Document:

Exhibit 10.2

 

2007 EMPLOYEE STOCK PURCHASE PLAN

 

Accuray Incorporated hereby adopts the Accuray Incorporated 2007 Employee Stock Purchase Plan (the “Plan”), effective as of the Effective Date (as defined herein).

 

1.                                      Purpose.  The purposes of the Plan are as follows:

 

(a)                                 To assist employees of the Company and its Designated Subsidiaries (as defined below) in acquiring a stock ownership interest in the Company pursuant to a plan which is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423(b) of the Internal Revenue Code of 1986, as amended.

 

(b)                                 To help employees provide for their future security and to encourage them to remain in the employment of the Company and its Designated Subsidiaries.

 

2.                                      Definitions.

 

(a)                                 “Administrator” shall mean the administrator of the Plan, as determined pursuant to Section 14 hereof.

 

(b)                                 “Board” shall mean the Board of Directors of the Company.

 

(c)                                  “Code” shall mean the Internal Revenue Code of 1986, as amended.

 

(d)                                 “Committee” shall mean the committee appointed to administer the Plan pursuant to Section 14 hereof.

 

(e)                                  “Common Stock” shall mean the common stock of the Company, no par value per share.  “Common Stock” shall also include (i) the common stock of the surviving corporation in any consolidation, merger or reincorporation effected exclusively to change the domicile of the Company and (ii) such other securities of the Company that may be substituted for Common Stock pursuant to Section 19 hereof.

 

(f)                                   “Company” shall mean Accuray Incorporated, a California corporation, or any successor corporation (including, without limitation, the surviving corporation in any consolidation, merger or reincorporation effected exclusively to change the domicile of the Company).

 

(g)                                  “Compensation” shall mean all base straight time gross earnings and commissions, exclusive of payments for overtime, shift premium, incentive compensation, incentive payments, bonuses, expense reimbursements, fringe benefits and other compensation.

 

(h)                                 “Designated Subsidiary” shall mean any Subsidiary which has been designated by the Administrator from time to time in its sole discretion as eligible to participate in the Plan.  The Administrator may designate, or terminate the designation of, a subsidiary as a Designated Subsidiary without the approval of the stockholders of the Company.

 

 

(i)                                     “Effective Date” shall mean the date on which the Company’s Registration Statement on Form S-1 filed with respect to the Company’s initial public offering becomes effective.

 

(j)                                    “Eligible Employee” shall mean an Employee of the Company or a Designated Subsidiary: (i) who does not, immediately after the option is granted, own stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company, a Parent or a Subsidiary (as determined under Section 423(b)(3) of the Code); (ii) whose customary employment is for more than twenty (20) hours per week; and (iii) whose customary employment is for more than five (5) months in any calendar year.  For purposes of clause (i), the rules of Section 424(d) of the Code with regard to the attribution of stock ownership shall apply in determining the stock ownership of an individual, and stock which an employee may purchase under outstanding options shall be treated as stock owned by the employee.  For purposes of the Plan, the employment relationship shall be treated as continuing intact while the individual is on sick leave or other leave of absence approved by the Company or Designated Subsidiary and meeting the requirements of Treasury Regulation Section 1.421-7(h)(2).  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 shall be deemed to have terminated on the ninety-first (91st) day of such leave.

 

(k)                                 “Employee” shall mean any person who renders services to the Company or a Subsidiary in the status of an employee within the meaning of Code Section 3401(c).  “Employee” shall not include any director of the Company or a Subsidiary who does not render services to the Company or a Subsidiary in the status of an employee within the meaning of Code Section 3401(c).

 

(l)                                     “Enrollment Date” shall mean the first Trading Day of each Offering Period.  The Enrollment Date for the first Offering Period under the Plan shall be the Effective Date.

 

(m)                             “Exercise Date” shall mean the last Trading Day of each Purchase Period; provided, however, if the last Trading Day falls on the day after the Thanksgiving holiday, then the Exercise Date will be the last Trading Day before the Thanksgiving holiday,

 

(n)                                 “Fair Market Value” shall mean, as of any date, the value of Common Stock determined as follows:

 

(i)                                     If the Common Stock is traded on an exchange, its Fair Market Value shall be the closing sales price for a share of Common Stock as reported in The Wall Street Journal (or such other source as the Administrator may deem reliable for such purposes) for such date, or if no sale occurred on such date, the first trading date immediately prior to such date during which a sale occurred;

 

(ii)                                  If the Common Stock is not traded on an exchange but is quoted on a quotation system, its Fair Market Value shall be the mean between the closing representative bid and asked prices for the Common Stock on such date, or if no sale occurred on such date, the first date immediately prior to such date on which sales prices or bid and asked prices, as applicable, are reported by such quotation system;

 

 

(iii)                               In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Administrator; or

 

(iv)                              For purposes of the first Offering Period under the Plan, the Fair Market Value on the Enrollment Date shall 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 Company’s Common Stock (the “Registration Statement”).

 

(o)                                 “First Purchase Period” shall mean the approximately six (6) month period commencing on each Enrollment Date and ending on the first Exercise Date.  Notwithstanding the foregoing, the first Purchase Period with respect to the initial Offering Period under the Plan shall commence on the Effective Date and end on November 30, 2007, and such period may be more or less than six (6) months in duration.

 

(p)                                 “Offering Period” shall mean each period of approximately Twelve (12) months commencing on any December 1 or June 1 and terminating on the last Trading Day on or before the next occurring November 30, or May 31, except for the first Offering Period under the Plan, which shall commence on the Effective Date and end on November 30, 2007.  The duration and timing of Offering Periods may be changed pursuant to Section 4 of this Plan, but in no event may an Offering Period have a duration in excess of twenty-seven (27) months. Notwithstanding the foregoing, if the last Trading Day of an Offering Period falls on the day after the Thanksgiving holiday, the Offering Period shall end on the last trading day before the Thanksgiving holiday.

 

(q)                                 “Parent” means any corporation, other than the Company, in an unbroken chain of corporations ending with the Company if, at the time of the determination, each of the corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

 

(r)                                    “Plan” shall mean this Accuray Incorporated 2007 Employee Stock Purchase Plan.

 

(s)                                   “Purchase Period” shall mean the First Purchase Period or the Second Purchase Period, as applicable.

 

(t)                                    “Purchase Price” shall mean: (1) with respect to the First Purchase Period, 85% of the Fair Market Value of a share of Common Stock on the Offering Date or on the Exercise Date of the First Purchase Period, whichever is lower; and (2), with respect to the Second Purchase Period, 85% of the Fair Market Value of a share of Common Stock on (A) the Offering Date or the Second Purchase Date, unless the Fair Market Value of a share of Common Stock on the Exercise Date of the First Purchase Period (the “Reset Trigger Date”) is lower than the Fair Market Value on the Offering Date, then the Reset Date (FMV on the first trading day after the Reset Trigger Date) or (B) on the Exercise Date of the second Purchase Period, whichever is lower, provided,  however, that the Purchase Price may be adjusted by the Administrator pursuant to Section 19 hereof; provided, further, that the Purchase Price shall not be less than the par value of a share of Common Stock.

 

 

(u)                                 “Second Purchase Period” shall mean the approximately six (6) month period commencing on the first Trading Day after the end of the First Purchase Period and ending with the next Exercise Date.

 

(v)                                 “Subsidiary” shall mean any corporation, other than the Company, in an unbroken chain of corporations beginning with the Company if, at the time of the determination, each of the corporations other than the last corporation in an unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

 

(w)                               “Trading Day” shall mean a day on which national stock exchanges are open for trading.

 

3.                                      Eligibility.

 

(a)                                 Any Eligible Employee who shall be employed by the Company or a Designated Subsidiary on a given Enrollment Date for an Offering Period shall be eligible to participate in the Plan during such Offering Period, subject to the requirements of Section 5 hereof and the limitations imposed by Section 423(b) of the Code.

 

(b)                                 Each person who, during the course of an Offering Period, first becomes an Eligible Employee subsequent to the Enrollment Date will be eligible to become a participant in the Plan on the first day of the first Purchase Period following the day on which such person becomes an Eligible Employee, subject to the requirements of Section 5 hereof and the limitations imposed by Section 423(b) of the Code.

 

(c)                                  No Eligible Employee shall be granted an option under the Plan which permits his rights to purchase stock under the Plan, and to purchase stock under all other employee stock purchase plans of the Company, any Parent or any Subsidiary subject to the Section 423 of the Code, to accrue at a rate which exceeds $25,000 of fair market value of such stock (determined at the time the option is granted) for each calendar year in which the option is outstanding at any time.  For purposes of the limitation imposed by this subsection, the right to purchase stock under an option accrues when the option (or any portion thereof) first becomes exercisable during the calendar year, the right to purchase stock under an option accrues at the rate provided in the option, but in no case may such rate exceed $25,000 of fair market value of such stock (determined at the time such option is granted) for any one calendar year, and a right to purchase stock which has accrued under an option may not be carried over to any option.  This limitation shall be applied in accordance with Section 423(b)(8) of the Code and the Treasury Regulations thereunder.

 

4.                                      Offering Periods.  The Plan shall be implemented by consecutive Offering Periods which shall continue until the Plan expires or is terminated in accordance with Section 20 hereof.  The Administrator shall 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 at least five (5) days prior to the scheduled beginning of the first Offering Period to be affected thereafter.

 

 

5.                                      Participation.

 

(a)                                 Each Eligible Employee who is employed by the Company or a Designated Subsidiary on the calendar day immediately preceding the Effective Date shall automatically become a participant in the Plan with respect to the first Offering Period.  Each such participant shall be granted an option to purchase shares of Common Stock and shall be enrolled in such first Offering Period to the extent of ten percent (10%) of his or her Compensation for the pay days during the first Offering Period (or, if less, the maximum amount of contributions permitted to be made by such participant for such Offering Period by payroll deduction under the terms of this Plan).  Participants wishing to purchase shares of Common Stock during the first Offering Period shall do so by making a lump sum cash payment to the Company not later than ten (10) calendar days before each Exercise Date of such Offering Period, and each such payment may be made in an amount not exceeding ten percent (10%) of such participant’s Compensation for the pay days occurring during such Offering Period and occurring prior to such lump sum payment; provided, however, that such participant shall not be required to make such lump sum cash payments, or exercise all or any portion of such option to purchase shares of Common Stock by making such lump sum payments.  Following the Effective Date, each such participant may, during the period designated from time to time by the Administrator for such purpose, elect to make such contributions (or a lesser amount of contributions) for the first Offering Period by payroll deductions in accordance with Section 6 hereof, in lieu of making contributions in such lump sum cash payments under this subsection (a), or may elect to make no contributions for such Offering Period; provided, however, that, to make contributions by payroll deductions, such participant must complete the form of subscription agreement provided by the Company for the first Offering Period under this Plan.  If (i) during such Offering Period, such a participant elects to make contributions by payroll deduction, or elects to make no contributions for such Offering Period, or (ii) on or prior to the tenth (10th) calendar day before the last Exercise Date of such Offering Period, such a participant fails to make any lump sum cash payment, such participant shall be deemed to have elected not to make contributions by lump sum payment with respect to such first Offering Period.  Except as described in subsection (e) below, a participant may not make contributions by lump sum payment for any Offering Period other than the first Offering Period.

 

(b)                                 Following the first Offering Period, an Eligible Employee may become a participant in the Plan by completing a subscription agreement authorizing payroll deductions in a form acceptable to the Administrator and filing it with the Company’s payroll office fifteen (15) days (or such shorter or longer period as may be determined by the Administrator, in its sole discretion) prior to the applicable Enrollment Date.

 

(c)                                  Each person who, during the course of an Offering Period, first becomes an Eligible Employee subsequent to the Enrollment Date may become a participant in the Plan by completing a subscription agreement authorizing payroll deductions in a form acceptable to the Administrator and filing it with the Company’s payroll office fifteen (15) days (or such shorter or longer period as may be determined by the Administrator, in its sole discretion) prior to the first day of any Purchase Period during the Offering Period in which such person becomes an Eligible Employee.  The rights granted to such participant shall have the same characteristics as any rights originally granted during that Offering Period except that the first day of the Purchase Period in which such person initially participates in the Plan shall be the “Enrollment Date” for all purposes for such person, including determination of the Purchase Price.

 

 

(d)                                 Except as provided in subsection (a) hereof, payroll deductions for a participant shall commence on the first payroll following the Enrollment Date and shall end on the last payroll in the Offering Period to which such authorization is applicable, unless sooner terminated by the participant as provided in Section 10 hereof.

 

(e)                                  During a leave of absence approved by the Company or a Subsidiary and meeting the requirements of Treasury Regulation Section 1.421-7(h)(2), a participant may elect to continue participating in the Plan by making cash payments to the Company on each pay day equal to the amount of the participant’s payroll deductions under the Plan for the pay day immediately preceding the first day of such participant’s leave of absence.

 

Alternatively, during a leave of absence approved by the Company or a Subsidiary and meeting the requirements of Treasury Regulation Section 1.421-7(h)(2), a participant may elect to continue participating in the Plan, but not make any payroll deductions or cash payments. Any payroll deductions made prior to the beginning of the leave in the current Offering Period will be used to purchase shares at the end of the Purchase Period. The participant may resume payroll deduction when the leave ends and they return to work in an amount equal to their payroll deductions under the Plan for the pay day immediately preceding the first day of such participant’s leave of absence..

 

If a leave of absence is unapproved or fails to meet the requirements of Treasury Regulation Section 1.421-7(h)(2), the participant will cease automatically to participate in the Plan.  In such event, the Company will automatically cease to deduct the participant’s payroll under the Plan.  The Company will pay to the participant his or her total payroll deductions for the Purchase Period, in cash in one lump sum (without interest), as soon as practicable after the participant ceases to participate in the Plan.

 

(f)                                   A participant’s completion of a subscription agreement will enroll such participant in the Plan for each successive Purchase Period and each subsequent Offering Period on the terms contained therein until the participant either submits a new subscription agreement, withdraws from participation under the Plan as provided in Section 10 hereof or otherwise becomes ineligible to participate in the Plan.

 

(g)                                  The subscription agreement(s) used in connection with the Plan shall be in a form prescribed by the Administrator, and the Administrator may, in its sole discretion, determine whether such agreement shall be submitted in written or electronic form.

 

6.                                      Payroll Deductions.

 

(a)                                 At the time a participant files his or her subscription agreement, he or she shall elect to have payroll deductions made on each pay day during the Offering Period in an amount from one percent (1%) to ten percent (10%) of the Compensation which he or she receives on each pay day during the Offering Period.

 

 

(b)                                 All payroll deductions made for a participant shall be credited to his or her account under the Plan and shall be withheld in whole percentages only.  Except as described in Section 5(a) hereof, a participant may not make any additional payments into such account.

 

(c)                                  A participant may discontinue his or her participation in the Plan as provided in Section 10 hereof, or may increase or decrease the rate of his or her payroll deductions during the Offering Period by completing or filing with the Company a new subscription agreement authorizing a change in payroll deduction rate.  The Administrator may, in its discretion, limit the number of participation rate changes during any Offering Period.  The change in rate shall be effective with the first full payroll period following five (5) business days after the Company’s receipt of the new subscription agreement (or such shorter or longer period as may be determined by the Administrator, in its sole discretion).

 

(d)                                 Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code and Section 3(c) hereof, a participant’s payroll deductions may be decreased to zero percent (0%) at any time during a Purchase Period.

 

(e)                                  At the time the option is exercised, in whole or in part, or at the time some or all of the Company’s Common Stock issued under the Plan is disposed of, the participant must make adequate provision for the Company’s federal, state, 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 may, but shall not be obligated to, withhold from the participant’s compensation the amount necessary for the Company to meet applicable withholding obligations, including any withholding required to make available to the Company any tax deductions or benefits attributable to sale or early disposition of Common Stock by the Employee.

 

7.                                      Grant of Option.  On the Enrollment Date of each Offering Period, each Eligible Employee participating in such Offering Period shall 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 the Company’s Common Stock determined by dividing such participant’s payroll deductions accumulated prior to such Exercise Date and retained in the participant’s account as of the Exercise Date by the applicable Purchase Price; provided, however, that in no event shall a participant be permitted to purchase during each Purchase Period more than 2,500 shares of the Company’s Common Stock (subject to any adjustment pursuant to Section 19 hereof) (for the avoidance of doubt, in the event that the Offering Period and Purchase Period are approximately the same length, the participant shall only be entitled to purchase an aggregate of 2,500 shares during such period); and provided, further, that such purchase shall be subject to the limitations set forth in Sections 3(c) and 13 hereof.  The Administrator may, for future Offering Periods, increase or decrease, in its absolute discretion, the maximum number of shares of the Company’s Common Stock a participant may purchase during each Purchase Period and Offering Period.  Exercise of the option shall occur as provided in Section 8 hereof, unless the participant has withdrawn pursuant to Section 10 hereof or otherwise becomes ineligible to participate in the Plan.  The option shall expire on the last day of the Offering Period.

 

 

8.                                      Exercise of Option.

 

(a)                                 Unless a participant withdraws from the Plan as provided in Section 10 hereof or otherwise becomes ineligible to participate in the Plan, his or her option for the purchase of shares shall be exercised automatically on the Exercise Date, and the maximum number of full shares subject to the option shall be purchased for such participant at the applicable Purchase Price with the accumulated payroll deductions in his or her account.  No fractional shares shall be purchased; any payroll deductions accumulated in a participant’s account which are not sufficient to purchase a full share shall be retained in the participant’s account for the subsequent Purchase Period or Offering Period.  During a participant’s lifetime, a participant’s option to purchase shares hereunder is exercisable only by him or her.

 

(b)                                 If the Administrator determines that, on a given Exercise Date, the number of shares with respect to which options are to be exercised may exceed (i) the number of shares of Common Stock that were available for sale under the Plan on the Enrollment Date of the applicable Offering Period, or (ii) the number of shares available for sale under the Plan on such Exercise Date, the Administrator may in its sole discretion (x) provide that the Company shall make a pro rata allocation of the shares of Common Stock available for purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall be practicable and as it shall 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 (y) provide that the Company shall make a pro rata allocation of the shares available for purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall be practicable and as it shall determine in its sole discretion to be equitable among all participants exercising options to purchase Common Stock on such Exercise Date, and terminate any or all Offering Periods then in effect pursuant to Section 20 hereof.  The Company may make pro rata allocation of the shares available on the Enrollment 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 Enrollment Date.  The balance of the amount credited to the account of each participant which has not been applied to the purchase of shares of stock shall be paid to such participant in one lump sum in cash as soon as reasonably practicable after the Exercise Date, without any interest thereon.

 

9.                                      Deposit of Shares.  As promptly as practicable after each Exercise Date on which a purchase of shares occurs, the Company may arrange for the deposit, into each participant’s account with any broker designated by the Company to administer this Plan, of the number of shares purchased upon exercise of his or her option.

 

10.                               Withdrawal.

 

(a)                                 A participant may withdraw all but not less than all of 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 giving written notice to the Company in a form acceptable to the Administrator.  All of the participant’s payroll deductions credited to his or her account during the Offering Period shall be paid to such participant as soon as reasonably practicable after receipt of notice of withdrawal and such participant’s option for the Offering Period shall be automatically terminated, and no further payroll deductions for the purchase of shares shall be made for such Offering Period.  If a participant withdraws from an Offering Period, payroll deductions shall not resume at the beginning of the succeeding Offering Period unless the participant delivers to the Company a new subscription agreement.

 

 

(b)                                 A participant’s withdrawal from an Offering Period shall 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.

 

11.                               Termination of Employment.  Upon a participant’s ceasing to be an Eligible Employee, for any reason, he or she shall be deemed to have elected to withdraw from the Plan and the payroll deductions credited to such participant’s account during the Offering Period shall be paid to such participant or, in the case of his or her death, to the person or persons entitled thereto under Section 15 hereof, as soon as reasonably practicable and such participant’s option for the Offering Period shall be automatically terminated.

 

12.                               Interest.  No interest shall accrue on the payroll deductions or lump sum contributions of a participant in the Plan.

 

13.                               Shares Subject to Plan.

 

(a)                                 Subject to adjustment upon changes in capitalization of the Company as provided in Section 19 hereof, the maximum number of shares of the Company’s Common Stock which shall be made available for sale under the Plan shall be 1,000,000 shares.  In addition to the foregoing, subject to Section 19 hereof, commencing on July 1, 2008 and on the first day of each fiscal year of the Company thereafter during the term of the Plan, the number of shares of the Company’s Common Stock which shall be made available for sale under the Plan shall be increased by that number of shares of the Company’s Common Stock equal to the least of (i) one percent (1%) of the Company’s outstanding shares on such date, (ii) 1,000,000 shares, or (iii) a lesser amount determined by the Board.  The Company’s fiscal year currently begins on July 1 and ends on June 30 of each year and, accordingly, the number of shares of the Company’s Common Stock which shall be available for sale under the Plan shall be subject to automatic increase under the preceding sentence only on July 1, 2008 and on each subsequent July 1 through and including July 1, 2016 (provided that the Company’s fiscal year remains the same).  If any right granted under the Plan shall for any reason terminate without having been exercised, the Common Stock not purchased under such right shall again become available for issuance under the Plan.  The stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise.

 

(b)                                 With respect to shares of stock subject to an option granted under the Plan, a participant shall not be deemed to be a stockholder of the Company, and the participant shall not have any of the rights or privileges of a stockholder, until such shares have been issued to the participant or his or her nominee following exercise of the participant’s option.  No adjustments shall be made for dividends (ordinary or extraordinary, whether in cash securities, or other property) or distribution or other rights for which the record date occurs prior to the date of such issuance, except as otherwise expressly provided herein.

 

 

14.                               Administration.

 

(a)                                 The Plan shall be administered by the Board unless and until the Board delegates administration to a Committee as set forth below.  The Board may delegate administration of the Plan to a Committee comprised of two or more members of the Board, each of whom is a “non-employee director” within the meaning of Rule 16b-3 which has been adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and which is otherwise constituted to comply with applicable law, and the term “Committee” shall apply to any persons to whom such authority has been delegated, provided that any action taken by the Committee shall be valid and effective, whether or not members of the Committee at the time of such action are later determined not to have satisfied the requirements for membership set forth in this Section 14(a) or otherwise provided in the charter of the Committee.  If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, including the power to delegate to a subcommittee any of the administrative powers the Committee is authorized to exercise, subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board.  The governance of the Committee shall be subject to the charter of the Committee as approved by the Board.  References in this Plan to the “Administrator” shall mean the Board unless administration is delegated to a Committee or subcommittee, in which case references in this Plan to the Administrator shall thereafter be to the Committee or subcommittee.

 

(b)                                 It shall be the duty of the Administrator to conduct the general administration of the Plan in accordance with the provisions of the Plan.  The Administrator shall have the power to interpret the Plan and the terms of the options and to adopt such rules for the administration, interpretation, and application of the Plan as are consistent therewith and to interpret, amend or revoke any such rules.  The Administrator at its option may utilize the services of an agent to assist in the administration of the Plan including establishing and maintaining an individual securities account under the Plan for each participant.  In its absolute discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Administrator under the Plan.

 

(c)                                  All expenses and liabilities incurred by the Administrator in connection with the administration of the Plan shall be borne by the Company.  The Administrator may, with the approval of the Board, employ attorneys, consultants, accountants, appraisers, brokers or other persons.  The Administrator, the Company and its officers and directors shall be entitled to rely upon the advice, opinions or valuations of any such persons.  All actions taken and all interpretations and determinations made by the Administrator in good faith shall be final and binding upon all participants, the Company and all other interested persons.  No member of the Board shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or the options, and all members of the Board shall be fully protected by the Company in respect to any such action, determination, or interpretation.

 

15.                               Designation of Beneficiary.

 

(a)                                 A participant may file a written designation of a beneficiary who is to receive any shares 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

 

 

written 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 shall be required for such designation to be effective.

 

(b)                                 Such designation of a beneficiary may be changed by the participant at any time by written notice to the Company.  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 shall 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.

 

16.                               Transferability.  Neither payroll deductions credited to a participant’s account nor any rights with regard to the exercise of an option or to receive shares 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 shall be without effect, except that the Company may treat such act as an election to withdraw funds from an Offering Period in accordance with Section 10 hereof.

 

17.                               Use of Funds.  All payroll deductions received or held by the Company under the Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such payroll deductions.

 

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

 

19.                               Adjustments Upon Changes in Capitalization, Dissolution, Liquidation, Merger or Asset Sale.

 

(a)                                 Changes in Capitalization.  Subject to any required action by the stockholders of the Company, the number of shares of Common Stock which have been authorized for issuance under the Plan but not yet placed under option, the maximum number of shares each participant may purchase each Purchase Period (pursuant to Section 7 hereof), as well as the price per share and the number of shares of Common Stock covered by each option under the Plan which has not yet been exercised shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration.”  Such adjustment shall be made by the Administrator, whose determination in

 

 

that respect shall be final, binding and conclusive.  Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an option.

 

(b)                                 Dissolution or Liquidation.  In the event of the proposed dissolution or liquidation of the Company, the Offering Period then in progress shall be shortened by setting a new Exercise Date (the “New Exercise Date”), and shall terminate immediately prior to the consummation of such proposed dissolution or liquidation, unless provided otherwise by the Administrator.  The New Exercise Date shall be before the effective date of the Company’s proposed dissolution or liquidation.  The Administrator shall 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 shall 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.

 

(c)                                  Merger or Asset Sale.  In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, each outstanding option shall 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, any Purchase Periods then in progress shall be shortened by setting a New Exercise Date and any Offering Periods then in progress shall end on the New Exercise Date.  The New Exercise Date shall be before the effective date of the Company’s proposed sale or merger.  The Administrator shall 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 shall 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.

 

20.                               Amendment or Termination.

 

(a)                                 The Board may at any time and for any reason terminate or amend the Plan.  Except as provided in Section 19 hereof, no such termination shall affect options previously granted, provided that an Offering Period may be terminated by the Board if the Board determines that the termination of the Offering Period or the Plan is in the best interests of the Company and its stockholders.  Except as provided in Section 19 hereof and this Section 20, no amendment may make any change in any option theretofore granted which adversely affects the rights of any participant without the consent of such participant.  To the extent necessary to comply with Section 423 of the Code (or any successor rule or provision or any other applicable law, regulation or stock exchange rule), the Company shall obtain stockholder approval of any amendment in such a manner and to such a degree as required.

 

(b)                                 Without stockholder consent and without regard to whether any participant rights may be considered to have been “adversely affected,” the Administrator shall 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.

 

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

 

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

 

(ii)                                  shortening any Offering Period so that the Offering Period ends on a new Exercise Date, including an Offering Period underway at the time of the Administrator action; and

 

(iii)                               allocating shares.

 

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

 

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

 

22.                               Conditions to Issuance of Shares.  The Company shall not be required to issue or deliver any certificate or certificates for shares of Common Stock purchased upon the exercise of options prior to fulfillment of all the following conditions:

 

(a)                                 The admission of such shares to listing on all stock exchanges, if any, on which the Common Stock is then listed; and

 

(b)                                 The completion of any registration or other qualification of such shares under any state or federal law or under the rulings or regulations of the Securities and Exchange Commission or any other governmental regulatory body, which the Administrator shall, in its absolute discretion, deem necessary or advisable; and

 

(c)                                  The obtaining of any approval or other clearance from any state or federal governmental agency which the Administrator shall, in its absolute discretion, determine to be necessary or advisable; and

 

 

(d)                                 The payment to the Company of all amounts which it is required to withhold under federal, state or local law upon exercise of the option; and

 

(e)                                  The lapse of such reasonable period of time following the exercise of the option as the Administrator may from time to time establish for reasons of administrative convenience.

 

23.                               Term of Plan.  Subject to approval by the Company’s stockholders, the Plan shall become effective as of the Effective Date.  The Plan shall be deemed to be approved by the Company’s stockholders if it receives the affirmative vote of the holders of a majority of the shares of stock of the Company in accordance with applicable law and the applicable provisions of the Company’s bylaws.  Subject to approval by the stockholders of the Company in accordance with this Section 23, the Plan shall be in effect until the tenth (10th) anniversary of the date of the initial adoption of the Plan by the Board, unless sooner terminated under Section 20 hereof.

 

24.                               Equal Rights and Privileges.  All Eligible Employees of the Company (or of any Designated Subsidiary) will have equal rights and privileges under this Plan so that this Plan qualifies as an “employee stock purchase plan” within the meaning of Section 423 of the Code or applicable Treasury regulations thereunder.  Any provision of this Plan that is inconsistent with Section 423 or applicable Treasury regulations will, without further act or amendment by the Company, the Board or the Administrator, be reformed to comply with the equal rights and privileges requirement of Section 423 or applicable Treasury regulations.

 

25.                               Section 409A.  The options to purchase shares of Common Stock under the Plan are not intended to constitute “nonqualified deferred compensation” within the meaning of Section 409A of the Code.  However, if at any time the Administrator determines that the options may be subject to Section 409A of the Code, the Administrator shall have the right, in its sole discretion, to amend the Plan and any outstanding options as it may determine is necessary or desirable either to exempt the options from the application of Section 409A of the Code or to cause the options to comply with the requirements of Section 409A of the Code.

 

26.                               No Employment Rights.  Nothing in the Plan shall be construed to give any person (including any Eligible Employee or participant) the right to remain in the employ of the Company, a Parent or a Subsidiary or to affect the right of the Company, any Parent or any Subsidiary to terminate the employment of any person (including any Eligible Employee or participant) at any time, with or without cause.

 

27.                               Notice of Disposition of Shares.  Each participant shall give prompt notice to the Company of any disposition or other transfer of any shares of stock purchased upon exercise of an option if such disposition or transfer is made:  (a) within two (2) years from the Enrollment Date of the Offering Period in which the shares were purchased or (b) within one (1) year after the Exercise Date on which such shares were purchased.  Such notice shall specify the date of such disposition or other transfer and the amount realized, in cash, other property, assumption of indebtedness or other consideration, by the participant in such disposition or other transfer.

 

28.                               Governing Law.  The validity and enforceability of this Plan shall be governed by and construed in accordance with the laws of the State of California without regard to otherwise governing principles of conflicts of law.

 

*  *  *  *  *Exhibit 10.1

 

WARREN RESOURCES, INC.

1114 Avenue of the Americas

New York, NY 10036

 

INCENTIVE STOCK OPTION GRANT

 

[DATE]

 

Dear [Full Name of Employee]:

 

Re:                        Grant of Incentive Stock Option

 

Reference is made to the 2010 Stock Incentive Plan, as amended (the “Plan”), of Warren Resources, Inc., a Maryland corporation (the “Corporation”), which has been adopted by the Corporation’s board of directors and shareholders in order to advance the interests of the Corporation’s stockholders by enhancing the ability of the Corporation to attract, retain and motivate persons who make (or are expected to make) important contributions to the Corporation by providing such persons with equity ownership opportunities and performance-based incentives, thereby better aligning the interests of such persons with those of the Corporation’s stockholders. The terms of the Plan shall be deemed a part of this letter agreement as if fully set forth herein.  A copy will be provided to you with this letter agreement or, if a copy is not so provided, upon your request.  Unless the context otherwise requires, all terms defined in the Plan shall have the same meaning when used herein.

 

1.                                      The Grant

 

The Corporation hereby grants to you (“Holder”), as a matter of separate inducement and not in lieu of any salary or other compensation for your services, the right and option to purchase (the “Option”), in accordance with the terms and conditions set forth in the Plan, an aggregate of                                (                    ) shares of Common Stock of the Corporation (the “Option Shares”) at a price of $4.61 per share (the “Exercise Price”), subject to the limitations set forth herein and in the Plan.  It is agreed that the Exercise Price is at least 100% of the Fair Market Value of an Option Share on the date of grant.  The Option is intended to be an incentive stock option within the meaning of section 422 of the Internal Revenue Code of 1986, as amended (the “Code”).  Nevertheless, to the extent that it exceeds the $100,000 rule of Code Section 422(d), this Option shall be treated as a nonstatutory stock option.  Further, if for any reason this Option (or portion thereof) shall not qualify as an incentive stock option, then, to the extent of such nonqualification, such Option (or portion thereof) shall be regarded as a nonstatutory stock option granted under the Plan.

 

2.                                      Exercise

 

Subject to the provisions and limitations contained herein and of the relevant provisions of the Plan and until the termination of the Option as provided for herein, you may exercise the Option, on a cumulative basis, as follows:

 

(a)                                 One-third (1/3rd) of the total number of Option Shares may be purchased by you on [1st anniversary of grant date];

 

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(b)                                 One-third (1/3rd) of the total number of Option Shares may be purchased by you on [2nd  anniversary of grant date]; and

 

(c)                                  One-third (1/3rd) of the total number of Option Shares may be purchased by you on [3rd anniversary of grant date];

 

provided that you remain continuously employed with the Corporation through such exercise date.

 

If the Option is not exercised for the total number of Option Shares available for purchase during such period, the Option shall not thereby terminate as to such unexercised portion, but shall be cumulative.  In no event shall you exercise the Option for a fraction of a share. The unexercised portion of the Option, if any, will automatically and without notice terminate and become null and void on [5th anniversary of grant date] at 5:00 pm (Eastern Time).

 

This Option shall terminate three (3) months after Holder ceases to be employed by the Corporation, unless such termination is due to Holder’s death or Disability, in which case this Option shall terminate twelve (12) months after Holder ceases to be employed by the Corporation.  Notwithstanding the foregoing sentence, in no event may this Option be exercised after the expiration date as provided above.

 

Subject to applicable exercise restrictions set forth in Section 6(d) of the Plan, this Option may be exercised, in whole or in part, by giving written notice of exercise to the Corporation substantially in the form set forth on Schedule A, specifying the number of shares to be purchased. The notice shall be accompanied by payment in full of the Exercise Price. The Exercise Price may be paid by any of the following methods, subject to the restrictions set forth in the Plan:

 

(i) in cash, by certified or cashier’s check, by money order or by personal check (if approved by the Corporation) of an amount equal to the aggregate Exercise Price of the shares of Common Stock to which such exercise relates; or

 

(ii) by delivery of shares of Common Stock already owned by the Holder and held by the Holder for a minimum of six months, which shares, including any cash tendered therewith, have an aggregate Fair Market Value equal to the aggregate Exercise Price of the shares of Common Stock to which such exercise relates; or

 

(iii) by delivery by the Holder of a properly executed notice, together with a copy of the Holder’s irrevocable instruction to a broker-dealer acceptable to the Corporation to deliver promptly to the Corporation the amount of sale or loan proceeds sufficient to pay such exercise price. In connection therewith, the Corporation may enter into agreements for coordinated procedures with one or more securities brokerage firms.

 

Under no circumstance shall the allocation of Option Fair Market Value described above be deemed a loan to the Holder by the Corporation.

 

3.                                      Transferability

 

The Option is not transferable, either in whole or in part, by you otherwise than by will or the laws of descent and distribution and is exercisable, during your lifetime, only by you. Except as set forth in the preceding sentence, the Option may not be assigned, transferred, pledged or hypothecated in any way (whether by operation of law or otherwise) and shall not be subject to execution, attachment or similar proceeding.  Any attempted assignment, transfer, pledge, hypothecation or other disposition of the Option

 

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contrary to the provisions hereof or of the Plan, and the levy of any attachment or similar proceeding upon the Option, shall be null and void and without effect.

 

4.                                      Registration

 

Unless there is in effect a registration statement under the Securities Act of 1933, as amended (the “Securities Act”), with respect to the issuance of the Option Shares (and, if required, there is available for delivery a prospectus meeting the requirements of section (10)(a)(3) of the Securities Act), you will, upon the exercise of the Option (a) represent and warrant to the Corporation and agree, in each case, in writing that (i) the Option Shares then being purchased by you pursuant to the Option are being acquired for your own account, for investment only and not with a view to the resale or distribution thereof, and (ii) that any subsequent offer for sale or sale of any such Option Shares shall be made either pursuant to (x) a registration statement on an appropriate form under the Securities Act, which registration statement shall have become effective and shall be current with respect to the Option Shares being offered and sold, or (y) a specific exemption from the registration requirements of the Securities Act, but in claiming such exemption, you shall, prior to any offer for sale or sale of such Option Shares, obtain a favorable written opinion from counsel for or approved by the Corporation as to the availability of such exemption and (b) agree that the certificates evidencing such Option Shares shall bear a legend to the effect of the foregoing.

 

5.                                      Withholding Taxes

 

By your acceptance hereof, you hereby (i) agree to reimburse the Corporation or any subsidiary corporation or parent corporation of the Corporation by which you are employed for any federal, state or local taxes required by any government to be withheld or otherwise deducted by such corporation in respect of your exercise of the Option, (ii) authorize the Corporation or any subsidiary corporation or parent corporation of the Corporation by which you are employed to withhold from any cash compensation paid to you or in your behalf, an amount sufficient to discharge any federal, state and local taxes imposed on the Corporation, or the subsidiary corporation or parent corporation of the Corporation by which you are employed, and which otherwise has not been reimbursed by you, in respect of your exercise of the Option and (iii) agree that the corporation by which you are employed, may, in its discretion, hold the stock certificate to which you are entitled upon exercise of the Option, as security for the payment of the aforementioned withholding tax liability, until cash sufficient to pay that liability has been accumulated, and may, in its discretion, effect such withholding by retaining Option Shares issuable upon the exercise of the Option having a fair market value on the date of exercise (as determined under Section 13 of the Plan) which is equal to the amount to be withheld.

 

6.                                      Grant Subject to Plan; Conflict

 

This grant is subject to all the terms, conditions, limitations and restrictions contained in the Plan.  In the event of any conflict or inconsistency between the terms hereof and the terms of the Plan, the terms of the Plan shall be controlling.

 

7.                                      Section 409A.

 

Notwithstanding any other provision of the Plan, this Agreement or the Grant Notice, the Plan, this Agreement and the Grant Notice shall be interpreted in accordance with the requirements of Section 409A of the Code. The Administrator may, in its discretion, adopt such amendments to the Plan, this Agreement or the Grant Notice or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, as the Administrator determines are necessary or appropriate to comply with the requirements of Section 409A of the Code.

 

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8.                                      Miscellaneous

 

(a)                                 This grant is not a contract of employment and the terms of your employment shall not be affected hereby or by any agreement referred to herein except to the extent specifically so provided herein or therein.  Nothing herein shall be construed to impose any obligation on the Corporation, the Subsidiary or on any other subsidiary corporation or parent corporation thereof to continue your employment, and it shall not impose any obligation on your part to remain in the employ of the Subsidiary or of any subsidiary corporation or parent corporation thereof.

 

(b)                                 You agree to notify the Corporation immediately upon any “disqualifying disposition” (as defined in section 421(b) of the Code) made by you of Option Shares purchased hereunder.

 

(c)                                  You or your permitted transferees under Section 4 hereof shall have the right to act as stockholders of the Corporation only with respect to Option Shares the Exercise Price for which has been paid in full to the Corporation.

 

(d)                                 You hereby represent that you have received a copy of the Plan and that you have had ample opportunity to review the Plan and ask questions with respect thereto.

 

Please indicate your acceptance of all the terms and conditions of the Option and the Plan by signing and returning a copy of this letter to the Corporate Secretary of the Corporation

 

	
 
    	
Very truly yours,
    
	
 
    	
 
    
	
 
    	
WARREN RESOURCES, INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Name:
    
	
 
    	
Title:
    

 

	
AGREED TO AND ACCEPTED:
    
	
 
    
	
HOLDER:
    
	
 
    
	
 
    	
 
    
	
Name:
    

 

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