will be
treated for federal income tax purposes as having received income only at the time of such
disposition, and that such income will be taxed as ordinary income only to the extent of an
amount equal to the lesser of (a) the excess of the fair market value of the shares at the
time

A-1

 

	 	 	of such disposition over the purchase price which I paid for the shares, or (b) 5% of the
fair market value of the shares on the Exercise Date. The remainder of the gain, if any,
recognized on such disposition will he taxed as capital gain.

	7.	 	I hereby agree to be bound by the terms of the Plan. The effectiveness of this Subscription
Agreement is dependent upon my eligibility to participate in the Plan.

	8.	 	In the event of my death, I hereby designate the following as my beneficiary(ies) to receive
all payments and shares due me under the Employee Stock Purchase Plan:

	 	 	 	 	 	 	 	 	 
	NAME: (Please print)
	 	 	 	 	 	 	 	 
	 	 	 
	 

	 	 	 	(First)
	 	(Middle)
	 	(Last)
	 
	 	 	 	 	 	 	 	 
	 

Relationship

	 	 	 	 
	 	 
	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 
	Percentage Benefit

	 	 	 	(Address)	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	NAME: (please print)
	 	 	 	 	 	 	 	 
	 	 	 
	 

	 	 	 	(First)
	 	(Middle)
	 	(Last)
	 
	 	 	 	 	 	 	 	 
	 

Relationship

	 	 	 	 
	 	 
	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 
	Percentage Benefit

	 	 	 	(Address)	 	 	 	 

	 	 	 	 	 
	Employee’s Social Security Number:
	 	 	 	 
	 

	 	 

	 	 
	 
	 	 	 	 
	Employee’s Address:
	 	 	 	 
	 

	 	 

	 	 
	 
	 	 	 	 
	 

	 	 

	 	 

     I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT WILL REMAIN IN EFFECT THROUGHOUT SUCCESSIVE
OFFERING PERIODS UNLESS TERMINATED BY ME.

	 	 	 	 	 	 	 	 	 
	Dated:
	 	 	 	 	 	 	 	 
	 

	 	 

	 	 
	 	 

Signature of Employee
	 	 
	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 
	 	 

Spouse’s Signature (If beneficiary other than spouse)
	 	 

A-2

 

EXHIBIT B

TRANS1 INC.

2007 EMPLOYEE STOCK PURCHASE PLAN

NOTICE OF WITHDRAWAL

     The undersigned participant in the Offering Period of the TranS1 Inc. 2007 Employee Stock
Purchase Plan that began on _________, 2007 (the “Offering Date”) hereby notifies the Company that
he or she hereby withdraws from the Offering Period. He or she hereby directs the Company to pay
to the undersigned as promptly as practicable all the payroll deductions credited to his or her
account with respect to such Offering Period. The undersigned understands and agrees that his or
her option for such Offering Period will be automatically terminated. The undersigned understands
further that no further payroll deductions will be made for the purchase of shares in the current
Offering Period and the undersigned will be eligible to participate in succeeding Offering Periods
only by delivering to the Company a new Subscription Agreement.

	 	 	 	 	 
	 	Name and Address of Participant: 	 
	 	
 	 
	 	
 	 
	 	
 	 
	 	 	 
	 	
Signature:

	 
	 	
 	 
	 	Date:	
 	 
	 

B-1

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