| Stock Option Plan |
Questions and Answers About Stock Options
Under the [Company] Stock Option Plan
1. What is a stock option?
A stock option gives you the right, for a fixed period of time, to purchase a specified number of shares of the Company's Common Stock at the price (the "option price") that was in effect on the day the option was granted. When you purchase the stock, you "exercise" your option.
2. What is the Plan?
The [Date] Stock Option/Stock Issuance Plan (the "Plan") is the document that sets forth the general terms and conditions that apply to the stock options granted by the Company. It is important to read your copy of the Plan and understand the terms of your Stock Option Agreement. If you have questions, please consult with the Company.
3. How are Options granted?
Only the Board of Directors, or a committee composed of members of the Board of Directors, can grant stock options. Shortly after the Board approves a grant, a Notice of Grant of Stock Option ("Notice of Grant") will be prepared and forwarded, together with a copy of the Plan and a Stock Option Agreement, to an employee to whom such grant was made.
4. Are there different types of Stock Options?
The Company's stock option plans offer two different types of options: nonstatutory stock options (NSOs) and incentive stock options (ISOs). ISOs are "qualified," which means they conform to certain regulations of the Internal Revenue Service that provide for special tax treatment. NSOs are "not qualified" and are subject only to the terms and conditions of the Plan. Specific differences between the two types of options will be discussed below.
5. How do I know how many Options I have?
Shortly after the Board grants your option, you will receive the Notice of Grant and Stock Option Agreement referred to above, which will describe the kind of option you are to receive and its exact terms, including (i) the number of shares available to you, (ii) the price per share (typically, the "fair market value" of the stock on the day you are granted the option), and (iii) your vesting schedule. You should sign all copies of the Notice of Grant and return them to the Company. The Stock Purchase Agreement attached to your Option Agreement is an exhibit for your information; you will not sign this form of document until you actually decide to exercise your option and purchase shares of Common Stock. An execution copy of this document will be prepared for you at the time you elect to make such purchase.
After an officer of the Company signs the Notice of Grant, a copy will be returned to you for your files together with the exhibits thereto. Please be aware that this package of documents is valuable and should be kept in a safe place with your other important papers. If you should lose your copy of any of these documents, however, notify the Company and request a duplicate.
6. How is the Option Price determined?
Because of legal and tax restrictions, the option price of an ISO issued may not be less than the "fair market value" of the shares on the day the option is granted. You will be told what the "option price" is for your options at the time the option is granted. This will be fixed for the life of the option even if the Company's stock can be sold for a higher amount.
7. What is the Fair Market Value?
The "fair market value" of the Company's Common Stock is the price that a reasonable person could be expected to pay for the stock. Currently, because the Company does not have an established public market for its securities (e.g., a listing on NASDAQ with brokers acting as market makers), the fair market value is determined by the Board of Directors.
8. What does "exercise" mean?
When you "exercise" an option, you purchase from the Company all or a portion of the stock subject to your option.
9. When may I exercise the Option and purchase the shares?
If you are granted an installment option, you may purchase the shares as they become vested in accordance with the vesting schedule set out in your Notice of Grant.
If you are granted an immediately exercisable option, you may purchase your shares at any time before the expiration date of your option, but if you purchase your shares before they have vested, the shares will be subject to repurchase by the Company at the option price paid per share, should you leave the Company (whether as an employee, consultant or director) before the shares vest.
10. What is vesting?
The shares purchasable under your Options are subject to vesting provisions. This means you have to remain in the Company's employ or service for a certain period of time before you may purchase the shares covered by the option, or in the case of immediately exercisable options, before you fully own the shares purchased under your option. The shares subject to your option will vest periodically over a period of several years.
If you have an immediately exercisable option, remember that while you may at any time exercise your option for unvested shares, those shares will be subject to repurchase by the Company if you leave before you vest in those shares; or you may wait until your shares vest before you exercise your option for those shares. The choice is yours.
11. An example illustrating vesting:
Jane Doe is granted an option on June 1, [Date] to purchase 4,800 shares of the Company's stock at $1.00 per share (the fair market value on that date). Her Option Agreement states the option is immediately exercisable for all 4,800 shares, but that the shares purchasable under the option are to vest as follows: 25% of the shares will vest one year after the grant date and the balance will vest in equal annual installments over the 3 years thereafter during which she remains with the Company. Accordingly, the vesting schedule would be as follows:
If Jane purchases all 4,800 shares on September 1, [Date] and then leaves the Company on October 15, 2001, the Company would have the right to repurchase the 1,200 unvested shares held by Jane at that time at a price of $1.00 per share, the amount she previously paid for those shares. The 3,600 vested shares would not be subject to such repurchase.
12. How do I exercise an Option?
If you want to exercise an option, provide the Company with a letter stating your intent to exercise. Since some employees may have been granted more than one Option, please specify:
* the date of the option grant notice * the option price * the number of shares you want to buy * where to send shares (if other than the Company)
The Company will send you an execution copy of the Stock Purchase Agreement for you to sign. Return the signed Stock Purchase Agreement to the Company with a check made out to the Company for the purchase price. (The Company will inform you if it ever becomes registered as a public company subject to the reporting requirements of the Securities Exchange Act of 1934, which is not presently the case, but in which case you might be able to exercise your option without the payment of cash). If your option is immediately exercisable and you are purchasing unvested shares, the Stock Purchase Agreement contains the Company's repurchase right for any such shares.
13. What is the effective date of exercise?
The effective date will be the date you deliver to the Company your check for the purchase price of your option shares and your signed Stock Purchase Agreement.
14. When will I receive the certificate?
Within a few weeks after the date of exercise, a stock certificate for any vested shares you purchase will be prepared by our attorneys in their capacity as our stock transfer agent and sent to you.
If you purchase any unvested shares, the Company will hold the certificates for those shares until your vesting date.
15. When can I sell stock?
Until the Company goes public, and there is no assurance that it ever will, there is no public market for the stock. Further, sales of stock are governed by a complex body of securities laws. After the Company goes public, you may be able to sell your stock shortly after you exercise the option. For your reference, attached to this document is a brief introduction to certain securities laws, SEC regulations and rules governing resale of the Company's stock.
16. What taxes do I pay when I exercise an ISO?
An ISO is not taxable at the time of grant. Currently, on exercise of an ISO you do not pay any tax (unless you are subject to the "alternative minimum tax" described below). Tax would be due on the gain you make when you sell your stock.
17. What taxes do I pay when I sell stock purchased pursuant to an ISO?
Under the current tax rules, the difference between your exercise price ("cost") and the selling price is taxed at the time of sale. Depending on the timing of the sale, the income recognized may be eligible for long-term capital gains treatment.
18. An example of tax liability for an ISO:
On October 1, [Date], Jane Doe purchases 1,200 fully‑vested shares under the June 1, [Date] option at $1.00 per share. At the time of such purchase, the stock has a fair market value of $3.00 per share. Because she had to pay $1,200 for shares with a fair market value of $3,600, Jane has theoretically made a $2,400 profit by exercising her option.
Since this is an ISO, Jane would be entitled to postpone payment of taxes on the $2,400 "profit" until she sells the shares (unless she owed alternative minimum tax as explained below).
If we assume she sells the shares for $4.00 per share in early 2000, she would owe taxes for 2000 on $3,600 (the difference between the $1,200 she paid and the $4,800 she received from the sale).
It is important to remember that the values used in these calculations are only hypothetical examples, and the Company cannot determine whether its stock will increase in price in the future.
19. What taxes do I pay when I exercise an NSO?
Non‑statutory options generally are not taxable at the time of grant. Upon exercise, you will recognize ordinary income with respect to any shares for which the Company's repurchase right has lapsed or any other shares in which the recipient is at the time fully vested. Such income will be in an amount equal to the excess of the value of the vested shares on the exercise date over the exercise price paid for such shares. Taxable income will be recognized on the balance of the shares as the repurchase right (if any) lapses with respect to those shares, and the income will be equal to the spread which exists between the value of those shares on the lapse date and the exercise price paid for the shares.
You may elect under Section 83(b) of the Internal Revenue Code to be taxed at the time the option is exercised for unvested shares subject to the Company's repurchase right. The election must be filed with the IRS within thirty (30) days after exercise. If the election is made, no additional income will be recognized as the repurchase right lapses. However, should you incur any loss upon the repurchase of your unvested shares following termination of service (the difference between the amount of taxable income recognized at the time of the Section 83(b) election and the amount received upon the Corporation's repurchase of the unvested shares), such loss will not be deductible for tax purposes.
20. What taxes do I pay when I sell stock purchased pursuant to an NSO?
You will recognize either short or long term capital gain (or loss) when you sell your shares. The amount of the gain (or loss) equals the spread between the selling price and your basis in the shares. Your basis is generally the exercise price plus any income recognized on the shares at the tie of exercise. If you have held your shares for more than eighteen months, you will recognize long term capital gain (or loss). If you have held your shares for less than eighteen months, you will recognize short term capital gain or loss. In general, long term capital gains are taxed at preferential rates but short term capital losses are more beneficial than long term capital losses.
For any vested shares, and for any unvested shares if you have made a Section 83(b) election as described above, the holding period for capital gains begins at the time of exercise. The capital gains holding period for unvested shares for which you have not made the Section 83(b) election will begin at the time those shares become vested.
The Company strongly encourages you to consult with your own tax advisor for a more in depth and personal analysis of the tax implications of the exercise of your option and later sale of your shares.
21. An example of tax liability for an NSO:
On July 1, [Date] assume Jane Doe purchases 1,200 fully‑vested shares under the June 1, [Date] option at $1.00 per share. At the time of such purchase, the stock has a fair market value of $3.00 per share. Because she paid $1,200 for shares with a fair market value of $3,600, Jane will recognize ordinary income of $2,400. Section 83(b) is not an issue since she only exercised for vested shares.
If we assume she sells the shares for $4.00 per share in March 2001, she would owe tax on capital gain for 2001 of $1,200 (the difference between her exercise price ($1,200) plus the amount of income she recognized when she exercised ($2,400) and her sale proceeds ($4,800). The capital gain is long term since Jane held her shares for more than eighteen months after exercise.
It is important to remember that the values used in these calculations are only hypothetical examples, and the Company cannot determine whether its stock will increase in price in the future.
22. What is Alternative Minimum Tax?
Alternative Minimum Tax is a special tax computation that certain taxpayers may have to do. For many of you, the alternative minimum tax will not be relevant. You should consult your tax advisor to see if it may apply to you.
In general, when you exercise an ISO, in computing alternative minimum taxable income, you must include the difference between your exercise price and the fair market value of the purchased shares on the exercise date. When you do your tax return, you may have to calculate your taxes two different ways. Under the regular calculation, this spread on your option is not added to your income at all; it is not taxed until the shares are sold or otherwise transferred. But you may also have to do a separate, alternative calculation which includes as part of your taxable income the ISO spread, as well as other "tax preference" items. You may end up paying higher taxes as a result of this alternative calculation. If alternative minimum tax does apply to you, you may be able to plan your option exercises to minimize any possible alternative minimum tax liability.
23. What if I leave the Company?
If you leave the Company, you will have 3 months to exercise your option for any vested shares not otherwise purchased before your termination date.
24. What should I say if someone asks me about the value of any stock option or the Company's financial status?
All inquiries about the Company's financial condition or prospects, and any questions from anyone who is interested in the Company from the perspective of an investor (rather than a customer or prospective employee), should be directed to the Chief Financial Officer or the President. This includes all inquiries from the financial community and the financial press. Additional Information About Securities Laws and Resale of Restricted Securities
Your option by its terms will not be transferable other than upon your death and, during your lifetime, will be exercisable only by you. In addition to this restriction, your option and the shares purchased upon exercise of that option may be subject to restrictions on transfer under state and federal securities laws.
The Plan, the options and the shares have not been registered under the Securities Act of 1933, as amended (the “Act”), which is a federal law regulating the issuance of and transactions in securities. Rather, such options and shares will be issued in reliance on an exemption under the Act available for employee stock plans. A restrictive legend will be placed on the stock certificate stating that no sale or other disposition of the stock may be made without meeting certain conditions, which include registration of the stock by the Company or an opinion to the Company by an attorney that an exemption is available under the Act for a resale of the stock. You are advised that because the Company’s securities have not been registered under the Act, any shares purchased upon exercise of an option are “restricted securities” and must be held indefinitely unless they are subsequently registered for sale under the Act or an exemption from such registration is available. Moreover, the Company is under no obligation to register the shares issued under the Plan, and there is no current public market for any of the Company’s securities and it is uncertain that such a market will develop in the future.
In the future, Rule 144 of the United States Securities and Exchange Commission (“SEC”) may be available as an exemption for resales of any unregistered shares of the Common Stock you may have purchased upon the exercise of your option. SEC Rule 144 will allow the resale of such unregistered shares if all of the conditions of the Rule are satisfied. The applicable requirements are as follows:
(1) The Company must at the time of such sale be subject to the periodic reporting requirements of the federal securities laws. In general, the Company would become subject to such requirements immediately following the initial public offering of its securities;
(2) The shares must have been held for at least one year, although this holding period requirement will automatically lapse ninety days after the initial public offering;
(3) The number of shares which may be sold pursuant to the Rule 144 exemption in any three‑month period is limited to the greater of 1% of the total outstanding shares of the Company’s Common Stock at that time or the average trading volume in such shares for the four weeks immediately preceding the date of sale;
(4) The sale must be effected in a broker transaction or through a market-maker in the shares; and
(5) Notice of the sale must be given contemporaneously to the SEC.
Under the provisions of subparagraph (k) of Rule 144, a seller does not need to comply with the above requirements if the seller: (i) is not an affiliate of the issuer (i.e. officer, director or significant stockholder) and has not been an affiliate during the three months prior to sale, and (ii) has held the shares for at least two years. It is important to realize that the Rule 144 holding period for your shares will not begin until the shares are purchased and will not include the period of time for which your option was outstanding.
Please be aware that this summary only briefly describes certain basic federal securities law restrictions that apply to the transfer of any shares you have purchased and does not purport to be an exhaustive guide to securities law or the ability of a stockholder to transfer such stockholder’s stock. This summary does not discuss the contractual restrictions that may apply to your shares regardless of compliance with federal securities law and is intended only as a general informational introduction to certain federal securities law provisions. [Company]
NOTICE OF GRANT OF STOCK OPTION
Notice is hereby given of the following option grant (the “Option”) made to purchase shares of [Company], Inc. (the “Company”) common stock (the “Common Stock”): Optionee: Grant Date: Vesting Commencement Date: Class of Common Stock: Not Applicable Option Price Per Share: $ Number of Option Shares: Expiration Date: Type of Option: Incentive/Non-Statutory [circle one] Exercise Schedule: Provided Optionee remains in Service (as defined in the Stock Option Agreement attached as Exhibit B hereto), the Option will become exercisable with respect to (i) twenty-five percent (25%) of the Option Shares one (1) year after the Vesting Commencement Date and (ii) the balance of the Option Shares in a series of equal successive quarterly installments over the three (3) year period thereafter. Once exercisable, the option may not be exercised on more than two separate occasions in each calendar year during the term of the Option (other than the calendar year in which this Option is to expire or terminate).
Repurchase Right: Not applicable.
Optionee understands and agrees that the Option is granted subject to and in accordance with the express terms and conditions of the [Company], Inc. [Date] Stock Option/Stock Issuance Plan (the “Plan”). Optionee further agrees to be bound by the terms and conditions of the Option as set forth in the Stock Option Agreement attached hereto as Exhibit B. Optionee understands that certain terms and conditions governing Option Shares purchased pursuant to the Option are set forth in the Stock Purchase Agreement attached hereto as Exhibit C.
Optionee hereby acknowledges receipt of a copy of the Plan in the form attached hereto as Exhibit A.
RIGHTS OF FIRST REFUSAL. THE OPTIONEE HEREBY AGREES THAT ALL OPTION SHARES ACQUIRED UPON THE EXERCISE OF THE OPTION SHALL BE SUBJECT TO CERTAIN TRANSFER RESTRICTIONS AND RIGHTS OF FIRST REFUSAL EXERCISABLE BY THE COMPANY AND CERTAIN OTHER SHAREHOLDERS OF THE COMPANY UPON ANY PROPOSED SALE, ASSIGNMENT, TRANSFER, ENCUMBRANCE OR OTHER DISPOSITION OF THE COMPANY’S SHARES. THE TERMS AND CONDITIONS OF SUCH RIGHTS ARE SPECIFIED IN THE STOCK PURCHASE AGREEMENT ATTACHED HERETO AS EXHIBIT C.
No Employment or Service Contract. Nothing in this Agreement or in the Plan shall confer upon the Optionee any right to continue in the Service of the Company for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Company or the Optionee, which rights are hereby expressly reserved by each, to terminate Optionee’s Service at any time for any reason whatsoever, with or without cause.
Date___________
[Company], Inc.
By:_______________ Its:_______________
_________________
Optionee
Address: _________________ _________________
Exhibit A to the Notice of Grant of Stock Option
[Company], Inc.
SAMPLE STOCK OPTION/STOCK ISSUANCE PLAN
ARTICLE I
GENERAL PROVISIONS
1. Purpose
This [Date] Stock Option/Stock Issuance Plan is intended to promote the interests of [Company], Inc. (the “Corporation”) by providing eligible individuals who are responsible for the management, growth and financial success of the Corporation or who otherwise render valuable services to the Corporation with the opportunity to acquire a proprietary interest, or increase their proprietary interest, in the Corporation and thereby encourage them to remain in the service of the Corporation.
Capitalized terms used herein shall have the meanings ascribed to such terms in Section 6 of this Article I.
2. Structure of the Plan
The Plan shall be divided into two separate components: the Option Grant Program specified in Article II and the Stock Issuance Program specified in Article III. The provisions of Articles I and IV of the Plan shall apply to both the Option Grant Program and the Stock Issuance Program and shall accordingly govern the interests of all individuals in the Plan.
3. Administration of the Plan
(a) The Plan shall be administered by the Board. The Board at any time may appoint a committee and delegate to such committee some or all of the administrative powers allocated to the Board pursuant to the provisions of the Plan. Members of such committee shall serve for such period of time as the Board may determine and shall be subject to removal by the Board at any time. The Board at any time may terminate the functions of such committee and reassume all powers and authority previously delegated to such committee.
(b) The Plan Administrator shall have full power and authority (subject to the provisions of the Plan) to establish such rules and regulations as it may deem appropriate for the proper plan administration and to make such determinations under, and issue such interpretations of, the Plan and any outstanding option grants or share issuances as it may deem necessary or advisable. Decisions of the Plan Administrator shall be final and binding on all parties who have an interest in the Plan or any outstanding option or share issuance.
4. Option Grants and Share Issuances
(a) The persons eligible to receive option grants pursuant to the Option Grant Program (each an “Optionee”) and/or share issuances under the Stock Issuance Program (each a “Participant”) are limited to the following:
(1) key employees (including officers and directors) of the Corporation (or its Parent or Subsidiary corporations, if any) who render services that contribute to the success and growth of the Corporation (or its Parent or Subsidiary corporations), or that reasonably may be anticipated to contribute to the future success and growth of the Corporation (or its Parent or Subsidiary corporations); (2) the non-employee members of the Board or the non-employee members of the board of directors of any Parent or Subsidiary corporations; and
(3) those consultants or independent contractors who provide valuable services to the Corporation (or its Parent or Subsidiary corporations, if any).
(b) The Plan Administrator shall have full authority to determine: (i) with respect to the option grants made under the Plan, which eligible individuals are to receive option grants, the number of shares to be covered by each such grant, the status of the granted option as either an Incentive Option or a Non-Statutory Option, the time or times at which each granted option is to become exercisable and the maximum term for which the option may remain outstanding, and (ii) with respect to share issuances under the Stock Issuance Program, the number of shares to be issued to each Participant, the vesting schedule (if any) to be applicable to the issued shares, and the consideration to be paid by the individual for such shares.
(c) The Plan Administrator shall have the absolute discretion either to grant options in accordance with Article II of the Plan or to effect share issuances in accordance with Article III of the Plan.
5. Stock Subject to the Plan
(a) The stock issuable under the Plan shall be shares of the Corporation’s authorized but unissued or reacquired Common Stock (the “Common Stock”). The maximum number of shares that may be issued over the term of the Plan shall not exceed one million seven hundred sixty-one thousand two hundred fifty (1,761,250) shares of Common Stock. The total number of shares issuable under the Plan shall be subject to adjustment from time to time in accordance with the provisions of Section 5(c).
(b) Shares subject to (i) the portion of one or more outstanding options that are not exercised or surrendered prior to expiration or termination and (ii) outstanding options canceled in accordance with the cancellation-regrant provisions of Section 5 of Article II will be available for subsequent option grants or stock issuances under the Plan. Shares issued under either the Option Grant Program or the Stock Issuance Program (whether as vested or unvested shares) that are repurchased by the Corporation shall not be available for subsequent option grants or stock issuances under the Plan.
(c) In the event any change is made to the Common Stock issuable under the Plan by reason of any stock dividend, stock split, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without receipt of consideration, then appropriate adjustments shall be made to (i) the aggregate number and/or class of shares issuable under the Plan and (ii) the aggregate number and/or class of shares and the option price per share in effect under each outstanding option in order to prevent the dilution or enlargement of benefits thereunder. The adjustments determined by the Plan Administrator shall be final, binding and conclusive.
(d) Common Stock issuable under the Plan, whether under the Option Grant Program or the Stock Issuance Program, may be subject to such restrictions on transfer, repurchase rights or other restrictions as may be determined by the Plan Administrator.
(e) It is the intention of the Corporation that, if any of the Corporation’s equity securities are registered pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended (the “1934 Act”), this Plan shall comply in all respects with Rule 16b‑3 under the 1934 Act. If any Plan provision is later found not to be in compliance with such Section, the provision shall be deemed null and void, and in all events this Plan shall be construed in favor of it meeting the requirements of Rule 16b‑3. Notwithstanding anything in the Plan to the contrary, the Board of Directors, in its absolute discretion, may bifurcate the Plan so as to restrict, limit or condition the use of any provision of the Plan to participants who are officers and directors subject to Section 16(b) of the 1934 Act without so restricting, limiting or conditioning the Plan with respect to other participants.
6. Definitions
The following definitions shall apply to the respective capitalized terms used herein:
Board means the Board of Directors of [Company], Inc.
Code means the Internal Revenue Code of 1986, as amended.
Corporation means [Company], Inc., a [State] corporation.
Corporate Transaction means one or more of the following transactions:
(a) a merger or consolidation in which the Corporation is not the surviving entity, except for a transaction the principal purpose of which is to change the state of the Corporation’s incorporation;
(b) any reverse merger in which the Corporation is the surviving entity but in which fifty percent (50%) or more of the Corporation’s outstanding voting stock is transferred to holders different from those who held the stock immediately prior to such merger;
(c) the sale, transfer or other disposition of all or substantially all of the assets of the Corporation; or
(d) means the acquisition of fifty percent (50%) or more of the Corporation’s outstanding voting stock by a person or group of related persons other than the Corporation, a person that directly or indirectly controls, is controlled by or is under common control with the Corporation, or any existing shareholder of the Corporation as of the date of the adoption of the Plan by such shareholders.
Employee means an individual who is in the employ of the Corporation or one or more Parent or Subsidiary corporations. An optionee shall be considered to be an Employee for so long as such individual remains in the employ of the Corporation or one or more Parent or Subsidiary corporations, subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance.
Exercise Date shall be the date on which written notice of the exercise of an outstanding option under the Plan is delivered to the Corporation. Such exercise shall be effected pursuant to a stock purchase agreement incorporating any repurchase rights or first refusal rights retained by the Corporation with respect to the Common Stock purchased under the option.
Fair Market Value of a share of Common Stock on any relevant date shall be determined in accordance with the following provisions:
(a) If the Common Stock is at the time neither listed nor admitted to trading on any stock exchange nor traded in the over-the-counter market, or if the Plan Administrator determines that the valuation provisions of subsections (b) and (c) below will not result in a true and accurate valuation of the Common Stock, then the Fair Market Value shall be determined by the Plan Administrator after taking into account such factors as the Plan Administrator shall deem appropriate under the circumstances.
(b) If the Common Stock is not at the time listed or admitted to trading on any stock exchange but is traded in the over-the-counter market, the Fair Market Value shall be the mean between the highest bid and the lowest asked prices (or if such information is available the closing selling price) per share of Common Stock on the date in question in the over-the-counter market, as such prices are reported by the National Association of Securities Dealers through its NASDAQ National Market System or any successor system. If there are no reported bid and asked prices (or closing selling price) for the Common Stock on the date in question, then the mean between the highest bid and lowest asked prices (or closing selling price) on the last preceding date for which such quotations exist shall be determinative of Fair Market Value.
(c) If the Common Stock is at the time listed or admitted to trading on any stock exchange, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question on the stock exchange determined by the Plan Administrator to be the primary market for the Common Stock. If there is no reported sale of Common Stock on such exchange on the date in question, then the Fair Market Value shall be the closing selling price on the exchange on the last preceding date for which such quotation exists.
Incentive Option means an incentive stock option that satisfies the requirements of Section 422 of the Code.
Non-Statutory Option means an option not intended to meet the statutory requirements prescribed for an Incentive Option.
Parent corporation means any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation, provided each such corporation in the unbroken chain (other than the Corporation) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
Permanent Disability means the inability of an individual to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expect to result in death or which has lasted or can be expected to last for a continuous period of not less than twelve (12) months.
Plan means this [Date] Stock Option/Stock Issuance Plan.
Plan Administrator means the Board or a committee thereof, to the extent such committee is responsible for plan administration in accordance with Article I, Section 3.
Service means the performance of services for the Corporation or one or more Parent or Subsidiary corporations by an individual in the capacity of an Employee, a non-employee member of the board of directors or an independent consultant or advisor, unless a different meaning is specified in the option agreement evidencing the option grant, the purchase agreement evidencing the purchased option shares or the issuance agreement evidencing any direct stock issuance. An optionee shall be deemed to remain in Service for so long as such individual renders services to the Corporation or any Parent or Subsidiary corporation on a periodic basis in the capacity of an Employee, a non-employee member of the board of directors or an independent consultant or advisor.
Subsidiary corporation means each corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation, provided each such corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
Ten Percent Shareholder means the owner of stock (as determined under Section 424(d) of the Code) possessing ten percent (10%) or more of the total combined voting power of all classes of stock of the Corporation or any Parent or Subsidiary corporation.
ARTICLE II
OPTION GRANT PROGRAM
1. Terms and Conditions of Options
Options granted pursuant to the Plan shall be authorized by action of the Plan Administrator and, at the discretion of the Plan Administrator, may be either Incentive Options or Non-Statutory Options. Each granted option shall be evidenced by one or more instruments in the form approved by the Plan Administrator; provided, that each such instrument shall comply with and incorporate the terms and conditions specified below. In addition, each instrument evidencing an Incentive Option shall be subject to the applicable provisions of Section 2 of this Article II.
(a) Option Price.
(1) The option price per share shall be fixed by the Plan Administrator.
(2) The option price shall become immediately due upon exercise of the option, and subject to the provisions of Article IV, Section 2, shall be payable in cash or check drawn to the Corporation’s order. Should the Corporation’s outstanding Common Stock be registered under Section 12(g) of the 1934 Act at the time the option is exercised, then the option price may also be paid as follows:
(A) in shares of Common Stock held by the optionee for the requisite period necessary to avoid a charge to the Corporation’s earnings for financial reporting purposes and valued at Fair Market Value on the Exercise Date; or
(B) through a special sale and remittance procedure pursuant to which the Optionee is to (i) provide irrevocable written instructions to a designated brokerage firm to effect the immediate sale of the purchased shares and remit to the Corporation, out of the sale proceeds, an amount sufficient to cover the aggregate option price payable for the purchased shares plus all applicable Federal and State income and employment taxes required to be withheld by the Corporation by reason of such purchase and (ii) concurrently provide written directives to the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm in order to effect the sale transaction.
(b) Term and Exercise of Options. Each option granted under the Plan shall be exercisable at such time or times, during such period, and for such number of shares as shall be determined by the Plan Administrator and set forth in the notice of grant and stock option agreement evidencing such option. No option granted under the Plan, however, shall have a term in excess of ten (10) years from the grant date. During the lifetime of the Optionee, the option shall be exercisable only by the Optionee and shall not be assignable or transferable by the Optionee otherwise than by will or by the laws of descent and distribution following the Optionee’s death.
(c) Termination of Service.
(1) Should the Optionee cease to remain in Service for any reason (including death or Permanent Disability) while holding one or more outstanding options under the Plan, then except to the extent otherwise provided pursuant to Section 5 of this Article II, each such option shall remain exercisable for the limited period of time (not to exceed twelve (12) months after the date of such cessation of Service) specified by the Plan Administrator in the option agreement. In no event, however, shall any such option be exercisable after the specified expiration date of the option term. During such limited period of exercisability, the option may not be exercised for more than that number of shares (if any) for which such option is exercisable on the date of the Optionee’s cessation of Service. Upon the expiration of such period or (if earlier) upon the expiration of the option term, the option shall terminate and cease to be exercisable.
(2) Any option granted to an Optionee under the Plan and exercisable in whole or in part on the date of the Optionee’s death may be subsequently exercised by the personal representative of the Optionee’s estate or by the person or persons to whom the option is transferred pursuant to the Optionee’s will or in accordance with the laws of descent and distribution. The maximum number of shares for which such option may be exercised shall be limited to the number of shares (if any) for which the option is exercisable on the date of the Optionee’s cessation of Service. Any such exercise of the option must be effected prior to the earlier of the first anniversary of the date of the Optionee’s death or the specified expiration date of the option term. Upon the occurrence of either such event, the option shall terminate and cease to be exercisable.
(3) Notwithstanding subsections (1) and (2) above, the Plan Administrator shall have discretion, exercisable either at the time the option is granted or at the time the Optionee ceases Service, to allow one or more outstanding options held by the Optionee to be exercised, during the limited period of exercisability following the Optionee’s cessation of Service, not only with respect to the number of shares for which the option is exercisable at the time of the Optionee’s cessation of Service but also with respect to one or more subsequent installments of purchasable shares for which the option otherwise would have become exercisable had such cessation of Service not occurred.
(4) Notwithstanding any provision of this Article II or any other provision of this Plan to the contrary, any options granted under this Plan shall terminate as of the date the Optionee ceases to be in the Service of the Corporation if the Optionee was terminated for “cause” or could have been terminated for “cause.” If the Optionee has an employment or consulting agreement with the Corporation, the term “cause” shall have the meaning given that term in such employment or consulting agreement. If the Optionee does not have an employment or consulting agreement with the Corporation, or if such agreement does not define the term “cause,” the term “cause” shall mean: (A) misconduct or dishonesty that materially adversely affects the Corporation, including without limitation (i) an act materially in conflict with the financial interests of the Corporation, (ii) an act that could substantially damage the reputation or customer relations of the Corporation, (iii) an act that could subject the Corporation to material liability, (iv) an act constituting sexual harassment or other violation of the civil rights of coworkers, (v) failure to obey any lawful instruction of the Board or any officer of the Corporation, and (vi) failure to comply with, or perform any duty required under, the terms of any confidentiality, inventions or non-competition agreement the Optionee may have with the Corporation, or (B) acts constituting the unauthorized disclosure of any of the trade secrets or confidential information of the Corporation, unfair competition with the Corporation or the inducement of any customer of the Corporation to breach any contract with the Corporation. The right to exercise any option shall be suspended automatically during the pendency of any investigation by the Board or its designee, and/or any negotiations by the Board or its designee and the Optionee, regarding any actual or alleged act or omission by the Optionee of the type described in this section.
(d) Shareholder Rights. An Optionee shall have none of the rights of a shareholder with respect to any shares covered by the option until such Optionee shall have exercised the option and paid the option price.
(e) Repurchase Rights. The shares of Common Stock issued under the Plan shall be subject to certain repurchase rights of the Corporation in accordance with the following provisions:
(1) (A) The Plan Administrator shall have the discretion to authorize the issuance of unvested shares of Common Stock under the Plan. Should the optionee cease Service or should the Corporation consummate a Corporate Transaction while the optionee is holding such unvested shares, the Corporation shall have the right to repurchase, at the option price paid per share, all or (at the discretion of the Corporation and with the consent of the Optionee) any portion of such shares. The terms and conditions upon which such repurchase right shall be exercisable (including the period and procedure for exercise and the appropriate vesting schedule for the purchased shares) shall be established by the Plan Administrator and set forth in an instrument evidencing such right.
(B) The repurchase right shall be assignable to any person or entity selected by the Corporation, including one or more of the Corporation’s shareholders. If the selected assignee is other than a Parent or Subsidiary corporation, however, then the assignee must make a cash payment to the Corporation, upon the assignment of the repurchase right, in an amount equal to the amount by which the aggregate Fair Market Value of the unvested shares at the time subject to the assigned right exceeds the aggregate repurchase price payable for such unvested shares.
(C) Upon the occurrence of a Corporate Transaction, the Plan Administrator may, at its sole discretion, (i) terminate all or any outstanding repurchase rights under the Plan and thereby cause the shares subject to such rights to vest immediately in full, (ii) arrange for all or any of the repurchase rights to be assigned to the successor corporation (or parent thereof) in connection with the Corporate Transaction, or (iii) exercise the Corporation’s right to repurchase any unvested shares contemporaneously with the consummation of the Corporate Transaction on the terms provided in the instrument pursuant to which such unvested shares were issued.
(2) Until such time as the Corporation’s outstanding shares of Common Stock are first registered under Section 12(g) of the 1934 Act, the Corporation shall have a right of first refusal with respect to any proposed sale or other disposition by the Optionee (or any successor in interest by reason of purchase, gift or other mode of transfer) of any shares of Common Stock issued under the Plan. Such right of first refusal shall be exercisable by the Corporation (or its assignees) in accordance with the terms and conditions established by the Plan Administrator and set forth in the instrument evidencing such right.
2. Incentive Options
The terms and conditions specified below shall be applicable to all Incentive Options granted under the Plan. Incentive Options may be granted only to individuals who are Employees. Options that are specifically designated as Non-Statutory Options when issued under the Plan shall not be subject to the following terms and conditions.
(a) Option Price. The option price per share of the Common Stock subject to an Incentive Option shall in no event be less than one hundred percent (100%) of the Fair Market Value of a share of Common Stock on the grant date; provided, if the individual to whom the option is granted is at the time a Ten Percent Shareholder, then the option price per share shall not be less than one hundred ten percent (110%) of the Fair Market Value of the Common Stock on the grant date.
(b) Dollar Limitation. The aggregate Fair Market Value (determined as of the respective date or dates of grant) of the Common Stock for which one or more options granted to any Employee under this Plan (or any other option plan of the Corporation or any Parent or Subsidiary corporation) may for the first time become exercisable as incentive stock options under the Federal tax laws during any one calendar year shall not exceed the sum of one hundred thousand dollars ($100,000). To the extent the Employee holds two or more such options which become exercisable for the first time in the same calendar year, the foregoing limitation on the exercisability thereof as Incentive Options under the Federal tax laws shall be applied on the basis of the order in which such options are granted.
(c) Option Term for Ten Percent Shareholder. No option granted to a Ten Percent Shareholder shall have a term in excess of five (5) years from the grant date.
Except as modified by the preceding provisions of this Section 2, all the provisions of the Plan shall be applicable to the Incentive Options granted hereunder.
3. Corporate Transaction
(a) In connection with any Corporate Transaction, the Plan Administrator, in its sole discretion, may (i) accelerate each or any outstanding option under the Plan so that each or any such option, immediately prior to the specified effective date for such Corporate Transaction, shall become fully exercisable with respect to the total number of shares of Common Stock at the time subject to such option and may be exercised for all or any portion of such shares, (ii) where the Corporation is not the surviving entity of a Corporate Transaction, arrange for each or any outstanding option either to be assumed by the successor corporation or parent thereof or to be replaced with a comparable option to purchase shares of the capital stock of the successor corporation or parent thereof, (iii) arrange for the option to be replaced by a comparable cash incentive program of the Corporation or the successor corporation based on the option spread (the amount by which the Fair Market Value of the shares of Common Stock subject at the time to the option exceeds the option price payable for such shares), or (iv) take none of the actions described in clauses (i), (ii) or (iii) above and allow the option to terminate as provided in Section 4(b) below. The determination of comparability under clauses (ii) and (iii) above shall be made solely by the Plan Administrator, and such determination shall be final, binding and conclusive.
(b) In the event of any Corporate Transaction, each option outstanding under the Plan shall terminate upon the consummation of such Corporate Transaction and cease to be exercisable, unless the Plan Administrator takes one of the actions set forth in Section 4(a) above.
(c) If the outstanding options under the Plan are assumed by the successor corporation (or parent thereof) in a Corporate Transaction, or are otherwise to continue in effect following such Corporate Transaction, then each such assumed or continuing option, immediately after such Corporate Transaction, shall be appropriately adjusted to apply and pertain to the number and class of securities or other property that would have been issuable to the option holder, in consummation of the Corporate Transaction, had the option been exercised immediately prior to such Corporate Transaction. Appropriate adjustments shall also be made to the option price payable per share, provided the aggregate option price payable for such securities or other property shall remain the same. In addition, the number and class of securities or other property available for issuance under the Plan following the consummation of such Corporate Transaction shall be appropriately adjusted.
(d) The exercisability as incentive stock options under the Federal tax laws of any options accelerated in connection with the Change of Control or Corporate Transaction shall remain subject to the applicable dollar limitation of subsection 2(b) of this Article II.
(e) The grant of options under this Plan shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets.
4. Cancellation and New Grant of Options
The Plan Administrator shall have the authority to effect, at any time and from time to time, with the consent of the affected Optionees, the cancellation of any or all outstanding options under the Plan and to grant in substitution therefor new options under the Plan covering the same or different numbers of shares of Common Stock but having, in the case of an Incentive Option, an option price per share not less than one hundred percent (100%) of such Fair Market Value per share of Common Stock on the new grant date, or, in the case of a Ten Percent Shareholder, not less than one hundred and ten percent (110%) of such Fair Market Value.
5. Extension of Exercise Period
The Plan Administrator shall have full power and authority to extend (either at the time the option is granted or at any time that the option remains outstanding) the period of time for which the option is to remain exercisable following the Optionee’s cessation of Service, from the limited period set forth in the option agreement, to such greater period of time as the Plan Administrator may deem appropriate under the circumstances. In no event, however, shall such option be exercisable after the specified expiration date of the option term.
ARTICLE III
STOCK ISSUANCE PROGRAM
1. Terms and Conditions of Stock Issuances
Shares of Common Stock shall be issuable under the Stock Issuance Program through direct and immediate issuances without any intervening stock option grants. Each such stock issuance shall be evidenced by a Stock Issuance Agreement (“Issuance Agreement”) that complies with the terms and conditions of this Article III.
(a) Issue Price.
(1) Shares may, in the absolute discretion of the Plan Administrator, be issued for consideration with a value less than one-hundred percent (100%) of the Fair Market Value of the issued shares.
(2) Shares shall be issued under the Plan for such consideration as the Plan Administrator shall from time to time determine, provided that in no event shall shares be issued for consideration other than:
(A) cash or check payable to the Corporation,
(B) a promissory note in favor of the Corporation, which may be subject to cancellation by the Corporation in whole or in part upon such terms and conditions as the Plan Administrator shall specify, or
(C) services rendered.
(b) Vesting Schedule.
(1) In the discretion of the Plan Administrator, the interest of a Participant in the shares of Common Stock issued to such Participant under the Plan may be fully and immediately vested upon issuance or may vest in one or more installments in accordance with the vesting provisions of subsection (b)(4) below. Except as otherwise provided in subsection (b)(2), the Participant may not transfer any issued shares in which such Participant does not have a vested interest. Accordingly, all unvested shares issued under the Plan shall bear the restrictive legend specified in Article IV, Section 1, until such legend is removed in accordance with such section. Regardless of whether or not a Participant’s interest in such shares is vested, such Participant shall be entitled to exercise all the rights of a shareholder with respect to the shares of Common Stock issued to Participant hereunder, including the right to vote such shares and to receive any cash dividends or other distributions paid or made with respect to such shares. Any new, additional or different shares of stock or other property (including money paid other than as a regular cash dividend) that the holder of unvested Common Stock may have the right to receive with respect to such unvested shares by reason of a stock dividend, stock split, reclassification or other change affecting the outstanding Common Stock as a class without the Corporation’s receipt of consideration therefor shall be issued subject to (i) the same vesting requirements under subsection (b)(4) applicable to the unvested Common Stock, and (ii) such escrow arrangements as the Plan Administrator shall deem appropriate.
(2) As used in this Article III, the term “transfer” shall include (without limitation) any sale, pledge, encumbrance, gift or other disposition of such shares. A Participant shall have the right to make a gift of unvested shares acquired under the Stock Issuance Program to Participant’s spouse, parents or issue or to a trust established for such spouse, parents or issue, provided the donee of such shares delivers to the Corporation, at the time of such donee’s acquisition of the gifted shares, a written agreement to be bound by all the provisions of the Plan and the Issuance Agreement executed by the Participant.
(3) Should the Participant cease Service for any reason while Participant’s interest in the Common Stock remains unvested, then the Corporation shall have the right to repurchase, at the original purchase price paid by the Participant, all or (at the discretion of the Corporation and with the consent of the Participant) any portion of the shares in which the Participant is not at the time vested, and the Participant shall thereafter cease to have any further shareholder rights with respect to the repurchased shares, and any dividends or distributions made as set forth in subsection (b)(1) above shall be recovered by the Corporation pursuant to the applicable escrow terms.
(4) Any shares of Common Stock issued under the Stock Issuance Program that are not vested at the time of such issuance shall vest in one or more installments thereafter. The elements of the vesting schedule, specifically, the performance or service objectives to be completed or achieved, the number of installments in which the shares are to vest, the interval or intervals (if any) that are to lapse between installments and the effect that death, Permanent Disability or other event designated by the Plan Administrator is to have upon the vesting schedule, shall be determined by the Plan Administrator and specified in the Issuance Agreement.
(5) In its discretion, the Plan Administrator may elect not to exercise, in whole or in part, its repurchase rights with respect to any unvested Common Stock or other assets that would otherwise at the time be subject to repurchase pursuant to the provisions of subsection (b)(3) above. Where such election has been expressly made by the Plan Administrator, such election shall result in the immediate vesting of the Participant’s interest in the shares of Common Stock as to which the election applies.
(6) No shares of Common Stock or other assets shall be issued or delivered under this Plan unless and until, in the opinion of counsel for the Corporation (or its successor in the event of any Corporate Transaction), there shall have been compliance with all applicable requirements of Federal and state law or of any regulatory bodies having jurisdiction over such issuance and delivery, and any securities exchange on which stock of the same class is then listed.
(c) Right of First Refusal. The Plan Administrator may also in its discretion establish as a term and condition of the issuance of one or more shares of Common Stock under the Stock Issuance Program that the Corporation shall have a right of first refusal with respect to any proposed disposition by the Participant (or any successor in interest by reason of purchase, gift or other mode of transfer) of one or more shares of such Common Stock. Such right of first refusal shall be exercisable by the Corporation (or its assignees) in accordance with the terms and conditions specified in the instrument evidencing such right.
2. Corporate Transaction
Upon the occurrence of a Corporate Transaction, the Plan Administrator, in its discretion, may (i) terminate all or any outstanding repurchase rights under this Article III of the Plan and thereby cause the shares subject to such rights to vest immediately in full, (ii) arrange for all or any of the repurchase rights to be assigned to the successor corporation (or parent thereof) in connection with the Corporate Transaction or (iii) exercise the Corporation’s right to repurchase any unvested shares contemporaneously with the consummation of the Corporate Transaction if such right is provided in the Issuance Agreement pursuant to which such unvested shares were issued.
ARTICLE IV
MISCELLANEOUS
1. Stock Legends.
Each certificate representing shares of Common Stock (or other securities) issued pursuant to the Plan shall bear restrictive legends substantially as follows:
(1) “The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended, or the securities laws of any state. The shares may not be sold, offered for sale, pledged or hypothecated without (i) an effective registration statement for the shares under said Act and laws, (ii) an opinion of counsel satisfactory to the Corporation that such registration is not required with respect to such sale or offer, or (iii) the Corporation is otherwise satisfied, in its sole discretion, that such registration is not required.”
(2) “This certificate and the shares represented hereby may not be sold, assigned, transferred, encumbered, or in any manner disposed of except in conformity with the terms of written agreements between the Company and the registered holder of the shares (or the predecessor in interest to the shares). Upon written request, the Company will furnish without charge a copy of such agreements to the holder hereof.”
2. Loans
(a) The Plan Administrator, in its discretion, may assist any Optionee or Participant (including an Optionee or Participant who is an officer or director of the Corporation) in the exercise of one or more options granted to such Optionee under the Article II Option Grant Program or the purchase of one or more shares issued to such Participant under the Article III Stock Issuance Program, including the satisfaction of any Federal and state income and employment tax obligations arising therefrom, by:
(1) authorizing the extension of a loan from the Corporation to such Optionee or Participant, or
(2) permitting the Optionee or Participant to pay the option price or purchase price for the purchased Common Stock in installments over a period of years.
(b) The terms of any loan or installment method of payment (including the interest rate and terms of repayment applicable thereto) shall be established by the Plan Administrator. Loans or installment payments shall be secured by a pledge to the Corporation the purchased shares of Common Stock, but such arrangements otherwise may be made with or without other security or collateral; provided, that any loan made to a consultant or other non-employee advisor must be secured by property other than the purchased shares of Common Stock. In all events the maximum credit available to each Optionee or Participant may not exceed the sum of (i) the aggregate option price or purchase price payable for the purchased shares (less the par value of such shares rounded up to the nearest whole cent) plus (ii) any Federal and/or state income and employment tax liability incurred by the Optionee or Participant in connection with such exercise or purchase.
(c) The Plan Administrator, in its discretion, may determine that one or more loans extended under the financial assistance program shall be subject to forgiveness by the Corporation in whole or in part upon such terms and conditions as the Board deems appropriate.
3. Amendment of the Plan and Awards
(a) The Board shall have complete and exclusive power and authority to amend or modify the Plan in any or all respects whatsoever; provided, that no such amendment or modification shall adversely affect the rights and obligations of an Optionee with respect to options at the time outstanding under the Plan, nor adversely affect the rights of any Participant with respect to Common Stock issued under the Plan prior to such action, unless the Optionee or Participant consents to such amendment. In addition, the Board shall not, without the approval of the Corporation’s shareholders, amend the Plan to (i) materially increase the maximum number of shares issuable under the Plan (except for permissible adjustments under Article I, Section 5(c)), (ii) materially increase the benefits accruing to individuals who participate in the Plan, or (iii) materially modify the eligibility requirements for participation in the Plan.
(b) Options to purchase shares of Common Stock may be granted under the Option Grant Program and shares of Common Stock may be issued under the Stock Issuance Program, which in both instances are in excess of the number of shares then available for issuance under the Plan, provided any excess shares actually issued under the Option Grant Program or the Stock Issuance Program are held in escrow until the Corporation’s shareholders approve an amendment that sufficiently increases the number of shares of Common Stock available for issuance under the Plan. If such shareholder approval is not obtained within twelve (12) months after the date the initial excess stock option grants or direct stock issuances are made, then any unexercised options representing such excess shall terminate and cease to be exercisable and the Corporation shall promptly refund to the Optionees and Participants the option or purchase price paid for any excess shares issued under the Plan and held in escrow, together with interest (at the applicable Short Term Federal Rate) thereon for the period the shares were held in escrow.
4. Effective Date and Term of Plan
(a) The Plan shall become effective when adopted by the Board, but no option granted under the Plan shall become exercisable, and no shares shall be issuable under the Stock Issuance Program, unless and until the Plan shall have been approved by the Corporation’s shareholders. If such shareholder approval is not obtained within twelve (12) months after the date of the Board’s adoption of the Plan, then all options previously granted under the Plan shall terminate, and no further options shall be granted and no shares shall be issued under the Stock Issuance Program. Subject to such limitation, the Plan Administrator may grant options under the Plan at any time after the effective date and before the date fixed herein for termination of the Plan.
(b) The Plan shall terminate upon the earlier of (i) ten years after the adoption of the Plan or (ii) the date on which all shares available for issuance under the Plan have been issued or canceled pursuant to the exercise of options granted under Article II or the issuance of shares under Article III. If the date of termination is determined under clause (i) above, then no options outstanding on such date under Article II and no shares issued and outstanding on such date under Article III shall be affected by the termination of the Plan, and such securities shall thereafter continue to have force and effect in accordance with the provisions of the Plan and the stock option agreements evidencing such Article II options and the stock purchase agreements evidencing the issuance of such Article III shares.
5. Use of Proceeds
Any cash proceeds received by the Corporation from the issuance of shares of Common Stock under the Plan shall be used for general corporate purposes.
6. Withholding
The Corporation’s obligation to deliver shares upon the exercise of any options granted under Article II or upon the purchase of any shares issued under Article III shall be subject to the satisfaction of all applicable Federal, state and local income and employment tax withholding requirements.
7. Regulatory Approvals
The implementation of the Plan, the granting of any options under the Option Grant Program, the issuance of any shares under the Stock Issuance Program, and the issuance of Common Stock upon the exercise of the option grants made hereunder shall be subject to the Corporation’s procurement of all approvals and permits required by regulatory authorities having jurisdiction over the Plan, the options granted under it, and the Common Stock issued pursuant to it.
Exhibit B to the Notice of Grant of Stock Option
[Company], Inc.
STOCK OPTION AGREEMENT
Unless the context clearly indicates otherwise, capitalized terms used in this Agreement shall have the meanings assigned to such terms in Section 21 of this Agreement.
Whereas, the Board of Directors of the Company has adopted the Plan for the purpose of attracting and retaining the services of selected key employees (including officers and directors), non-employee members of the Board and consultants and other independent contractors who contribute to the financial success of the Company; and
Whereas, Optionee is an individual who is to render valuable services to the Company, and this Agreement is executed pursuant to, and is intended to carry out the purposes of, the Plan in connection with the Company’s grant of a stock option to Optionee;
Now, Therefore, it is agreed as follows:
1. Provisions of Plan Binding. This Agreement and the option evidenced hereby are made and granted pursuant to the Plan and are in all respects limited by and subject to the express terms and provisions of the Plan, which are incorporated herein by reference.
2. Grant of Option. Subject to and upon the terms and conditions set forth in this Agreement and the Plan, the Company hereby grants to Optionee, as of the Grant Date, a stock option to purchase up to that number of Option Shares specified in the Grant Notice. The Option Shares shall be purchasable from time to time during the option term and at the Option Price per share specified in the Grant Notice.
3. Option Term. This Option shall expire at the close of business on the Expiration Date specified in the Grant Notice, unless sooner terminated in accordance with Section 6 or 18 hereof or any applicable provision of the Plan; provided, in no event shall this option have a maximum term in excess of ten (10) years measured from the Grant Date.
4. Nontransferability. This option shall be neither transferable nor assignable by Optionee other than by will or by the laws of descent and distribution following the Optionee’s death and may be exercised, during Optionee’s lifetime, only by Optionee.
5. Dates of Exercise. This option may not be exercised in whole or in part at any time prior to the time the Plan is approved by the Company’s shareholders in accordance with Section 18 hereof. Provided such shareholder approval is obtained, this option shall thereupon become exercisable for the Option Shares as specified in the Grant Notice. If the option becomes exercisable in installments, such installments shall accumulate and the option shall remain exercisable for such installments until the Expiration Date or the sooner termination of the option term under Section 6 of this Agreement or any applicable provision of the Plan.
6. Accelerated Termination of Option Term. The option term specified in Section 3 above shall terminate (and this option shall cease to be exercisable) prior to the Expiration Date should any of the following provisions become applicable:
(a) Except as otherwise provided in subsection (b) or (c) below, should Optionee cease to remain in Service while this option is outstanding, then the period for exercising this option shall be reduced to a three (3)-month period commencing with the date of such cessation of Service, but in no event shall this option be exercisable at any time after the Expiration Date. Upon the expiration of such three (3)-month period or (if earlier) upon the Expiration Date, this option shall terminate and cease to be outstanding.
(b) Should Optionee die while this option is outstanding, then the personal representative of the Optionee’s estate or the person or persons to whom the option is transferred pursuant to the Optionee’s will or in accordance with the law of descent and distribution shall have the right to exercise this option. Such right shall lapse, and this option shall cease to be exercisable, upon the earlier of (i) the expiration of the twelve (12) month period measured from the date of Optionee’s death or (ii) the Expiration Date. Upon the expiration of such twelve (12) month period or (if earlier) upon the Expiration Date, this option shall terminate and cease to be outstanding.
(c) Should Optionee become Permanently Disabled and cease by reason thereof to remain in Service while this option is outstanding, then the Optionee shall have a period of twelve (12) months (commencing with the date of such cessation of Service) during which to exercise this option, but in no event shall this option be exercisable at any time after the Expiration Date. Upon the expiration of such limited period of exercisability or (if earlier) upon the Expiration Date, this option shall terminate and cease to be outstanding.
(d) During the limited period of exercisability applicable under subsections (a), (b) or (c) above, this option may be exercised for any or all of the Option Shares in which the Optionee, at the time of cessation of Service, is vested in accordance with the exercise/vesting provisions specified in the Grant Notice or the special acceleration provisions of the Plan.
(e) Notwithstanding any provision of this Section 6 or any other provision of this Agreement or the Plan to the contrary, any options granted under the Plan shall terminate as of the date Optionee ceases to be in the Service of the Company if Optionee was terminated for “cause” or could have been terminated for “cause.” If Optionee has an employment or consulting agreement with the Company, the term “cause” shall have the meaning given that term in the employment or consulting agreement. If Optionee does not have such an agreement with the Company, or if such agreement does not define the term “cause,” the term “cause” shall have the meaning set forth in Article II, Section 1(c)(4) of the Plan.
1. Adjustment in Option Shares.
(a) In the event any change is made to the Company’s outstanding Common Stock by reason of any stock split, stock dividend, combination of shares, exchange of shares, or other change affecting the outstanding Common Stock as a class without receipt of consideration, then appropriate adjustments shall be made to the total number of Option Shares subject to this option and the Option Price payable per share in order to reflect such change and thereby preclude a dilution or enlargement of benefits hereunder.
(b) If pursuant to the terms of the Plan, this option is to be assumed or is otherwise to remain outstanding after a Corporate Transaction, then this option shall be appropriately adjusted to apply and pertain to the number and class of securities that would have been issuable to the Optionee in the consummation of such Corporate Transaction had the option been exercised immediately prior to such Corporate Transaction, and appropriate adjustments shall also be made to the Option Price payable per share, provided the aggregate Option Price payable hereunder shall remain the same.
2. Privilege of Stock Ownership. The holder of this option shall not have any of the rights of a shareholder with respect to the Option Shares until such individual shall have exercised the option and paid the Option Price.
3. Manner of Exercising Option.
(a) In order to exercise this option with respect to all or any part of the Option Shares for which this option is at the time exercisable, the Optionee (or other person authorized to exercise this option) must take the following actions:
(1) Execute and deliver to the Secretary of the Company the Purchase Agreement;
(2) Pay the aggregate Option Price for the purchased shares either by full payment in cash or check, or any other form approved by the Plan Administrator at the time of exercise in accordance with the provisions of Section 15.
(3) Furnish to the Company appropriate documentation that the person or persons exercising the option (if other than Optionee) have the right to exercise this option.
(b) Should the Company’s outstanding common stock be registered under Section 12(g) of the Securities Exchange Act of 1934, as amended (the “1934 Act”), at the time the option is exercised, then the Option Price may also be paid as specified in Article II, Section 1(a)(2) of the Plan.
(c) Except to the extent otherwise expressly permitted herein or in the Plan (and as appropriate, in the discretion of the Plan Administrator), payment of the Option Price must accompany the delivery of the Purchase Agreement. As soon after such payment as practical, the Company shall mail or deliver to Optionee (or to the other person or persons exercising this option) a certificate or certificates representing the shares so purchased and paid for, with the appropriate legends affixed thereto.
(d) In no event may this option be exercised for any fractional shares.
4. RIGHTS OF FIRST REFUSAL/REPURCHASE RIGHTS. THE OPTIONEE HEREBY AGREES THAT ALL OPTION SHARES ACQUIRED UPON THE EXERCISE OF THIS OPTION SHALL BE SUBJECT TO CERTAIN RIGHTS OF FIRST REFUSAL OF THE COMPANY AND ITS ASSIGNS IN CONNECTION WITH ANY PROPOSED TRANSFER OF ANY SUCH SHARES IN ACCORDANCE WITH THE TERMS AND CONDITIONS SPECIFIED IN THE [Date] STOCK OPTION/STOCK ISSUANCE PLAN AND THE STOCK PURCHASE AGREEMENT.
ADDITIONALLY, THE GRANT NOTICE MAY GRANT THE COMPANY THE RIGHT TO REPURCHASE ANY SHARES ACQUIRED UNDER THIS OPTION, WHICH RIGHT SHALL LAPSE OVER TIME BASED UPON THE OPTIONEE’S LENGTH OF SERVICE TO THE COMPANY.
5. Compliance with Laws and Regulations.
(a) The exercise of this option and the issuance of Option Shares upon such exercise shall be subject to compliance by the Company and the Optionee with all applicable requirements of Federal and state law relating thereto (and with all applicable regulations of any stock exchange on which shares of the Company’s Common Stock may be listed at the time of such exercise and issuance).
(b) In connection with the exercise of this option, Optionee shall execute and deliver to the Company such representations in writing as may be requested by the Company in order for it to comply with the applicable requirements of Federal and state securities laws.
6. Successors and Assigns. Except to the extent otherwise provided in Section 4 above, the provisions of this Agreement shall inure to the benefit of, and be binding upon, the successors, administrators, heirs, legal representatives and assigns of Optionee and the successors and assigns of the Company.
7. Liability of Company.
(a) If the Option Shares covered by this Agreement exceed, as of the Grant Date, the number of shares of Common Stock that may be issued under the Plan without shareholder approval, then this option shall be void with respect to such excess shares, unless shareholder approval of an amendment sufficiently increasing the number of shares of Common Stock issuable under the Plan is obtained in accordance with the applicable provisions of the Plan.
(b) The inability of the Company to obtain approval from any regulatory body having authority the Company deems necessary to the lawful issuance and sale of any Common Stock pursuant to this option shall relieve the Company of any liability with respect to the nonissuance or sale of the Common Stock as to which such approval shall not have been obtained. The Company shall use its best efforts to obtain all such approvals.
8. Notices. Any notice required to be given or delivered to the Company under the terms of this Agreement shall be in writing and addressed to the Company in care of the corporate secretary at its principal corporate offices. Any notice required to be given or delivered to Optionee shall be in writing and addressed to Optionee at the address indicated below Optionee’s signature line on the Grant Notice, or at such other address as the Optionee shall have furnished the Company in writing at least ten (10) days in advance of its effective date. All notices shall be deemed to have been given or delivered upon personal delivery or forty-eight hours after deposit in the U.S. mail, postage prepaid and properly addressed to the party to be notified.
9. Loans. The Plan Administrator, in its discretion and without any obligation to do so, may assist the Optionee in the exercise of this option by authorizing the extension of a loan to the Optionee from the Company or permitting the Optionee to pay the option price for the purchased Common Stock in installments over a period of years. The terms of any such loan or installment method of payment (including the interest rate, the requirements for collateral and the terms of repayment) shall be established by the Plan Administrator in its sole discretion.
10. Authority of Plan Administrator. All decisions of the Plan Administrator with respect to any question or issue arising under the Plan or this Agreement shall be conclusive and binding on all persons having an interest in this option.
11. Governing Law. The interpretation, performance and enforcement of this Agreement shall be governed by the laws of the State of [State] without resort to its choice of law rules.
12. Shareholder Approval. The grant of this option is subject to approval of the Plan by the Company’s shareholders within twelve (12) months after the adoption of the Plan by the Board. Notwithstanding any provision of this Agreement to the contrary, this option may not be exercised in whole or in part until such shareholder approval is obtained. In the event that such shareholder approval is not obtained, then this option shall terminate in its entirety and the Optionee shall have no rights to acquire any Option Shares hereunder.
13. Additional Terms Applicable to an Incentive Stock Option. In the event this option is designated an incentive stock option in the Grant Notice, the following terms and conditions shall also apply to the grant:
(a) This option shall cease to qualify for favorable tax treatment as an incentive stock option under the Federal tax laws if (and to the extent) this option is exercised for one or more Option Shares: (i) more than three (3) months after the date the Optionee ceases to be an Employee for any reason other than death or Permanent Disability or (ii) more than one (1) year after the date the Optionee ceases to be an Employee by reason of Permanent Disability.
(b) In the event this option is designated as immediately exercisable in the Grant Notice, then except in the event of a Corporate Transaction, this option shall not become exercisable in the calendar year in which granted if (and to the extent) the aggregate Fair Market Value (determined at the Grant Date) of the Common Stock for which this option would otherwise first become exercisable in such calendar year, when added to the aggregate Fair Market Value (determined as of the respective date or dates of grant) of the Common Stock for which one or more other post-1986 incentive stock options granted to the Optionee prior to the Grant Date (whether under the Plan or any other option plan of the Company or any Parent or Subsidiary corporations) first become exercisable during the same calendar year, would exceed one hundred thousand dollars ($100,000). To the extent the exercisability of this option is deferred by reason of the foregoing limitation, the deferred portion first will become exercisable in the first calendar year or years thereafter in which the one hundred thousand dollar ($100,000) limitation of this Section 19(b) would not be contravened.
(c) In the event this option is designated as an installment option in the Grant Notice, no installment under this option shall qualify for favorable tax treatment as an incentive stock option under the Federal tax laws if (and to the extent) the aggregate Fair Market Value (determined at the Grant Date) of the Common Stock for which such installment first becomes exercisable hereunder, when added to the aggregate Fair Market Value (determined as of the respective date or dates of grant) of the Common Stock for which this option or one or more other post-1986 incentive stock options granted to the Optionee prior to the Grant Date (whether under the Plan or any other option plan of the Company or any Parent or Subsidiary corporations) first become exercisable during the same calendar year, would exceed one hundred thousand dollars ($100,000).
(d) Should the exercisability of this option be accelerated upon a Corporate Transaction, then this option shall qualify for favorable tax treatment as an incentive stock option under the Federal tax laws only to the extent the aggregate Fair Market Value (determined at the Grant Date) of the Common Stock for which this option first becomes exercisable in the calendar year in which the Corporate Transaction occurs does not, when added to the aggregate Fair Market Value (determined as of the respective date or dates of grant) of the Common Stock for which this option or one or more other post-1986 incentive stock options granted to the Optionee prior to the Grant Date (whether under the Plan or any other option plan of the Company or any Parent or Subsidiary corporations) first become exercisable during the same calendar year, exceed one hundred thousand dollars ($100,000).
(e) To the extent this option should fail to qualify as an incentive stock option under the Federal tax laws, the Optionee will recognize compensation income in connection with the acquisition of one or more Option Shares hereunder, and the Optionee must make appropriate arrangements for the satisfaction of all Federal, state or local income tax withholding requirements and Federal social security employee tax requirements applicable to such compensation income.
14. Additional Terms Applicable to a Non-Statutory Stock Option. In the event this option is designated a non-statutory stock option in the Grant Notice, Optionee hereby agrees to make appropriate arrangements with the Company for the satisfaction of all Federal, state or local income tax withholding requirements and Federal social security employee tax requirements applicable to the exercise of this option.
15. Definitions. The following definitions shall apply to the respective capitalized terms used herein:
Board means the Board of Directors of [Company], Inc.
Code means the Internal Revenue Code of 1986, as amended.
Common Stock means the Common Stock of [Company], Inc.
Company means [Company], Inc., a [State] corporation.
Corporate Transaction means one or more of the following transactions: (i) a merger or consolidation in which the Company is not the surviving entity, except for a transaction the principal purpose of which is to change the state of the Company’s incorporation, (ii) the sale, transfer or other disposition of all or substantially all of the assets of the Company, (iii) any reverse merger in which the Company is the surviving entity but in which fifty percent (50%) or more of the Company’s outstanding voting stock is transferred to holders different from those who held the stock immediately prior to such merger, or (iv) the acquisition of fifty percent (50%) or more of the Company’s outstanding voting stock by a person or group of related persons other than the Company, a person that directly or indirectly controls, is controlled by or is under common control with the Company, or any existing shareholder of the Company as of the date of the adoption of the Plan by such shareholders.
Employee means an individual who is in the employ of the Company or any Parent or Subsidiary corporation. An optionee shall be considered to be an Employee for so long as such individual remains in the employ of the Company or any Parent or Subsidiary corporation, subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance.
Exercise Date shall be date on which the executed Purchase Agreement for one or more Option Shares is delivered to the Company in accordance with Section 9 of this Agreement.
Expiration Date means the date specified in the Grant Notice as the date on which the option shall terminate (unless sooner terminated under the Plan or pursuant hereto).
Fair Market Value of a share of Common Stock on any relevant date shall be determined in accordance with the following provisions:
(a) If the Common Stock is at the time neither listed nor admitted to trading on any stock exchange nor traded in the over-the-counter market, or if the Plan Administrator otherwise determines that the valuation provisions of subsections (b) and (c) below will not result in a true and accurate valuation of the Common Stock, then the Fair Market Value shall be determined by the Plan Administrator after taking into account such factors as the Plan Administrator shall deem appropriate under the circumstances.
(b) If the Common Stock is not at the time listed or admitted to trading on any stock exchange but is traded in the over-the-counter market, the Fair Market Value shall be the mean between the highest bid and the lowest asked prices (or if such information is available the closing selling price) per share of Common Stock on the date in question in the over-the-counter market, as such prices are reported by the National Association of Securities Dealers through its NASDAQ National Market System or any successor system. If there are no reported bid and asked prices (or closing selling price) for the Common Stock on the date in question, then the mean between the highest bid and lowest asked prices (or closing selling price) on the last preceding date for which such quotations exist shall be determinative of Fair Market Value.
(c) If the Common Stock is at the time listed or admitted to trading on any stock exchange, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question on the stock exchange determined by the Plan Administrator to be the primary market for the Common Stock. If there is no reported sale of Common Stock on such exchange on the date in question, then the Fair Market Value shall be the closing selling price on the exchange on the last preceding date for which such quotation exists.
Grant Date means the date specified in the Grant Notice as the date on which the option was granted to the Optionee under the Plan.
Grant Notice means the Notice of Grant of Stock Option which accompanies this Agreement.
Incentive Stock Option means an incentive stock option which satisfies the requirements of Section 422 of the Code.
Non-Statutory Stock Option means an option not intended to meet the statutory requirements prescribed for an Incentive Stock Option.
Option Shares means the total number of shares of Common Stock indicated in the Grant Notice as purchasable under this option.
Optionee means the individual identified in the Grant Notice as the person to whom this option has been granted under the Plan.
Option Price means the price indicated in the Grant Notice as the exercise price per share to be paid by the Optionee for the exercise of this option.
Parent corporation means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, provided each such corporation in the unbroken chain (other than the Company) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
Permanently Disabled or Permanent Disability means the inability of an individual to engage in any substantial gainful activity by reason of any medically-determinable physical or mental impairment that can be expected to result in death or that has lasted or can be expected to last for a continuous period of not less than 12 months.
Plan means the [Date] Stock Option/Stock Issuance Plan of the Company, in the form of Exhibit A to the Grant Notice.
Plan Administrator means either the Board or a committee of two or more Board members, to the extent such committee may at the time be responsible for plan administration.
Purchase Agreement means the stock purchase agreement, in substantially the form of Exhibit C to the Grant Notice, which is to be executed in connection with the exercise of this option for one or more Option Shares.
Service means the performance of services for the Company or any Parent or Subsidiary corporation by an individual in the capacity of an Employee, a non-employee member of the board of directors or an independent consultant or advisor. Accordingly, the Optionee shall be deemed to remain in Service for so long as such individual renders services to the Company or any Parent or Subsidiary corporation on a periodic basis in the capacity of an Employee, a non-employee member of the board of directors or an independent consultant or advisor.
Subsidiary corporation means each corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, provided each such corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
Exhibit C to Notice of Grant of Stock Option
[Company], Inc.
STOCK PURCHASE AGREEMENT
Agreement made as of this day of , , by and among the Company, (the “Optionee”), and , the Optionee’s spouse [strike through if none]. Except to the extent the context clearly indicates otherwise, each capitalized term used in this Agreement shall have the meaning assigned to such term in Section 5.
1. Exercise of Option
1.1 Exercise. Optionee hereby purchases shares of Common Stock (the “Shares”) pursuant to that certain option (the “Option”) granted Optionee on , (the “Grant Date”), to purchase up to shares of Common Stock under the Plan at an option price of $ per share (“Option Price”).
1.2 Payment. Concurrently with the delivery of this Agreement to the Corporate Secretary of the Company, Optionee (i) shall pay the Option Price for the Shares in accordance with the provisions of the Option Agreement, and (ii) shall deliver whatever additional documents may be required under the Option Agreement as a condition for exercise.
1.3 Shareholder Rights. Optionee (or any successor in interest) shall have all the rights of a shareholder (including voting and dividend rights) with respect to the Shares, subject, to the transfer restrictions of Section 3.
2. Securities Law Compliance
2.1 Exemption from Registration. The Shares have not been registered under the Securities Act and are being issued to Optionee in reliance upon the exemption from such registration provided by Rule 701 of the SEC for stock issuances under compensatory benefit plans such as the Plan. Optionee hereby acknowledges previous receipt of a copy of the documentation for such Plan, delivered at the time of the option grant, in the form of Exhibit A attached to the Grant Notice.
2.2 Restricted Securities.
2.2.1 Optionee hereby confirms that Optionee has been informed that the Shares are restricted securities under the Securities Act and may not be resold or transferred unless the Shares are first registered under the Federal securities laws or unless an exemption from such registration is available. Optionee is also aware that transactions in the Shares may also be governed by state securities laws. Accordingly, Optionee hereby acknowledges that Optionee is prepared to hold the Shares for an indefinite period and that Optionee is aware that Rule 144 of the SEC promulgated under the Securities Act is not presently available, and unless pursuant paragraph (k) of such Rule, may not become available to exempt the sale of the Shares from the registration requirements of the Securities Act.
2.2.2 Provided that Optionee is not at the time an affiliate of the Company (nor was such an affiliate during the preceding three months), Optionee may be able to sell the Shares (without registration) pursuant to paragraph (k) of Rule 144 after the Shares have been held for a period of two (2) years following the payment in cash of the Purchase Price for such Shares. Prior to attempting to undertake any sale or transfer of Shares, Optionee should consult with counsel to determine whether any such transaction will violate applicable securities laws.
2.3 Disposition of Shares. Optionee hereby agrees that Optionee shall make no disposition of the Shares (other than a Permitted Transfer under Section 3.1) unless and until:
(i) Optionee shall have notified the Company of the proposed disposition and provided a written summary of the terms and conditions of the proposed disposition;
(ii) Optionee shall have complied with all requirements of this Agreement; and
(iii) Optionee shall have provided the Company with written assurances, in form and substance satisfactory to the Company, that (a) the proposed disposition does not require registration of the Shares under the Securities Act and (b) all appropriate action necessary for compliance with any applicable exemption from registration under the Securities Act (including Rule 144) has been taken.
The Company shall not be required (i) to transfer on its books any Shares that have been sold or transferred in violation of the provisions of this Section 2 nor (ii) to treat as the owner of the Shares, or otherwise to accord voting or dividend rights to, any transferee to whom the Shares have been transferred in contravention of this Agreement.
3. Transfer Restrictions
3.1 Restriction on Transfer. Optionee shall not transfer, assign, encumber or otherwise dispose of any of the Shares in contravention of the First Refusal Right and market stand-off provisions of this Agreement. Such restrictions on transfer, however, shall not be applicable to (i) a gratuitous transfer of the Shares made to the Optionee’s spouse or issue, including adopted children, or to a trust for the exclusive benefit of the Optionee or the Optionee’s spouse or issue, provided the Optionee obtains the Company’s prior written consent to such transfer, (ii) a transfer of title to the Shares effected pursuant to the Optionee’s will or the laws of intestate succession, (iii) a transfer effected by the creation of a joint tenancy with right of survivorship or tenancy by the entirety between the Optionee and one other individual who is the spouse or lineal descendant of the Optionee, (iv) if the Optionee is a trust, the distribution of any Shares to any beneficiary under such trust, and (v) a transfer to the Company in pledge as security for any purchase-money indebtedness incurred by the Optionee in connection with the acquisition of the Shares (each of the foregoing a “Permitted Transfer”).
3.2 Transferee Obligations. Each person (other than the Company) to whom the Shares are transferred by means of a Permitted Transfer, as a condition precedent to the validity of such transfer, must acknowledge in writing to the Company that such person is bound by the provisions of this Agreement to the same extent such shares would be so subject if retained by the Optionee.
3.3 Market Stand‑Off.
3.3.1 In connection with any underwritten public offering by the Company of its equity securities pursuant to an effective registration statement filed under the Securities Act, including the Company’s initial public offering, Holder shall not sell, make any short sale of, loan, hypothecate, pledge, grant any option for the purchase of, or otherwise dispose or transfer for value or otherwise agree to engage in any of the foregoing transactions with respect to, any Shares without the prior written consent of the Company or its underwriters. Such limitations shall be in effect for such period of time from and after the effective date of the final prospectus for the offering as may be requested by the Company or such underwriters; provided, that in no event shall such period exceed one hundred eighty (180) days. The limitations of this Section 3.3 shall in all events terminate two (2) years after the effective date of the Company’s initial public offering.
3.3.2 In order to enforce the limitations of this Section 3.3, the Company may impose stop‑transfer instructions with respect to the Shares until the end of the applicable stand‑off period.
3.4 Share Adjustments. In the event of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the Company’s outstanding Common Stock effected as a class without the Company’s receipt of consideration, then any new, substituted or additional securities distributed with respect to the Shares shall be immediately subject to the provisions of this Section 3, to the same extent the Shares are at such time covered by such provisions.
4. Right of First Refusal
4.1 Grant. The Company is hereby granted the right of first refusal (the “First Refusal Right”), exercisable in connection with any proposed transfer of the Shares. For purposes of this Section 4, the term “transfer” shall include any sale, assignment, pledge, encumbrance or other disposition of the Shares intended to be made by Holder, but shall not include any Permitted Transfer.
4.2 Notice of Intended Disposition. In the event any Holder desires to accept a bona fide third‑party offer for the transfer of any or all of such shares (the Shares subject to such offer to be hereinafter called the “Target Shares”), Holder shall promptly deliver to the Secretary of the Company written notice (the “Disposition Notice”) of the terms and conditions of the offer, including the purchase price and the identity of the third‑party offeror, and shall provide satisfactory proof that the disposition of the Target Shares to such third‑party offeror would not be in contravention of the provisions set forth in Sections 2 and 3.
4.3 Exercise of Right. The Company (or its assignees), for a period of thirty (30) days following receipt of the Disposition Notice, shall have the right to repurchase any or all of the Target Shares subject to the Disposition Notice upon the same terms and conditions as those specified therein or upon such other terms and conditions (not materially different from those specified in the Disposition Notice) to which Holder and the Company consent. Such right shall be exercisable by delivery of written notice (the “Exercise Notice”) to Holder prior to the expiration of the thirty (30) day exercise period. If such right is exercised with respect to all the Target Shares, then the Company (or its assignees) shall effect the repurchase of such shares, including payment of the purchase price, not more than five (5) business days after delivery of the Exercise Notice; at such time Holder shall deliver to the Company the certificates representing the Target Shares to be repurchased, each certificate to be properly endorsed for transfer.
Should the purchase price specified in the Disposition Notice be payable in property other than cash or evidences of indebtedness, the Company (or its assignees) shall have the right to pay the purchase price in the form of cash equal in amount to the value of such property. If Holder and the Company (or its assignees) cannot agree on such cash value within thirty (30) days after the Company’s receipt of the Disposition Notice, the valuation shall be made by an appraiser of recognized standing selected by Holder and the Company (or its assignees) or, if they cannot agree on an appraiser within forty (40) days after the Company’s receipt of the Disposition Notice, each shall select an appraiser of recognized standing and the two appraisers shall designate a third appraiser of recognized standing, whose appraisal shall be determinative of such value. The cost of such appraisal shall be shared equally by Holder and the Company. The period during which the Company may exercise the First Refusal Right shall be extended through fifth day following a determination of the cash valuation in accordance with the foregoing. The closing shall then be held on the later of the fifth business day following delivery of the Exercise Notice or the fifth business day after such cash valuation shall have been made.
4.4 Non‑Exercise of Right. In the event the Exercise Notice is not given to Holder within the time period specified in Section 4.3, Holder shall have a period of thirty (30) days thereafter in which to sell or otherwise dispose of the Target Shares to the third‑party offeror identified in the Disposition Notice upon terms and conditions (including the purchase price) no more favorable to such third‑party offeror than those specified in the Disposition Notice; provided, that any such sale or disposition must not be effected in contravention of the provisions of Section 2. The third‑party offeror shall acquire the Target Shares free and clear of the First Refusal Right hereunder, but the acquired shares shall remain subject to the securities law restrictions of Section 2.2 and the market stand‑off provisions of Section 3.3. In the event Holder does not effect such sale or disposition of the Target Shares within the specified thirty (30) day period, the First Refusal Right shall continue to be applicable to any subsequent disposition of the Target Shares by Holder until such right lapses in accordance with Section 4.7.
4.5 Partial Exercise of Right. In the event the Company (or its assignees) makes a timely exercise of the First Refusal Right with respect to a portion, but not all, of the Target Shares specified in the Disposition Notice, Holder shall have the option, exercisable by written notice to the Company delivered within five (5) days after Holder’s receipt of the Exercise Notice, to effect the sale of the Target Shares pursuant to either of the following alternatives:
(i) sale or other disposition of all the Target Shares to the third‑party offeror identified in the Disposition Notice, but in full compliance with the requirements of Section 4.4, as if the Company did not exercise the First Refusal Right hereunder; or
(ii) sale to the Company (or its assignees) of the portion of the Target Shares that the Company (or its assignees) has elected to purchase, such sale to be effected in substantial conformity with the provisions of Section 4.3.
Failure of Holder to deliver timely notification to the Company under this Section 4.5 shall be deemed to be an election by Holder to sell the Target Shares pursuant to alternative (i) above.
4.6 Recapitalization/Reorganization.
4.6.1 In the event of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other transaction affecting the outstanding Common Stock as a class effected without the Company’s receipt of consideration, any new, substituted or additional securities or other property that is by reason of such transaction distributed with respect to the Shares shall be immediately subject to the First Refusal Right hereunder, but only to the extent the Shares are at the time covered by such right.
4.6.2 In the event of any form of corporate reorganization, the First Refusal Right shall remain in full force and effect and shall apply to the new capital stock or other property received in exchange for the Shares in consummation of the reorganization, but only to the extent the Shares are at the time covered by such right.
4.7 Lapse. The First Refusal Right under this Section 4 shall lapse and cease to have effect upon the earliest to occur of (i) the first date on which shares of the Common Stock are held of record by more than five hundred (500) persons, (ii) a determination is made by the Board that a public market exists for the outstanding shares of Common Stock or (iii) a firm commitment underwritten public offering, pursuant to an effective registration statement under the Securities Act, covering the offer and sale of the Common Stock in the aggregate amount of at least ten million dollars ($10,000,000). The market stand‑off provisions of Section 3.3 shall continue to remain in full force and effect following the lapse of the First Refusal Right hereunder.
5. Definitions
The following definitions shall apply to the respective capitalized terms used herein:
Common Stock means the common stock of [Company], Inc.
Company means [Company], Inc., a [State] corporation.
Corporate Transaction means any of the following transactions:
(a) a merger or consolidation in which the Company is not the surviving entity, except for a transaction the principal purpose of which is to change the state of the Company’s incorporation;
(b) any reverse merger in which the Company is the surviving entity but in which fifty percent (50%) or more of the Company’s outstanding voting stock is transferred to holders different from those who held the stock immediately prior to such merger;
(c) the sale, transfer or other disposition of all or substantially all of the assets of the Company; or
(d) the acquisition of fifty percent (50%) or more of the Company outstanding voting stock by a person or group of related persons other than the Company, a person that directly or indirectly controls, is controlled by or is under common control with the Company, or any existing shareholder of the Company as of the date of the adoption of the Plan by such shareholders.
Exchange Act means the Securities Exchange Act of 1934, as amended.
First Refusal Right means the right of first refusal granted the Company in Section 4 of this Agreement.
Grant Notice means the Notice of Grant of Stock Option that specifies the principal terms of the Option and to which a copy of this Agreement was attached as Exhibit C.
Holder means the Optionee and all subsequent holders of the Shares who derive their chain of ownership through a Permitted Transfer from the Optionee.
Option Agreement means the agreement between the Company and Optionee that evidences the Option. A copy of such agreement was attached as Exhibit B to the Grant Notice.
Optionee means the individual to whom the Option was issued under the Plan.
Parent corporation means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, provided each such corporation in the unbroken chain (other than the Company) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
Permitted Transfer shall have the meaning specified in Section 3.1.
Plan means the [Date] Stock Option/Stock Issuance Plan of the Company in the form attached as Exhibit A to the Grant Notice.
SEC means the United States Securities and Exchange Commission.
Securities Act means the Securities Act of 1933, as amended.
Service shall mean the performance of services for the Company or any Parent or Subsidiary corporation by an individual in the capacity of an employee, a non-employee member of the board of directors or an independent consultant or advisor. The Optionee shall be deemed to remain in Service for so long as such individual renders services to the Company or any Parent or Subsidiary corporation on a periodic basis in the capacity of an employee, a non-employee member of the board of directors or an independent consultant or advisor.
Subsidiary corporation means each corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, provided each such corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
Target Shares means any shares of the Corporation’s stock subject to the First Refusal Right under Section 4 and as to which a third party has offered to purchase such shares from a Holder thereof.
6. Miscellaneous
6.1 Restrictive Legends. In order to reflect the restrictions on disposition of the Shares, the stock certificates for the Shares will be endorsed with restrictive legends, including one or more legends substantially similar to the following:
(a) “The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended. The shares may not be sold or offered for sale in the absence of (i) an effective registration statement for the shares under such Act, (ii) a ‘no action’ letter of the Securities and Exchange Commission with respect to such sale or offer, or (iii) assurances satisfactory to the Company that registration under such Act is not required with respect to such sale or offer.”
(b) “This certificate and the shares represented hereby may not be sold, assigned, transferred, encumbered, or in any manner disposed of except in conformity with the terms of written agreements, between the Company and the registered holder of the shares (or the predecessor in interest to the shares). The Company will upon written request and without charge furnish copies of such agreements to the holder hereof.”
6.2 No Employment or Service Contract. Nothing in this Agreement or in the Plan shall confer upon the Optionee any right to continue in the Service of the Company for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Company or the Optionee, which rights are hereby expressly reserved by each, to terminate the Optionee’s Service at any time for any reason whatsoever, with or without cause.
6.3 Notices. Any notice required hereunder shall be given in writing and shall be deemed effective upon personal delivery or forty-eight hours following deposit in the United States mail, registered or certified, postage prepaid and addressed to the party entitled to such notice at the address indicated below such party’s signature line on this Agreement or at such other address as such party may designate by ten (10) days advance written notice under this Section 6.3 to all other parties to this Agreement, or upon confirmed facsimile or electronic mail.
6.4 Further Assurances. Optionee hereby agrees to take whatever additional action and execute whatever additional documents the Company may in its judgment deem necessary or advisable in order to carry out or effect one or more of the obligations or restrictions imposed on either the Optionee or the Shares pursuant to the express provisions of this Agreement.
6.5 Entire Agreement. This Agreement, together with the Plan, the Grant Notice and the Option Agreement, constitutes the entire contract between the parties hereto with regard to the subject matter hereof. This Agreement is made pursuant to the provisions of the foregoing documents and shall in all respects be governed by and construed in conformity with the express terms and provisions of such documents.
6.6 No Waiver. The failure of the Company (or its assignees) in any instance to exercise the First Refusal Right granted under Section 4 shall not constitute a waiver of any other rights that may subsequently arise under the provisions of this Agreement or any other agreement between the Company and the Optionee or the Optionee’s spouse. No waiver of any breach or condition of this Agreement shall be deemed to be a waiver of any other or subsequent breach or condition, whether of like or different nature.
6.7 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of [State], as such laws are applied to contracts entered into and performed in such state without resort to that state’s conflict-of-laws rules.
6.8 Successors and Assigns. The provisions of this Agreement shall inure to the benefit of, and be binding upon, the Company and its successors and assigns and the Optionee and the Optionee’s legal representatives, heirs, legatees, distributees, assigns and transferees by operation of law, whether or not any such person shall have become a party to this Agreement and have agreed in writing to join herein and be bound by the terms and conditions hereof.
6.9 Power of Attorney. Optionee’s spouse hereby appoints Optionee his or her true and lawful attorney in fact, for Optionee and in his or her name, place and stead, and for Optionee’s use and benefit, to agree to any amendment or modification of this Agreement and to execute such further instruments and take such further actions as may reasonably be necessary to carry out the intent of this Agreement. Optionee’s spouse further gives and grants unto Optionee as his or her attorney in fact full power and authority to do and perform every act necessary and proper to be done in the exercise of any of the foregoing powers as fully as he or she might or could do if personally present, with full power of substitution and revocation, hereby ratifying and confirming all that Optionee shall lawfully do and cause to be done by virtue of this power of attorney.
6.10 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument.
[Signatures appear on following page]
In Witness Whereof, the parties have executed this Agreement on the day and year first indicated above.
[Company], Inc.
By:_____________________ Its:_____________________
Address:_________________ __________________
______________________
Optionee
Address:_____________________ _____________________
The undersigned spouse of Optionee has read and hereby approves the foregoing Stock Purchase Agreement. In consideration of the Company’s granting the Optionee the right to acquire the Shares in accordance with the terms of such Agreement, the undersigned hereby agrees to be irrevocably bound by all the terms and provisions of such Agreement, including without limitation the right of the Company (or its assignees) to purchase any and all interest or right the undersigned may otherwise have or acquire in such shares pursuant to community property laws or marital property rights.
_______________________
Optionee’s Spouse
Address:__________________ __________________
Exhibit C to Notice of Grant of Stock Option
[Company], Inc.
STOCK PURCHASE AGREEMENT (repurchase right)
Agreement made as of this day of , , by and among the Company, (the “Optionee”), and , the Optionee’s spouse [strike through if none]. Except to the extent the context clearly indicates otherwise, each capitalized term used in this Agreement shall have the meaning assigned to such term in Section 8.
1. Exercise of Option
1.1 Exercise. Optionee hereby purchases shares of Common Stock (the “Shares”) pursuant to that certain option (the “Option”) granted Optionee on , (the “Grant Date”), to purchase up to shares of Common Stock under the Plan at an option price of $ per share (the “Option Price”).
1.2 Payment. Concurrently with the delivery of this Agreement to the Secretary of the Company, Optionee shall (i) pay the Option Price for the Shares in accordance with the provisions of the Option Agreement, and (ii) deliver whatever additional documents may be required by the Option Agreement as a condition for exercise, together with a duly-executed blank Assignment Separate from Certificate (in the form attached hereto as Exhibit 1.2) with respect to the unvested Shares.
1.3 Delivery of Certificates. The certificates representing the Shares hereunder shall be held in escrow by the Secretary of the Company in accordance with the provisions of Section 6.
1.4 Shareholder Rights. Until such time as the Company actually exercises its Repurchase Right under this Agreement, Optionee (or any successor in interest) shall have all the rights of a shareholder (including voting and dividend rights) with respect to the Shares, including the Shares held in escrow under Section 6, subject, to the transfer restrictions of Section 4.
2. Securities Law Compliance
2.1 Exemption from Registration. The Shares have not been registered under the Securities Act and are being issued to Optionee in reliance upon the exemption from such registration provided by Rule 701 of the SEC for stock issuances under compensatory benefit plans such as the Plan. Optionee hereby acknowledges previous receipt of a copy of the documentation for such Plan, delivered at the time of the option grant, in the form of Exhibit A attached to the Grant Notice.
2.2 Restricted Securities.
2.2.1 Optionee hereby confirms that Optionee has been informed that the Shares are restricted securities under the Securities Act and may not be resold or transferred unless the Shares are first registered under the Federal securities laws or unless an exemption from such registration is available. Optionee is also aware that transactions in the Shares may also be governed by state securities laws. Accordingly, Optionee hereby acknowledges that Optionee is prepared to hold the Shares for an indefinite period and that Optionee is aware that Rule 144 of the SEC promulgated under the Securities Act is not presently available, and unless pursuant paragraph (k) of such Rule, may not become available to exempt the sale of the Shares from the registration requirements of the Securities Act.
2.2.2 Provided that Optionee is not at the time an affiliate of the Company (nor was such an affiliate during the preceding three months), Optionee may be able to sell the Shares (without registration) pursuant to paragraph (k) of Rule 144 after the Shares have been held for a period of two (2) years following the payment in cash of the Purchase Price for such Shares. Prior to attempting to undertake any sale or transfer of Shares, Optionee should consult with counsel to determine whether any such transaction will violate applicable securities laws.
2.3 Disposition of Shares. Optionee hereby agrees that Optionee shall make no disposition of the Shares (other than a Permitted Transfer under Section 4.1) unless and until:
(i) Optionee shall have notified the Company of the proposed disposition and provided a written summary of the terms and conditions of the proposed disposition;
(ii) Optionee shall have complied with all requirements of this Agreement applicable to the disposition of the Shares; and
(iii) Optionee shall have provided the Company with written assurances, in form and substance satisfactory to the Company, that (a) the proposed disposition does not require registration of the Shares under the Securities Act and (b) all appropriate action necessary for compliance with the registration requirements of the Securities Act or of any exemption from registration available under the Securities Act (including Rule 144) has been taken.
The Company shall not be required (i) to transfer on its books any Shares that have been sold or transferred in violation of the provisions of this Section 2 nor (ii) to treat as the owner of the Shares, or otherwise to accord voting or dividend rights to, any transferee to whom the Shares have been transferred in contravention of this Agreement.
3. Special Tax Election
3.1 Optionee understands that Optionee may suffer adverse tax consequences as a result of the purchase of the Shares hereunder or Optionee’s subsequent disposition thereof. Optionee represents that Optionee has consulted any tax consultants Optionee deems advisable in connection with the purchase or disposition of the Shares and that Optionee is not relying on the Company for any tax advice. Optionee acknowledges that the information contained in this Section 3 is only a summary of the effect of federal income taxation with respect to sale of the Shares hereunder, and does not purport to be complete.
3.2 Section 83(b) Election.
3.2.1 Non-Statutory Options. If the Shares are acquired hereunder pursuant to the exercise of a non-statutory stock option, as specified in the Grant Notice, then the Optionee understands that under Section 83 of Code, the amount by which the Fair Market Value of the Shares on the date any forfeiture restrictions applicable to such shares lapse exceeds the Option Price paid for such shares will be reportable as ordinary income at that time. For such purpose, the term “forfeiture restrictions” includes the right of the Company to repurchase the Shares pursuant to the Repurchase Right provided under Section 6 of this Agreement. Optionee may elect under Section 83(b) of the Code to be taxed at the time the Shares are acquired hereunder, rather than when and as such Shares cease to be subject to such forfeiture restrictions. If made, such election must be filed with the Internal Revenue Service within thirty (30) days after the date of this Agreement. Even if the Fair Market Value of the Shares at the date of this Agreement equals the Option Price paid (and thus no tax is payable), the election should be made now if the Optionee anticipates potential adverse tax consequences in the future. The form for making a standard Section 83(b) election is attached as Exhibit 3.2.1 hereto.
3.2.2 Incentive Stock Options. If the Shares are acquired hereunder pursuant to the exercise of an incentive stock option under the Federal tax laws, as specified in the Grant Notice, then the following tax principles shall be applicable to the Shares:
(a) For regular tax purposes, no taxable income will be recognized at the time the Option is exercised.
(b) The amount by which (i) the Fair Market Value of the Shares on the date the Option is exercised or (if later) on the date any forfeiture restrictions applicable to the Shares lapse exceeds (ii) the Option Price paid for the Shares shall be included in the Optionee’s taxable income for alternative minimum tax purposes.
(c) If the Optionee makes a disqualifying disposition of the Shares, then the Optionee will recognize ordinary income in the year of such disposition equal in amount to the amount by which (i) the Fair Market Value of the Shares on the date the Option is exercised or (if later) on the date any forfeiture restrictions applicable to the Shares lapse exceeds (ii) the Option Price paid for the Shares. Any additional gain recognized upon the disqualifying disposition will be either short-term or long-term capital gain depending upon the period for which the Shares are held prior to the disposition.
(d) For purposes of the foregoing, the term “forfeiture restrictions” will include the right of the Company to repurchase the Shares pursuant to the Repurchase Right provided under Section 5 of this Agreement. The term “disqualifying disposition” means any sale or other disposition[1] of the Shares within two (2) years after the Grant Date or within one (1) year after the execution date of this Agreement.
(e) In the absence of final Treasury Regulations relating to incentive stock options, it is not certain whether the Optionee, in connection with the exercise of the Option for any Shares at the time subject to forfeiture restrictions, may file a protective election under Section 83(b) of the Code to limit (i) the Optionee’s alternative minimum taxable income upon exercise and (ii) the Optionee’s ordinary income upon a disqualifying disposition, to the amount by which (x) the Fair Market Value of the Shares on the date the Option is exercised exceeds (y) the Option Price paid for the Shares. If the Optionee desires to make such a protective election, the proper form must be filed with the Internal Revenue Service within thirty (30) days after the date of this Agreement. The form for making such a protective Section 83(b) election is attached as Exhibit 3.2.2 hereto. SUCH ELECTION, IF PROPERLY FILED, WILL ONLY BE ALLOWED TO THE EXTENT FINAL TREASURY REGULATIONS PERMIT SUCH A PROTECTIVE ELECTION.
3.2.3 Optionee understands that failure to file a Section 83(b) election, either with respect to a non-statutory option or as a protective election relating to an incentive option, within the thirty (30) day period may result in the recognition of ordinary income by Optionee as the forfeiture restrictions lapse. OPTIONEE ACKNOWLEDGES THAT IT IS OPTIONEE’S SOLE RESPONSIBILITY, AND NOT THE COMPANY’S, TO FILE A TIMELY ELECTION UNDER SECTION 83(b), EVEN IF OPTIONEE REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON OPTIONEE’S BEHALF. This filing should be made by registered or certified mail, return receipt requested, and Optionee must retain two (2) copies of the completed form for filing with Optionee’s state and Federal tax returns for the current tax year and an additional copy for Optionee’s personal records.
3.2.4 Optionee agrees that Optionee will execute and deliver to the Company with this executed Agreement a copy of the Acknowledgment and Statement of Decision Regarding Section 83(b) Election (the “Acknowledgment”), attached hereto as Exhibit 3.2.4. Optionee further agrees that, if Optionee has indicated in the Acknowledgment Optionee’s decision to make an 83(b) election, Optionee will submit to the Company with the Acknowledgment a copy of the relevant 83(b) election form that Optionee has filed with the internal Revenue Service.
4. Transfer Restrictions
4.1 Restriction on Transfer. Optionee shall not in any manner transfer, assign, encumber or otherwise dispose of any of the Shares that are subject to the Company’s Repurchase Right under Section 5. In addition, Shares that are released from the Repurchase Right shall not be transferred, assigned, encumbered or otherwise made the subject of disposition in contravention of the First Refusal Right and market stand-off provisions of this Agreement. Such restrictions on transfer, however, shall not be applicable to (i) a gratuitous transfer of the Shares made to the Optionee’s spouse or issue, including adopted children, or to a trust for the exclusive benefit of the Optionee or the Optionee’s spouse or issue, provided the Optionee obtains the Company’s prior written consent to such transfer, (ii) a transfer of title to the Shares effected pursuant to the Optionee’s will or the laws of intestate succession, (iii) a transfer effected by the creation of a joint tenancy with right of survivorship or tenancy by the entirety between the Optionee and one other individual who is the spouse or lineal descendant of the Optionee, (iv) if the Optionee is a trust, the distribution of any Shares to any beneficiary under such trust and (v) a transfer to the Company in pledge as security for any purchase-money indebtedness incurred by the Optionee in connection with the acquisition of the Shares (each of the foregoing, a “Permitted Transfer”).
4.2 Transferee Obligations. Each person (other than the Company) to whom the Shares are transferred by means of a Permitted Transfer, as a condition precedent to the validity of such transfer, must acknowledge in writing to the Company that such person is bound by the provisions of this Agreement and that the transferred shares are subject to the Repurchase Right and the First Refusal Right and the market stand-off provisions of this Agreement to the same extent such shares would be so subject if retained by the Optionee.
4.3 Market Stand‑Off.
4.3.1 In connection with any underwritten public offering by the Company of its equity securities pursuant to an effective registration statement filed under the Securities Act, including the Company’s initial public offering, Holder shall not sell, make any short sale of, loan, hypothecate, pledge, grant any option for the purchase of, or otherwise dispose or transfer for value or otherwise agree to engage in any of the foregoing transactions with respect to, any Shares without the prior written consent of the Company or its underwriters. Such limitations shall be in effect for such period of time from and after the effective date of the final prospectus for the offering as may be requested by the Company or such underwriters; provided, that in no event shall such period exceed one hundred eighty (180) days. The limitations of this Section 4.3 shall in all events terminate two (2) years after the effective date of the Company’s initial public offering.
4.3.2 In order to enforce the limitations of this Section 4.3, the Company may impose stop‑transfer instructions with respect to the Shares until the end of the applicable stand‑off period.
4.4 Share Adjustments. In the event of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the Company’s outstanding Common Stock effected as a class without the Company’s receipt of consideration, then any new, substituted or additional securities distributed with respect to the Shares shall be immediately subject to the provisions of this Section 4, to the same extent the Shares are at such time covered by such provisions.
5. Right of First Refusal
5.1 Grant. The Company is hereby granted the right of first refusal (the “First Refusal Right”), exercisable in connection with any proposed transfer of the Shares in which Optionee has vested in accordance with the vesting provisions of the Grant Notice. For purposes of this Section 5, the term “transfer” shall include any sale, assignment, pledge, encumbrance or other disposition of the Shares intended to be made by Holder, but shall not include any Permitted Transfer.
5.2 Notice of Intended Disposition. In the event any Holder of vested Shares desires to accept a bona fide third‑party offer for the transfer of any or all of such shares (the Shares subject to such offer to be hereinafter called the “Target Shares”), Holder shall promptly deliver to the Secretary of the Company written notice (the “Disposition Notice”) of the terms and conditions of the offer, including the purchase price and the identity of the third‑party offeror, and shall provide satisfactory proof that the disposition of the Target Shares to such third‑party offeror would not be in contravention of the provisions set forth in Sections 2 and 4.
5.3 Exercise of Right. The Company (or its assignees), for a period of thirty (30) days following receipt of the Disposition Notice, shall have the right to repurchase any or all of the Target Shares subject to the Disposition Notice upon the same terms and conditions as those specified therein or upon such other terms and conditions (not materially different from those specified in the Disposition Notice) to which Holder and the Company consent. Such right shall be exercisable by delivery of written notice (the “Exercise Notice”) to Holder prior to the expiration of the thirty (30) day exercise period. If such right is exercised with respect to all the Target Shares, then the Company (or its assignees) shall effect the repurchase of such shares, including payment of the purchase price, not more than five (5) business days after delivery of the Exercise Notice; at such time Holder shall deliver to the Company the certificates representing the Target Shares to be repurchased, each certificate to be properly endorsed for transfer. To the extent any of the Target Shares are at the time held in escrow under Section 7, the certificates for such shares shall automatically be released from escrow and delivered to the Company for purchase.
Should the purchase price specified in the Disposition Notice be payable in property other than cash or evidences of indebtedness, the Company (or its assignees) shall have the right to pay the purchase price in the form of cash equal in amount to the value of such property. If Holder and the Company (or its assignees) cannot agree on such cash value within thirty (30) days after the Company’s receipt of the Disposition Notice, the valuation shall be made by an appraiser of recognized standing selected by Holder and the Company (or its assignees) or, if they cannot agree on an appraiser within forty (40) days after the Company’s receipt of the Disposition Notice, each shall select an appraiser of recognized standing and the two appraisers shall designate a third appraiser of recognized standing, whose appraisal shall be determinative of such value. The cost of such appraisal shall be shared equally by Holder and the Company. The period during which the Company may exercise the First Refusal Right shall be extended through fifth day following a determination of the cash valuation in accordance with the foregoing. The closing shall then be held on the later of the fifth business day following delivery of the Exercise Notice or the fifth business day after such cash valuation shall have been made.
5.4 Non‑Exercise of Right. In the event the Exercise Notice is not given to Holder within the time period specified in Section 5.3, Holder shall have a period of thirty (30) days thereafter in which to sell or otherwise dispose of the Target Shares to the third‑party offeror identified in the Disposition Notice upon terms and conditions (including the purchase price) no more favorable to such third‑party offeror than those specified in the Disposition Notice; provided, that any such sale or disposition must not be effected in contravention of the provisions of Section 2. To the extent any of the Target Shares are at the time held in escrow under Section 7, the certificates for such shares shall automatically be released from escrow and surrendered to Holder. The third‑party offeror shall acquire the Target Shares free and clear of the Repurchase Right under Section 6 (which must have lapsed) and the First Refusal Right hereunder, but the acquired shares shall remain subject to the securities law restrictions of Section 2.2 and the market stand‑off provisions of Section 4.3. In the event Holder does not effect such sale or disposition of the Target Shares within the specified thirty (30) day period, the First Refusal Right shall continue to be applicable to any subsequent disposition of the Target Shares by Holder until such right lapses in accordance with Section 5.7.
5.5 Partial Exercise of Right. In the event the Company (or its assignees) makes a timely exercise of the First Refusal Right with respect to a portion, but not all, of the Target Shares specified in the Disposition Notice, Holder shall have the option, exercisable by written notice to the Company delivered within five (5) days after Holder’s receipt of the Exercise Notice, to effect the sale of the Target Shares pursuant to either of the following alternatives:
(i) sale or other disposition of all the Target Shares to the third‑party offeror identified in the Disposition Notice, but in full compliance with the requirements of Section 5.4, as if the Company did not exercise the First Refusal Right hereunder; or
(ii) sale to the Company (or its assignees) of the portion of the Target Shares that the Company (or its assignees) has elected to purchase, such sale to be effected in substantial conformity with the provisions of Section 5.3.
Failure of Holder to deliver timely notification to the Company under this Section 5.5 shall be deemed to be an election by Holder to sell the Target Shares pursuant to alternative (i) above.
5.6 Recapitalization/Reorganization.
5.6.1 In the event of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other transaction affecting the outstanding Common Stock as a class effected without the Company’s receipt of consideration, any new, substituted or additional securities or other property that is by reason of such transaction distributed with respect to the Shares shall be immediately subject to the First Refusal Right hereunder, but only to the extent the Shares are at the time covered by such right.
5.6.2 In the event of any form of corporate reorganization, the First Refusal Right shall remain in full force and effect and shall apply to the new capital stock or other property received in exchange for the Shares in consummation of the reorganization, but only to the extent the Shares are at the time covered by such right.
5.7 Lapse. The First Refusal Right under this Section 5 shall lapse and cease to have effect upon the earliest to occur of (i) the first date on which shares of the Common Stock are held of record by more than five hundred (500) persons, (ii) a determination is made by the Board that a public market exists for the outstanding shares of Common Stock or (iii) a firm commitment underwritten public offering, pursuant to an effective registration statement under the Securities Act, covering the offer and sale of the Common Stock in the aggregate amount of at least ten million dollars ($10,000,000). The market stand‑off provisions of Section 4.3 shall continue to remain in full force and effect following the lapse of the First Refusal Right hereunder.
6. Repurchase Right
6.1 Grant. The Company is hereby granted the Repurchase Right, exercisable at any time during the ninety (90) day period following the date the Optionee ceases for any reason to remain in Service, during (if later) the ninety (90) day period following the execution date of this Agreement, or contemporaneously with the consummation of a Corporate Transaction, to repurchase at the Option Price all or any portion of the Shares in which the Optionee has not acquired a vested interest in accordance with the vesting provisions of the Grant Notice.
6.2 Exercise of the Repurchase Right. The Repurchase Right shall be exercisable by written notice delivered to the Holder of the Unvested Shares prior to the expiration of the applicable period specified in Section 6.1. The notice shall indicate the number of Unvested Shares to be repurchased and the date on which the repurchase is to be effected, such date to be not more than thirty (30) days after the date of notice. To the extent one or more certificates representing Unvested Shares may have been previously delivered out of escrow to the Holder, then prior to the close of business on the date specified for the repurchase, the Holder shall deliver to the Secretary of the Company the certificates representing the Unvested Shares to be repurchased, each certificate to be properly endorsed for transfer. The Company, concurrently with the receipt of such stock certificates (either from escrow in accordance with Section 7.3 or from Holder as herein provided), shall pay to Holder in cash or cash equivalents (including the cancellation of any purchase-money indebtedness), an amount equal to the Option Price previously paid for the Unvested Shares that are to be repurchased.
6.3 Termination of the Repurchase Right. The Repurchase Right shall terminate with respect to any Unvested Shares for which it is not timely exercised under Section 6.2. In addition, the Repurchase Right shall terminate, and cease to be exercisable, with respect to any and all Shares in which the Optionee vests in accordance with the vesting provisions specified in the Grant Notice. All Shares as to which the Repurchase Right lapses, however, shall continue to be subject to the First Refusal Right and the transfer restriction provisions of this Agreement.
6.4 Fractional Shares. No fractional shares shall be repurchased by the Company. Accordingly should the Repurchase Right extend to a fractional share (in accordance with the vesting computation provisions of the Grant Notice) at the time the Optionee ceases Service, then such fractional share shall be added to any fractional share in which the Optionee is at such time vested in order to make one whole vested share no longer subject to the Repurchase Right.
6.5 Additional Shares or Substituted Securities. In the event of any stock dividend, stock split, recapitalization or other change affecting the Company’s outstanding Common Stock as a class effected without receipt of consideration, then any new, substituted or additional securities or other property (including money paid other than as a regular cash dividend) that is by reason of any such transaction distributed with respect to the Shares shall be immediately subject to the Repurchase Right, but only to the extent the Shares are at the time covered by such right. Appropriate adjustments to reflect the distribution of such securities or property shall be made to the number of Shares at the time subject to the Repurchase Right hereunder and to the price per share to be paid upon the exercise of the Repurchase Right in order to reflect the effect of any such transaction upon the Company’s capital structure; provided, that the aggregate Option Price shall remain the same.
6.6 Assignment. The Company may assign its Repurchase Right to any person or entity selected by the Company’s Board of Directors, including (without limitation) one or more shareholders of the Company. If the assignee of the Repurchase Right is other than a Parent or Subsidiary corporation of the Company, then such assignee must make a cash payment to the Company, upon the assignment of the Repurchase Right, in an amount equal to the amount (if any) of (i) the Fair Market Value of the Unvested Shares at the time subject to the assigned Repurchase Right in excess of (ii) the aggregate repurchase price payable for Unvested Shares thereunder.
6.7 Corporate Transaction. To the extent the Repurchase Right remains in effect following a Corporate Transaction, it shall apply to the new capital stock or other property (including cash) received in exchange for the Shares in consummation of the Corporate Transaction, but only to the extent the Shares are at the time covered by such right. Appropriate adjustments shall be made to the price per share payable upon exercise of the Repurchase Right to reflect the effect of the Corporate Transaction upon the Company’s capital structure; provided, that the aggregate Option Price shall remain the same.
7. Escrow
7.1 Deposit. Upon issuance, the certificates for any Unvested Shares purchased hereunder shall be deposited in escrow with the Secretary of the Company to be held in accordance with the provisions of this Section 7. Each deposited certificate shall be accompanied by a duly-executed Assignment Separate from Certificate in the form of Exhibit 1.2. The deposited certificates, together with any other assets or securities from time to time deposited with the Corporate Secretary pursuant to the requirements of this Agreement, shall remain in escrow until such time or times as the certificates (or other assets and securities) are to be released or otherwise surrendered for cancellation in accordance with Section 7.3. Upon delivery of the certificates (or other assets and securities) to the Corporate Secretary of the Company, the Holder shall be issued an instrument of deposit acknowledging the number of Unvested Shares (or other assets and securities) delivered in escrow.
7.2 Recapitalization. All regular cash dividends on the Unvested Shares (or other securities at the time held in escrow) shall be paid directly to the Holder and shall not be held in escrow. In the event of any stock dividend, stock split, recapitalization or other change affecting the Company’s outstanding Common Stock as a class effected without receipt of consideration or in the event of a Corporate Transaction, any new, substituted or additional securities or other property (including money paid other than as a regular cash dividend) that is by reason of such transaction distributed with respect to the Unvested Shares shall be immediately delivered to the Corporate Secretary to be held in escrow under this Section 6, but only to the extent the Unvested Shares are at the time subject to the escrow requirements of Section 7.1.
7.3 Release/Surrender. The Unvested Shares, together with any other assets or securities held in escrow hereunder, shall be subject to the following terms and conditions relating to their release from escrow or their surrender to the Company for repurchase and cancellation:
7.3.1 As the interest of the Optionee in the Unvested Shares (or any other assets or securities attributable thereto) vests in accordance with the provisions of Section 6, the certificates for such vested shares (as well as all other vested assets and securities) shall be released from escrow and delivered to the Holder in accordance with the following schedule:
(1) Upon the written request of the Optionee, the initial release of vested shares (or other vested assets and securities) from escrow shall be effected within thirty (30) days following the expiration of the initial twelve (12) month period measured from the Vesting Commencement Date (as specified in the Grant Notice).
(2) Subsequent releases of vested shares (or other vested assets and securities) from escrow shall be effected upon the written request of the Optionee, not to exceed four requests per year.
(3) Upon the Optionee’s cessation of Service, any escrowed Shares (or other assets or securities) in which the Optionee is at the time vested shall be promptly released from escrow.
(4) Upon any earlier termination of the Company‘s Repurchase Right in accordance with the applicable provisions of Article II, Section 3 of the Plan, any Shares (or other assets or securities) at the time held in escrow hereunder shall promptly be released to the Holder as fully-vested shares or other property.
7.3.2 Should the Company (or its assignees) elect to exercise the Repurchase Right with respect to any Unvested Shares, then the escrowed certificates for such Unvested Shares (together with any other assets or securities issued with respect thereto) shall be delivered to the Company concurrently with the payment to the Holder, in cash or cash equivalent (including the cancellation of any purchase-money indebtedness), of an amount equal to the aggregate Option Price for such Unvested Shares, and the Holder shall cease to have any further rights or claims with respect to such Unvested Shares (or other assets or securities attributable to such Unvested Shares).
7.3.3 Should the Company (or its assignees) elect to exercise its First Refusal Right with respect to any vested Target Shares held at the time in escrow hereunder, then the escrowed certificates for such Target Shares (together with any other assets or securities attributable thereto), concurrently with the payment of the purchase price for such Target Shares to the Holder, shall be surrendered to the Company and the Holder shall cease to have any further rights or claims with respect to such Target Shares (or other assets or securities).
7.3.4 Should the Company (or its assignees) elect not to exercise its First Refusal Right with respect to any vested Target Shares held at the time in escrow hereunder, then any certificates for such Target Shares (together with any other assets or securities attributable thereto) remaining in escrow shall be surrendered to the Holder for disposition in accordance with provisions of Section 5.
7.3.5 All Shares (or other assets or securities) released from escrow in accordance with the provisions of Section 7.3.1 shall nevertheless remain subject to the First Refusal Right and the transfer restriction provisions of this Agreement.
8. Definitions
The following definitions shall apply to the respective capitalized terms used herein:
Code means the Internal Revenue Code of 1986, as amended.
Common Stock means the common stock of [Company], Inc.
Company means [Company], Inc., a [State] corporation.
Corporate Transaction means any of the following transactions
(a) a merger or consolidation in which the Company is not the surviving entity, except for a transaction the principal purpose of which is to change the state in which the Company is incorporated,
(b) any reverse merger in which the Company is the surviving entity but in which fifty percent (50%) or more of the Company’s outstanding voting stock is transferred to holders different from those who held the stock immediately prior to such merger,
(c) the sale, transfer or other disposition of all or substantially all of the assets of the Company, or
(d) the acquisition of fifty percent (50%) or more of the Company outstanding voting stock by a person or group of related persons other than the Company, a person that directly or indirectly controls, is controlled by or is under common control with the Company, or any existing shareholder of the Company as of the date of the adoption of the Plan by such shareholders.
Exchange Act means the Securities Exchange Act of 1934, as amended.
Fair Market Value of a share of Common Stock on any relevant date shall be determined in accordance with the following provisions:
(a) If the Common Stock is at the time neither listed nor admitted to trading on any stock exchange nor traded in the over-the-counter market, or if the Plan Administrator otherwise determines that the valuation provisions of paragraphs (b) and (c) below will not result in a true and accurate valuation of the Common Stock, then the Fair Market Value shall be determined by the Plan Administrator after taking into account such factors as the Plan Administrator shall deem appropriate under the circumstances.
(b) If the Common Stock is not at the time listed or admitted to trading on any stock exchange but is traded in the over-the-counter market, the Fair Market Value shall be the mean between the highest bid and the lowest asked prices (or if such information is available the closing selling price) per share of Common Stock on the date in question in the over-the-counter market, as such prices are reported by the National Association of Securities Dealers through its NASDAQ National Market System or any successor system. If there are no reported bid and asked prices (or closing selling price) for the Common Stock on the date in question, then the mean between the highest bid and lowest asked prices (or closing selling price) on the last preceding date for which such quotations exist shall be determinative of Fair Market Value.
(c) If the Common Stock is at the time listed or admitted to trading on any stock exchange, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question on the stock exchange determined by the Plan Administrator to be the primary market for the Common Stock. If there is no reported sale of Common Stock on such exchange on the date in question, then the Fair Market Value shall be the closing selling price on the exchange on the last preceding date for which such quotation exists.
First Refusal Right means the right of first refusal granted the Company in this Agreement.
Grant Notice means the Notice of Grant of Stock Option that specifies the principal terms of the Option and to which a copy of this Agreement was attached as Exhibit C.
Holder means the Optionee and all subsequent holders of the Shares who derive their chain of ownership through a Permitted Transfer from the Optionee.
Option Agreement means the agreement between the Company and Optionee which evidences the Option. A copy of such agreement was attached as Exhibit B to the Grant Notice.
Optionee means the individual to whom the Option was issued under the Plan.
Parent corporation means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, provided each such corporation in the unbroken chain (other than the Company) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
Permitted Transfer shall have the meaning specified in Section 4.1.
Plan means the [Date] Stock Option/Stock Issuance Plan of the Company, in the form attached as Exhibit A to the Grant Notice.
Repurchase Right means the right of the Company to repurchase Unvested Shares from the Holder at the original option price paid per share in accordance with the provisions of Section 6 of this Agreement.
SEC means the United States Securities and Exchange Commission.
Securities Act means the Securities Act of 1933, as amended.
Service shall mean the performance of services for the Company or any Parent or Subsidiary corporation by an individual in the capacity of an employee, a non-employee member of the board of directors or an independent consultant or advisor. The Optionee shall be deemed to remain in Service for so long as such individual renders services to the Company or any Parent or Subsidiary corporation on a periodic basis in the capacity of an employee, a non-employee member of the board of directors or an independent consultant or advisor.
Subsidiary corporation means each corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, provided each such corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
Target Shares means any vested shares of the Corporation’s stock subject to the First Refusal Right under Section 5 and as to which a third party has offered to purchase such shares from a Holder thereof.
Unvested Shares means the shares in which Optionee has not yet acquired a vested interest pursuant to the vesting schedule set forth in the Grant Notice and incorporated by reference into Section 6.3 of this Agreement.
9. Miscellaneous Provisions
9.1 Restrictive Legends. In order to reflect the restrictions on disposition of the Shares, the stock certificates for the Shares will be endorsed with one or more legend substantially similar to the following:
(a) “The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended, or any applicable state securities laws. The shares may not be sold or offered for sale in the absence of (i) an effective registration statement for the shares under such Act, (ii) a ‘no action’ letter of the Securities and Exchange Commission with respect to such sale or offer, or (iii) assurances satisfactory to the Company that registration under such Act and state laws is not required with respect to such sale or offer.”
(b) “This certificate and the shares represented hereby may not be sold, assigned, transferred, encumbered, or in any manner disposed of except in conformity with the terms of written agreements between the Company and the registered holder of the shares (or the predecessor in interest to the shares). The Company will upon written request and without charge furnish copies of such agreements to the holder hereof.”
9.2 No Employment or Service Contract. Nothing in this Agreement or in the Plan shall confer upon the Optionee any right to continue in the Service of the Company for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Company or the Optionee, which rights are hereby expressly reserved by each, to terminate the Optionee’s Service at any time for any reason whatsoever, with or without cause.
9.3 Notices. Any notice required in connection with the Repurchase Right or the disposition of any Shares shall be given in writing and shall be deemed effective upon personal delivery or upon deposit in the United States mail, registered or certified, postage prepaid and addressed to the party entitled to such notice at the address indicated below such party’s signature line on this Agreement or at such other address as such party may designate by ten (10) days advance written notice under this Section 9.3 to all other parties to this Agreement.
9.4 No Waiver. The failure of the Company (or its assignees) in any instance to exercise the Repurchase Right granted under Section 6 shall not constitute a waiver of any other repurchase rights that may subsequently arise under the provisions of this Agreement or any other agreement between the Company and the Optionee or the Optionee’s spouse. No waiver of any breach or condition of this Agreement shall be deemed to be a waiver of any other or subsequent breach or condition, whether of like or different nature.
9.5 Cancellation of Shares. If the Company (or its assignees) shall make available, at the time and place and in the amount and form provided in this Agreement, the consideration for the Shares to be repurchased in accordance with the provisions of this Agreement, then from and after such time, the person from whom such shares are to be repurchased shall no longer have any rights as a holder of such shares (other than the right to receive payment of such consideration in accordance with this Agreement), and such shares shall be deemed purchased in accordance with the applicable provisions hereof and the Company (or its assignees) shall be deemed the owner and holder of such shares, whether or not the certificates therefor have been delivered as required by this Agreement.
9.6 Further Assurances. Optionee hereby agrees to take whatever additional action and execute whatever additional documents the Company may in its judgment deem necessary or advisable in order to carry out or effect one or more of the obligations or restrictions imposed on either the Optionee or the Shares pursuant to the express provisions of this Agreement.
9.7 Entire Agreement. This Agreement, together with the Plan, the Grant Notice and the Option Agreement, constitutes the entire contract between the parties hereto with regard to the subject matter hereof. This Agreement is made pursuant to the provisions of the foregoing documents and shall in all respects be governed by and construed in conformity with the express terms and provisions of such documents.
9.8 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of [State], as such laws are applied to contracts entered into and performed in such state without resort to that state’s conflict-of-laws rules.
9.9 Successors and Assigns. The provisions of this Agreement shall inure to the benefit of, and be binding upon, the Company and its successors and assigns and the Optionee and the Optionee’s legal representatives, heirs, legatees, distributees, assigns and transferees by operation of law, whether or not any such person shall have become a party to this Agreement and have agreed in writing to join herein and be bound by the terms and conditions hereof.
9.10 Power of Attorney. Optionee’s spouse hereby appoints Optionee his or her true and lawful attorney in fact, for him or her and in his or her name, place and stead, and for his or her use and benefit, to agree to any amendment or modification of this Agreement and to execute such further instruments and take such further actions as may reasonably be necessary to carry out the intent of this Agreement. Optionee’s spouse further gives and grants unto Optionee as his or her attorney in fact full power and authority to do and perform every act necessary and proper to be done in the exercise of any of the foregoing powers as fully as he or she might or could do if personally present, with full power of substitution and revocation, hereby ratifying and confirming all that Optionee shall lawfully do and cause to be done by virtue of this power of attorney.
9.11 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument.
[Signatures appear on following page] In Witness Whereof, the parties have executed this Agreement on the day and year first indicated above. [Company], Inc.
By:_______________ Its:_______________
Address: __________________
__________________
_________________
Optionee
Address: __________________ __________________
The undersigned spouse of Optionee has read and hereby approves the foregoing Stock Purchase Agreement. In consideration of the Company’s granting the Optionee the right to acquire the Shares in accordance with the terms of such Agreement, the undersigned hereby agrees to be irrevocably bound by all the terms and provisions of such Agreement, including without limitation the right of the Company (or its assignees) to purchase any and all interest or right the undersigned may otherwise have or acquire in such shares pursuant to community property laws or marital property rights. ________________________
Optionee’s Spouse
Address: ____________________ ____________________
EXHIBIT 1.2 Assignment Separate From Certificate
FOR VALUE RECEIVED hereby sell(s), assign(s) and transfer(s) unto [Company], Inc. (the “Company”), ( ) shares of the Common Stock of the Company standing in the undersigned’s name on the books of the Company represented by Certificate No. herewith and do hereby irrevocably constitute and appoint as Attorney to transfer the said stock on the books of the Company with full power of substitution in the premises.
Dated: ________________ Signature__________________
Print Name_________________
Instruction: Please do not fill in any blanks other than the signature line. The purpose of this assignment is to enable the Company to exercise its Repurchase Right set forth in the Agreement without requiring additional signatures on the part of the Optionee. Exhibit 3.2.1
Section 83(b) Tax Election
This statement is being made under Section 83(b) of the Internal Revenue Code, pursuant to Treas. Reg. Section 1.83-2.
(1) The taxpayer who performed the services is:
Name: _____________ Address: _________________ Taxpayer ID No. (SSN):_____________
(2) The property with respect to which the election is being made is shares of the common stock of [Company], Inc.
(3) The property was issued on , .
(4) The taxable year in which the election is being made is the calendar year .
(5) The property is subject to a repurchase right pursuant to which the issuer has the right to acquire the property at the original purchase price if for any reason taxpayer’s employment with the issuer is terminated. The issuer’s repurchase right lapses in a series of quarterly installments over a four year period ending on ______________.
(6) The fair market value at the time of transfer (determined without regard to any restriction other than a restriction which by its terms will never lapse) is $ per share.
(7) The amount paid for such property is $ per share.
(8) A copy of this statement was furnished to [Company], Inc. for whom taxpayer rendered the services underlying the transfer of property.
(9) This statement is executed as of: , .
Taxpayer Spouse (if any)
This form must be filed with the Internal Revenue Service Center with which taxpayer files federal income tax returns. The filing must be made within 30 days after the execution date of the Stock Purchase Agreement.
Exhibit 3.2.2 Repurchase Rights
Special Protective Election Pursuant to Section 83(b) of the Internal Revenue Code With Respect to Property Acquired Upon Exercise of an Incentive Stock Option
This statement is being made under Section 83(b) of the Internal Revenue Code, pursuant to Treas. Reg. Section 1.83-2.
(1) The taxpayer who performed the services is:
Name:_________________ Address:__________________ Taxpayer ID No.:____________
(2) The property with respect to which the election is being made is shares of the Common stock of [Company], Inc.
(3) The property was issued on , .
(4) The taxable year in which the election is being made is the calendar year .
(5) The property is subject to a repurchase right pursuant to which the issuer has the right to acquire the property at the original purchase price if for any reason taxpayer’s employment with the issuer is terminated. The issuer’s repurchase right lapses in a series of monthly installments over a four year period ending on ___________.
(6) The fair market value at the time of transfer (determined without regard to any restriction other than a restriction which by its terms will never lapse) is $ per share.
(7) The amount paid for such property is $ per share.
(8) A copy of this statement was furnished to [Company], Inc. for whom taxpayer rendered the services underlying the transfer of property.
(9) This statement is executed as of: , .
_________________ ___________________
Taxpayer Spouse (if any)
The property described in the above Section 83(b) election is comprised of shares of common stock acquired pursuant to the exercise of an incentive stock option under Section 422 of the Code. Accordingly, it is the intent of the Taxpayer to utilize this election to achieve the following tax results:
1. The amount by which the fair market value of the Shares at the time the forfeiture restrictions applicable to such shares lapse exceeds the purchase price paid for the shares shall be included within the Taxpayer’s alternative minimum taxable income (if applicable). The purpose of this election is to have that spread measured at the time the shares are transferred to the Taxpayer rather than on the various lapse dates in effect for the restrictions. The election is to be effective to the full extent permitted under the Internal Revenue Code. 2. Section 421(a)(1) of the Code expressly excludes from income any excess of the fair market value of the purchased shares over the amount paid for such shares. Accordingly, this election is also intended to be effective in the event there is a “disqualifying disposition” of the shares, within the meaning of Section 421(b) of the Code, which would otherwise render the provisions of Section 83(a) of the Code applicable at that time. Consequently, the Taxpayer hereby elects to have the amount of disqualifying disposition income measured by the amount by which the fair market value of the purchased shares on the date of transfer to the Taxpayer exceeds the amount paid for such shares. Since Section 421(a) presently applies to the shares that are the subject of this Section 83(b) election, no taxable income is actually recognized for regular tax purposes at this time, and no income taxes are payable, by the Taxpayer as a result of this election.
This form should be filed with the Internal Revenue Service Center with which taxpayer files federal income tax returns. The filing must be made within 30 days after the execution date of the Stock Purchase Agreement. Exhibit 3.2.3
Acknowledgment and Statement of Decision Regarding Section 83(b) Election
The undersigned has entered a restricted stock issuance agreement with [Company], Inc., a [State] corporation (the “Company”), pursuant to which the Company has issued the undersigned shares of Common Stock of the Company (the “Shares”). In connection with the issuance of the Shares, the undersigned hereby represents as follows:
1. The undersigned has carefully reviewed the restricted stock issuance agreement pursuant to which the undersigned is being issued the Shares.
2. The undersigned either [check and complete as applicable]:
OR
3. The undersigned hereby states that the undersigned has decided [check as applicable]:
OR
4. Neither the Company nor any subsidiary or representative of the Company has made any warranty or representation to the undersigned with respect to the tax consequences of the issuance of the Shares to the undersigned or of the making or failure to make an election pursuant to Section 83(b) of the Code or the corresponding provisions, if any, of applicable state law.
Date: ____________________ _ __________________ Participant
Date: ____________________ Participant’s Spouse (if any)
Exhibit 3.2.4
Acknowledgment and Statement of Decision Regarding Section 83(b) Election
The undersigned has entered a stock purchase agreement with [Company], Inc., a [State] corporation (the “Company”), pursuant to which the Company has issued the undersigned shares of Common Stock of the Company (the “Shares”). In connection with the purchase and sale of the Shares, the undersigned hereby represents as follows:
1. The undersigned has carefully reviewed the stock purchase agreement pursuant to which the undersigned is being issued the Shares.
2. The undersigned either [check and complete as applicable]:
OR
3. The undersigned hereby states that the undersigned has decided [check as applicable]:
OR
4. Neither the Company nor any subsidiary or representative of the Company has made any warranty or representation to the undersigned with respect to the tax consequences of the issuance of the Shares to the undersigned or of the making or failure to make an election pursuant to Section 83(b) of the Code or the corresponding provisions, if any, of applicable state law.
Date: ____________________ _____________________ Optionee
Date: ____________________ ______________________ Optionee’s Spouse (if any)
[Company], Inc.
RESTRICTED STOCK ISSUANCE AGREEMENT
Agreement made as of this ____ day of _____________________, 19___ by and among [Company], Inc., a [State] corporation (the “Company”), and _________________________________, a participant (“Participant”) in the Plan and _________________________________, the Participant’s spouse [strike through if none]. Except to the extent the context clearly indicates otherwise, each capitalized term used in this Agreement shall have the meaning assigned to such term in Section 8.
1. Purchase of Shares
1.1 Purchase. The Participant hereby purchases, and the Company hereby sells to Participant, _____________________________ (__________) shares of Common Stock (the “Shares”) at a purchase price of $________ per share (the “Purchase Price”) pursuant to the provisions of the Plan.
1.2 Payment. If the issuance of the Shares is for cash consideration, then concurrently with the execution of this Agreement, the Participant shall deliver to the Secretary of the Company the aggregate Purchase Price payable for the Shares in cash or cash equivalents, and if applicable, a duly-executed blank Assignment Separate from Certificate (in the form attached hereto as Exhibit 1.2).
1.3 Delivery of Certificates. The certificates representing the Shares hereunder shall be held in escrow by the Secretary of the Company as provided in Section 7 hereof.
1.4 Shareholder Rights. Until such time as the Company actually exercises its Repurchase Right under this Agreement, Participant (or any successor in interest) shall have all the rights of a shareholder (including voting and dividend rights) with respect to the Shares, including the Shares held in escrow under Section 7; subject, however, to the transfer restrictions of Section 4.
2. Securities Law Compliance
2.1 Exemption from Registration. The Shares have not been registered under the Securities Act, and are being issued to Participant in reliance upon the exemption from such registration provided by Rule 701 of the SEC for stock issuances under compensatory benefit plans such as the Plan. Participant hereby acknowledges receipt of a copy of the documentation for such Plan in the form of Exhibit 2.1 attached hereto.
2.2 Restricted Securities.
2.2.1 Participant hereby confirms that Participant has been informed that the Shares are restricted securities under the Securities Act and may not be resold or transferred unless the Shares are first registered under the Federal securities laws or unless an exemption from such registration is available. Participant is also aware that transactions in the Shares may also be governed by state securities laws. Accordingly, Participant hereby acknowledges that Participant is prepared to hold the Shares for an indefinite period and that Participant is aware that Rule 144 of the SEC promulgated under the Securities Act is not presently available, and unless pursuant paragraph (k) of such Rule, may not become available to exempt the sale of the Shares from the registration requirements of the Securities Act.
2.2.2 Provided that Participant is not at the time an affiliate of the Company (nor was such an affiliate during the preceding three months), Participant may be able to sell the Shares (without registration) pursuant to paragraph (k) of Rule 144 after the Shares have been held for a period of two (2) years following the payment in cash of the Purchase Price for such Shares. Prior to attempting to undertake any sale or transfer of Shares, Participant should consult with counsel to determine whether any such transaction will violate applicable securities laws.
2.3 Disposition of Shares. Participant hereby agrees that Participant shall make no disposition of the Shares (other than a Permitted Transfer under Section 4.1) unless and until:
(i) Participant shall have notified the Company of the proposed disposition and provided a written summary of the terms and conditions of the proposed disposition;
(ii) Participant shall have complied with all requirements of this Agreement applicable to the disposition of the Shares; and
(iii) Participant shall have provided the Company with written assurances, in form and substance satisfactory to the Company, that (a) the proposed disposition does not require registration of the Shares under the Securities Act or (b) all appropriate action necessary for compliance with the registration requirements of the Securities Act or of any exemption from registration available under the Securities Act (including Rule 144) has been taken.
The Company shall not be required to transfer on its books any Shares which have been sold or transferred in violation of the provisions of this Section 2 nor to treat as the owner of the Shares, or otherwise to accord voting or dividend rights to, any transferee to whom the Shares have been transferred in contravention of this Agreement.
3. Special Tax Provisions
3.1 Participant understands that Participant may suffer adverse tax consequences as a result of the issuance of the Shares hereunder or Participant’s subsequent disposition thereof. Participant represents that Participant has consulted any tax consultants Participant deems advisable in connection with the purchase or disposition of the Shares and that Participant is not relying on the Company for any tax advice. Participant acknowledges that the information contained in this Section 3 is only a summary of the effect of United States federal income taxation with respect to issuance of the Shares hereunder, and does not purport to be complete.
3.2 Section 83(b) Election.
3.2.1 Participant understands that under Section 83 of the Code, the amount by which the Fair Market Value of the Shares on the date any forfeiture restrictions applicable to such Shares lapse exceeds the Purchase Price for such Shares will be reportable as ordinary income at that time. For this purpose, the term “forfeiture restrictions” includes the right of the Company to repurchase the Shares pursuant to the Repurchase Right provided under Section 6 of this Agreement. Participant may elect under Section 83(b) of the Code to be taxed at the time the Shares are acquired hereunder, rather than when and as such Shares cease to be subject to such forfeiture restrictions. If made, such election must be filed with the Internal Revenue Service within thirty (30) days after the date of this Agreement. Even if the Fair Market Value of the Shares on the date of this Agreement equals the Purchase Price paid (and thus no tax is payable), such election should be made now if Participant anticipates potential adverse tax consequences in the future.
3.2.2 The form for making the Section 83(b) election is attached as Exhibit 3.2.2 hereto. Participant understands that failure to make this filing within the thirty (30) day period may result in the recognition of ordinary income by Participant as the forfeiture restrictions lapse. PARTICIPANT ACKNOWLEDGES THAT IT IS PARTICIPANT’S SOLE RESPONSIBILITY, AND NOT THE COMPANY’S, TO FILE A TIMELY ELECTION UNDER SECTION 83(b), EVEN IF PARTICIPANT REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON PARTICIPANT’S BEHALF. This filing should be made by registered or certified mail, return receipt requested, and Participant must retain two (2) copies of the completed form for filing with Participant’s State and Federal tax returns for the current tax year and an additional copy for Participant’s personal records.
3.2.3 Participant agrees that Participant will execute and deliver to the Company with this executed Agreement a copy of the Acknowledgment and Statement of Decision Regarding Section 83(b) Election (the “Acknowledgment”), attached hereto as Exhibit 3.2.3. Participant further agrees that, if Participant has indicated in the Acknowledgment Participant’s decision to make an 83(b) election, Participant will submit to the Company with the Acknowledgment a copy of the 83(b) Election that Participant has filed with the internal Revenue Service.
4. Transfer Restrictions
4.1 Restriction on Transfer. Participant shall not in any manner transfer, assign, encumber or otherwise dispose of any of the Shares that are subject to the Company’s Repurchase Right under Section 6. In addition, Shares that are released from the Repurchase Right shall not be transferred, assigned, encumbered or otherwise made the subject of disposition in contravention of the First Refusal Right and market stand-off provisions of this Agreement. Such restrictions on transfer, however, shall not be applicable to (i) a gratuitous transfer of the Shares made to the Participant’s spouse or issue, including adopted children, or to a trust for the exclusive benefit of the Participant or the Participant’s spouse or issue, provided Participant obtains the Company’s prior written consent to such transfer, (ii) a transfer of title to the Shares effected pursuant to the Participant’s will or the laws of intestate succession, (iii) a transfer effected by the creation of a joint tenancy with right of survivorship or tenancy by the entirety between the Participant and one other individual who is the spouse or lineal descendant of the Participant, (iv) if the Participant is a trust, the distribution of any Shares to any beneficiary under such trust and (v) a transfer to the Company in pledge as security for any purchase-money indebtedness incurred by the Participant in connection with the acquisition of the Shares, (each of the foregoing being a “Permitted Transfer”).
4.2 Transferee Obligations. Each person (other than the Company) to whom the Shares are transferred by means of a Permitted Transfer, as a condition precedent to the validity of such transfer, must acknowledge in writing to the Company that such person is bound by the provisions of this Agreement and that the transferred shares are subject to the Repurchase Right and the First Refusal Right and the market stand-off provisions of this Agreement to the same extent such Shares would be so subject if retained by the Participant.
4.3 Market Stand‑Off.
4.3.1 In connection with any underwritten public offering by the Company of its equity securities pursuant to an effective registration statement filed under the Securities Act, including the Company’s initial public offering, Holder shall not sell, make any short sale of, loan, hypothecate, pledge, grant any option for the purchase of, or otherwise dispose or transfer for value or otherwise agree to engage in any of the foregoing transactions with respect to, any Shares without the prior written consent of the Company or its underwriters. Such limitations shall be in effect for such period of time from and after the effective date of the final prospectus for the offering as may be requested by the Company or such underwriters; provided, that in no event shall such period exceed one hundred eighty (180) days. The limitations of this Section 4.3 shall in all events terminate two (2) years after the effective date of the Company’s initial public offering.
4.3.2 In order to enforce the limitations of this Section 4.3, the Company may impose stop‑transfer instructions with respect to the Shares until the end of the applicable stand‑off period.
4.4 Share Adjustments. In the event of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the Company’s outstanding Common Stock effected as a class without the Company’s receipt of consideration, then any new, substituted or additional securities distributed with respect to the Shares shall be immediately subject to the provisions of this Section 4, to the same extent the Shares are at such time covered by such provisions.
5. Right of First Refusal
5.1 Grant. The Company is hereby granted the right of first refusal (the “First Refusal Right”), exercisable in connection with any proposed transfer of the Shares in which Participant has vested in accordance with the vesting provisions of Section 6. For purposes of this Section 5, the term “transfer” shall include any sale, assignment, pledge, encumbrance or other disposition of the Shares intended to be made by Holder, but shall not include any Permitted Transfer.
5.2 Notice of Intended Disposition. In the event any Holder of vested Shares desires to accept a bona fide third‑party offer for the transfer of any or all of such shares (the Shares subject to such offer to be hereinafter called the “Target Shares”), Holder shall promptly deliver to the Secretary of the Company written notice (the “Disposition Notice”) of the terms and conditions of the offer, including the purchase price and the identity of the third‑party offeror, and shall provide satisfactory proof that the disposition of the Target Shares to such third‑party offeror would not be in contravention of the provisions set forth in Sections 2 and 4.
5.3 Exercise of Right. The Company (or its assignees), for a period of thirty (30) days following receipt of the Disposition Notice, shall have the right to repurchase any or all of the Target Shares subject to the Disposition Notice upon the same terms and conditions as those specified therein or upon such other terms and conditions (not materially different from those specified in the Disposition Notice) to which Holder and the Company consent. Such right shall be exercisable by delivery of written notice (the “Exercise Notice”) to Holder prior to the expiration of the thirty (30) day exercise period. If such right is exercised with respect to all the Target Shares, then the Company (or its assignees) shall effect the repurchase of such shares, including payment of the purchase price, not more than five (5) business days after delivery of the Exercise Notice; at such time Holder shall deliver to the Company the certificates representing the Target Shares to be repurchased, each certificate to be properly endorsed for transfer. To the extent any of the Target Shares are at the time held in escrow under Section 7, the certificates for such shares shall automatically be released from escrow and delivered to the Company for purchase.
Should the purchase price specified in the Disposition Notice be payable in property other than cash or evidences of indebtedness, the Company (or its assignees) shall have the right to pay the purchase price in the form of cash equal in amount to the value of such property. If Holder and the Company (or its assignees) cannot agree on such cash value within thirty (30) days after the Company’s receipt of the Disposition Notice, the valuation shall be made by an appraiser of recognized standing selected by Holder and the Company (or its assignees) or, if they cannot agree on an appraiser within forty (40) days after the Company’s receipt of the Disposition Notice, each shall select an appraiser of recognized standing and the two (2) appraisers shall designate a third appraiser of recognized standing, whose appraisal shall be determinative of such value. The cost of such appraisal shall be shared equally by Holder and the Company. The period during which the Company may exercise the First Refusal Right shall be extended through fifth day following a determination of the cash valuation in accordance with the foregoing. The closing shall then be held on the later of the fifth business day following delivery of the Exercise Notice or the fifth business day after such cash valuation shall have been made.
5.4 Non‑Exercise of Right. In the event the Exercise Notice is not given to Holder within the time period specified in Section 5.3, Holder shall have a period of thirty (30) days thereafter in which to sell or otherwise dispose of the Target Shares to the third‑party offeror identified in the Disposition Notice upon terms and conditions (including the purchase price) no more favorable to such third‑party offeror than those specified in the Disposition Notice; provided, that any such sale or disposition must not be effected in contravention of the provisions of Section 2. To the extent any of the Target Shares are at the time held in escrow under Section 7, the certificates for such shares shall automatically be released from escrow and surrendered to Holder. The third‑party offeror shall acquire the Target Shares free and clear of the Repurchase Right under Section 6 and the First Refusal Right hereunder, but the acquired shares shall remain subject to the securities law restrictions of Section 2.2 and the market stand‑off provisions of Section 4.3. In the event Holder does not effect such sale or disposition of the Target Shares within the specified thirty (30) day period, the First Refusal Right shall continue to be applicable to any subsequent disposition of the Target Shares by Holder until such right lapses in accordance with Section 5.7.
5.5 Partial Exercise of Right. In the event the Company (or its assignees) makes a timely exercise of the First Refusal Right with respect to a portion, but not all, of the Target Shares specified in the Disposition Notice, Holder shall have the option, exercisable by written notice to the Company delivered within five (5) days after Holder’s receipt of the Exercise Notice, to effect the sale of the Target Shares pursuant to either of the following alternatives:
(i) sale or other disposition of all the Target Shares to the third‑party offeror identified in the Disposition Notice, but in full compliance with the requirements of Section 5.4, as if the Company did not exercise the First Refusal Right hereunder; or
(ii) sale to the Company (or its assignees) of the portion of the Target Shares that the Company (or its assignees) has elected to purchase, such sale to be effected in substantial conformity with the provisions of Section 5.3.
Failure of Holder to deliver timely notification to the Company under this Section 5.5 shall be deemed to be an election by Holder to sell the Target Shares pursuant to alternative (i) above.
5.6 Recapitalization/Reorganization.
5.6.1 In the event of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other transaction affecting the outstanding Common Stock as a class effected without the Company’s receipt of consideration, any new, substituted or additional securities or other property that is by reason of such transaction distributed with respect to the Shares shall be immediately subject to the First Refusal Right hereunder, but only to the extent the Shares are at the time covered by such right.
5.6.2 In the event of any form of corporate reorganization, the First Refusal Right shall remain in full force and effect and shall apply to the new capital stock or other property received in exchange for the Shares in consummation of the reorganization, but only to the extent the Shares are at the time covered by such right.
5.7 Lapse. The First Refusal Right under this Section 5 shall lapse and cease to have effect upon the earliest to occur of (i) the first date on which shares of the Common Stock are held of record by more than five hundred (500) persons, (ii) a determination is made by the Board that a public market exists for the outstanding shares of Common Stock or (iii) a firm commitment underwritten public offering, pursuant to an effective registration statement under the Securities Act, covering the offer and sale of the Common Stock in the aggregate amount of at least ten million dollars ($10,000,000). The market stand‑off provisions of Section 4.3 shall continue to remain in full force and effect following the lapse of the First Refusal Right hereunder.
6. Repurchase Right
6.1 Grant. The Company is hereby granted the Repurchase Right, exercisable at any time during the ninety (90) day period following the date the Participant ceases for any reason to remain in Service, during (if later) the ninety (90) day period following the execution date of this Agreement or contemporaneously with the consummation of a Corporate Transaction, to repurchase at the Purchase Price all or (at the discretion of the Company) any portion of the Shares in which the Participant has not acquired a vested interest in accordance with the vesting provisions of Section 6.3 below.
6.2 Exercise of the Repurchase Right. The Repurchase Right shall be exercisable by written notice delivered to the Holder of the Unvested Shares prior to the expiration of the applicable period specified in Section 6.1. The notice shall indicate the number of Unvested Shares to be repurchased and the date on which the repurchase is to be effected, such date to be not more than thirty (30) days after the date of notice. To the extent one or more certificates representing Unvested Shares may have been previously delivered out of escrow to the Holder, then prior to the close of business on the date specified for the repurchase, the Holder shall deliver to the Secretary of the Company the certificates representing the Unvested Shares to be repurchased, each certificate to be properly endorsed for transfer. The Company, concurrently with the receipt of such stock certificates (either from escrow in accordance with Section 7.3 or from Holder as herein provided), shall pay to Holder in cash or cash equivalents (including the cancellation of any purchase-money indebtedness), an amount equal to the Purchase Price previously paid for the Unvested Shares that are to be repurchased.
6.3 Termination of the Repurchase Right. The Repurchase Right shall terminate with respect to any Unvested Shares for which it is not timely exercised under Section 6.2. In addition, the Repurchase Right shall terminate, and cease to be exercisable, with respect to any and all Shares in which the Participant vests in accordance with the schedule below. Accordingly, provided the Participant continues in Service, the Participant shall acquire a vested interest in, and the Repurchase Right shall lapse with respect to, the Shares in accordance with the following provisions:
(i) Upon the first anniversary of the Vesting Commencement Date, the Participant shall acquire a vested interest in, and the Repurchase Right shall lapse with respect to, twenty-five percent (25%) of the Shares. For purposes of this Agreement, the Vesting Commencement Date shall be __________.
(ii) Commencing with the first anniversary of the Vesting Commencement Date, the Participant shall acquire a vested interest in, and the Repurchase Right shall lapse with respect to, the remaining Shares in a series of successive equal quarterly installments over the three (3) year period following such date.
(iii) All Shares as to which the Repurchase Right lapses shall, however, continue to be subject to the First Refusal Right and the market stand-off provisions of this Agreement.
6.4 Fractional Shares. No fractional shares shall be repurchased by the Company. Accordingly should the Repurchase Right extend to a fractional share (in accordance with the vesting computation provisions of Section 6.3) at the time the Participant ceases Service, then such fractional share shall be added to any fractional share in which the Participant is at such time vested in order to make one whole vested share no longer subject to the Repurchase Right.
6.5 Additional Shares or Substituted Securities. In the event of any stock dividend, stock split, recapitalization or other change affecting the Company’s outstanding Common Stock as a class effected without receipt of consideration, then any new, substituted or additional securities or other property (including money paid other than as a regular cash dividend) that is by reason of any such transaction distributed with respect to the Shares shall be immediately subject to the Repurchase Right, but only to the extent the Shares are at the time covered by such right. Appropriate adjustments to reflect the distribution of such securities or property shall be made to the number of Shares at the time subject to the Repurchase Right hereunder and to the price per share to be paid upon the exercise of the Repurchase Right in order to reflect the effect of any such transaction upon the Company’s capital structure; provided, that the aggregate Purchase Price shall remain the same.
6.6 Assignment. The Company may assign its Repurchase Right to any person or entity selected by the Company’s Board of Directors, including (without limitation) one or more shareholders of the Company. If the assignee of the Repurchase Right is other than a Parent or Subsidiary corporation of the Company, then such assignee must make a cash payment to the Company, upon the assignment of the Repurchase Right, in an amount equal to the amount (if any) of (i) the Fair Market Value of the Unvested Shares at the time subject to the assigned Repurchase Right in excess of (ii) the aggregate repurchase price payable for Unvested Shares thereunder.
6.7 Corporate Transaction.
6.7.1 In the event of a Corporate Transaction, the Plan Administrator, in its sole discretion, may (i) terminate the Company’s Repurchase Right under this Agreement and thereby cause the Shares subject to such right to vest immediately in full, (ii) arrange for the Repurchase Right to be assigned to the successor corporation (or parent thereof) in connection with the Corporate Transaction or (iii) exercise the Company’s Repurchase Right contemporaneously with the consummation of the Corporate Transaction as provided in Section 6.1 above.
6.7.2 To the extent the Repurchase Right remains in effect following such Corporate Transaction, it shall apply to the new capital stock or other property (including cash) received in exchange for the Shares in consummation of the Corporate Transaction, but only to the extent the Shares are at the time covered by such right. Appropriate adjustments shall be made to the price per share payable upon exercise of the Repurchase Right to reflect the effect of the Corporate Transaction upon the Company’s capital structure; provided, that the aggregate Purchase Price shall remain the same.
7. Escrow
7.1 Deposit. Upon issuance, the certificates for any Unvested Shares purchased hereunder shall be deposited in escrow with the Company to be held in accordance with the provisions of this Section 7. Each deposited certificate shall be accompanied by a duly executed Assignment Separate from Certificate in the form of Exhibit 1.2. The deposited certificates, together with any other assets or securities from time to time deposited with the Company pursuant to the requirements of this Agreement, shall remain in escrow until such time or times as the certificates (or other assets and securities) are to be released or otherwise surrendered for cancellation in accordance with Section 7.3. Upon delivery of the certificates (or other assets and securities) to the Company, the Holder shall be issued an instrument of deposit acknowledging the number of Unvested Shares (or other assets and securities) delivered in escrow to the Company.
7.2 Recapitalization. All regular cash dividends on the Unvested Shares (or other securities at the time held in escrow) shall be paid directly to the Holder and shall not be held in escrow. In the event of any stock dividend, stock split, recapitalization or other change affecting the Company’s outstanding Common Stock as a class effected without receipt of consideration or in the event of a Corporate Transaction, any new, substituted or additional securities or other property (including money paid other than as a regular cash dividend) that is by reason of such transaction distributed with respect to the Unvested Shares shall be immediately delivered to the Company to be held in escrow under this Section 7, but only to the extent the Unvested Shares are at the time subject to the escrow requirements of Section 7.1.
7.3 Release/Surrender. The Unvested Shares, together with any other assets or securities held in escrow hereunder, shall be subject to the following terms and conditions relating to their release from escrow or their surrender to the Company for repurchase and cancellation:
7.3.1 As the interest of the Participant in the Unvested Shares (or any other assets or securities attributable thereto) vests in accordance with the provisions of Section 6, the certificates for such vested shares (as well as all other vested assets and securities) may be released from escrow and delivered to the Holder in accordance with the following schedule:
(1) Upon the written request of the Participant, the initial release of vested shares (or other vested assets and securities) from escrow shall be effected within thirty (30) days following the expiration of the initial twelve (12) month period measured from the Vesting Commencement Date under Section 6.3; provided, that in no event will vested shares be released from escrow until shareholder approval authorizing the Plan has been obtained.
(2) Subsequent releases of vested shares (or other vested assets and securities) from escrow shall be effected upon the written request of the Participant, not to exceed four requests per year.
(3) Upon the Participant’s cessation of Service, any escrowed Shares (or other assets or securities) in which the Participant is at the time vested shall be promptly released from escrow.
(4) Upon any earlier termination of the Company‘s Repurchase Right in accordance with the applicable provisions of Section 6, the Shares (or other assets or securities) at the time held in escrow hereunder shall promptly be released to the Holder as fully-vested shares or other property.
7.3.2 Should the Company (or its assignees) elect to exercise the Repurchase Right under Section 6 with respect to any Unvested Shares, then the escrowed certificates for such Unvested Shares (together with any other assets or securities issued with respect thereto) shall be delivered to the Company, concurrently with the payment to the Holder, in cash or cash equivalents (including the cancellation of any purchase-money indebtedness), of an amount equal to the aggregate Purchase Price for such Unvested Shares, and the Holder shall cease to have any further rights or claims with respect to such Unvested Shares (or other assets or securities attributable to such Unvested Shares).
7.3.3 Should the Company (or its assignees) elect to exercise its First Refusal Right under this Agreement with respect to any vested Target Shares held at the time in escrow hereunder, then the escrowed certificates for such Target Shares (together with any other assets or securities attributable thereto), concurrently with the payment of the purchase price for such Target Shares to the Holder, shall be surrendered to the Company and the Holder shall cease to have any further rights or claims with respect to such Target Shares (or other assets or securities).
7.3.4 Should the Company (or its assignees) elect not to exercise their First Refusal Right under this Agreement with respect to any vested Target Shares held at the time in escrow hereunder, then the escrowed certificates for such Target Shares (together with any other assets or securities attributable thereto) shall be surrendered to the Holder for disposition in accordance with the provisions of this Agreement.
7.3.5 All Shares (or other assets or securities) released from escrow in accordance with the provisions of subsection 7.3.1 above shall nevertheless remain subject to this Agreement.
8. Definitions
The following definitions shall apply to the respective capitalized terms used herein:
Code means the Internal Revenue Code of 1986, as amended.
Common Stock means the Common Stock of [Company], Inc.
Company means [Company], Inc., a [State] corporation.
Corporate Transaction means any of the following transactions: (i) a merger or consolidation in which the Company is not the surviving entity, except for a transaction the principal purpose of which is to change the State in which the Company is incorporated, (ii) the sale, transfer or other disposition of all or substantially all of the assets of the Company, (iii) any reverse merger in which the Company is the surviving entity but in which fifty percent (50%) or more of the Company’s outstanding voting stock is transferred to holders different from those who held the stock immediately prior to such merger, or (iv) the acquisition of fifty percent (50%) or more of the Company’s outstanding voting stock by a person or group of related persons other than the Company, a person that directly or indirectly controls, is controlled by or is under common control with the Company, or any existing shareholder of the Company as of the date of the adoption of the Plan by such shareholders.
Exchange Act means the Securities Exchange Act of 1934, as amended.
Fair Market Value of a share of Common Stock on any relevant date shall be determined in accordance with the following provisions:
(a) If the Common Stock is at the time neither listed nor admitted to trading on any stock exchange nor traded in the over-the-counter market, or if the Plan Administrator otherwise determines that the valuation provisions of paragraphs (b) and (c) below will not result in a true and accurate valuation of the Common Stock, then the Fair Market Value shall be determined by the Plan Administrator after taking into account such factors as the Plan Administrator shall deem appropriate under the circumstances.
(b) If the Common Stock is not at the time listed or admitted to trading on any stock exchange but is traded in the over-the-counter market, the Fair Market Value shall be the mean between the highest bid and the lowest asked prices (or if such information is available the closing selling price) per share of Common Stock on the date in question in the over-the-counter market, as such prices are reported by the National Association of Securities Dealers through its NASDAQ National Market System or any successor system. If there are no reported bid and asked prices (or closing selling price) for the Common Stock on the date in question, then the mean between the highest bid and lowest asked prices (or closing selling price) on the last preceding date for which such quotations exist shall be determinative of Fair Market Value.
(c) If the Common Stock is at the time listed or admitted to trading on any stock exchange, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question on the stock exchange determined by the Plan Administrator to be the primary market for the Common Stock. If there is no reported sale of Common Stock on such exchange on the date in question, then the Fair Market Value shall be the closing selling price on the exchange on the last preceding date for which such quotation exists.
First Refusal Right means the right of first refusal granted the Company in this Agreement.
Holder means, for purposes of Sections 4 through 7 of this Agreement, the Participant and all subsequent holders of the Shares who derive their chain of ownership through a Permitted Transfer from the Participant.
Parent corporation means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, provided each such corporation in the unbroken chain (other than the Company) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
Permitted Transfer shall have the meaning set forth in Section 4.1.
Plan means the [Date] Stock Option/Stock Issuance Plan of the Company, in the form attached hereto as Exhibit 2.1.
Repurchase Right means the right of the Company to repurchase Unvested Shares from the Holder at the original purchase price paid per share in accordance with the provisions of Section 6 of this Agreement.
SEC means the United States Securities and Exchange Commission.
Securities Act means the Securities Act of 1933, as amended.
Service shall mean the performance of services for the Company or any Parent or Subsidiary corporation by an individual in the capacity of an employee, a non-employee member of the board of directors or an independent consultant or advisor. The Participant shall be deemed to remain in Service for so long as such individual renders services to the Company or any Parent or Subsidiary corporation on a periodic basis in the capacity of an employee, a non-employee member of the board of directors or an independent consultant or advisor.
Subsidiary corporation means each corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, provided each such corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
Target Shares means any vested shares of the Company’s stock subject to the First Refusal Right under this Agreement and as to which a third party has offered to purchase such shares from a Holder thereof.
Unvested Shares means the shares in which Participant has not yet acquired a vested interest pursuant to the vesting schedule set forth in Section 6.3 of this Agreement.
9. Miscellaneous Provisions
9.1 Restrictive Legends. In order to reflect the restrictions on disposition of the Shares, the stock certificates for the Shares will be endorsed with restrictive legends, including one or more legends substantially similar to the following:
(a) “The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended, or applicable state securities laws. The shares may not be sold, offered for sale, pledged or hypothecated in the absence of an effective registration statement for the shares under said Act or state laws, or an opinion of counsel satisfactory to the Corporation that such registration is not required with respect to such sale or offer.”
(b) “This certificate and the shares represented hereby may not be sold, assigned, transferred, encumbered, or in any manner disposed of except in conformity with the terms of written agreements between the Company and the registered holder of the shares (or the predecessor in interest to the shares). The Company will upon written request and without charge furnish a copy of such agreements to the holder hereof.”
9.2 No Employment or Service Contract. Nothing in this Agreement or in the Plan shall confer upon the Participant any right to continue in the Service of the Company for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Company or the Participant, which rights are hereby expressly reserved by each, to terminate the Participant’s Service at any time for any reason whatsoever, with or without cause.
9.3 Notices. Any notice required in connection with the Repurchase Right or the disposition of any Shares covered thereby shall be given in writing and shall be deemed effective upon personal delivery or upon deposit in the United States mail, registered or certified, postage prepaid and addressed to the party entitled to such notice at the address indicated below such party’s signature line on this Agreement or at such other address as such party may designate by ten (10) days advance written notice under this Section 9.3 to all other parties to this Agreement.
9.4 No Waiver. The failure of the Company (or its assignees) in any instance to exercise the Repurchase Right granted under Section 6 shall not constitute a waiver of any other repurchase rights that may subsequently arise under the provisions of this Agreement or any other agreement between the Company and the Participant. No waiver of any breach or condition of this Agreement shall be deemed to be a waiver of any other or subsequent breach or condition, whether of like or different nature.
9.5 Cancellation of Shares. If the Company (or its assignees) shall make available, at the time and place and in the amount and form provided in this Agreement, the consideration for the Shares to be repurchased in accordance with the provisions of this Agreement, then from and after such time, the person from whom such shares are to be repurchased shall no longer have any rights as a holder of such shares (other than the right to receive payment of such consideration in accordance with this Agreement), and such shares shall be deemed purchased in accordance with the applicable provisions hereof and the Company (or its assignees) shall be deemed the owner and holder of such shares, whether or not the certificates therefor have been delivered as required by this Agreement.
9.6 Further Assurances. Participant hereby agrees to take whatever additional action and execute whatever additional documents the Company may in its judgment deem necessary or advisable in order to carry out or effect one or more of the obligations or restrictions imposed on either the Participant or the Shares pursuant to the express provisions of this Agreement.
9.7 Entire Agreement. This Agreement, together with the Plan, constitutes the entire contract between the parties hereto with regard to the issuance of the Shares to the Participant. This Agreement is made pursuant to the provisions of the Plan and shall in all respects be construed in conformity with the express terms and provisions of the Plan.
9.8 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of [State] without resort to that state’s conflict-of-laws rules.
9.9 Successors and Assigns. The provisions of this Agreement shall inure to the benefit of, and be binding upon, the Company and its successors and assigns and the Participant and the Participant’s legal representatives, heirs, legatees, distributees, assigns and transferees by operation of law, whether or not any such person shall have become a party to this Agreement and have agreed in writing to join herein and be bound by the terms and conditions hereof.
9.10 Power of Attorney. Participant’s spouse hereby appoints Participant his or her true and lawful attorney in fact, for him or her and in his or her name, place and stead, and for his or her use and benefit, to agree to any amendment or modification of this Agreement and to execute such further instruments and take such further actions as may reasonably be necessary to carry out the intent of this Agreement. Participant’s spouse further gives and grants unto Participant as his or her attorney in fact full power and authority to do and perform every act necessary and proper to be done in the exercise of any of the foregoing powers as fully as he or she might or could do if personally present, with full power of substitution and revocation, hereby ratifying and confirming all that Participant shall lawfully do and cause to be done by virtue of this power of attorney.
9.11 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument.
[Signatures appear on following page] In Witness Whereof, the parties have executed this Agreement on the day and year first indicated above.
[Company], Inc.
By:_____________________ Its:_____________________
_____________________
Participant
Address: _________________ __________________
The undersigned spouse of Participant has read and hereby approves the foregoing Restricted Stock Issuance Agreement. In consideration of the Company’s issuance to the Participant of the Shares in accordance with the terms of such Agreement, the undersigned hereby agrees to be irrevocably bound by all the terms and provisions of such Agreement, including without limitation the right of the Company (or its assignees) to purchase any and all interest or right the undersigned may otherwise have or acquire in such shares pursuant to community property laws or marital property rights. _______________________
Participant’s spouse
Address:_____________________ _____________________
Exhibit 1.2 Assignment Separate From Certificate
FOR VALUE RECEIVED, hereby sells, assigns and transfers unto [Company], Inc. (the “Company”) ( ) shares of the Common Stock of the Company standing in the undersigned’s name on the books of the Company represented by Certificate No. __________ herewith and does hereby irrevocably constitute and appoint as Attorney to transfer the said stock on the books of the Company with full power of substitution in the premises.
Dated: _____________________________
Signature:___________________________
Print Name:________________________
Instruction: Please do not fill in any blanks other than the signature line. The purpose of this assignment is to enable the Company to exercise the Repurchase Right set forth in the Agreement without requiring additional signatures on the part of the Participant.
Exhibit 2.1
Plan (Attached) [1] Generally, a disposition of shares purchased under an incentive stock option includes any transfer of legal title, including a transfer by sale, exchange or gift, but does not include a transfer to the Optionee's spouse, a transfer into joint ownership with right of survivorship if Optionee remains one of the joint owners, a pledge, a transfer by bequest or inheritance or certain tax free exchanges permitted under the Code. |
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