EXHIBIT 10.5
Biomune Systems, Inc.
INCENTIVE STOCK OPTION AGREEMENT
Biomune Systems, Inc., a Nevada corporation (the "Company"), hereby grants
this 23rd day of October, 1996, to Xxxxx Xxxxxxxx, an individual (the
"Employee"), an option to purchase a maximum of ten thousand (10,000) shares of
the Company's Common Stock, $0.0001 par value per share, at the price of $1.16
per share, on the following terms and conditions:
1. Grant Under 1996 Stock Incentive Plan. This option is granted pursuant
to and is governed by the Company's 1996 Stock Incentive Plan (the "Plan") and,
unless the context requires otherwise, terms used herein shall have the same
meaning as in the Plan. Determinations made in connection with this option
pursuant to the Plan shall be governed by the Plan as it exists on the date
hereof.
2. Grant as Incentive Stock Option; Other Options. This option is intended
to qualify as an incentive stock option under Section 422A of the Internal
Revenue Code of 1986, as amended (the "Code"). This option is in addition to any
other options heretofore or hereafter granted to the Employee by the Company. A
duplicate original of this option shall not effect the grant of another option
to the Employee.
3. Extent of Option if Employment Continues. If the Employee continues to
be employed by the Company, the Employee may exercise this option for a maximum
of ten thousand (10,000) shares of the Company's Common Stock, which option may
be exercised up to and including the date that is five (5) years from the date
this option is granted. The foregoing rights are cumulative and, while the
Employee continues to be employed by the Company, may be exercised up to and
including the date that is five (5) years from the date this option is granted.
All of the foregoing rights are subject to Sections 4 and 5 below, as
appropriate, if the Employee ceases to be employed by the Company or dies or
becomes disabled while in the employ of the Company.
4. Termination of Employment. Except as provided in Section 20 below, if
the Employee ceases to be employed by the Company, other than by reason of death
or disability as defined in Section 5 below, no further installments of this
option shall become exercisable and this option shall terminate after the
passage of ninety (90) days from the date employment ceases, but in no event
later than the scheduled expiration date of this option. In such a case, the
Employee's only rights hereunder shall be those that are properly exercised
before the termination of this option.
5. Death; Disability. If the Employee dies while in the employ of the
Company, this option may be exercised to the extent of the number of shares with
respect to which the Employee could have exercised on the date of the Employee's
death, by the Employee's estate, personal representative or beneficiary to whom
this option has been assigned pursuant to Section 10 below, at any time within
one (1) year after the date of death, but not later than the scheduled
expiration date of this option. If the Employee ceases to be employed by the
Company by reason of the Employee's disability (as defined in the Plan), this
option may be exercised, to the extent of the number of shares with respect to
which the Employee could have exercised this option on the date of the
termination of the Employee's employment, at any time within one (1) year after
such termination, but not later than the scheduled expiration date of this
option. At the expiration of such one year period or the scheduled expiration
date, whichever is the earlier, this option shall terminate and the only rights
hereunder shall be those as to which the option was properly exercised before
such termination.
6. Partial Exercise. The exercise of this option up to the extent
above-stated may be made in part at any time and from time-to-time within the
above limits, except that this option may not be exercised for a fraction of a
share unless such exercise is with respect to the final installment of stock
subject to this option and a fractional share (or cash in lieu thereof) must be
issued to permit the Employee to exercise completely such final installment. Any
fractional share with respect to which an installment of this option cannot be
exercised because of the limitation contained in the preceding sentence shall
remain subject to this option and shall be available for later purchase by the
Employee in accordance with the terms hereof.
7. Payment of Price. The option price is payable as follows:
(a) in United States dollars in cash or by check, or any combination
of the foregoing, equal in amount to the option price. (Initials)
(b) in cash, by check (in United States dollars), by delivery of
shares of the Company's Common Stock having a fair market value (as determined
by the Board or the Committee, as appropriate) equal as of the date of exercise
to the option price, or by any combination of the foregoing, equal in amount to
the option price.
(Initials)
(c) As provided by Sections 7(a) and (b) above, payment of such
purchase price or any portion thereof may be made with shares of stock of the
same class as the shares then subject to this option, if shares of that class
are then Publicly Traded (as that term is defined in Section 20 below), such
shares to be credited toward such purchase price on the valuation basis set
forth below, in which event the stock certificate(s) evidencing the share to be
so used shall accompany the notice of exercise and shall be duly endorsed or
accompanied by a duly executed stock power(s) to transfer the same to the
Company; the same to the Company; provided, however, that such payment in stock
instead of cash shall not be effective and shall be rejected by the Company if
(i) the Company is then prohibited from purchasing or acquiring shares of the
class of its stock tendered to it or (ii) the right or power of the individual
exercising the option to deliver such shares in payment of said purchase price
is subject to the prior interests of any other individual (excepting the Company
as indicated by legends upon the certificate(s) or as known to the Company). For
purposes of this Section 7(c): (a) "Publicly Traded" shares are those that are
listed or admitted to unlisted trading privileges on a national securities
exchange or as to which sales or bid and offer quotations are reported by the
National Association of Securities Dealers Automated Quotation ("NASDAQ")
system, operated by the National Association of Securities Dealers, Inc.
("NASD") and (b) for credit toward the purchase price , shares so surrendered
shall be valued as of the day immediately preceding the delivery to the Company
of the certificate(s) evidencing such shares (or, if such day is not a trading
day in the United States securities markets, on the nearest preceding trading
day), on the basis of the closing price of stock of that class as reported with
respect to the market (or the composite of the markets, if more than one exists)
in which such shares are then traded, or if no such closing prices are reported,
that lowest independent offer quotation reported, therefore in Level 2 of
NASDAQ, or if no such quotations are reported on the basis of the most nearly
comparable valuation method acceptable to the Company. If the Company rejects
the payment in stock, the tendered notice of exercise shall not be effective
hereunder unless promptly after being notified of such rejection the individual
exercising the option pays the purchase price in acceptable form. If and while
payment of the purchase price with stock is permitted in accordance with the
foregoing provisions, the individual then entitled to exercise this option may,
in lieu of using previously outstanding shares therefore, use some of the shares
as to which this option is then being exercised, in which case the notice of
exercise need not be accompanied by any stock certificate(s) but shall include a
statement directing the Company to withhold so many of the shares that would
otherwise have ben delivered upon that exercise of this option as equals the
number of shares that would have been transferred to the Company if the purchase
price had been paid with previously issued stock.
No person shall be entitled to the privileges of stock ownership in respect
of any shares issuable upon the exercise of this option, unless and until such
shares have been issued to such person as fully paid shares.
No certificated(s) for shares of stock purchased upon the exercise of this
option shall be issued and delivered prior to the admission of such shares to
listing on any stock exchange on which shares of that class are then listed, nor
unless and until, in the opinion of counsel for the Company, such securities may
be issued and delivered without causing the Company to be in violation of or to
incur any liability under any federal, state or other securities law, rule or
regulation, any requirement of any securities exchange listing agreement to
which the Company may be a party or any other requirement of law or of any
regulatory agency or body having jurisdiction over the Company or its
securities.
Notwithstanding the foregoing, the Employee may not pay any part of the
exercise price hereof by transferring Common Stock to the Company if such Common
Stock is both (a) subject to a substantial risk of forfeiture and (b) not
transferable within the meaning of Section 83 of the Code.
8. Agreement to Purchase for Investment. By acceptance of this option, the
Employee agrees that a purchase of shares under this option will not be made
with a view to their distribution (as that term is used in the Securities Act of
1933, as amended (the "1993 Act")), unless in the opinion of counsel to the
Company such distribution is in compliance with or exempt from the registration
and prospectus requirements of the 1933 Act, and the Employee agrees to sign a
certificate to such effect at the time of exercising this option and agrees that
the certificate(s) for the shares of the Company's Common Stock so purchased may
be inscribed with a legend to ensure compliance with the requirements of the
1933 Act. The Employee has had access to all information required by the
Employee to make an investment decision and the Employee has had an opportunity
to ask questions of and received answers from the Company pertaining to the
Company, its business, this option and they underlying shares of the Company's
Common Stock.
9. Method of Exercising Option. Subject to the terms and conditions set
forth herein, this option may be exercised by written notice to the Company at
the principal executive office of the Company or to such transfer agent as the
Company shall designate. Such notice shall state the election to exercise this
option and the number of shares of the Company's Common Stock in respect of
which this option is being exercised and shall be signed by the individual(s)
exercising this option. Such notice shall be accompanied by payment of the full
purchase price of such shares as soon as practicable after the notice shall be
received. The certificate(s) for the shares as to which this option shall have
been so exercised shall be registered in the name of the individual(s) so
exercising this option (or, if this option shall be exercised by the Employee
and if the Employee shall so request in the notice of exercise, shall be
registered in the name of the Employee and another individual jointly, with full
rights of survivorship) and shall be delivered as provided above to or upon the
written order of the individual(s) exercising this option. In the event this
option shall be exercised, pursuant to Section 5 above, by any individual(s)
other than the Employee, such notice of exercise shall be accompanied by
appropriate proof of the right of such individual(s) to exercise this option.
All shares of the Company's Common Stock that shall be purchased upon the
exercise of this option as provided herein shall be fully paid and
non-assessable.
10. Option Not Transferable. This option is not transferable or assignable
except by will or by the law of descent and distribution or except as permitted
by Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended
(the "1934 Act"). The Employee can exercise this option only during the
Employee's lifetime.
11. No Obligation to Exercise Option. The grant and acceptance of this
option imposes no obligation on the Employee to exercise this option.
12. No Obligation to Continue Employment. The Company and any Related
Corporation (as that term is defined in the Plan) are not by the Plan or this
option obligated to continue the Employee in employment.
13. No Rights as Stockholder Until Option Exercised. The Employee shall
have no rights as a stockholder with respect to shares of the Company's Common
Stock subject to this option until a stock certificate(s) therefore has been
issued to the Employee and is fully paid for. Except as is expressly provided in
the Plan with respect to certain changes in the capitalization of the Company,
no adjustment shall be made for dividends or similar rights for which the record
date is prior to the date a stock certificate is issued.
14. Capital Changes and Business Successions. Subject to Section 20 below,
the Plan contains provisions regarding the treatment of options in a number of
contingencies such as stock splits and mergers. Provisions in the Plan for
adjustment with respect to shares of the Company's Common Stock subject to
options and the related provisions with respect to successors to the business of
the Company and are hereby made applicable hereunder and are incorporated herein
by reference. In general, the Employee should not assume that options
necessarily would survive the acquisition of the Company. In particular, without
affecting the generality of the foregoing, it is understood that for the
purposes of Sections 3 through 5 above, employment by the Company includes
employment by a Related Corporation.
15. Early Disposition. The Employee agrees to notify the Company in writing
immediately after the Employee makes a Disqualifying Disposition (as that term
is defined below) of any shares of the Company's Common Stock received pursuant
to the exercise of this option. A "Disqualifying Disposition" is any disposition
(including any sale) of shares of the Company's Common Stock before the later of
(a) two (2) years after that date the Employee was granted this option or (b)
one (1) year after the date the Employee acquired Common Stock by exercising
this option. If the Employee dies before such stock is sold, these holding
period requirements do not apply and no Disqualifying Disposition can occur
thereafter. The Employee also agrees to provide the Company with any information
that it shall request concerning any such disposition. The Employee acknowledges
that he or she will forfeit the favorable income tax treatment otherwise
available with respect to the exercise of this ISO if the Employee makes a
Disqualifying Disposition of the stock received upon the exercise of this
option.
16. Withholding Taxes. If the Company in its discretion determines that it
is obligated to withhold tax with respect to a Disqualifying Disposition (as
that term is defined in Section 15 above) of shares of the Company's Common
Stock received by the Employee upon the exercise of this option, the Employee
hereby agrees that the Company may withhold form the Employee's wages the
appropriate amount of federal, state, and local withholding taxes attributable
to the Employee's exercise of such Non-Qualified Option. At the Company's
discretion, the amount required to be withheld may be withheld in cash from such
wages, or (with respect to compensation income attributable to the exercise of
this option) in kind from the Common Stock otherwise deliverable to the Employee
upon the exercise of this option. The Employee further agrees that, if the
Company does not withhold an amount from the Employee's wages sufficient to
satisfy the Company's withholding obligation, the Employee will reimburse the
Company upon demand, in cash, for the amount underwithheld.
17. Company's Right of First Refusal.
(a) Exercise of Right. If the Employee desires to sell all or any part
of the shares acquired under this option (including any securities received in
respect thereof pursuant to any stock dividend, stock split, reclassification,
reorganization, recapitalization or the like), and an offeror (the "Offeror")
has made an offer therefore, which offer the Employee desires to accept, the
Employee shall: (i) obtain in writing an irrevocable and unconditional bona fide
offer (a "Bona Fide Offer") for the purchase thereof from the Offeror and (ii)
give written notice (the "Option Notice") to the Company setting forth the
Employee's desire to sell such shares, which Option Notice shall be accompanied
by a photocopy of the original executed Bona Fide Offer and shall set forth at
least the name and address of the Offeror and the price and terms of the Bona
Fide Offer. Upon receipt of the Option Notice, the Company shall have an
assignable option to purchase any or all of such shares (the "Option Shares")
specified in the Option Notice, such option to be exercisable by giving, within
thirty (30) days after receipt of the Option Notice, a written counter-notice to
the Employee. If the Company elects to purchase any or all of such Option
Shares, it shall be obligated to purchase, and the Employee shall be obligated
to sell to the Company, such Option Shares at the price and terms indicated in
the Bona Fide Offer within sixty (6) days from the date of receipt by the
Company of the Option Notice.
(b) Sale of Option Shares to Offerer. The Employee may sell, pursuant
to the terms of the Bona Fide Offer, any or all of such Option Shares not
purchased or agreed to be purchased by the Company during the period that is
sixty (60) days after the expiration of the thirty (30) day period during which
the Company may give the aforesaid counter-notice; provided, however, that the
Employee shall not sell such Option Shares to the Offeror if the Offeror is a
competitor of the Company and the Company gives written notice to the Employee,
within thirty (30) days of its receipt of the Option Notice, stating that the
Employee shall not sell the Option Shares to the Offeror; provided, further,
that prior to the sale of such Option Shares to the Offeror, the Offeror shall
execute an agreement with the Company pursuant to which the Offeror agrees to be
subject to the restrictions set forth in this Section 17. If any or all of such
Option Shares are not sold pursuant to a Bona Fide Offer within the time
permitted above, the unsold Option Shares shall remain subject to the terms of
this Section 17.
(c) Adjustments for Changes in Capital Structure. If there shall be
any change in the Company's Common Stock through merger, consolidation,
reorganization, recapitalization, stock dividend, split-up, combination or
exchange of shares or the like, the restrictions contained in this Section 17
shall apply with equal force to additional and/or substitute securities, if any,
received by the Employee in exchange for, or by virtue of his or her ownership
of, Option Shares.
(d) Failure to Deliver Option Shares. In the event the Employee fails
or refuses to deliver on a timely basis a duly endorsed certificate(s)
representing the Option Shares to be sold to the Company pursuant to this
Section 17, the Company shall have the right to deposit the purchase price for
the Option Shares in a special account with any bank or trust company in the
State of Utah, giving notice of such deposit to the Employee, whereupon such
Option Shares shall be deemed to have been purchased by the Company. All such
monies shall be held by the bank or trust company for the benefit of the
Employee. All monies deposited with the bank or trust company but remaining
unclaimed for two (2) years after the date of deposit shall be repaid by the
bank or trust company tot he Company on demand and the Employee shall thereafter
look only to the Company for payment. The Company may place a legend on any
stock certificate(s) delivered to the Employee reflecting the restrictions on
transfer set forth in this Section 17.
18. No Exercise of Option if Employment Terminated for Misconduct. If the
employment of the Employee is terminated for "Misconduct," this option shall
terminate on the date of such termination of employment and all unvested or
unexercised options shall thereupon no longer be exercisable to any extent
whatsoever. For purposes of this Section 18, "Misconduct" is conduct, as
determined by the board, involving one or more of the following: (i) the
substantial and continuing failure of the Employee to render services to the
Company in accordance with the Employee's assigned duties; (ii) a determination
by two-thirds (2/3) of the members of the Board that the Employee has
inadequately performed the duties of the Employee's employment; (iii)
disloyalty, gross negligence, dishonesty or breach of a fiduciary duty owed to
the Company; (iv) the commission of an act of embezzlement, fraud, disloyalty,
dishonesty or deliberate disregard of rules or policies of the Company that
results in loss, damage or injury to the Company, whether directly or
indirectly; (v) the unauthorized disclosure of any trade secret or confidential
information owned by the Company; or (vi) the commission of an act that
constitutes unfair competition with the Company or that induces any customer or
client of the Company to break a contract or agreement with the Company. In
making such determination, the Board shall act fairly and in utmost good faith
and shall give the Employee an opportunity to appear and be heard at a hearing
before the Board or the Committee and to present evidence on the Employee's
behalf. For purposes of the Section 18, termination of employment shall be
deemed to occur when the Employee receives notice that the Employee's employment
is terminated.
19. Company's Right of Repurchase.
(a) Right of Repurchase. If any of the events specified in Section
19(b) below ------------------- occur, then:
(i) with respect to shares acquired upon exercise of this option
prior to the occurrence of such event, within sixty (60) days after
the Company receives actual knowledge of the event, and
(ii) with respect to shares acquired upon exercise of this option
after the occurrence of such event, within sixty (60) days following
the later of the date of such exercise or the date the Company
receives actual knowledge of such event,
(in either case, the "Repurchase Period"), the Company shall have the option,
but not the obligation, to repurchase all, but not less than all, of the shares
from the Employee or the Employee's legal representative, as the case may be
(the "Repurchase Option"). The Repurchase Option shall be exercised by the
Company by giving the Employee, or the Employee's legal representative, written
notice of its intention to exercise the Repurchase Option on or before the last
day of the Repurchase Period, and, together with such notice, tendering to the
Employee or the Employee's legal representative, an amount equal to the higher
of the option price or the fair market value of the shares. The Company may, in
exercising the Repurchase Option, designate one or more nominees to purchase the
shares either within or without the Company. Upon timely exercise of the
Repurchase Option in the manner provided in the Section 19(a), the Employee or
Employee's legal representative shall deliver to the Company the stock
certificate(s) representing the shares being repurchased, duly endorsed and free
and clear of any and all liens, charges and encumbrances.
If shares are not purchased under the Repurchase Option, the Employee and
the Employee's successor in interest, if any, will hold any such shares in his
or her possession subject to all of the provisions of this option.
(b) Company's Right to Exercise Repurchase Option. The Company shall
have the Repurchase Option in the event any of the following events occurs:
(i) The termination of the Employee's employment with the Company
or any Related Corporation, voluntarily or involuntarily, for any
reason whatsoever, including death or permanent disability, prior to
the time this option shall be fully vested as provided in Section 3
above;
(ii) The receivership, bankruptcy or other creditor's proceedings
regarding the Employee or the taking of any of the Employee's shares
acquired upon exercise of this option by legal process, such as a levy
of execution;
(iii) Distribution of shares held by the Employee to the
Employee's spouse as such spouse's joint or community property
interest pursuant to a decree of dissolution, divorce, property
settlement agreement, operation of law or for any other reason, except
as may be otherwise permitted by the Company; or
(iv) The termination of the Employee's employment by the Company
for Misconduct (as that term is defined in Section 19 above).
(c) Determination of Fair Market Value. The fair market value of the
shares subject to this option shall be, for purposes of the Section 19, an
amount per share determined on the basis of the price at which shares of the
Common Stock could reasonably be expected to be sold in an arms-length
transaction for cash, other than on an installment basis, to a person not
employed by, controlled by, in control of or under common control with the
Company. Fair market value shall be determined by the Board, giving due
consideration to recent grants of ISOs for shares of Common Stock, recent
transactions involving shares of the Common Stock, if any, earnings of the
Company to the date of such determination, projected earnings of the Company,
the effect of the transfer restrictions to which the public market for the
Common Stock and such other matters as the Board deems pertinent. The
determination by the Board of the fair market value shall be conclusive and
binding. The fair market value of the shares shall be determined as of the day
on which the event occurs.
20. Changes in Control. Notwithstanding any other provision hereof, this
option shall accelerate so that the Employee shall have the right, at all times
until the expiration or earlier termination of the option, to exercise the
unexercised portions of this option, including the portions thereof that would,
but for this Section 20, not yet be exercisable, from and after any Involuntary
Termination (as that term is defined below) within twenty-four (24) months after
a Change in Control (as that term is defined below) that occurs while the
Employee is an employee of the Company or any Related Corporation. For purposes
of this Section 20: (a) an "Involuntary Termination" is any termination of the
Employee's employment with the Company or with any Related Corporation for
reasons other than (i) the Employee's death, (ii) the Employee's total
disability (as that term is defined in the Plan), (iii) the Employee's
retirement under circumstances that entitle the Employee to full benefits under
one or another of his employer's retirement or pension plans or programs
generally applicable to salaried employees or (iv) termination for Misconduct
(as that term is defined in Section 18 above); and (b) a "Change in Control"
means any of the following events if they occur after the date of grant of this
option and after the class of stock then subject to this option becomes Publicly
Traded (as that term is defined in Section 7(c) above): the direct or indirect
beneficial ownership (within the meaning of Section 13(d) of the 1934 Act and
Regulations 13D through G thereunder) of thirty percent (30%) or more of the
class of securities then subject to this option is acquired or becomes held by
any person or group of persons (within the meaning of Section 13(d)(3) of the
1934 Act), or the sale, mortgage, lease or other transfer in one or more
transactions not in the ordinary course of the Company's business or assets or
earning power constituting more than fifty percent (50%) of the assets or
earning power of the Company and its Related Corporations (taken as a whole) to
any such person or group of persons.
21. Provision of Documentation to Employee. By signing this option the
Employee acknowledges receipt of a copy of this option and a copy of the Plan.
22. Governing Law. This option shall be governed by and interpreted in
accordance with the laws of the State of Utah.
23. Holding Period. The Employee acknowledges that if the shares acquires
upon exercise of this option are not held for at least six (6) months following
the date of grant, the grant of this option will be deemed a purchase that may
be matched against any sale of the Company's securities occurring within six (6)
months of the grant and may create liability for the Employee pursuant to
Section 16(b) of the 1934 Act. Certain holding periods are also required under
the Code in order for this option to qualify as an ISO.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF the Company and the Employee have caused this option to
be executed, and the Employee whose signature appears below acknowledges receipt
of a copy of the Plan and of an original copy of this option.
THE EMPLOYEE:
/s/ Xxxxx Xxxxxxxx
Signature
Xxxxx Xxxxxxxx
THE COMPANY:
BIOMUNE SYSTEMS, INC., a Nevada
corporation
By: /s/ Xxxxxxx X. Xxxxx
Xxxxxxx X. Xxxxx
Its: Chief Financial Officer
