Document:

EX-10.4 FORM OF NONSTATUTORY STOCK OPTION AGREEMEN

 

Exhibit 10.4

PENWEST PHARMACEUTICALS CO.

Nonstatutory Stock Option Agreement

Granted Under 2005 Stock Incentive Plan

1. Grant of Option.

     This agreement (this “Agreement”) evidences the grant by Penwest Pharmaceuticals Co., a
Washington corporation (the “Company”), on [ ______ ], 20[ ___ ] (the “Grant
Date”) to [ ______ ], [a consultant/a director] of the Company (the
“Participant”), of an option to purchase, in whole or in part, on the terms provided herein and in
the Company’s 1997 Equity Incentive Plan (the “Plan”), a total of [ ______ ]
shares (the “Shares”) of common stock, $.001 par value per share, of the Company (“Common Stock”)
at an exercise price of $[         .         ] per Share. Unless earlier terminated, this option shall
expire at 5:00 p.m., Eastern time, the day after the tenth anniversary of the Grant Date (the
“Final Exercise Date”).

     It is intended that the option evidenced by this Agreement shall not be an incentive stock
option as defined in Section 422 of the Internal Revenue Code of 1986, as amended, and any
regulations promulgated thereunder (the “Code”). Except as otherwise indicated by the context, the
term “Participant”, as used in this option, shall be deemed to include any person who acquires the
right to exercise this option validly under its terms.

2. Vesting Schedule.

     (a) This option will become exercisable (“vest”) as to [ _________ ].

     (b) The right of exercise shall be cumulative so that to the extent the option is not
exercised in any period to the maximum extent permissible it shall continue to be exercisable, in
whole or in part, with respect to all Shares for which it is vested until the earlier of (i) the
Final Exercise Date or (ii) the termination of this option under Section 3 or the Plan.

     (c) Notwithstanding the foregoing, this option shall automatically become exercisable in full
(i) upon a Change in Control Event (as defined below) prior to the date the Participant ceases to
be an Eligible Participant (as defined below), (ii) upon the Participant’s death or disability
(within the meaning of Section 22(e)(3) of the Code) prior to the date the Participant ceases to be
an Eligible Participant (as defined below) or (iii) upon the Participant’s retirement in accordance
with the Company’s normal retirement policy, provided in each case that the Company has not
terminated the Participant’s relationship with the Company for “cause” or determined that discharge
for “cause” was warranted as specified in Section 3(e) below.

     (d) For the purposes of this Section 2, a “Change in Control Event” shall mean:

	 	(i)  	the acquisition by an individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the 1934 Securities Exchange Act, as
amended) (a “Person”) of beneficial ownership of any capital stock of the

 

 

	 	   	Company if, after such acquisition, such Person beneficially owns (within
the meaning of Rule 13d-3 promulgated under the 1934 Securities Exchange
Act, as amended) 50% or more of the combined voting power of the
then-outstanding securities of the Company entitled to vote generally in the
election of directors (the “Outstanding Company Voting Securities”);
provided, however, that for purposes of this subsection (i), the following
acquisitions shall not constitute a Change in Control Event: (A) any
acquisition directly from the Company, (B) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company or
any corporation controlled by the Company or (C) any acquisition by any
corporation pursuant to a Business Combination (as defined below) which
complies with clauses (x) and (y) of subsection (iii) of this definition; or
	 
	 	(ii)  	such time as the Continuing Directors (as defined below) do not
constitute a majority of the Board of Directors of the Company (the “Board”)
(or, if applicable, the Board of Directors of a successor corporation to the
Company), where the term “Continuing Director” means at any date a member of
the Board (x) who was a member of the Board on the Grant Date or (y) who was
nominated or elected subsequent to such date by at least a majority of the
directors who were Continuing Directors at the time of such nomination or
election or whose election to the Board was recommended or endorsed by at least
a majority of the directors who were Continuing Directors at the time of such
nomination or election; provided, however, that there shall be excluded from
this clause (y) any individual whose initial assumption of office occurred as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies
or consents, by or on behalf of a person other than the Board; or
	 
	 	(iii)  	the consummation of a merger, consolidation, reorganization,
recapitalization or share exchange involving the Company or a sale or other
disposition of all or substantially all of the assets of the Company (a
“Business Combination”), unless, immediately following such Business
Combination, each of the following two conditions is satisfied: (x) all or
substantially all of the individuals and entities who were the beneficial
owners of the Outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more than 60%
the combined voting power of the then-outstanding securities entitled to vote
generally in the election of directors, of the resulting or acquiring
corporation in such Business Combination (which shall include, without
limitation, a corporation which as a result of such transaction owns the
Company or substantially all of the Company’s assets either directly or through
one or more subsidiaries) (such resulting or acquiring corporation is referred
to herein as the “Acquiring Corporation”) in substantially the same proportions
as their ownership of the Outstanding Company Voting Securities immediately
prior to such Business

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	 	   	Combination and (y) no Person (excluding any employee benefit plan (or
related trust) maintained or sponsored by the Company or by the Acquiring
Corporation) beneficially owns, directly or indirectly, 50% or more of the
combined voting power of the then-outstanding securities of the Acquiring
Corporation entitled to vote generally in the election of directors (except
to the extent that such ownership existed prior to the Business
Combination); or
	 
	 	(iv)  	the liquidation or dissolution of the Company.

3. Exercise of Option.

     (a) Form of Exercise. Each election to exercise this option shall be in writing,
signed by the Participant, and received by the Company at its principal office, accompanied by this
agreement, and payment in full in the manner provided in Section 4 below. The Participant may
purchase less than the number of shares covered hereby, provided that no partial exercise of this
option may be for any fractional share or for fewer than five whole shares.

     (b) Continuous Relationship with the Company Required. Except as otherwise provided
in this Section 3, this option may not be exercised unless the Participant, at the time the
Participant exercises this option, is, and has been at all times since the Grant Date, [a director
of/a consultant to] the Company (an “Eligible Participant”).

     (c) Termination of Relationship with the Company. If the Participant ceases to be an
Eligible Participant for any reason, then, except as provided in paragraphs (d) and (e) below, the
right to exercise this option shall terminate one year after such cessation (but in no event after
the Final Exercise Date), provided that this option shall be exercisable only to
the extent that the Participant was entitled to exercise this option on the date of such cessation.
Notwithstanding the foregoing, if the Participant, prior to the Final Exercise Date, violates the
non-competition or confidentiality provisions of any employment contract, confidentiality and
nondisclosure agreement or other agreement between the Participant and the Company, the right to
exercise this option shall terminate immediately upon such violation.

     (d) Exercise Period Upon Death or Disability. If, prior to the Final Exercise Date
while the Participant is an Eligible Participant, the Participant (i) dies or (ii) becomes disabled
(within the meaning of Section 22(e)(3) of the Code) and in each case the Company has not
terminated such relationship for “cause” or determined that discharge for “cause” was warranted as
specified in Section 3(e) below, this option shall be exercisable, within the period of one year
following the date of death or disability of the Participant, by the Participant or an authorized
transferee, provided that this option shall not be exercisable after the Final Exercise
Date.

     (e) Discharge for Cause. If the Participant, prior to the Final Exercise Date, is
discharged or removed by the Company for “cause” (as defined below), the right to exercise this
option shall terminate immediately upon the effective date of such discharge or removal. “Cause”
shall mean willful misconduct by the Participant or willful failure by the Participant to perform
his or her responsibilities to the Company (including, without limitation, breach by the
Participant of any provision of any employment, consulting, advisory, nondisclosure, non-

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competition or other similar agreement between the Participant and the Company), as determined
by the Company, which determination shall be conclusive. The Participant shall be considered to
have been discharged or removed for “Cause” if the Company determines, within 30 days after the
final day of the Participant’s relationship with the Company, that discharge or removal for cause
was warranted.

4. Payment Upon Exercise. Common Stock purchased upon the exercise of this option shall be
paid for as follows:

     (a) in cash, by wire transfer to the Company, by bank transfer to the Company or by check
payable to the order of the Company; or

     (b) by any combination of the above permitted forms of payment.

5. Withholding. No Shares will be issued pursuant to the exercise of this option unless
and until the Participant pays to the Company, or makes provision satisfactory to the Company for
payment of, any federal, state or local withholding taxes required by law to be withheld in respect
of this option.

6. Nontransferability of Option. This option may not be sold, assigned, transferred,
pledged or otherwise encumbered by the Participant, either voluntarily or by operation of law,
except (i) by will or the laws of descent and distribution applicable if the Participant dies, (ii)
pursuant to a qualified domestic relations order or (iii) provided the transfer is without
consideration, to the spouse, children or grandchildren of the Participant (“Immediate Family
Members”), or to a trust for the exclusive benefit of such Immediate Family Members or to a
partnership in which such Immediate Family Members are the only partners.

7. Headings. The headings in this Agreement are for convenience of reference only and
shall not be deemed a part of this Agreement for purposes of the interpretation or construction of
this Agreement.

8. Provisions of the Plan. This option is subject to the provisions of the Plan, a copy of
which is furnished to the Participant with this option.

     IN WITNESS WHEREOF, the Company has caused this option to be executed under its corporate seal
by its duly authorized officer. This option shall take effect as a sealed instrument.

	 	 	 	 	 	 	 	 	 
	 	 	Penwest Pharmaceuticals Co.
	 
	 	 	 	 	 	 	 	 
	Dated: [_________, 20__]	 	By:	 	 
	 
	 	 	 	 	 	 	 	 
	

	 	 	 	 	 	Name:
	 	 
	

	 	 	 	 	 	Title:
	 	 

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PARTICIPANT’S ACCEPTANCE

     The undersigned hereby accepts the foregoing option and agrees to the terms and conditions
thereof. The undersigned hereby acknowledges receipt of a copy of the Company’s 2005 Stock
Incentive Plan.

	 	 	 	 	 
	 	 	PARTICIPANT:
	 
	 	 	 	 
	 	 	 
	 
	 	 	 	 
	

	 	Address:
	 	 
	 
	 	 	 	 
	

	 	 	 	 

-5-EX-10.5 DIRECTOR RESTRICTED STOCK AGREEMENT

 

Exhibit 10.5

PENWEST PHARMACEUTICALS CO.

Director Restricted Stock Agreement

Granted Under 2005 Stock Incentive Plan

     This AGREEMENT is entered into as of [ ______ ], 20[ ___ ] (the “Grant Date”), between
Penwest Pharmaceuticals Co., a Washington corporation (the “Company”), and [ ______ ]
(the “Participant”).

     For valuable consideration, receipt of which is acknowledged, the parties hereto agree as
follows:

     1. Issuance of Shares.

     The Company shall issue to the Participant, and the Participant shall accept from the Company,
subject to the terms and conditions set forth in this Agreement and in the Company’s 2005 Stock
Incentive Plan (the “Plan”), [ ______ ] shares (the “Shares”) of common stock, $.001 par value, of
the Company (“Common Stock”). The Company shall issue to the Participant one or more certificates
in the name of the Participant for that number of Shares issued to the Participant. The
Participant agrees that the Shares shall be subject to the forfeiture provisions set forth in
Sections 2 and 3 of this Agreement and the restrictions on transfer set forth in Section 4 of this
Agreement.

     2. Forfeiture Option.

          (a) In the event that the Participant ceases to be a director of the Company for any reason or
no reason, with or without cause [ ______ ].

          (b) Unvested Shares” means the total number of Shares multiplied by the Applicable Percentage
at the time the Participant ceases to be a director of the Company.

          (c) The “Applicable Percentage” shall be [ ______ ].

          (d) Notwithstanding the foregoing, the Applicable Percentage shall immediately be reduced to
zero (i) upon a Change in Control Event (as defined below) on or prior to the date the Participant
ceases to be a director, (ii) upon the Participant’s death or disability (within the meaning of
Section 22(e)(3) of the Internal Revenue Code of 1986, as amended, and any regulations promulgated
thereunder) on or prior to the date the Participant ceases to be a director or (iii) upon the
Participant’s retirement in accordance with the Company’s normal retirement policy.

          (e) For the purposes of this Section 2, a “Change in Control Event” shall mean:

	 	(i)  	the acquisition by an individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the 1934 Securities Exchange Act, as
amended) (a “Person”) of beneficial ownership of any capital stock of the

 

 

	 	   	Company if, after such acquisition, such Person beneficially owns (within
the meaning of Rule 13d-3 promulgated under the 1934 Securities Exchange
Act, as amended) 50% or more of the combined voting power of the
then-outstanding securities of the Company entitled to vote generally in the
election of directors (the “Outstanding Company Voting Securities”);
provided, however, that for purposes of this subsection (i), the following
acquisitions shall not constitute a Change in Control Event: (A) any
acquisition directly from the Company, (B) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company or
any corporation controlled by the Company or (C) any acquisition by any
corporation pursuant to a Business Combination (as defined below) which
complies with clauses (x) and (y) of subsection (iii) of this definition; or
	 
	 	(ii)  	such time as the Continuing Directors (as defined below) do not
constitute a majority of the Board of Directors of the Company (the “Board”)
(or, if applicable, the Board of Directors of a successor corporation to the
Company), where the term “Continuing Director” means at any date a member of
the Board (x) who was a member of the Board on the Grant Date or (y) who was
nominated or elected subsequent to such date by at least a majority of the
directors who were Continuing Directors at the time of such nomination or
election or whose election to the Board was recommended or endorsed by at least
a majority of the directors who were Continuing Directors at the time of such
nomination or election; provided, however, that there shall be excluded from
this clause (y) any individual whose initial assumption of office occurred as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies
or consents, by or on behalf of a person other than the Board; or
	 
	 	(iii)  	the consummation of a merger, consolidation, reorganization,
recapitalization or share exchange involving the Company or a sale or other
disposition of all or substantially all of the assets of the Company (a
“Business Combination”), unless, immediately following such Business
Combination, each of the following two conditions is satisfied: (x) all or
substantially all of the individuals and entities who were the beneficial
owners of the Outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more than 60%
the combined voting power of the then-outstanding securities entitled to vote
generally in the election of directors, of the resulting or acquiring
corporation in such Business Combination (which shall include, without
limitation, a corporation which as a result of such transaction owns the
Company or substantially all of the Company’s assets either directly or through
one or more subsidiaries) (such resulting or acquiring corporation is referred
to herein as the “Acquiring Corporation”) in substantially the same proportions
as their ownership of the Outstanding Company Voting Securities immediately
prior to such Business

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	 	   	Combination and (y) no Person (excluding any employee benefit plan (or
related trust) maintained or sponsored by the Company or by the Acquiring
Corporation) beneficially owns, directly or indirectly, 50% of the combined
voting power of the then-outstanding securities of the Acquiring Corporation
entitled to vote generally in the election of directors (except to the
extent that such ownership existed prior to the Business Combination); or
	 
	 	(iv)  	the liquidation or dissolution of the Company.

     3. Exercise of Forfeiture Option and Closing.

          (a) The Company shall request forfeiture of the Unvested Shares by delivering or mailing to
the Participant (or the Participant’s estate), within 180 days after the termination of the
Participant’s membership on the Board, a written notice specifying the number of Shares to be
forfeited. If and to the extent such forfeiture option (the “Forfeiture Option”) is not so
exercised by the giving of such notice within such 180-day period, the Forfeiture Option shall
automatically expire and terminate effective upon the expiration of such 180-day period.

          (b) Within 10 days after delivery to the Participant of the Company’s notice of the exercise
of Forfeiture Option of the Unvested Shares, the Participant (or the Participant’s estate) shall
tender to the Company at its principal offices the certificate or certificates representing the
Unvested Shares, duly endorsed in blank or with duly endorsed stock powers attached thereto, all in
form suitable for the transfer of such Unvested Shares to the Company.

          (c) After the time at which any Unvested Shares are required to be delivered to the Company
for transfer to the Company pursuant to Section 3(b) above, the Company shall not pay any dividend
to the Participant on account of such Shares or permit the Participant to exercise any of the
privileges or rights of a stockholder with respect to such Shares, but shall, in so far as
permitted by law, treat the Company as the owner of such Shares.

          (d) Any fraction of a Share resulting from a computation made pursuant to Section 2 of this
Agreement shall be rounded to the nearest whole Share (with any one-half Share being rounded
upward).

     4. Restrictions on Transfer. The Participant shall not sell, assign, transfer,
pledge, hypothecate or otherwise dispose of, by operation of law or otherwise (collectively
“transfer”) any Unvested Shares, or any interest therein, except that the Participant may transfer
such Unvested Shares (A) (i) by will or the laws of descent and distribution applicable if the
Participant dies, (ii) pursuant to a qualified domestic relations order or (iii) to the spouse,
children or grandchildren of the Participant (“Immediate Family Members”), or to a trust for the
exclusive benefit of such Immediate Family Members or to a partnership in which such Immediate
Family Members are the only partners, provided, in each case, that such Unvested Shares
shall remain subject to this Agreement (including without limitation the restrictions on transfer
set forth in this Section 4 and the forfeiture provisions of this Agreement) and such permitted
transferee shall, as a condition to such transfer, deliver to the Company a written instrument
confirming that such transferee shall be bound by all of the terms and conditions of

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this Agreement, or (B) as part of the sale of all or substantially all of the shares of
capital stock of the Company (including pursuant to a merger or consolidation).

     5. Restrictive Legends.

     All certificates representing Shares shall have affixed thereto legends in substantially the
following form, in addition to any other legends that may be required under federal or state
securities laws:

“The shares of stock represented by this certificate are subject to
restrictions on transfer and forfeiture provisions set forth in a
certain Restricted Stock Agreement between the corporation and the
registered owner of these shares (or the holder’s predecessor in
interest), and such Agreement is available for inspection without
charge at the office of the Secretary of the corporation.”

     6. Provisions of the Plan. This Agreement is subject to the provisions of the Plan,
a copy of which is furnished to the Participant with this Agreement.

     7. Miscellaneous.

          (a) No Rights to Continued Service The Participant acknowledges and agrees that the
transactions contemplated hereunder and the vesting schedule set forth herein do not constitute an
express or implied promise of continued engagement as a director for the vesting period, for any
period, or at all.

          (b) Severability. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision of this Agreement,
and each other provision of this Agreement shall be severable and enforceable to the extent
permitted by law.

          (c) Waiver. Any provision for the benefit of the Company contained in this Agreement
may be waived, either generally or in any particular instance, by the Board of Directors of the
Company.

          (d) Binding Effect. This Agreement shall be binding upon and inure to the benefit of
the Company and the Participant and their respective heirs, executors, administrators, legal
representatives, successors and assigns, subject to the restrictions on transfer set forth in
Section 4 of this Agreement.

          (e) Entire Agreement. This Agreement and the Plan constitute the entire agreement
between the parties, and supersedes all prior agreements and understandings, relating to the
subject matter of this Agreement.

          (f) Governing Law. This Agreement shall be construed, interpreted and enforced in
accordance with the internal laws of the State of Washington without regard to any applicable
conflicts of laws.

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     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year
first above written.

	 	 	 	 	 	 	 
	 	 	PENWEST PHARMACEUTICALS CO.
	 
	 	 	 	 	 	 
	 	 	By:	 	 
	

	 	 	 	Title:	 	 
	

	 	 	 	Address:
	 	39 Old Ridgebury Road, Suite 11
	

	 	 	 	 	 	Danbury, Connecticut 06810-5120
	 
	 	 	 	 	 	 
	 	 	 
	 	 	[Name of Participant]

	 	 	 	 	 
	

	 	Address:
	 	 
	

	 	 	 	 

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