Document:

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EXHIBIT 10.8

STOCK APPRECIATION RIGHTS AGREEMENT

CARDIOVASCULAR SYSTEMS, INC.

2007 EQUITY INCENTIVE PLAN

     THIS AGREEMENT, made effective as of this ___day of                    , 20,___, by and between
Cardiovascular Systems, Inc. a Minnesota corporation (the “Company”), and                    
(“Participant”).

W I T N E S S E T H:

     WHEREAS, Participant on the date hereof is a key employee, officer, director of or consultant
or advisor to the Company or one of its Subsidiaries; and

     WHEREAS, the Company wishes to grant a stock appreciation right to Participant to pursuant to
the Company’s 2007 Equity Incentive Plan (the “Plan”); and

     WHEREAS, the Administrator of the Plan has authorized the grant of a stock appreciation right
to Participant and has determined that, as of the effective date of this Agreement, the fair market
value of the Company’s Common Stock is $           per share;

     NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained,
the parties hereto agree as follows:

     1. Grant of SAR. The Company hereby grants to Participant on the date set forth above
(the “Date of Grant”), stock appreciation rights (the “SAR”) with respect to an aggregate of
(                    ) shares of Common Stock at an exercise price of $  per share on the terms and conditions set forth herein, and subject to
adjustment pursuant to Article IV of the Plan. [This SAR is granted in tandem with the
                    Option granted to Participant on                     , 20___ (the “Tandem Option”). ]

     2. Duration and Exercisability. The term during which this SAR may be exercised shall
terminate on                     ,___, except as otherwise provided in Paragraphs 2(b) through 2(d) below. This SAR shall vest and become exercisable according to the
following schedule:

 

 

	 	 	 
	 
	 	Cumulative Percentage
	Vesting Date
	 	of Shares
	 
	 	 

Once the SAR becomes exercisable to the extent of one hundred percent (100%) of the aggregate
number of shares specified in Paragraph 1, Participant may continue to exercise this SAR under the
terms and conditions of this Agreement until the termination of the SAR as provided herein. If
Participant does not exercise this SAR with respect to the full number of shares for which
Participant is then entitled to exercise this SAR, Participant may, upon any subsequent exercise
prior to this SAR’s termination, exercise this SAR for such previously unexercised portion.

          b. Termination of Relationship (Other than Disability or Death). If Participant
ceases to be [an employee] [a consultant] [a nonemployee director] of the Company or any Subsidiary
for any reason other than disability or death, this SAR shall completely terminate on the earlier
of (i) the close of business on the three-month anniversary date of such termination of employment,
and (ii) the expiration date of this SAR stated in Paragraph 2(a) above. In such period following
the termination of Participant’s employment, this SAR shall be exercisable only to the extent the
SAR was exercisable on the vesting date immediately preceding such termination of employment, but
had not previously been exercised. To the extent this SAR was not exercisable upon such
termination of employment, or if Participant does not exercise the SAR within the time specified in
this Paragraph 2(b), all rights of Participant under this SAR shall be forfeited.

          c. Disability. If Participant ceases to be [an employee] [a consultant] [a
nonemployee director] of the Company or any Subsidiary because of disability (as defined in Code
Section 22(e), or any successor provision), this SAR shall terminate on the earlier of (i) the
close of business on the twelve-month anniversary date of such termination of employment, and (ii)
the expiration date of this SAR stated in Paragraph 2(a) above. In such period following the
termination of Participant’s employment, this SAR shall be exercisable only to the extent the SAR
was exercisable on the vesting date immediately preceding such termination of employment, but had
not previously been exercised. To the extent this SAR was not exercisable upon such termination of
employment, or if Participant does not exercise the SAR within the time specified in this Paragraph
2(c), all rights of Participant under this SAR shall be forfeited.

          d. Death. In the event of Participant’s death, this SAR shall terminate on the
earlier of (i) the close of business on the twelve-month anniversary date of the date of
Participant’s

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death, and (ii) the expiration date of this SAR stated in Paragraph 2(a) above. In such period
following Participant’s death, this SAR shall be exercisable by the person or persons to whom
Participant’s rights under this SAR shall have passed by Participant’s will or by the laws of
descent and distribution only to the extent the SAR was exercisable on the vesting date immediately
preceding the date of Participant’s death, but had not previously been exercised. To the extent
this SAR was not exercisable upon the date of Participant’s death, or if such person or persons do
not exercise this SAR within the time specified in this Paragraph 2(d), all rights under this SAR
shall be forfeited.

     3. Manner of Exercise; Payment

          a. General. This SAR may be exercised only by Participant (or other proper party in
the event of death or incapacity), subject to the conditions of the Plan and subject to such other
administrative rules as the Administrator may deem advisable, by delivering written notice of
exercise to the Company at its principal office. The notice shall state the number of shares as to
which this SAR is being exercised. The exercise of this SAR shall be deemed effective upon receipt
of such notice by the Company, and the date of such receipt shall be the “date of exercise” for all
purposes under this Agreement. This SAR may be exercised with respect to any number or all of the
shares as to which it can then be exercised and, if partially exercised, may be so exercised as to
the unexercised shares any number of times during the term of this SAR as provided herein.

          b. Form of Payment. Upon the exercise of all or a portion of this SAR, Participant
shall be entitled to [a cash payment] [that number of shares of Stock calculated using such Stock’s
Fair Market Value as of the date of exercise and having an aggregate Fair Market Value] equal to
(i) the excess of (A) the per share Fair Market Value of the Company’s Common Stock as of the date
of exercise over (B) the per share exercise price specified in Paragraph 1 above, multiplied by
(ii) the number of shares specified in the Participant’s notice of exercise.

          c. Stock Transfer Records. As soon as practicable after the effective exercise of all
or any part of this SAR, Participant shall be recorded on the stock transfer books of the Company
as the owner of the shares purchased, and the Company shall deliver to Participant one or more duly
issued stock certificates evidencing such ownership. All requisite original issue or transfer
documentary stamp taxes shall be paid by the Company.

          [d. Cancellation of Tandem Option or SAR. Notwithstanding anything in this Agreement
to the contrary, the exercise of all or a portion of this SAR shall result in the cancellation of
the corresponding right to purchase a like number of shares under the Tandem Option, and the
exercise of all or a portion of the Tandem Option shall result in the cancellation of the
corresponding right to exercise this SAR for a like number of shares. The Participant may not
simultaneously exercise this SAR for a corresponding number of shares purchased through the
exercise of the Tandem Option.]

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     4. Miscellaneous.

          a. Employment or Other Relationship; Rights as Shareholder. This Agreement shall not
confer on Participant any right with respect to continuance of employment or any other relationship
by the Company or any of its Subsidiaries, nor will it interfere in any way with the right of the
Company to terminate such employment or relationship. Participant shall have no rights as a
shareholder with respect to shares subject to this SAR until such shares, if any, have been issued
to Participant. No adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property), distributions or other rights for which the record date is
prior to the date such shares are issued, except as provided in Section 14 of the Plan.

          b. Securities Law Compliance. The exercise of all or any parts of this SAR shall only
be effective at such time as counsel to the Company shall have determined that the issuance and
delivery of Common Stock pursuant to such exercise will not violate any state or federal securities
or other laws. Participant may be required by the Company, as a condition of the effectiveness of
any exercise of this SAR, to agree in writing that all Common Stock to be acquired pursuant to such
exercise shall be held, until such time that such Common Stock is registered and freely tradable
under applicable state and federal securities laws, for Participant’s own account without a view to
any further distribution thereof, that the certificates for such shares shall bear an appropriate
legend to that effect and that such shares will be not transferred or disposed of except in
compliance with applicable state and federal securities laws.

          c. Mergers, Recapitalizations, Stock Splits, Etc. Except as otherwise specifically
provided in any employment, change of control, severance or similar agreement executed by the
Participant and the Company, pursuant and subject to Section 14 of the Plan, certain changes in the
number or character of the Common Stock of the Company (through sale, merger, consolidation,
exchange, reorganization, divestiture (including a spin-off), liquidation, recapitalization, stock
split, stock dividend or otherwise) shall result in an adjustment, reduction or enlargement, as
appropriate, in Participant’s rights with respect to any unexercised portion of this SAR
(i.e., Participant shall have such “anti-dilution” rights under this SAR with respect to
such events, but shall not have “preemptive” rights).

          d. Shares Reserved. The Company shall at all times during the term of this SAR
reserve and keep available such number of shares as will be sufficient to satisfy the requirements
of this Agreement.

          e. Withholding Taxes. In order to permit the Company to comply with all applicable
federal or state income tax laws or regulations, the Company may take such action as it deems
appropriate to insure that, if necessary, all applicable federal and state payroll, income or other
taxes are withheld from any amounts payable by the Company to Participant. If the Company is
unable to withhold such federal and state taxes, for whatever reason, Participant hereby agrees to
pay to the Company an amount equal to the amount the Company would otherwise be required to
withhold under federal or state law. Subject to such rules as the Administrator may adopt, the
Administrator may, in its sole discretion, permit Participant to satisfy such withholding tax
obligations, in whole or in part by delivering shares of Common Stock received pursuant to this SAR
having a Fair Market Value, as of the date the amount of tax

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to be withheld is determined under applicable tax law, equal to the minimum amount required to be
withheld for tax purposes. Participant’s request to deliver shares for purposes of such
withholding tax obligations shall be made on or before the date that triggers such obligations or,
if later, the date that the amount of tax to be withheld is determined under applicable tax law.
Participant’s request shall be approved by the Administrator and otherwise comply with such rules
as the Administrator may adopt to assure compliance with Rule 16b-3 or any successor provision, as
then in effect, of the General Rules and Regulations under the Securities and Exchange Act of 1934,
if applicable.

          f. Nontransferability. During the lifetime of Participant, this SAR shall be
exercisable only by Participant or by the Participant’s guardian or other legal representative, and
shall not be assignable or transferable by Participant, in whole or in part, other than by will or
by the laws of descent and distribution.

          g. 2007 Equity Incentive Plan. The SAR evidenced by this Agreement is granted
pursuant to the Plan, a copy of which Plan has been made available to Participant and is hereby
incorporated into this Agreement. This Agreement is subject to and in all respects limited and
conditioned as provided in the Plan. All defined terms of the Plan shall have the same meaning
when used in this Agreement. The Plan governs this SAR and the Participant and, in the event of
any questions as to the construction of this Agreement or in the event of a conflict between the
Plan and this Agreement, the Plan shall govern, except as the Plan otherwise provides.

          h. Lockup Period Limitation. Participant agrees that in the event the Company advises
Participant that it plans an underwritten public offering of its Common Stock in compliance with
the Securities Act of 1933, as amended, and that the underwriter(s) seek to impose restrictions
under which certain shareholders may not sell or contract to sell or grant any option to buy or
otherwise dispose of part or all of their stock purchase rights of the underlying Common Stock,
Participant hereby agrees that for a period not to exceed 180 days from the prospectus, Participant
will not sell or contract to sell or grant an option to buy or otherwise dispose of this Option or
any of the underlying shares of Common Stock without the prior written consent of the
underwriter(s) or its representative(s).

          i. Blue Sky Limitation. Notwithstanding anything in this Agreement to the contrary, in
the event the Company makes any public offering of its securities and it is determined that it is
necessary to reduce the number of issued but unexercised stock purchase rights so as to comply with
any state securities or Blue Sky law limitations with respect thereto, and such determination is
affirmed by the Board of Directors, unless the Board of Directors determines otherwise, (i) the
exercisability of this SAR and the date on which this SAR must be exercised shall be accelerated,
provided that the Company agrees to give Participant 15 days’ prior written notice of such
acceleration, and (ii) any portion of this SAR or any other option granted to Participant pursuant
to the Plan which is not exercised prior to or contemporaneously with such public offering shall be
canceled. Notice shall be deemed given when delivered personally or when deposited in the United
States mail, first class postage prepaid and addressed to Participant at the address of Participant
on file with the Company.

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          j. Accounting Compliance. Participant agrees that, if a merger, reorganization,
liquidation or other “transaction” as defined in Section 14 of the Plan occurs and Participant is
an “affiliate” of the Company or any Affiliate (as defined in applicable legal and accounting
principles) at the time of such transaction, Participant will comply with all requirements of Rule
145 of the Securities Act of 1933, as amended, and the requirements of such other legal or
accounting principles, and will execute any documents necessary to ensure such compliance.

          k. Stock Legend. The Administrator may require that the certificates for any shares
of Common Stock purchased by Participant (or, in the case of death, Participant’s successors) shall
bear an appropriate legend to reflect the restrictions of Paragraph 4(b) and Paragraphs 4(g)
through 4(i) of this Agreement; provided, however, that failure to so endorse any of such
certificates shall not render invalid or inapplicable Paragraph 4(b) or Paragraphs 4(g) through
4(i).

          l. Scope of Agreement. This Agreement shall bind and inure to the benefit of the
Company and its successors and assigns and Participant and any successor or successors of
Participant permitted by Paragraph 2 or Paragraph 4(e) above.

          m. Arbitration. Any dispute arising out of or relating to this Agreement or the
alleged breach of it, or the making of this Agreement, including claims of fraud in the inducement,
shall be discussed between the disputing parties in a good faith effort to arrive at a mutual
settlement of any such controversy. If, notwithstanding, such dispute cannot be resolved, such
dispute shall be settled by binding arbitration. Judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction thereof. The arbitrator shall be a
retired state or federal judge or an attorney who has practiced securities or business litigation
for at least 10 years. If the parties cannot agree on an arbitrator within 20 days, any party may
request that the chief judge of the District Court for Hennepin County, Minnesota, select an
arbitrator. Arbitration will be conducted pursuant to the provisions of this Agreement, and the
commercial arbitration rules of the American Arbitration Association, unless such rules are
inconsistent with the provisions of this Agreement. Limited civil discovery shall be permitted for
the production of documents and taking of depositions. Unresolved discovery disputes may be
brought to the attention of the arbitrator who may dispose of such dispute. The arbitrator shall
have the authority to award any remedy or relief that a court of this state could order or grant;
provided, however, that punitive or exemplary damages shall not be awarded. The arbitrator may
award to the prevailing party, if any, as determined by the arbitrator, all of its costs and fees,
including the arbitrator’s fees, administrative fees, travel expenses, out-of-pocket expenses and
reasonable attorneys’ fees. Unless otherwise agreed by the parties, the place of any arbitration
proceedings shall be Hennepin County, Minnesota.

          n. Right to Amend. The Company hereby reserves the right to amend this Agreement
without Participant’s consent to the extent necessary or desirable to comply with the requirements
of Code Section 409A and the regulations, notices and other guidance of general application issued
thereunder.

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     ACCORDINGLY, the parties hereto have caused this Agreement to be executed on the day and year
first above written.

	 	 	 	 	 	 	 	 	 
	 	 	CARDIOVASCULAR SYSTEMS, INC.
	 
	 	 	 	 	 	 	 	 
	 

	 	By:	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 

	 	 	 	Its:	 	 	 	 
	 

	 	 	 	 	 	 

	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 
	 	 	Participant

7exv10w9

 

EXHIBIT 10.9

CARDIOVASCULAR SYSTEMS, INC.

2003 STOCK OPTION PLAN

(As Amended Through August 15, 2006)

SECTION 1.

DEFINITIONS

     As used herein, the following terms shall have the meanings indicated below:

     (a) “Affiliates” shall mean a Parent or Subsidiary of the Company.

     (b) “Committee” shall mean a Committee of two or more directors who shall be appointed by and
serve at the pleasure of the Board. In the event the Company’s securities are registered pursuant
to Section 12 of the Securities Exchange Act of 1934, as amended, each of the members of the
Committee shall be a “Non-Employee Director” within the meaning of Rule 16b-3, or any successor
provision, as then in effect, of the General Rules and Regulations under the Securities Exchange
Act of 1934 as amended.

     (c) The “Company” shall mean Cardiovascular Systems, Inc., a Minnesota corporation.

     (d) “Fair Market Value” as of any date shall mean (i) if such stock is listed on the Nasdaq
National Market, Nasdaq SmallCap Market or an established stock exchange, the price of such stock
at the close of the regular trading session of such market or exchange on such date, as reported by
The Wall Street Journal or a comparable reporting service, or, if no sale of such stock shall have
occurred on such date, on the next preceding day on which there was a sale of stock; (ii) if such
stock is not so listed on the Nasdaq National Market, Nasdaq SmallCap Market or an established
stock exchange, either the closing price or the average of the closing “bid” and “asked” prices,
whichever is reported, as quoted by the OTC Bulletin Board, the National Quotation Bureau, or any
comparable reporting service on such date or, if there are no quoted closing or “bid” and “asked”
prices on such date, on the next preceding date for which there are such quotes; or (iii) if such
stock is not publicly traded as of such date, the per share value as determined by the Board, or
the Committee, in its sole discretion by applying principles of valuation with respect to the
Company’s Common Stock.

     (e) The “Internal Revenue Code” is the Internal Revenue Code of 1986, as amended from time to
time.

     (f) “Option Stock” shall mean Common Stock of the Company (subject to adjustment as described
in Section 12) reserved for options pursuant to this Plan.

     (g) The “Optionee” means an employee of the Company or any Subsidiary to whom an incentive
stock option has been granted pursuant to Section 9; or a consultant or advisor, to or director,
employee or officer, of the Company or any Subsidiary to whom a nonqualified stock option has been
granted pursuant to Section 10.

 

 

     (h) “Parent” shall mean any corporation which owns, directly or indirectly in an unbroken
chain, fifty percent (50%) or more of the total voting power of the Company’s outstanding stock.

     (i) The “Plan” means the Cardiovascular Systems, Inc. 2003 Stock Option Plan, as amended
hereafter from time to time, including the form of Option Agreements as they may be modified by the
Board from time to time.

     (j) A “Subsidiary” shall mean any corporation of which fifty percent (50%) or more of the
total voting power of outstanding stock is owned, directly or indirectly in an unbroken chain, by
the Company.

SECTION 2.

PURPOSE

     The purpose of the Plan is to promote the success of the Company and its Subsidiaries by
facilitating the employment and retention of competent personnel and by furnishing incentive to
officers, directors, employees, consultants, and advisors upon whose efforts the success of the
Company and its Subsidiaries will depend to a large degree.

     It is the intention of the Company to carry out the Plan through the granting of stock options
which will qualify as “incentive stock options” under the provisions of Section 422 of the Internal
Revenue Code, or any successor provision, and through the granting of “non-qualified stock options”
pursuant to Section 10 of this Plan. Adoption of this Plan shall be and is expressly subject to
the condition of approval by the shareholders of the Company within twelve (12) months before or
after the adoption of the Plan by the Board of Directors. In no event shall any stock options be
granted prior to the date this Plan is approved by the shareholders of the Company.

SECTION 3.

EFFECTIVE DATE OF PLAN

     The Plan shall be effective as of the date of adoption by the Board of Directors, subject to
approval by the shareholders of the Company as required in Section 2.

SECTION 4.

ADMINISTRATION

     The Plan shall be administered by the Board of Directors of the Company (hereinafter referred
to as the “Board”) or by a Committee which may be appointed by the Board from time to time to
administer the Plan (hereinafter the term “Board” includes any such Committee). The Board shall
have all of the powers vested in it under the provisions of the Plan, including but not limited to
exclusive authority (where applicable and within the limitations described herein) to determine, in
its sole discretion, whether an incentive stock option or nonqualified stock option shall be
granted, the individuals to whom, and the time or times at which, options shall be

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granted, the number of shares subject to each option and the option price and terms and conditions
of each option. The Board shall have full power and authority to administer and interpret the
Plan, to make and amend rules, regulations and guidelines for administering the Plan, to prescribe
the form and conditions of the respective stock option agreements (which may vary from Optionee to
Optionee) evidencing each option and to make all other determinations necessary or advisable for
the administration of the Plan. The Board’s interpretation of the Plan, and all actions taken and
determinations made by the Board pursuant to the power vested in it hereunder, shall be conclusive
and binding on all parties concerned.

     No member of the Board or the Committee shall be liable for any action taken or determination
made in good faith in connection with the administration of the Plan. In the event the Board
appoints a Committee as provided hereunder, any action of the Committee with respect to the
administration of the Plan shall be taken pursuant to a majority vote of the Committee members or
pursuant to the written resolution of all Committee members.

SECTION 5.

PARTICIPANTS

     The Board shall from time to time, at its discretion and without approval of the shareholders,
designate those employees, officers, directors, consultants, and advisors of the Company or of any
Subsidiary to whom nonqualified stock options shall be granted under this Plan; provided, however,
that consultants or advisors shall not be eligible to receive stock options hereunder unless such
consultant or advisor renders bona fide services to the Company or Subsidiary and such services are
not in connection with the offer or sale of securities in a capital raising transaction and do not
directly or indirectly promote or maintain a market for the Company’s securities. The Board shall,
from time to time, at its discretion and without approval of the shareholders, designate those
employees of the Company or any Subsidiary to whom incentive stock options shall be granted under
this Plan. The Board may grant additional incentive stock options or nonqualified stock options
under this Plan to some or all participants then holding options or may grant options solely or
partially to new participants. In designating participants, the Board shall also determine the
number of shares to be optioned to each such participant. The Board may from time to time
designate individuals as being ineligible to participate in the Plan.

SECTION 6.

STOCK

     The Stock to be optioned under this Plan shall consist of authorized but unissued shares of
Option Stock. Three Million Eight Hundred Thousand (3,800,000) shares of Option Stock shall be
reserved and available for options under the Plan; provided, however, that the total number of
shares of Option Stock reserved for options under this Plan shall be subject to adjustment as
provided in Section 12 of the Plan. In the event that any outstanding option under the Plan for
any reason expires or is terminated prior to the exercise thereof, the shares of Option Stock
allocable to the unexercised portion of such option shall continue to be reserved for options under
the Plan and may be optioned hereunder.

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SECTION 7.

DURATION OF PLAN

     Incentive stock options may be granted pursuant to the Plan from time to time during a period
of ten (10) years from the effective date as defined in Section 3. Nonqualified stock options may
be granted pursuant to the Plan from time to time after the effective date of the Plan and until
the Plan is discontinued or terminated by the Board.

SECTION 8.

PAYMENT

     Optionees may pay for shares upon exercise of options granted pursuant to this Plan with cash,
personal check, certified check or, if approved by the Board in its sole discretion,
previously-owned shares of the Company’s Common Stock valued at such stock’s then Fair Market
Value, or such other form of payment as may be authorized by the Board. The Board may, in its sole
discretion, limit the forms of payment available to the Optionee and may exercise such discretion
any time prior to the termination of the Option granted to the Optionee or upon any exercise of the
Option by the Optionee. “Previously-owned shares” means shares of the Company’s Common Stock which
the Optionee has owned for at least six (6) months prior to the exercise of the stock option, or
for such other period of time as may be required by generally accepted accounting principles.

     With respect to payment in the form of Common Stock of the Company, the Board may require
advance approval or adopt such rules as it deems necessary to assure compliance with Rule 16b-3, or
any successor provision, as then in effect, of the General Rules and Regulations under the
Securities Exchange Act of 1934, if applicable.

SECTION 9.

TERMS AND CONDITIONS OF INCENTIVE STOCK OPTIONS

     Each incentive stock option granted pursuant to this Section 9 shall be evidenced by a written
stock option agreement (the “Option Agreement”). The Option Agreement shall be in such form as may
be approved from time to time by the Board and may vary from Optionee to Optionee; provided,
however, that each Optionee and each Option Agreement shall comply with and be subject to the
following terms and conditions:

     (a) Number of Shares and Option Price. The Option Agreement shall state the total
number of shares covered by the incentive stock option. To the extent required to qualify the
Option as an incentive stock option under Section 422 of the Internal Revenue Code, or any
successor provision, the option price per share shall not be less than one hundred percent (100%)
of the Fair Market Value of the Common Stock per share on the date the Board grants the option;
provided, however, that if an Optionee owns stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or of its parent or any
Subsidiary, the option price per share of an incentive stock option granted to such Optionee shall

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not be less than one hundred ten percent (110%) of the Fair Market Value of the Common Stock per
share on the date of the grant of the option. The Board shall have full authority and discretion
in establishing the option price and shall be fully protected in so doing.

     (b) Term and Exercisability of Incentive Stock Option. The term during which any
incentive stock option granted under the Plan may be exercised shall be established in each case by
the Board. To the extent required to qualify the Option as an incentive stock option under Section
422 of the Internal Revenue Code, or any successor provision, in no event shall any incentive stock
option be exercisable during a term of more than ten (10) years after the date on which it is
granted; provided, however, that if an Optionee owns stock possessing more than ten percent (10%)
of the total combined voting power of all classes of stock of the Company or of its parent or any
Subsidiary, the incentive stock option granted to such Optionee shall be exercisable during a term
of not more than five (5) years after the date on which it is granted. The Option Agreement shall
state when the incentive stock option becomes exercisable and shall also state the maximum term
during which the option may be exercised. In the event an incentive stock option is exercisable
immediately, the manner of exercise of the option in the event it is not exercised in full
immediately shall be specified in the Option Agreement. The Board may accelerate the exercise date
of any incentive stock option granted hereunder which is not immediately exercisable as of the date
of grant.

     (c) Withholding. The Company or its Subsidiary shall be entitled to withhold and
deduct from future wages of the Optionee all legally required amounts necessary to satisfy any and
all withholding and employment-related taxes attributable to the Optionee’s exercise of an
incentive stock option or a “disqualifying disposition” of shares acquired through the exercise of
an incentive stock option as defined in Code Section 421(b). In the event the Optionee is required
under the Option Agreement to pay the Company, or make arrangements satisfactory to the Company
respecting payment of, such withholding and employment-related taxes, the Board may, in its
discretion and pursuant to such rules as it may adopt, permit the Optionee to satisfy such
obligation, in whole or in part, by electing to have the Company withhold shares of Common Stock
otherwise issuable to the Optionee as a result of the option’s exercise having a Fair Market Value
equal to the minimum required tax withholding, based on the minimum statutory withholding rates for
federal and state tax purposes, including payroll taxes, that are applicable to the supplemental
income resulting from the option. In no event may the Company or any Affiliate withhold shares
having a Fair Market Value in excess of such statutory minimum required tax withholding. The
Optionee’s election to have shares withheld for this purpose shall be made on or before the date
the option is exercised or, if later, the date that the amount of tax to be withheld is determined
under applicable tax law. Such election shall be approved by the Board and otherwise comply with
such rules as the Board may adopt to assure compliance with Rule 16b-3, or any successor provision,
as then in effect, of the General Rules and Regulations under the Securities Exchange Act of 1934,
if applicable.

     (d) Other Provisions. The Option Agreement authorized under this Section 9 shall
contain such other provisions as the Board shall deem advisable. Any such Option Agreement shall
contain such limitations and restrictions upon the exercise of the option as shall be necessary to
ensure that such option will be considered an “incentive stock option” as defined in Section 422 of
the Internal Revenue Code or to conform to any change therein.

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SECTION 10.

TERMS AND CONDITIONS OF NONQUALIFIED STOCK OPTIONS

     Each nonqualified stock option granted pursuant to this Section 10 shall be evidenced by a
written Option Agreement. The Option Agreement shall be in such form as may be approved from time
to time by the Board and may vary from Optionee to Optionee; provided, however, that each Optionee
and each Option Agreement shall comply with and be subject to the following terms and conditions:

     (a) Number of Shares and Option Price. The Option Agreement shall state the total
number of shares covered by the nonqualified stock option. Unless otherwise determined by the
Board, the option price per share shall be one hundred percent (100%) of the Fair Market Value of
the Common Stock per share on the date the Board grants the option; provided, however, that the
option price may not be less than eighty-five percent (85%) of the Fair Market Value of the Common
Stock per share on the date of grant.

     (b) Term and Exercisability of Nonqualified Stock Option. The term during which any
nonqualified stock option granted under the Plan may be exercised shall be established in each case
by the Board. The Option Agreement shall state when the nonqualified stock option becomes
exercisable and shall also state the maximum term during which the option may be exercised. In the
event a nonqualified stock option is exercisable immediately, the manner of exercise of the option
in the event it is not exercised in full immediately shall be specified in the stock option
agreement. The Board may accelerate the exercise date of any nonqualified stock option granted
hereunder which is not immediately exercisable as of the date of grant.

     (c) Withholding. The Company or its Subsidiary shall be entitled to withhold and
deduct from future wages of the Optionee all legally required amounts necessary to satisfy any and
all withholding and employment-related taxes attributable to the Optionee’s exercise of a
nonqualified stock option. In the event the Optionee is required under the Option Agreement to pay
the Company, or make arrangements satisfactory to the Company respecting payment of, such
withholding and employment-related taxes, the Board may, in its discretion and pursuant to such
rules as it may adopt, permit the Optionee to satisfy such obligation, in whole or in part, by
electing to have the Company withhold shares of Common Stock otherwise issuable to the Optionee as
a result of the option’s exercise having a Fair Market Value equal to the minimum required tax
withholding, based on the minimum statutory withholding rates for federal and state tax purposes,
including payroll taxes, that are applicable to the supplemental income resulting from the option.
In no event may the Company or any Affiliate withhold shares having a Fair Market Value in excess
of such statutory minimum required tax withholding. The Optionee’s election to have shares
withheld for this purpose shall be made on or before the date the option is exercised or, if later,
the date that the amount of tax to be withheld is determined under applicable tax law. Such
election shall be approved by the Board and otherwise comply with such rules as the Board may adopt
to assure compliance with Rule 16b-3, or any successor provision, as then in effect, of the General
Rules and Regulations under the Securities Exchange Act of 1934, if applicable.

     (d) Other Provisions. The Option Agreement authorized under this Section 10 shall
contain such other provisions as the Board shall deem advisable.

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SECTION 11.

TRANSFER OF OPTION

     No incentive stock option shall be transferable, in whole or in part, by the Optionee other
than by will or by the laws of descent and distribution and, during the Optionee’s lifetime, the
option may be exercised only by the Optionee. If the Optionee shall attempt any transfer of any
incentive stock option granted under the Plan during the Optionee’s lifetime, such transfer shall
be void and the incentive stock option, to the extent not fully exercised, shall terminate.

     No nonqualified stock option shall be transferred, except that the Board may, in its sole
discretion, permit the Optionee to transfer any or all nonqualified stock options to any member of
the Optionee’s “immediate family” as such term is defined in Rule 16a-1(e) promulgated under the
Securities Exchange Act of 1934, or any successor provision, or to one or more trusts whose
beneficiaries are members of such Optionee’s “immediate family” or partnerships in which such
family members are the only partners; provided, however, that the Optionee receives no
consideration for the transfer and such transferred nonqualified stock option shall continue to be
subject to the same terms and conditions as were applicable to such nonqualified stock option
immediately prior to its transfer.

SECTION 12.

RECAPITALIZATION, SALE,

MERGER, EXCHANGE OR LIQUIDATION

     If, following adoption of this Plan, the Company effects an increase or decrease in the number
of shares of Common Stock in the form of a subdivision or consolidation of shares, or the payment
of a stock dividend, or effects any other increase or decrease in the number of shares of Common
Stock without receipt of consideration by the Company, the number of shares of Option Stock
reserved under Section 6 hereof and the number of shares of Option Stock covered by each
outstanding option and the price per share thereof shall be appropriately adjusted by the Board to
reflect such change. Additional shares which may be credited pursuant to such adjustment shall be
subject to the same restrictions as are applicable to the shares with respect to which the
adjustment relates.

     Unless otherwise provided in the Option Agreement, in the event of an acquisition of the
Company through the sale of substantially all of the Company’s assets and the consequent
discontinuance of its business or through a merger, consolidation, exchange, reorganization,
reclassification, extraordinary dividend, divestiture or liquidation of the Company (collectively
referred to as a “transaction”), the Board may provide for one or more of the following:

     (a) That all outstanding stock options shall become immediately exercisable, whether or
not such options had become exercisable prior to the transaction;

     (b) The complete termination of this Plan, the cancellation of outstanding options not
exercised prior to a date specified by the Board (which date shall give Optionees a
reasonable period of time in which to exercise the options prior to the effectiveness of
such transaction);

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     (c) That Optionees holding outstanding stock options shall receive, with respect to
each share of Stock subject to such options, as of the effective date of any such
transaction, cash in an amount equal to the excess of the Fair Market Value of such Stock on
the date immediately preceding the effective date of such transaction over the option price
per share of such options; provided that the Board may, in lieu of such cash payment,
distribute to such Optionees shares of stock of the Company or shares of stock of any
corporation succeeding the Company by reason of such transaction, such shares having a value
equal to the cash payment herein;

     (d) the continuance of the Plan with respect to the exercise of options which were
outstanding as of the date of adoption by the Board of such plan for such transaction and
provide to Optionees holding such options the right to exercise their respective options as
to an equivalent number of shares of stock of the corporation succeeding the Company by
reason of such transaction.

The Board may restrict the rights of or the applicability of this Section 12 to the extent
necessary to comply with Section 16(b) of the Securities Exchange Act of 1934, the Internal Revenue
Code or any other applicable law or regulation. The grant of an option pursuant to the Plan shall
not limit in any way the right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure or to merge, exchange or
consolidate or to dissolve, liquidate, sell or transfer all or any part of its business or assets.

SECTION 13.

INVESTMENT PURPOSE

     No shares of Common Stock shall be issued pursuant to the Plan unless and until there has been
compliance, in the opinion of Company’s counsel, with all applicable legal requirements, including
without limitation, those relating to securities laws and stock exchange listing requirements. As
a condition to the issuance of Option Stock to Optionee, the Board may require Optionee to (a)
represent that the shares of Option Stock are being acquired for investment and not resale and to
make such other representations as the Board shall deem necessary or appropriate to qualify the
issuance of the shares as exempt from the Securities Act of 1933 and any other applicable
securities laws, and (b) represent that Optionee shall not dispose of the shares of Option Stock in
violation of the Securities Act of 1933 or any other applicable securities laws.

     As a further condition to the grant of any stock option or the issuance of Stock to Optionee,
Optionee agrees to the following:

     (a) In the event the Company advises Optionee that it plans an underwritten public
offering of its Common Stock in compliance with the Securities Act of 1933, as amended, and
the underwriter(s) seek to impose restrictions under which certain shareholders may not sell
or contract to sell or grant any option to buy or otherwise dispose of part or all of their
stock purchase rights of the underlying Common Stock, Optionee will not, for a period not to
exceed 180 days from the prospectus, sell or contract to sell or grant an option to buy or
otherwise dispose of any stock option or restricted stock award granted

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to Optionee pursuant to the Plan or any of the underlying shares of Common Stock
without the prior written consent of the underwriter(s) or its representative(s).

     (b) In the event the Company makes any public offering of its securities and determines
in its sole discretion that it is necessary to reduce the number of issued but unexercised
stock purchase rights so as to comply with any states securities or Blue Sky law limitations
with respect thereto, the Board of Directors of the Company shall have the right (i) to
accelerate the exercisability of any stock option and the date on which such option must be
exercised, provided that the Company gives Optionee prior written notice of such
acceleration, and (ii) to cancel any options or portions thereof which Optionee does not
exercise prior to or contemporaneously with such public offering.

     (c) In the event of a transaction (as defined in Section 12 of the Plan), Optionee will
comply with Rule 145 of the Securities Act of 1933 and any other restrictions imposed under
other applicable legal or accounting principles if Optionee is an “affiliate” (as defined in
such applicable legal and accounting principles) at the time of the transaction, and
Optionee will execute any documents necessary to ensure compliance with such rules.

The Company reserves the right to place a legend on any stock certificate issued upon exercise of
an option granted or upon the grant of a restricted stock award pursuant to the Plan to assure
compliance with this Section 13.

SECTION 14.

RIGHTS AS A SHAREHOLDER

     An Optionee (or the Optionee’s successor or successors) shall have no rights as a shareholder
with respect to any shares covered by an option until the date of the issuance of a stock
certificate evidencing such shares. No adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property), distributions or other rights for
which the record date is prior to the date such stock certificate is actually issued (except as
otherwise provided in Section 12 of the Plan).

SECTION 15.

AMENDMENT OF THE PLAN

     The Board may from time to time, insofar as permitted by law, suspend or discontinue the Plan
or revise or amend it in any respect; provided, however, that no such revision or amendment, except
as is authorized in Section 12, shall impair the terms and conditions of any option which is
outstanding on the date of such revision or amendment to the material detriment of the Optionee
without the consent of the Optionee. Notwithstanding the foregoing, no such revision or amendment
shall (i) materially increase the number of shares subject to the Plan except as provided in
Section 12 hereof, (ii) change the designation of the class of employees eligible to receive
options, (iii) decrease the price at which options may be granted, or (iv) materially increase the
benefits accruing to Optionees under the Plan without the approval of the shareholders of the
Company if such approval is required for compliance with the requirements of any applicable law or
regulation. Furthermore, the Plan may not, without the approval of the

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shareholders, be amended in any manner that will cause incentive stock options to fail to meet the
requirements of Section 422 of the Internal Revenue Code.

SECTION 16.

NO OBLIGATION TO EXERCISE OPTION

     The granting of an option shall impose no obligation upon the Optionee to exercise such
option. Further, the granting of an option hereunder shall not impose upon the Company or any
Subsidiary any obligation to retain the Optionee in its employ for any period.

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