Document:

Exhibit 10.1

 

EQUITY

 

IRADIMED CORPORATION
 INCENTIVE STOCK PLAN

 

1.                                      Purposes

 

Iradimed Corporation (the “Company”) has adopted this Plan to enhance the concern of the Company’s key employees, officers, directors and consultants in the success of the Company by giving them an ownership interest in the Company, and to give them an incentive to continue their service to the Company.

 

2.                                      Stock Subject to Plan

 

The Company shall reserve 862,000 shares of its no par value Common Stock (hereinafter called the “Shares”) to be issued upon exercise of the options which may be granted from time to time under this Plan. As it may from time to time determine, the Board of Directors of the Company (hereinafter called the “Board”) may authorize that the Shares may be comprised, in whole or in part, of authorized but unissued shares of the Common Stock of the Company or of issued shares which have been reacquired. If options granted under this Plan terminate or expire before being exercised in whole or in part, the Shares subject to those options which have not been issued may be subjected to subsequent options granted under the Plan.

 

3.                                      Administration of the Plan

 

The Board shall appoint a Stock Option Committee (hereinafter called the “Committee”) which shall consist of not less than two (2) members of the Board, and, at the election of the Board or if the Board consists of less than three directors, may consist of the entire Board, to administer the Plan. Subject to the express provisions of this Plan and guidelines which may be adopted from time to time by the Board, the Committee shall have plenary authority in its discretion (a) to determine the individuals to whom, and the time at which, options are granted, and the number and purchase price of the Shares subject to each option; (b) to determine whether the options granted shall be “incentive stock options” within the meaning of Section 422A of the Internal Revenue Code of 1986 (hereinafter called the “Code”), or non-statutory stock options, or both; (c) to interpret the Plan and prescribe, amend and rescind rules and regulations relating to it; (d) to determine the terms and provisions (and amendments thereof) of the respective option agreements subject to Section 6 of the Plan, which need not be identical, including, if the Committee shall determine that a particular option is to be an incentive stock option, such terms and provisions (and amendments thereof) as the Committee deems necessary to provide for an incentive stock option or to conform to any change in any law, regulation, ruling or interpretation applicable to incentive stock options; and (e) to make any and all determinations which the Committee deems necessary or advisable in administering the Plan. The Committee’s determination on the foregoing matters shall be conclusive. The Committee may delegate any of the foregoing authority to the President with respect to options granted to or which are held by non-officers.

 

 

4.                                      Persons Eligible

 

Options may be granted under the Plan to employees of and consultants to the Company and its subsidiaries, including officers and directors. Employees may be granted either incentive or non-statutory options while consultants may be granted only non-statutory options. Officers and directors shall be deemed to be consultants for the foregoing purposes unless they are also employees. For purposes of this Plan, “employee” shall conform to the requirements of Section 422A of the Code, and “subsidiary” shall mean subsidiary corporations as defined in Section 425 of the Code. An employee who owns more than 10% of the total combined voting power of all classes of stock of the Company or of its parent or subsidiaries is referred to herein as a “Principal Shareholder.”

 

The aggregate fair market value (determined as of the time the option is granted) of the Shares with respect to which incentive stock options are exercisable for the first time by an optionee during any calendar year (under all incentive stock option plans of the Company or its parent or subsidiaries) shall not exceed $100,000, nor shall the total number of shares covered by incentive and nonqualified options granted to any person during any twelve months period exceed 400,000 shares, subject to adjustment in accordance with Section 5(a).

 

5.                                      Changes in Capital Structure

 

(a)                                 Effect on the Plan. In the event of changes in the outstanding capital stock of the Company by reason of any stock dividend, stock split or reverse split, reclassification, recapitalization, merger or consolidation, acquisition of 80 percent or more of its gross assets or stock, reorganization or liquidation, the Committee and/or the Board shall make such adjustments in the aggregate number and class of shares available under the Plan as it deems appropriate, and such determination shall be final, binding and conclusive.

 

(b)                                 Effect on Outstanding Options.

 

(i)                                     Stock Splits and Like Events.

 

Should a stock dividend, stock split, reverse stock split, reclassification, or recapitalization occur, then the Committee and/or the Board shall make such adjustments in (i) the number and class of shares to which optionees will thereafter be entitled upon exercise of their options and (ii) the price which optionees shall be required to pay upon such exercise as it in its sole discretion in good faith deems appropriate, and such determination shall be final, binding and conclusive. Notwithstanding the foregoing, such adjustment shall have the result that an optionee exercising an option subsequent to such occurrence would pay the same aggregate exercise price to exercise the entire option and would then hold the same class and aggregate number of shares as if such optionee would have exercised the outstanding option immediately prior to such occurrence.

 

 

(ii)                                  Recapitalizations; Assumption of Options.

 

(A)                               Definition of “Event”.

 

An “Event” shalt mean the occurrence of any of the following transactions:

 

(I)                                   a merger or consolidation in which the Company is the surviving corporation if Company shareholders as a result of the merger or consolidation receive stock of another corporation and/or property in exchange for their Company shares or any merger or consolidation in which the Company is not the surviving corporation (other than a merger or consolidation with a wholly owned subsidiary, a reincorporation of the Company in a different jurisdiction, or other transaction in which there is no substantial change in the shareholders of the Company and the options granted under this Plan are assumed by the successor corporation, which assumption shall be binding on all optionees);

 

(II)                              a dissolution or liquidation of the Company;

 

(III)                         the sale of substantially all of the assets of the Company; or

 

(IV)                          any other transaction which qualifies as a “corporate transaction” under Section 424(a) of the Code wherein the shareholders of the Company give up all of their equity interest in the Company (except for the acquisition, sale or transfer of all or substantially all of the outstanding shares of the Company).

 

(B)                               Effect of “Event”.

 

Upon the consummation of an Event, the Board shall make arrangements which shall be binding upon the holders of unexpired options then outstanding under this Plan as the Board, in its sole discretion, in good faith determines to be in the best interests of the Company, which determination shall be final and conclusive. The possible arrangements include, but are not limited to, the substitution of new options for any portion of such unexpired options, the assumption of any portion of such unexpired options by any successor to the Company or its affiliate, the acceleration of the expiration date of any portion of such unexpired options to a date not earlier than thirty (30) days after notice to the optionee, or the cancellation of such portion in exchange for the payment by any successor to the Company or its affiliate of deferred compensation to the optionee. Such deferred compensation may (but need not) be in an amount equal to the difference between the fair market value of the Shares subject to such unexpired portion and the aggregate exercise price of the Shares under the terms of such unexpired portion on the date of the Event and may (but need not) be paid in installments which correspond to the vesting schedule of the unexpired option. The Board shall not be obligated to arrange such substitution or assumption to comply with Section 425(a) of the Code or to accelerate the exercisability of a portion of an option when it accelerates the expiration date of such portion. The Board may but need not treat all options in a like manner.

 

 

(C)                               Company Acquisitions.

 

The Company, from time to time, also may substitute or assume outstanding awards granted by another company, whether in connection with an acquisition of such other company or otherwise, by either (i) granting an option under the Plan in substitution of such other company’s award, or (ii) assuming such award as if it had been granted under the Plan if the terms of such assumed award could be applied to an option granted under the PIan. Such substitution or assumption shall be permissible if the holder of the substituted or assumed option would have been eligible to be granted an option under the Plan if the other company had applied the rules of the Plan to such grant. In the event the Company assumes an award granted by another company, the terms and conditions of such award shall remain unchanged (except that the exercise price and the number and nature of shares issuable upon exercise of any such option will be adjusted appropriately pursuant to Section 424(a) of the Code). In the event the Company elects to grant a new option rather than assuming an existing option, such new option may be granted with a similarly adjusted exercise price.

 

6.                                      Terms and Conditions of Options

 

Each option granted under this Plan shall be evidenced by a stock option agreement (hereinafter called “Agreement”) which is not inconsistent with this Plan, and the form of which the Committee and/or Board may from time to time determine, provided that the Agreement shall contain the substance of the following:

 

(a)                                 Option Price.  The Purchase Price of Shares subject to an Option shall be established by the Board and set forth in a Notice of Stock Option Grant. The Purchase Price of Shares subject to an Incentive Stock Option shall not be less than 100% of the Fair Market Value (110% for a Principal Shareholder) on the date the Option is granted. If required by applicable law, including, without limitation, the corporations code of each of Oklahoma and Florida, or the regulations thereunder, the Purchase Price of Shares subject to a Nonstatutory Stock Option shall not be less than 85% of the Fair Market Value (110% for a Principal Shareholder) on the date the Option is granted. In no event shall the Purchase Price be less than the par value of a Share. The Purchase Price shall be payable in a form described in Section 6(b). Notwithstanding the foregoing, an Option may be granted with a Purchase Price lower than that prescribed in this Section 6(a) if the Option grant is attributable to the issuance or assumption of an option in a transaction to which Section 424(a) of the Code applies.

 

(b)                                 Method of Exercise.  At the time of purchase, Shares purchased under options shall be paid for in full either (i) in cash, (ii) at the discretion of the Board, with a promissory note secured by the Shares purchased, (iii) at the discretion of the Committee and/or Board, with outstanding stock of the Company at such value as the Board shall determine in its sole discretion to be the fair market value of such stock, or (iv) a combination of promissory note (if permitted pursuant to (ii) above), stock (if permitted pursuant to (iii) above), and/or cash. If outstanding stock is used as payment and such stock was acquired upon prior exercise of an option granted under this Plan, then such stock must have been held by the optionee for at Ieast one year subsequent to such prior exercise and two years subsequent to the grant of the prior exercised option. To the extent that the right to purchase Shares has accrued under an option, the optionee may exercise said option from time to time by giving written notice to the Company stating the number of Shares with respect to which the optionee is exercising the option, and submitting with said notice payment of the full purchase price of said Shares either in cash or, at the discretion of the Board and/or Committee as described above, with a promissory note, outstanding stock of the Company, or a combination of cash, promissory note, and/or such stock. As soon as practicable after receiving such notice and payment, the Company shall issue, without

 

 

transfer or issue tax to the optionee (or other person entitled to exercise the option), and at the main office of the Company or such other place as shall be mutually acceptable, a certificate or certificates representing such Shares out of authorized but unissued Shares or reacquired Shares of its capital stock, as the Board and/or Committee, or its delegate, may elect, for the number of Shares to be delivered. The time of such delivery may be postponed by the Company for such period as may be required for it with reasonable diligence to comply with such procedures as may, in the opinion of counsel to the Company, be desirable in view of federal and state laws, including corporate securities laws and revenue and taxation laws. If the optionee (or other person entitled to exercise the option) fails to accept delivery of any or all of the number of Shares specified in such notice upon tender of delivery of the certificates representing them, the right to exercise the option with respect to such undelivered Shares may be terminated.

 

(c)                                  Option Term. The Committee and/or Board may grant options for any term, but shall not grant any options for a term longer than ten (10) years from the date the option is granted (except in the case of an incentive option granted to a Principal Shareholder in which case the term shall be no longer than five (5) years from the date the option is granted). Each option shall be subject to earlier termination as provided in this section 6 of this Plan.

 

(d)                                 Exercise of Options. Each option granted under this Plan shall be exercisable on such date or dates, upon or after the occurrence of certain events, or upon or after the achievement of certain performance milestones (which occurrences or achievements may be waived in whole or in part or extended at the discretion of the Committee and/or Board) and during such period and for such number of Shares as shall be determined by the Committee and/or Board. [Provided, however, for so long as the Company is relying upon Oklahoma [corporations code] section [ ] and/or Florida [corporations code] section [ ] for exemption from qualification under each the Oklahoma and Florida Blue Sky law, and for so long as required by said Sections [ ] and/or [ ] or regulations implementing either, each option, unless granted to an officer, director or consultant of the Company, or else is not offered or sold in either Florida or Oklahoma, as defined in Oklahoma [corporations code] Section [ ] and/or Florida [corporations code] section [ ], shall nevertheless become exercisable as to not less than [twenty percent (20%)] of the Shares subject to the option per year elapsed from the date of the grant.] If an option becomes exercisable upon the occurrence of certain events or achievements of certain performance milestones subject to the proviso above, the option may not be exercised unless the Committee and/or Board shall determine and notify the optionee in writing that such events have occurred or that such performance milestones have been achieved. An incentive option granted to a non-officer may not be exercised at any time unless the optionee shall have continuously served, to the extent determined by the Committee and/or Board, as an employee of the Company or its subsidiary throughout a period commencing at the date an option is granted and ending no more than three (3) months and no less than thirty (30) days before an attempted exercise of the option, and, if applicable, unless the Committee and/or Board shall determine and notify the optionee in writing that certain events have occurred or certain performance milestones have been achieved.

 

(e)                                  Nonassignability of Option Rights.  No option shall be assignable or transferable by the optionee except by will or by the laws of descent and distribution. During the life of an optionee, the option shall be exercisable only by the optionee.

 

 

(f)                                   Effect of Termination of Employment or Death or Disability. In the event the optionee’s employment with the Company or its subsidiaries ceases, as determined by the Committee during the optionee’s life for any reason, including retirement, any incentive option or unexercised portion thereof granted to a non-officer optionee which is otherwise exercisable shall terminate unless exercised within a period not to exceed three (3) months nor to be less than thirty (30) days of the date on which such employment ceased but not later than the date of expiration of the option period.

 

In the event of the death or disability (as defined in Code Section 22(e)(3)) of the optionee while employed or within a period not to exceed three months nor to be less than thirty (30) days of the date on which such employment ceases, any option or unexercised portion thereof granted to the optionee, if otherwise exercisable by the optionee at the date of death or disability, may be exercised by the optionee (or by the optionee’s personal representatives, heirs or legatees) at any time prior to the expiration of one year from the date of death or disability of the optionee but not later than ten (10) years from the date of grant of such option except that, in the case of an incentive option granted to a Principal Shareholder, not later than five years from the date of grant of such option.

 

In the event of the disability (as defined in the Americans with Disabilities Act, but not as defined in Code Section 22(e)(3)) of the optionee while employed or within a period not to exceed three months nor to be less than thirty (30) days of the date on which such employment ceases, any option or unexercised portion thereof granted to the optionee, if otherwise exercisable by the optionee at the date of disability, may be exercised by the optionee (or by the optionee’s personal representatives, heirs or legatees) at any time prior to the expiration of one year from the date of disability of the optionee but not later than ten (10) years from the date of grant of such option except that, in the case of an incentive option granted to a Principal Shareholder, not later than five years from the date of grant of such option. The fact that the company permits the optionee to exercise the option subsequent to ninety (90) days after the termination of such employment shall not give rise to any implication (or be admissible as evidence in any proceeding as an admission or evidence) that the optionee was disabled as defined by state law or the Americans with Disabilities Act, that the optionee was unable to perform the optionee’s job functions, that the optionee’s employment was terminated because the optionee could not perform the optionee’s job functions, or that the Company has not made reasonable efforts to accommodate any disability which optionee may have had. If the optionee and the Company can not agree as to whether the optionee is disabled, they shall both appear before the Committee which shall make such determination which shall be final, binding, and conclusive on the optionee and the Company. Optionee understands that if optionee is disabled but not as defined in Code Section 22 (e) (3), then ninety (90) days after termination of employment any incentive stock option converts to a non-statutory stock option and upon any exercise of the option thereafter Federal (and possibly state) income tax will be due and on any difference between the then fair market value of the option shares and their exercise price.

 

(g)                                  Rights of Optionee. The optionees shall have no rights as a stockholder with respect to any Shares subject to an option until the date of issuance of a stock certificate to the optionee for such Shares. No adjustment shall be made for dividends or other rights of which the record date is prior to the date such stock certificate is issued. Neither this Plan, nor any action or agreement thereunder, shall confer any rights of employment, any rights to election or retention as an officer or director, or any rights to serve as a consultant.

 

 

(h)                                 Tax Withholding. To the extent required by applicable law, the Company shall withhold from the pay of an optionee any taxes required to be withheld upon exercise of an option. The Company may instead at its discretion require that the taxes be paid to the Company concurrently with the exercise of the option as a condition to the exercise of the option. The Company, at the discretion and upon the approval of the Board, may permit the optionee to pay some or all of the taxes by tendering to the Company outstanding shares of the Company’s stock held by the optionee, meeting the same criteria and valued in the same manner as stock tendered to pay the exercise price as set forth in Section 6(d) above, or by reducing at the optionee’s instructions, the number of shares to be issued upon exercise of the option, with such shares similarly valued.

 

(i)                                     Restrictions of Shares. To the extent required by the Company’s bylaws, the Board, and/or the Committee, shares of Stock issued upon exercise of options shall be subject to a right of first refusal, a right to repurchase upon termination of employment, market stand-off requirements in the event of a public offering of stock, and the right to require execution of a non-disclosure agreement prior to being shown certain information concerning the Company.

 

7.                                      Use of Proceeds

 

The proceeds from the sale of stock pursuant to options granted under the Plan shall constitute general funds of the Company.

 

8.                                      Amendment of Plan

 

The Board of Directors may at any time amend the Plan, provided that no amendment may affect any then outstanding options or any unexercised portions thereof, and provided further that any such amendment increasing the number of Shares reserved under the Plan, altering the employees or class of employee eligible to be granted incentive stock options under the Plan, causing options granted to employees and intended to be incentive options under the Plan not to qualify as “incentive stock options” under Section 422A of the Code, or amending this Section 8 shall be subject to shareholder approval.

 

9.                                      Financial Information

 

Whenever the Company provides financial statements, whether audited or unaudited, to all of its shareholders as a group, the Company shall concurrently provide each optionee with a copy of such financial statements. Notwithstanding the foregoing, the Company shall provide each optionee at the end of its fiscal year with a copy of its financial statements for such fiscal year, either audited or unaudited, within ninety (90) days after the end of such fiscal year if such person is then an optionee. In connection with such provision, the Company may require the optionee to enter into a nondisclosure agreement; provided, however, that such nondisclosure agreement may not contain provisions which are more stringent than those the Company imposes on its shareholders which are also receiving the financial statements.

 

 

10.                               Effective Date and Termination of Plan

 

This Plan was adopted by the Board of Directors on February 1, 2005, and approved by the shareholders on February 1 2005. The Board may terminate this Plan at any time. If not earlier terminated, this Plan shall terminate on February 1, 2015.

 

This Plan, the granting of any option hereunder, and the issuance of stock upon the exercise of any option, shall be subject to such approval or other conditions as may be required or imposed by any regulatory authority having jurisdiction to issue regulations or rules with respect thereto, including the securities laws of various governmental entities.Exhibit 10.2

 

EQUITY

 

IRADIMED CORPORATION
 STOCK OPTION AGREEMENT

 

Introduction

 

This Stock Option Agreement (the “Agreement”) made and entered into as of the            day of         , 20     (hereinafter called “Effective Date”), between Iradimed Corporation, an Oklahoma corporation (hereinafter called the “Corporation”), and        (hereinafter called the “Optionee”), pursuant to the Incentive Stock Plan (hereinafter called the “Plan”) of the Corporation, which reserves for issuance to persons serving the Corporation and its subsidiaries as employees or consultants certain shares of the Corporation’s no par value Common Stock (hereinafter called the “Common Stock”). As used herein, the term “subsidiary” shall mean any present or future corporation which would be a “subsidiary corporation” of the corporation, as that term is defined in Sections 425(f) and (g) of the Internal Revenue Code of 1986 (the “Code”).

 

Background

 

The Corporation desires to carry out the purposes of the Plan by affording the Optionee, who is an employee of the Corporation, an opportunity to purchase shares of Common Stock by means of the grant of an incentive stock option, as hereinafter provided.

 

Agreement

 

Based upon the facts and premises contained in the above Recital and the mutual covenants below, the parties hereto have agreed and do hereby agree as follows:

 

1.                                      Grant of Option

 

The Corporation hereby grants to the Optionee the right and option (hereinafter called the “Option”) to purchase all or any part of an aggregate of                      shares of the Common Stock (such number being subject to adjustment as provided in Section 7 hereof and hereinafter called the “Option Shares”) on the terms and conditions herein set forth. The Option is intended to qualify as an “incentive stock option” within the meaning of Section 422A of the Code.

 

2.                                      Purchase Price

 

The purchase price of the Option Shares shall be $                 per share, which price has been determined by the Stock Option Committee (hereinafter called the “Committee”) appointed by the Board of Directors to be not less than the fair market value of said shares as of this date.

 

 

3.                                      Terms of Option

 

The Option shall terminate upon the date ten (10) years subsequent to the Effective Date, subject to earlier termination as provided in Sections 5, 6, and 7 hereof, or when all of the Option Shares have been acquired. Subject to the provisions of Section 8, the Option is exercisable as follows:

 

a.                                      Prior to the date one year subsequent to              (the “Vesting Start Date”), the Option shall not be exercisable;

 

b.                                      On or after the date one year subsequent to the Vesting Start Date, the Option shall become exercisable as to twenty-five percent (25%) of the total number of Option Shares;

 

c.                                       On or after the date two years subsequent to the Vesting Start Date, the Option shall become exercisable as to an additional twenty-five percent (25%) of the total number of Option Shares;

 

d.                                      On or after the date three years subsequent to the Vesting Start Date, the Option shall become exercisable as to an additional twenty-five percent (25%) of the total number of Option Shares;

 

e.                                       On or after the date four years subsequent to the Vesting Start Date, the Option shall be exercisable as to all of the Option Shares at any time, but not later than ten (10) years from the Effective Date.

 

The Option may be exercised as to any or all of the available Option Shares; provided, however, that if the Option is exercised for less than all of the available Option Shares, at any time prior to the occurrence of a “Qualifying IPO” as defined in Section 10 below, it cannot be exercised for less than twenty-five percent (25%) of the Option Shares. The purchase price of the shares as to which the Option shall be exercised shall be paid in full at time of exercise in cash, by check, or in certain circumstances as provided in Section 8 below, with outstanding stock of the Corporation. If outstanding stock is used as payment and such stock was acquired upon prior exercise of an option granted under the Plan, then such stock must have been held by the Optionee for at least one year subsequent to such prior exercise and two years subsequent to the grant of the prior exercised option. Except as provided in Sections 5 and 6 hereof, the Option may not be exercised at any time unless the Optionee is then in the service of the Corporation or a subsidiary and shall have been continuously employed by the Corporation or by a subsidiary since the Effective Date. The holder of the Option shall not have any of the rights of a shareholder with respect to the Option Shares as to which there has been no exercise of the Option.

 

In addition, the Committee and/or the Board may not shorten the term of any individual outstanding option so that such option terminates early. The Committee and/or the Board may not so shorten the term of any individual outstanding option(s)

 

 

4.                                      Nontransferability

 

The Option shall not be transferable otherwise than by will or the laws of descent and distribution, and the Option may be exercised, during the lifetime of the Optionee, only by the Optionee. More particularly (but without limiting the generality of the foregoing), the Option may not be assigned, transferred (except as provided above), pledged, or hypothecated in any way, shall not be assignable by operation of law, and shall not be subject to execution, attachment or similar process. Any attempted assignment, transfer, pledge, hypothecation, or other disposition of the Option contrary to the provisions hereof, and the levy of any execution, attachment or similar process upon the Option, shall be null and void and without effect.

 

5.                                      Termination of Employment

 

In the event that the Optionee’s employment with the Corporation and its subsidiaries is terminated for any reason, with or without cause, and whether at the initiative of the Optionee or the Corporation, the Option may be exercised by the Optionee, to the extent that the Optionee shall have been entitled to do so at the date of such termination, at any time within ninety (90) days after such termination, but not after ten (10) years from the Effective Date, at the end of which time the Option shall terminate. Nothing in this Agreement shall confer upon the Optionee any right to continue in the employ of the Corporation or any of its subsidiaries or interfere in any way with the right of the Corporation or any such subsidiary to terminate the Optionee’s employment at any time.

 

6.                                      Death or Disability of Optionee

 

If prior to ten (10) years from the Effective Date the Optionee shall die or become disabled (as defined in Code Section 22(e) (3)) while employed by the Corporation or one or more of its subsidiaries or within ninety (90) days after the termination of such employment, the Option may be exercised (to the extent that the Optionee shall have been entitled to do so at the date of the Optionee’s death or disability) by the Optionee (or by the Optionee’s personal representatives, heirs, or legatees) at any time within one (1) year after his death or disability, but not after ten (10) years from the Effective Date, at the expiration of which time the Option shall terminate.

 

If prior to ten (10) years from the Effective Date the Optionee shall become disabled (as defined in the Americans with Disabilities Act, but not as defined in Code Section 22(e) (3)) while in the service of the Corporation or one or more of its subsidiaries or within ninety (90) days after the termination of such service, the Option may be exercised (to the extent that the Optionee shall have been entitled to do so at the date of the Optionee’s disability) by the Optionee (or by the Optionee’s personal representatives, heirs, or legatees) at any time within one (1) year after his disability, but not after ten (10) years from the Effective Date, at the expiration of which time the Option shall terminate. The fact that the company permits the Optionee to exercise the option subsequent to ninety (90) days after the termination of such employment shall not give rise to any implication (or be admissible as evidence in any proceeding as an admission or evidence) that the Optionee was disabled as defined by state law or the Americans with Disabilities Act, that the Optionee was unable to perform the Optionee’s job functions, that the Optionee’s employment was terminated because the Optionee could not perform the Optionee’s job functions, or that the Company has not made reasonable efforts to accommodate any disability which Optionee may have had. If the Optionee and the Company can not agree as to whether the Optionee is disabled, they shall both appear before the Committee which shall make such determination which shall be final, binding, and conclusive on

 

 

the Optionee and the Company. Optionee understands that if Optionee is disabled but not as defined in Code Section 22 (e) (3), then ninety (90) days after termination of employment any incentive stock option converts to a non-statutory stock option and upon any exercise of the Option thereafter Federal (and possibly state) income tax will be due and on any difference between the then fair market value of the option shares and their exercise price.

 

7.                                      Adjustments Upon Changes in Capital Structure

 

a.                                      Stock Splits and Like Events.

 

If a stock dividend, stock split or reverse stock split, reclassification, or recapitalization were to occur, then the aggregate number and/or class of shares subject to this Option and the exercise price prior to such occurrence shall be appropriately adjusted by the Committee in accordance with the terms of the Plan, and such adjustment shall be conclusive. Notwithstanding the foregoing, such adjustment shall have the result that if the Optionee was to exercise a portion of the Option subsequent to such occurrence, then Optionee would pay the same aggregate exercise price to exercise such portion of the Option and would then hold the same class and aggregate number of shares as if the Optionee would have exercised such portion of the Option immediately prior to such occurrence.

 

b.                                      Recapitalizations; Assumption of Options.

 

The effect of the following “Events” upon the Option are described below:

 

(i)                                     a merger or consolidation in which the Corporation is the surviving corporation if Corporation shareholders as a result of the merger or consolidation receive stock of another corporation and/or property in exchange for their Corporation shares or any merger or consolidation in which the Corporation is not the surviving corporation (other than a merger or consolidation with a wholly owned subsidiary, a reincorporation of the Corporation in a different jurisdiction, or other transaction in which there is no substantial change in the shareholders of the Corporation and the options granted under this Plan are assumed by the successor corporation, which assumption shall be binding on all optionees);

 

(ii)                                  a dissolution or liquidation of the Corporation;

 

(iii)                               the sale of substantially all of the assets of the Corporation; or

 

(iv)                              any other transaction which qualifies as a “corporate transaction” under Section 424(a) of the Code wherein the shareholders of the Corporation give up all of their equity interest in the Corporation (except for the acquisition, sale or transfer of all or substantially all of the outstanding shares of the Corporation).

 

Upon the occurrence of an Event, the Board of Directors shall at its complete discretion make arrangements (the “Arrangements”) which shall be binding upon the Optionee as to any portion of the Option, for the substitution of new options for such portion or for the assumption of such portion by any successor to the Corporation or its affiliate, for the acceleration of the expiration date of such portion to a date not earlier than thirty (30) days after

 

 

notice to the Optionee, or for the cancellation of such portion in exchange for payment by any successor to the Corporation or its affiliate of deferred compensation to the Optionee. Such deferred compensation may, but need not, be in an amount equal to the difference between the fair market value of the Option Shares subject to such unexpired portion and the aggregate exercise price of the Option Shares under the terms of such unexpired portion on the date of the Event, and may, but need not, be paid in installments which correspond with the vesting schedule of the Option. Any such substitution or assumption of any portion of the Option need not comply with Section 425(a) of the Code nor in the event of the acceleration of the expiration date of any portion of the Option need the exercisability of such portion be accelerated.

 

8.                                      Method of Exercising Option; Investment Representation

 

Subject to the terms and conditions of this Agreement, the Option may be exercised by written notice to the Corporation at its main office. Such notice shall be in a form reasonably satisfactory to the Corporation and shall state the election to exercise the Option and the number of shares in respect of which it is being exercised and shall be signed by the person or persons so exercising the Option. Optionee understands that if the Option is disqualified as an incentive option the Corporation may withhold applicable taxes, if any, upon exercise and/or subsequent sale of the Option and the Optionee may be required to pay said withholding as a condition to the exercise of the Option or the delivery of the Option Shares. The written notice to the Corporation shall be accompanied by payment of the full purchase price of such shares, and any withholding if required by the Corporation, in cash, by check, or if subsequent to the occurrence of a Qualifying IPO as defined in Section 10(a) below, with outstanding stock of the Corporation or by reduction of the number of shares to be issued upon exercise of the option. If the Corporation accepts shares of its outstanding stock or reduces the number of shares to be issued upon exercise as payment for the exercise price and any withholding, the shares of the Company’s stock transferred to the Company and/or retained by the Company in such payment shall be valued at their fair market value in accordance with the valuation methods described in Section 20.2031-2 of the Treasury Regulations for the purposes of such transaction. In general, such valuation methods are based on the price per share as reported by the market upon which the stock trades as of the close of trading on the date of the transaction. The Corporation shall deliver a certificate or certificates representing the shares to be received by Optionee pursuant to the exercise of the Option as soon as practicable after the notice shall be received. The certificate or certificates for the shares as to which the Option shall have been so exercised shall be registered in the name of the Optionee and shall be delivered as provided above to or upon the written order of the person or persons exercising the Option. In the event the Option shall be exercised pursuant to Section 6 hereof after the death of the Optionee, such notice shall be accompanied by appropriate proof of the right of such person or persons to exercise the Option. All shares that shall be purchased upon the exercise of the Option as provided herein shall be fully paid and nonassessable.

 

Unless the Option Shares are neither offered nor sold in Oklahoma or Florida, as defined in the Oklahoma and Florida code sections, respectively, the options, and the shares purchasable upon the exercise of options, granted under the Plan are exempt from qualification under the Oklahoma corporate securities law by Section [ ] and by the Florida corporate securities law by Section [ ], and are exempt under the securities laws of certain but not all states. The Option shall not be exercisable unless the Option Shares have been qualified and/or

 

 

registered under the securities laws of the state in which Optionee resides or are exempt therefrom. (The Corporation may, if permitted by such laws, permit the exercise of the Option but postpone delivery of the Option Shares and/or payment of the purchase price thereof or may set up an escrow pending such qualification and/or registration.) The qualification and/or registration can typically, but not always, be effected within thirty (30) days; therefore, the Optionee is advised to periodically check with the Corporation to verify the procedure the Corporation needs to follow in order to qualify and/or register the Option Shares in the state in which Optionee resides and to give the Corporation at least thirty (30) days prior written notice of Optionee’s intent to exercise the Option. Upon Optionee’s agreement to exercise the Option, the Corporation hereby agrees to use its best efforts to promptly register and/or qualify the Option Shares so that the Option may be exercisable but the Corporation shall have no liability to Optionee if despite such efforts such registration and/or qualification is not obtained as promptly as desired by Optionee. The certificates for the shares shall be subject to any legend condition imposed by the securities law of the state in which Optionee resides.

 

The shares purchasable upon the exercise of options granted under the Plan have not been registered under the Federal Securities Act of 1933, as amended (the “Act”). Therefore, unless the Option Shares are so registered prior to Optionee acquiring them by exercising the Option, the Option Shares shall be subject to the following restrictions and all certificates representing the Option Shares shall bear a conspicuous legend containing said restrictions:

 

THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE FEDERAL SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”) IN RELIANCE IN PART ON THE EXEMPTION PROVIDED BY RULE 701, OR QUALIFIED UNDER THE CALIFORNIA CORPORATE SECURITIES LAW OF 1968, AS AMENDED (THE “LAW”) IN RELIANCE ON THE EXEMPTION PROVIDED BY SECTION 25102(0), OR REGISTERED UNDER THE SECURITIES STATUTES OF ANY STATE OTHER THAN CALIFORNIA (THE “STATUTES”). THE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND CONSTITUTE RESTRICTED SECURITIES FOR PURPOSES OF RULE 144. NEITHER SAID SHARES NOR ANY INTEREST THEREIN MAY BE TRANSFERRED, SOLD OR OFFERED FOR SALE (1) IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SHARES UNDER THE ACT OR A “NO-ACTION” LETTER OF THE SECURITIES AND EXCHANGE COMMISSION AS TO SAID TRANSFER, SALE OR OFFER AND (2) IN THE ABSENCE OF QUALIFICATION OR REGISTRATION UNDER THE LAW AND STATUTES, WITHOUT AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION AND/OR QUALIFICATION IS NOT REQUIRED AS TO SAID TRANSFER, SALE OR OFFER AS A RESULT OF COMPLIANCE WITH RULE 144 OR OTHERWISE.

 

Until registration of the Option Shares under the Act, the notice of exercise shall require the Optionee to represent that the Optionee is acquiring the Option Shares for the Optionee’s own account, for investment, and not for purposes of resale or distribution and each subsequent purchaser shall be required to so represent until such registration. The Corporation

 

 

may prohibit any sale or transfer of any interest in the Option Shares by a person so representing for one year (or such longer time as the Corporation reasonably deems appropriate) if such person does not convince the Corporation that such sale or transfer was due to changed circumstances from when such person made such representation and that such representation was therefore truthfully made.

 

9.                                      Disposition of Shares

 

Without limiting the restriction in Sections 10 and 11, the Optionee agrees to notify the Corporation in writing of any sale or transfer of any Option Shares which takes place either within two years from the Effective Date or within one year from the transfer of Option Shares to the Optionee pursuant to exercise of the Option. Such notice shall set forth the price and terms of any such sale or transfer. If the Corporation, in good faith, believes it is required to withhold taxes, social security, or other amounts as a result of such disqualifying disposition, the Optionee shall upon request promptly pay to the Corporation the amount so required to be withheld and the Corporation may refuse to effect any transfer of the Option Shares on its books and records until Optionee has made such payment. The Corporation may accept payment in cash, by check, or if the disposition is subsequent to a “Qualifying IPO” as defined in Section 10 below, with shares of the outstanding stock of the Corporation which shall be valued at their fair market value as provided in Section 8 above for the purposes of such transaction.

 

10.                               Right of First Refusal

 

a.                                      Initiation of Right of First Refusal.

 

Until a public offering of the Corporation’s Common Stock has occurred with proceeds to the Corporation of at least Twenty Million Dollars ($20,000,000) (a “Qualifying IPO”), the Optionee (which for purposes of this Section 10 shall include the Optionee’s heirs, executors, administrators and transferees, and shall be referred to as the “Shareholder”) shall not sell pledge, assign, or otherwise transfer any of the Shareholder’s interest in any of the Option Shares acquired upon exercise of the Option without first offering to the Corporation or its designees (which may include some or all of the shareholders of the Corporation) the right and option to purchase said shares as provided hereinafter in this Section 10 and in conformity with Article 9 of the Corporation’s Bylaws (the “Right of First Refusal”). Notwithstanding the above, the Optionee may sell or transfer any interest in any of said Option Shares to the Optionee’s spouse or children, or to a trustee or custodian for the benefit of the Optionee or Optionee’s spouse or children (collectively, “Permitted Transferees”) without first offering said Option Shares to the Corporation or its designees, provided such buyer or transferee agrees in writing to be bound by the restrictions set forth in this Section 10 and Section 8 of this Agreement, by the Repurchase Option specified in Section 11 and by the Market Stand-Off specified in Section 13 of this Agreement.

 

In the event of a pledge or other hypothecation of the Option Shares, or the granting of any option or other right to purchase the Option Shares, then the Right of First Refusal shall come into existence at the time of any sale or transfer of ownership of the Option Shares pursuant to the foreclosure under such pledge or hypothecation or exercise of such option or right, as the case may be; provided, however, that Optionee may not pledge or hypothecate the

 

 

Option Shares or grant an option or right to purchase the Option Shares unless the pledge holder or option or right holder, as the case may be, agrees in writing at the time of the pledge or grant of the option or right to be bound by the Right of First Refusal as contained in this Section 10 and to cause any proposed assignee or transferee of such pledge or right or option to execute and deliver to the Corporation a similar writing prior to such assignment or transfer.

 

b.                                      Mechanics.

 

Any Shareholder desiring to sell any or all of the Option Shares during such time period shall give written notice to the Corporation of the Shareholder’s bona fide intention to sell the Option Shares pursuant to a bona fide written offer of a third parry other than the Corporation (the “Proposed Purchaser”). The notice shall include a photocopy of such written offer which shall specify the identity of the Proposed Purchaser, the number of such Option Shares proposed to be sold (hereinafter the “Offered Shares”), and the price and payment terms of the proposed offer to buy the Offered Shares. The payment terms of the Proposed Purchaser to the Shareholder (and of the Shareholder to the Corporation) must be cash, cash equivalent (a certificate of deposit, shares of stock in a publicly traded Corporation, and the like), or a promissory note of the Proposed Purchaser payable on date(s) specified by passage of time. The Corporation or its designees shall have the right and option to purchase any or all of the Offered Shares, at the price and on the payment terms specified in the Shareholder’s notice, for a period of sixty (60) days from receipt of said notice from the Shareholder. That is, such notice by the Shareholder constitutes an irrevocable offer by the Shareholder to sell all of the Offered Shares to the Corporation or its designees at the price and payment terms specified in such notice for sixty (60) days from the Corporation’s receipt of such notice.

 

The Corporation shall exercise its option by giving written notice (the “Original Notice”) to the Shareholder stating that the number of Offered Shares as to which it is exercising its option. The Shareholder shall deliver certificates representing the number of Offered Shares purchased by the Corporation or its designees against payment for the account of the Shareholder of the purchase price in compliance with the terms of the bona fide offer within thirty (30) days of the option exercise notice.

 

In the event both the Corporation and its designees fail to exercise their option as provided in this Section as to all of the Offered Shares, the remaining Offered Shares may be sold by the Shareholder to the Proposed Purchaser within a period of sixty (60) days following the end of the Corporation’s sixty (60)-day option period specified above, provided that (1) such sale is made at a price and on terms no more favorable to the Proposed Purchaser than those made available to the Corporation and its designees under this section, (2) the Proposed Purchaser delivers a written undertaking to the Corporation to be bound by the restrictions on the Option Shares set forth in this Section 10 and Section 8 of this Agreement and the Market Stand-Off specified in Section 13 of this Agreement, and (3) the Corporation receives a statement from the Optionee and Proposed Purchaser detailing the circumstances surrounding the propose transfer such that in the opinion of counsel to the Corporation the sale to the Proposed Purchaser complies with applicable federal and state corporate securities laws. If the statement is inadequate for such counsel to so conclude, the Optionee and Proposed Purchaser shall provide such additional information as such counsel shall reasonably request. If such counsel is then unable to so conclude, then the transfer shall be prohibited and shall not occur.

 

 

Upon receipt of a writing from Shareholder and Proposed Purchaser that the foregoing conditions have been satisfied and the purchase price paid to the Shareholder by the Proposed Purchasers, the Corporation shall transfer the ownership of record to the Proposed Purchaser (and reissue the certificate).

 

If within this sixty (60)-day period the Shareholder does not enter into an agreement for such a sale of the remaining Offered Shares to the Proposed Purchaser which is consummated within thirty (30) days of the execution thereof, the Right of First Refusal shall be revived as to such Offered Shares which shall not be sold or transferred unless the Shareholder first offers the Corporation the right and option to repurchase all such Offered Shares in accordance with this Section.

 

Any transfer or purported transfer of the Option Shares or any interest therein shall be null and void unless the terms and conditions of this Section 10 are strictly observed and followed, or such terms and conditions are waived by the Corporation’s Board of Directors.

 

11.                               Repurchase Option.

 

In the event that the Optionee’s employment with the Corporation and its subsidiaries is terminated for any reason, with or without cause, and whether at the initiative of the Optionee or the Corporation, or by death, disability, retirement or otherwise, the Corporation or its designees (which may include some or all of the shareholders of the Corporation) shall have the option to purchase all Option Shares held by the Optionee at the date of such termination and acquired thereafter pursuant to Section 5 (the “Repurchase Option”). The Repurchase Option is exercisable by the payment not later than one hundred twenty (120) days after such termination of the following amount:

 

The greater of :

 

(x) the cumulative monthly profit or loss of the Corporation, calculated in accordance with generally the Corporation’s customary accounting principles as consistently applied by the Corporation, beginning with the last month ended prior to the Effective Date and ending with the last month prior to such termination date, divided by the total number of shares of the Corporation’s Common Stock which, as of the date of repurchase, are then outstanding, are issuable upon exercise of any then exercisable options or warrants including options granted under the Corporation’s Incentive Stock Plan, and are issuable upon conversion of any then convertible securities, including, without limitation, the Corporation’s Series A Preferred Stock; and,

 

(y) the net worth of the Corporation (total assets minus total liabilities), calculated in accordance with the Corporation’s customary accounting principles as consistently applied by the Corporation as of the end of the last month prior to such termination date, divided by the total number of shares of the Corporation’s Common Stock which, as of the date of repurchase are then outstanding, are issuable upon exercise of any then exercisable options or warrants including options granted under the Corporation’s Incentive Stock Plan, and are issuable upon conversion of any then convertible securities, including, without limitation, the Corporation’s Series A Preferred Stock.

 

 

In addition to the other legends described in this Agreement, all certificates representing the Option Shares shall bear the following legend:

 

THESE SHARES ARE ALSO SUBJECT TO CERTAIN TRANSFER RESTRICTIONS, INCLUDING A RIGHT OF FIRST REFUSAL, AND ARE SUBJECT TO A REPURCHASE OPTION, ALL AS SET FORTH IN AN INCENTIVE STOCK OPTION AGREEMENT DATED February 22, 2005 ON FILE WITH THE SECRETARY.

 

12.                               Escrow.

 

Any share certificates issued upon the exercise of Option Shares shall be deposited with an escrow holder designated by the Corporation (the “Escrow Holder”), together with a stock power executed in blank as security for the Right of First Refusal and the Repurchase Option. Accordingly, said shares shall not be sold, pledged, or otherwise transferred so long as they remain subject to either or both of the Right of First Refusal and the Repurchase Option except as provided in Section 10 and Section 11, respectively, and any transfer or purported transfer in violation thereof shall be null and void, except that Optionee may transfer the Option Shares to a Permitted Transferee, provided the Permitted Transferees agrees in writing to be bound by the Right of First Refusal, the Repurchase Option, the Market Stand Off, and all other restrictions against transfer of the Option Shares as set forth in this Agreement.

 

The Corporation, by written resolution adopted by its board of directors, may terminate the escrow and direct the Escrow Holder to deliver the certificate(s) representing the Option Shares to Optionee and/or Permitted Transferees, as appropriate, provided, however, that the Escrow Holder shall not be required to deliver such certificate(s) unless, at its discretion, it has received satisfactory releases, indemnity, and security against claims. Shares so delivered free of escrow shall nevertheless remain subject to the Repurchase Option, the Right of First Refusal, the Market Stand Off, and all other restrictions against transfer of the Option Shares as set forth in this Agreement.

 

The Escrow Holder may resign at any time, provided that (i) its duties are undertaken by a successor escrow holder, or (ii) the certificate(s) representing the Option Shares are deposited with any court of competent jurisdiction. Any bank doing business in California is deemed to be such a suitable successor, in which case there shall be applied such additional terms of escrow as such successor escrow holder may at its discretion require as a condition to its assuming the duties of escrow holder and the original escrow holder is authorized to execute as agent for each party an escrow agreement or instructions containing such additional terms.

 

The Escrow Holder shall in no event be liable for damages to any party resulting from the exercise of its duties hereunder, or for any other reason, except gross negligence or willful misconduct. The Corporation shall pay all fees and expenses of the Escrow Holder and shall hold the Escrow Holder harmless against all claims arising out of its performance as escrow holder hereunder except to the extent that a court of competent jurisdiction has made a final determination that they arose from the gross negligence or willful misconduct of the Escrow Holder.

 

 

Optionee and/or Permitted Transferees shall have full voting rights and shall be entitled to dividends, if any, with respect to the escrowed shares.

 

13.                               Market Stand-Off

 

In conformity with Article 10 of the Corporation’s Bylaws, the Optionee shall not, to the extent requested by the Corporation, sell or otherwise transfer or dispose of any Option Shares during a period of up to six (6) months following the effective date of a registration statement of the Corporation filed under the Act; provided however, that such prohibition shall only be applicable to the Corporation’s initial registration statement (the “First Registration Statement”) and registration statements filed within three (3) years after the effective date of the First Registration Statement and if all officers and directors of the Corporation are similarly prohibited. In order to enforce the foregoing covenant, the Corporation may impose stop-transfer instructions with respect to the Option Shares until the end of such six-month period and place an appropriate legend on any share certificate representing the Option Shares.

 

14.                               Notices

 

Any notice required to be given pursuant to this Agreement shall be deemed effectively given: (i) upon personal delivery, or delivery by Fed Ex or other national overnight service, or delivery by fax or e-mail, to the President of the Corporation, or to the Optionee; or (ii) three (3) days after it is deposited in the U.S. mail, by registered or certified mail, postage prepaid, addressed to the President of the Corporation at the Corporation’s principal executive office, or to the Optionee addressed to his/her address appearing on the records of the Corporation. Either party may designate another address for purposes of receiving notice under this Section by giving written notice to the other party thereof in accordance with, and referring specifically to, this Section 14.

 

15.                               Delivery of Plan

 

Optionee acknowledges that Optionee has received from the Corporation a copy of the Plan pursuant to which this Agreement is made and entered into.

 

16.                               Tax Advice

 

Optionee represents that he/she has not relied upon any tax advice from the Corporation or its counsel with respect to this Agreement.

 

 

17.                               Confidentiality and Financial Information

 

a.                                      Confidentiality

 

The Corporation has a general policy of maintaining the confidentiality of certain Corporation records as described in Article 8 of the Corporation’s Bylaws. The Option Shares shall be subject to such Article 8 and all certificates representing the Option Shares shall bear the following legend:

 

THE HOLDER OF RECORD OF THESE SHARES, AND SUCH HOLDER’S AGENTS AND ATTORNEYS, MAY BE REQUIRED TO EXECUTE NONDISCLOSURE STATEMENTS PRIOR TO BEING PERMITTED TO INSPECT CERTAIN RECORDS OF THE CORPORATION.

 

b.                                      Financial Information.

 

Whenever the Corporation provides financial statements, whether audited or unaudited, to all of its shareholders as a group, the Corporation shall concurrently provide the Optionee with a copy of such financial statements. Notwithstanding the foregoing, the Corporation shall upon request provide the Optionee at the end of its fiscal year with a copy of its financial statements, either audited or unaudited, for such fiscal year, within ninety (90) days after the end of such fiscal year, if Optionee is then an optionee of the Corporation.

 

Optionee acknowledges that such financial statements are confidential information of the Corporation and are being provided solely in order to assist Optionee in the decision of whether and when to exercise the Option. Notwithstanding Article 8 of the Bylaws, Optionee agrees (1) to maintain the confidentiality of all such financial statements and not to disclose the contents of such financial statements to any third party without the prior written consent of an officer of the Corporation and (2) not to use such financial statements for any other purpose.

 

18.                               Payment of Taxes

 

To the extent the Corporation requires taxes to be paid to the Corporation concurrently with the exercise of an Option and/or with a subsequent disposition of the Option Shares as a condition to the exercise of the Option or delivery of the Option Shares, if such exercise or disposition is subsequent to a Qualifying IPO, the Corporation may permit Optionee to pay some or all of the taxes by tendering to the Corporation outstanding shares of the Corporation’s stock held by Optionee, or by reducing the number of shares to be issued upon exercise of the Option. The shares tendered to or retained by the Corporation as payment of taxes shall be valued at their fair market value, as provided in Section 8 above, for the purposes of such transaction.

 

19.                               Entire Agreement

 

This Agreement, which is governed by California law, constitutes the entire agreement between the Corporation and Optionee relating to the Option, superseding all prior understandings and agreements, whether written or oral. If this Agreement concerns Optionee’s initial option under the Plan, then this Agreement specifically supersedes any prior agreements or understandings, whether written or oral, concerning Corporation equity, including without limitation, those contained in any offer letter.

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