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EXHIBIT 10.19
FORM OF STOCK OPTION AGREEMENT
This Stock Option Agreement ("Agreement") is made and entered
into as of the date of grant set forth below (the "Date of Grant") by and
between Medical Science Systems, Inc., a Texas corporation (the "Company"), and
the participant named below ("Participant"). Capitalized terms not defined
herein shall have the meaning ascribed to them in the Company's 1996 Equity
Incentive Plan (the "Plan").
PARTICIPANT: _________________
SOCIAL SECURITY NUMBER: _________________
ADDRESS: _________________
_________________
TOTAL OPTION SHARES: _________________
EXERCISE PRICE PER SHARE: _________________
DATE OF GRANT: _________________
FIRST VESTING DATE: _________________
EXPIRATION DATE: _________________
TYPE OF STOCK OPTION (CHECK ONE):
[__] INCENTIVE STOCK OPTION
[__] NONQUALIFIED STOCK OPTION
1. GRANT OF OPTION. The Company hereby grants to Participant an
option (the "Option") to purchase the total number of shares of Common Stock, no
par value, of the Company set forth above (the "Shares") at the Exercise Price
Per Share set forth above (the "Exercise Price"), subject to all of the terms
and conditions of this Agreement and the Plan. If designated as an Incentive
Stock Option above, the Option is intended to qualify as an "incentive stock
option" ("ISO") within the meaning of Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code").
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2. EXERCISE PERIOD.
2.1 Exercise Period of Option. At the end of each month
(with "month" defined for purposes hereof as the period from the Vesting
Commencement Date, such as "March 12," through the same numerical date in the
next calendar month, such as "April 12") throughout the thirty-six (36) month
period commencing on _____________ (the "Vesting Commencement Date") and ending
on _____________ (the "Vesting Period"), if at the end of such month Participant
has not been Terminated, the Option shall become exercisable as to portions of
the Shares as follows: (a) This Option shall not be exercisable with respect to
any of the Shares until ______________ (the "First Vesting Date"), which is the
date 6 months after the Vesting Commencement Date; (b) on the First Vesting Date
the Option shall become exercisable as to sixteen and sixty-six one thousandths
percent (16.66%) of the Shares (i.e., for ______ Shares); and (c) and thereafter
at the end of each full succeeding month the Option shall become exercisable as
to two and seven hundred seventy-seven one thousandths percent (2.777%) of the
Shares (i.e., for ______ additional Shares). If application of such vesting
percentage results in a fractional Share, such Share shall be rounded downward
to the nearest whole Share for each month except for the last month in such
Vesting Period, at the end of which last month this Option shall become
exercisable for the full remainder.
2.2 Vesting of Options. Shares that are vested pursuant to
the schedule set forth in Section 2.1 are "Vested Shares." Shares that are not
vested pursuant to the schedule set forth in Section 2.1 are "Unvested Shares."
Unvested Shares may not be sold or otherwise transferred by Participant without
the Company's prior written consent.
2.3 Expiration. The Option shall expire on the Expiration
Date set forth above and must be exercised, if at all, on or before the
Expiration Date.
3. TERMINATION.
3.1 Termination for Any Reason Except Death, Disability or
Cause. If Participant is Terminated for any reason, except death, Disability or
for Cause, the Option, to the extent (and only to the extent) that it would have
been exercisable by Participant on the date of Termination, may be exercised by
Participant no later than three (3) months after the date of Termination, but in
any event no later than the Expiration Date.
3.2 Termination Because of Death or Disability. If
Participant is Terminated because of death or Disability of Participant, the
Option, to the extent that it is exercisable by Participant on the date of
Termination, may be exercised by Participant (or Participant's legal
representative) no later than twelve (12) months after the date of Termination,
but in any event no later than the Expiration Date.
3.3 Termination for Cause. If Participant is Terminated for
Cause, then Participant's options shall expire on such Participant's Termination
Date, or at such later time and on such conditions as determined by the
Committee.
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3.4 No Obligation to Employ. Nothing in the Plan or this
Agreement shall confer on Participant any right to continue in the employ of, or
other relationship with, the Company or any Parent or Subsidiary of the Company,
or limit in any way the right of the Company or any Parent or Subsidiary of the
Company to terminate Participant's employment or other relationship at any time,
with or without cause.
4. MANNER OF EXERCISE.
4.1 Stock Option Exercise Agreement. To exercise this
Option, Participant (or in the case of exercise after Participant's death,
Participant's executor, administrator, heir or legatee, as the case may be) musT
deliver to the Company an executed stock option exercise agreement in the form
attached hereto as Exhibit A, or in such other form as may be approved by the
Company from time to time (the "Exercise Agreement"), which shall set forth,
inter alia, Participant's election to exercise the Option, the number of Shares
being purchased, any restrictions imposed on the Shares and any representations,
warranties and agreements regarding Participant's investment intent and access
to information as may be required by the Company to comply with applicable
securities laws. If someone other than Participant exercises the Option, then
such person must submit documentation reasonably acceptable to the Company that
such person has the right to exercise the Option.
4.2 Limitations on Exercise. The Option may not be
exercised unless such exercise is in compliance with all applicable federal and
state securities laws, as they are in effect on the date of exercise. The Option
may not be exercised as to fewer than one hundred (100) Shares unless it is
exercised as to all Shares as to which the Option is then exercisable.
4.3 Payment. The Exercise Agreement shall be accompanied
by full payment of the Exercise Price for the Shares being purchased in cash (by
check), or where permitted by law:
(a) by cancellation of indebtedness of the Company to the
Participant;
(b) at the discretion of the Committee, by surrender of shares of
the Company's Common Stock that either: (1) have been owned
by Participant for more than six (6) months and have been
paid for within the meaning of SEC Rule 144 and, if such
shares were purchased from the Company by use of a
promissory note, such note has been fully paid with respect
to such shares); or (2) were obtained by Participant in the
open public market; and (3) are clear of all liens, claims,
encumbrances or security interests;
(c) at the discretion of the Committee, by tender of a full
recourse promissory note having such terms as may be
approved by the Committee and bearing interest at a rate
sufficient to avoid imputation of income under Sections
483 and 1274 of the Code;
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(d) by waiver of compensation due or accrued to Participant
for services rendered;
(e) provided that a public market for the Company's stock exists,
(1) through a "same day sale" commitment from Participant and
a broker-dealer that is a member of the National Association
of Securities Dealers (an "NASD Dealer") whereby Participant
irrevocably elects to exercise the Option and to sell a
portion of the Shares so purchased to pay for the exercise
price and whereby the NASD Dealer irrevocably commits upon
receipt of such Shares to forward the exercise price directly
to the Company, or (2) through a "margin" commitment from
Participant and an NASD Dealer whereby Participant irrevocably
elects to exercise the Option and to pledge the Shares so
purchased to the NASD Dealer in a margin account as security
for a loan from the NASD Dealer in the amount of the exercise
price, and whereby the NASD Dealer irrevocably commits upon
receipt of such Shares to forward the exercise price directly
to the Company; or
(f) by any combination of the foregoing.
4.4 Tax Withholding. Prior to the issuance of the Shares
upon exercise of the Option, Participant must pay or provide for any applicable
federal, state and local withholding obligations of the Company. If the
Committee permits, Participant may provide for payment of withholding taxes upon
exercise of the Option by requesting that the Company retain Shares with a Fair
Market Value equal to the minimum amount of taxes required to be withheld. In
such case, the Company shall issue the net number of Shares to the Participant
by deducting the Shares retained from the Shares issuable upon exercise.
4.5 Issuance of Shares. Provided that the Exercise
Agreement and payment are in form and substance satisfactory to counsel for the
Company, the Company shall issue the Shares registered in the name of
Participant, Participant's authorized assignee, or Participant's legal
representative, and shall deliver certificates representing the Shares with the
appropriate legends affixed thereto.
5. NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES. If the Option
is an ISO, and if Participant sells or otherwise disposes of any of the Shares
acquired pursuant to the ISO on or before the later of (a) the date two (2)
years after the Date of Grant, and (b) the date one (1) year after transfer of
such Shares to Participant upon exercise of the Option, Participant shall
immediately notify the Company in writing of such disposition. Participant
agrees that Participant may be subject to income tax withholding by the Company
on the compensation income recognized by Participant from the early disposition
by payment in cash or out of the current wages or other compensation payable to
Participant.
6. COMPLIANCE WITH LAWS AND REGULATIONS. The exercise of the Option
and the issuance and transfer of Shares shall be subject to compliance by the
Company and Participant with all applicable requirements of federal and state
securities laws and with all
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applicable requirements of any stock exchange on which the Company's Common
Stock may be listed at the time of such issuance or transfer. Participant
understands that the Company is under no obligation to register or qualify
the Shares with the Securities and Exchange Commission, any state securities
commission or any stock exchange to effect such compliance.
7. NONTRANSFERABILITY OF OPTION. The Option may not be transferred
in any manner other than by will or by the laws of descent and distribution and
may be exercised during the lifetime of Participant only by Participant. The
terms of the Option shall be binding upon the executors, administrators,
successors and assigns of Participant.
8. TAX CONSEQUENCES. Set forth below is a brief summary as of the
Date of Grant of some of the federal and California tax consequences of exercise
of the Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY
INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. PARTICIPANT
SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THE OPTION OR DISPOSING OF THE
SHARES.
8.1 Exercise of ISO. If the Option qualifies as an ISO,
there will be no regular federal or California income tax liability upon the
exercise of the Option, although the excess, if any, of the fair market value of
the Shares on the date of exercise over the Exercise Price will be treated as a
tax preference item for federal income tax purposes and may subject the
Participant to the alternative minimum tax in the year of exercise.
8.2 Exercise of Nonqualified Stock Option. If the Option
does not qualify as an ISO, there may be a regular federal and California
income tax liability upon the exercise of the Option. Participant will be
treated as having received compensation income (taxable at ordinary income tax
rates) equal to the excess, if any, of the fair market value of the Shares on
the date of exercise over the Exercise Price. The Company will be required to
withhold from Participant's compensation or collect from Participant and pay to
the applicable taxing authorities an amount equal to a percentage of this
compensation income at the time of exercise.
8.3 Disposition of Shares. If the Shares are held for more
than twelve (12) months after the date of the transfer of the Shares pursuant to
the exercise of the Option (and, in the case of an ISO, are disposed of more
than two (2) years after the Date of Grant), any gain realized on disposition
of the Shares will be treated as long term capital gain for federal and
California income tax purposes. If Shares purchased under an ISO are disposed
of within one (1) year of exercise or within two (2) years after the Date of
Grant, any gain realized on such disposition will be treated as compensation
income (taxable at ordinary income rates) to the extent of the excess, if any,
of the Fair Market Value of the Shares on the date of exercise over the
Exercise Price. The Company will be required to withhold from Participant's
compensation or collect from Participant and pay to the applicable taxing
authorities an amount equal to a percentage of this compensation income at
the time of exercise.
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9. PRIVILEGES OF STOCK OWNERSHIP. Participant shall not have any of
the rights of a shareholder with respect to any Shares until Participant
exercises the Option and pays the Exercise Price.
10. INTERPRETATION. Any dispute regarding the interpretation of this
Agreement shall be submitted by Participant or the Company to the Committee for
review. The resolution of such a dispute by the Committee shall be final and
binding on the Company and Participant.
11. ENTIRE AGREEMENT. The Plan is incorporated herein by reference.
This Agreement and the Plan constitute the entire agreement of the parties and
supersede all prior undertakings and agreements with respect to the subject
matter hereof.
12. 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 Corporate Secretary of the Company at its principal corporate offices. Any
notice required to be given or delivered to Participant shall be in writing and
addressed to Participant at the address indicated above or to such other address
as such party may designate in writing from time to time to the Company. All
notices shall be deemed to have been given or delivered upon: personal delivery;
three (3) days after deposit in the United States mail by certified or
registered mail (return receipt requested); one (1) business day after deposit
with any return receipt express courier (prepaid); or one (1) business day after
confirmed transmission by facsimile.
13. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights
under this Agreement. This Agreement shall be binding upon and inure to the
benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer set forth herein, this Agreement shall be binding upon
Participant and Participant's heirs, executors, administrators, legal
representatives, successors and assigns.
14. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of California as such laws are applied
to agreements between California residents entered into and to be performed
entirely within California.
15. ACCEPTANCE. Participant hereby acknowledges receipt of a copy of
the Plan and this Agreement. Participant has read and understands the terms and
provisions thereof, and accepts the Option subject to all the terms and
conditions of the Plan and this Agreement. Participant acknowledges that there
may be adverse tax consequences upon exercise of the Option or disposition of
the Shares and that Participant should consult a tax adviser prior to such
exercise or disposition.
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IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed in duplicate by its duly authorized representative and Participant has
executed this Agreement in duplicate as of the Effective Date.
MEDICAL SCIENCE SYSTEMS, INC. PARTICIPANT
By: --------------------------- --------------------------------
(Signature)
Xxxx X. Xxxxx
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(Please print name) (Please print name)
President
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(Please print title)
[SIGNATURE PAGE TO MEDICAL SCIENCE SYSTEMS, INC. STOCK OPTION AGREEMENT]
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