Incentive Stock Option Grant Agreement Under The TeleCommunication Systems, Inc. Fifth Amended and Restated 1997 Stock Incentive Plan
Exhibit 10.47
Under The
TeleCommunication Systems, Inc.
Fifth Amended and Restated 1997 Stock Incentive Plan
1. Terminology. All capitalized words that are not defined in this Agreement have the
meanings ascribed to them in the Plan. For purposes of this Agreement, the terms below have the
following meanings:
(a) “Cause” has the meaning ascribed to such term or words of similar import in the Employee’s
written employment or service contract with the Company and, in the absence of such agreement or
definition, means: (i) the willful commission by the Employee of a criminal or other act that
causes or is likely to cause substantial economic damage to the Company or substantial injury to
the business reputation of the Company; (ii) the commission by the Employee of an act of fraud in
the performance of such Employee’s duties on behalf of the Company; or (iii) the continuing willful
failure of the Employee to perform the duties of such Employee to the Company (other than such
failure resulting from the Employee’s incapacity due to physical or mental illness), all as
determined by the Administrator, which determination will be conclusive. For purposes of this
Agreement, no act, or failure to act, on the Employee’s part shall be considered “willful” unless
done or omitted to be done by the Employee not in good faith with the reasonable belief that the
Employee’s action or omission was in the best interest of the Company.
(b) “Change in Control” means: (i) an acquisition (other than from the Company) in a
transaction, or a series of related transactions, by any person, entity or “group,” within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the “Exchange
Act”), (excluding for this purpose, (A) the Company or its subsidiaries, (B) any employee benefit
plan of the Company or its subsidiaries which acquires beneficial ownership of voting securities of
the Company, (C) an underwriter temporarily holding securities pursuant to an offering of such
securities, or (D) any corporation owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their ownership of the then outstanding voting
securities of the Company entitled to vote generally in the election of directors) of beneficial
ownership, within the meaning of Rule 13d-3 promulgated under the Exchange Act, of 50% or more of
either the then outstanding shares of common stock or the combined voting power of the Company’s
then outstanding voting securities entitled to vote generally in the election of directors (the
"Company Voting Stock”); (ii) the effective time of any merger, share exchange, consolidation or
other reorganization or business combination of the Company if immediately after such transaction
persons who hold a majority of the outstanding voting securities entitled to vote generally in the
election of directors of the surviving entity (or the entity owning 100% of such surviving entity)
are not persons who held the Company Voting Stock immediately prior to such transaction; (iii) the
closing of a sale or conveyance of all or substantially all of the assets of the Company; (iv)
individuals who were the Board’s nominees for election as directors immediately prior to a meeting
of the stockholders of the Company involving an actual or threatened election contest relating to
the election of the directors of the Company, as such terms are used in Rule 14a-11 of Regulation
14A promulgated under the
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Exchange Act, cease to constitute a majority of the Board following the election; or (v) the
dissolution or liquidation of the Company; provided, however, that the term “Change
in Control” does not include a public offering of capital stock of the Company that is effected
pursuant to a registration statement filed with, and declared effective by, the Securities and
Exchange Commission under the Securities Act of 1933.
(c) “Company” includes TeleCommunication Systems, Inc. and its Affiliates, except where the
context otherwise requires.
(d) “Option Shares” mean the shares of Common Stock underlying the Options.
(e) “Total and Permanent Disability” means the inability to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment which can be
expected to result in death or which has lasted or can be expected to last for a continuous period
of not less than twelve months. The Administrator may require such proof of Total and Permanent
Disability as the Administrator in its sole discretion deems appropriate and the Administrator’s
good faith determination as to whether the Employee is totally and permanently disabled will be
final and binding on all parties concerned.
2. Vesting. The Options vest in accordance with the vesting schedule identified in
the Stock Option Certificate which is attached hereto and constitutes a part of the Agreement (the
"Vesting Schedule”), so long as the Employee is in the continuous employ of, or in a service
relationship with, the Company from the Grant Date through the applicable date upon which vesting
is scheduled to occur. No vesting will accrue to any Options after the Employee ceases to be in
either an employment or other service relationship with the Company.
3. Exercise of Options.
(a) Right to Exercise. The Employee may exercise the Options to the extent vested at
any time on or before the Expiration Date or the earlier termination of the Options, unless
otherwise provided in this Agreement. Section 4 below describes certain limitations on exercise of
the Options that apply in the event of the Employee’s death, Total and Permanent Disability,
discharge by the Company without Cause or other termination of employment or other service
relationship with the Company. The Options may be exercised only in multiples of whole shares and
may not be exercised at any one time as to fewer than one hundred shares (or such lesser number of
shares as to which the Options are then exercisable). No fractional shares will be issued under
the Options.
(b) Exercise Procedure. In order to exercise the Options, the following items must be
delivered to the Administrator before the expiration or termination of the Options: (i) an exercise
notice, in such form as the Administrator may require from time to time, specifying the number of
Option Shares to be purchased, and (ii) full payment of the Exercise Price for such Option Shares
or properly executed, irrevocable instructions, in such form as the Administrator may require from
time to time, to effectuate a broker-assisted cashless exercise, each in accordance with Section
3(c) of this Agreement. An exercise will not be effective until all of the foregoing items are
received by the Administrator.
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(c) Method of Payment. Payment of the Exercise Price may be made by delivery of cash,
certified or cashier’s check, money order or other cash equivalent acceptable to the Administrator
in its discretion, a broker-assisted cashless exercise in accordance with Regulation T of the Board
of Governors of the Federal Reserve System through a brokerage firm approved by the Administrator,
or a combination of the foregoing. In addition, payment of the Exercise Price may be made by any
of the following methods, or a combination thereof, as determined by the Administrator in its
discretion at the time of exercise:
(i) by tender (via actual delivery or attestation) to the Company of other shares of
Common Stock of the Company which have a Fair Market Value on the date of tender equal to
the Exercise Price, provided that such shares have been owned by the
Employee for a period of at least six months free of any substantial risk of forfeiture or
were purchased on the open market without assistance, direct or indirect, from the Company;
(ii) by delivery of the Employee’s full recourse promissory note payable to the Company
in a form approved by the Administrator; or
(iii) by any other method approved by the Administrator.
(d) Issuance of Shares upon Exercise. Upon exercise of the Options in accordance with
the terms of this Agreement, the Company will issue to the Employee, the brokerage firm specified
in the Employee’s delivery instructions pursuant to a broker-assisted cashless exercise, or such
other person exercising the Options, as the case may be, the number of shares of Common Stock so
paid for, in the form of fully paid and nonassessable stock. The Company will deliver stock
certificates for the Option Shares as soon as practicable after exercise, which certificates will,
unless such Option Shares are registered or an exemption from registration is available under
applicable federal and state law, bear a legend restricting transferability of such shares.
4. Termination of Employment or Service.
(a) Exercise Period Following Cessation of Employment or Other Service Relationship, In
General. If the Employee ceases to be employed by, or in a service relationship with, the
Company for any reason other than death, Total and Permanent Disability, or discharge by the
Company without Cause, the Options terminate in their entirety, regardless of whether the options
are vested, immediately upon the Employee’s termination of employment or other service
relationship.
(b) Termination by the Company Without Cause. In the event the Employee’s employment
or other service relationship is terminated by the Company without Cause, (i) the unvested Options,
after giving effect to the provisions of Section 2 of this Agreement, terminate immediately upon
such cessation, and (ii) the vested Options remain exercisable during the 90-day period following
such cessation, but in no event after the Expiration Date. Unless sooner terminated, the vested
Options terminate upon the expiration of such 90-day period.
(c) Disability of Employee. Notwithstanding the provisions of Section 4(a) above, if
the Employee ceases to be employed by, or in a service relationship with, the Company as a result
of the Employee’s Total and Permanent Disability, (i) the unvested
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Options, after giving effect to the provisions of Section 2 of this Agreement, terminate
immediately upon such cessation, and (ii) the vested Options remain exercisable during the
six-month period following such cessation, but in no event after the Expiration Date. Unless
sooner terminated, the vested Options terminate upon the expiration of such six-month period.
(d) Death of Employee. If the Employee dies prior to the expiration or other
termination of the Options, (i) the unvested Options, after giving effect to the provisions of
Section 2 of this Agreement, terminate immediately upon the Employee’s death, and (ii) the vested
Options remain exercisable during the six-month period following the Employee’s death, but in no
event after the Expiration Date, by the Employee’s executor, personal representative, or the
person(s) to whom the Options are transferred by will or the laws of descent and distribution.
Unless sooner terminated, the vested Options terminate upon the expiration of such six-month
period.
(e) Misconduct. Notwithstanding anything to the contrary in this Agreement, the
Options terminate in their entirety, regardless of whether the Options are vested, immediately upon
the Employee’s discharge of employment or other service relationship for Cause or upon the
Employee’s commission of any of the following acts during any period following the cessation of
employment or other service relationship during which the Options otherwise would be exercisable:
(i) fraud on or misappropriation of any funds or property of the Company, or (ii) breach by the
Employee of any provision of any employment, non-disclosure, non-competition, non-solicitation,
assignment of inventions, or other similar agreement executed by the Employee for the benefit of
the Company, as determined by the Administrator, which determination will be conclusive.
(f) Change in Status. If the Employee’s relationship with the Company ceases to be a
“common law employee” relationship but the Employee continues to provide bona fide services to the
Company following such cessation in a different capacity, including without limitation as a
director, consultant or independent contractor, then a termination of employment or other service
relationship shall not be deemed to have occurred for purposes of this Section 4 upon such change
in relationship. Notwithstanding the foregoing, the Options shall not be treated as incentive
stock options within the meaning of Code section 422 with respect to any exercise that occurs more
than 90 days after such cessation of the common law employee relationship (except as otherwise
permitted under Code section 421 or 422).
5. Nontransferability of Options. These Options are nontransferable otherwise than by
will or the laws of descent and distribution and during the lifetime of the Employee, the Options
may be exercised only by the Employee or, during the period the Employee is under a legal
disability, by the Employee’s guardian or legal representative. Except as provided above, the
Options may not be assigned, transferred, pledged, hypothecated or disposed of in any way (whether
by operation of law or otherwise) and shall not be subject to execution, attachment or similar
process.
6. Qualified Nature of the Options. The Options are intended to qualify as incentive
stock options within the meaning of Code section 422 (“Incentive Stock Options”), to the fullest
extent permitted by Code section 422, and this Agreement shall be so construed. Pursuant to Code
section 422(d) the aggregate fair market value (determined as of the Grant Date) of shares of
Common Stock with respect to which all Incentive Stock Options first become exercisable by the
Employee in any calendar year under the Plan or any other plan of the
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Company (and its parent and subsidiary corporations, within the meaning of Code section 424(e)
and (f), as may exist from time to time) may not exceed $100,000 or such other amount as may be
permitted from time to time under Code section 422. To the extent that such aggregate fair market
value exceeds $100,000 or other applicable amount in any calendar year, such stock options will be
treated as nonstatutory stock options with respect to the amount of aggregate fair market value
thereof that exceeds the Code section 422(d) limit. For this purpose, the Incentive Stock Options
will be taken into account in the order in which they were granted. In such case, the Company may
designate the shares of Common Stock that are to be treated as stock acquired pursuant to the
exercise of Incentive Stock Options and the shares of Common Stock that are to be treated as stock
acquired pursuant to nonstatutory stock options by issuing separate certificates for such shares
and identifying the certificates as such in the stock transfer records of the Company.
Notwithstanding anything herein to the contrary, if the Employee owns, directly or indirectly
through attribution, stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company or of any of its subsidiaries (within the meaning of Code section
424(f)) on the Grant Date, then the Exercise Price is the greater of (a) the Exercise Price stated
on the Stock Option Certificate which is attached hereto and constitutes a part of this Agreement
or (b) 110% of the Fair Market Value of the Common Stock on the Grant Date, and the Expiration Date
is the last business day prior to the fifth anniversary of the Grant Date.
Code section 422 provides additional limitations respecting the treatment of these Options as
Incentive Stock Options.
7. Notice of Disqualifying Disposition. If the Employee makes a disposition (as that
term is defined in Code section 424(c)) of any Option Shares acquired pursuant to these Options
within two years of the Grant Date or within one year after the Option Shares are transferred to
the Employee, the Employee agrees to notify the Administrator of such disposition in writing within
30 days of the disposition.
8. Withholding of Taxes. At the time the Options are exercised, in whole or in part,
or at any time thereafter as requested by the Company, the Employee hereby authorizes withholding
from payroll or any other payment of any kind due the Employee and otherwise agrees to make
adequate provision for foreign, federal, state and local taxes required by law to be withheld, if
any, which arise in connection with the Options (including upon a disqualifying disposition within
the meaning of Code section 421(b)). The Company may require the Employee to make a cash payment
to cover any withholding tax obligation as a condition of exercise of the Options or issuance of
share certificates representing Option Shares.
The Administrator may, in its sole discretion, permit the Employee to satisfy, in whole or in
part, any withholding tax obligation which may arise in connection with the Options either by
electing to have the Company withhold from the shares to be issued upon exercise that number of
shares, or by electing to deliver to the Company already-owned shares, in either case having a Fair
Market Value equal to the amount necessary to satisfy the statutory minimum withholding amount due.
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9. Adjustments for Corporate Transactions and Other Events.
(a) Stock Dividend, Stock Split and Reverse Stock Split. Upon a stock dividend of, or
stock split or reverse stock split affecting, the Common Stock, the number of shares covered by and
the exercise price and other terms of the Options, shall, without further action of the Board, be
adjusted to reflect such event unless the Board determines, at the time it approves such stock
dividend, stock split or reverse stock split, that no such adjustment shall be made. The
Administrator may make adjustments, in its discretion, to address the treatment of fractional
shares and fractional cents that arise with respect to the Options as a result of the stock
dividend, stock split or reverse stock split.
(b) Non-Change in Control Transactions. Except with respect to the transactions set
forth in Section 9(a), in the event of any change affecting the Common Stock, the Company or its
capitalization, by reason of a spin-off, split-up, dividend, recapitalization, merger,
consolidation or share exchange, other than any such change that is part of a transaction resulting
in a Change in Control, the Administrator, in its discretion and without the consent of the
Employee, shall make any adjustments in the Options, including but not limited to reducing the
number, kind and price of securities subject to the Options.
(c) Change in Control Transactions. In the event of any transaction resulting in a
Change in Control, the Options will terminate upon the effective time of any such Change in Control
unless provision is made in connection with the transaction in the sole discretion of the parties
thereto for the continuation or assumption of the Options, or the substitution of the Options with
new options of the surviving or successor entity or a parent thereof. In the event of such
termination, the Employee will be permitted, for a period of at least 10 days prior to the
effective time of the Change in Control, to exercise all of the Options that are then exercisable
or will become exercisable upon or prior to the effective time of the Change in Control; provided,
however, that any such exercise of any Options that become exercisable as a result of the Change in
Control shall be deemed to occur immediately prior to the effective time of such Change in Control.
(d) Pooling of Interests Transaction. Notwithstanding anything in the Plan or this
Agreement to the contrary, in connection with any business combination authorized by the Board, the
Administrator, in its sole discretion and without the consent of the Employee, may make any
modifications to the Options, including but not limited to cancellation, forfeiture, surrender or
other termination of the Options, in whole or in part, regardless of their vested status, but
solely to the extent necessary to facilitate the compliance of such transaction with requirements
for treatment as a pooling of interests transaction for accounting purposes under generally
accepted accounting principles.
(e) Adjustments for Unusual Events. The Administrator is authorized to make, in its
discretion and without the consent of the Employee, adjustments in the terms and conditions of, and
the criteria included in, the Options in recognition of unusual or nonrecurring events affecting
the Company, or the financial statements of the Company or any Affiliate, or of changes in
applicable laws, regulations, or accounting principles, whenever the Administrator determines that
such adjustments are appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Options or the Plan.
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(f) Binding Nature of Adjustments. Adjustments under this Section 9 will be made by
the Administrator, whose determination as to what adjustments, if any, will be made and the extent
thereof will be final, binding and conclusive. No fractional shares will be issued pursuant to the
Options on account of any such adjustments. The terms and conditions of this Agreement shall apply
with equal force to any additional and/or substitute securities received by the Employee pursuant
to this Section 9 in exchange for, or by virtue of the Employee’s ownership of, the Options or the
Option Shares, except as otherwise determined by the Administrator.
10. Confidential Information. In consideration of the Options granted to the Employee
pursuant to this Agreement, the Employee agrees and covenants that, except as specifically
authorized by the Company, the Employee will keep confidential any trade secrets or confidential or
proprietary information of the Company which are now or which hereafter may become known to the
Employee as a result of the Employee’s employment by or other service relationship with the
Company, and shall not at any time, directly or indirectly, disclose any such information to any
person, firm, Company or other entity, or use the same in any way other than in connection with the
business of the Company, at all times during and after the Employee’s employment or other service
relationship. The provisions of this Section 10 shall not narrow or otherwise limit the
obligations and responsibilities of the Employee set forth in any agreement of similar import
entered into between the Employee and the Company.
11. Non-Guarantee of Employment or Service Relationship. Nothing in the Plan or this
Agreement shall alter the at-will or other employment status or other service relationship of the
Employee, nor be construed as a contract of employment or service relationship between the Company
and the Employee, or as a contractual right of Employee to continue in the employ of, or in a
service relationship with, the Company for any period of time, or as a limitation of the right of
the Company to discharge the Employee at any time with or without cause or notice and whether or
not such discharge results in the failure of any Options to vest or any other adverse effect on the
Employee’s interests under the Plan.
12. No Rights as a Stockholder. The Employee shall not have any of the rights of a
stockholder with respect to the Option Shares until such shares have been issued to him or her upon
the due exercise of the Options. No adjustment shall be made for dividends or distributions or
other rights for which the record date is prior to the date such shares are issued.
13. The Company’s Rights. The existence of the Options shall not affect in any way
the right or power of the Company or its stockholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the Company’s capital structure or its
business, or any merger or consolidation of the Company, or any issue of bonds, debentures,
preferred or other stocks with preference ahead of or convertible into, or otherwise affecting the
Common Stock or the rights thereof, or the dissolution or liquidation of the Company, or any sale
or transfer of all or any part of the Company’s assets or business, or any other corporate act or
proceeding, whether of a similar character or otherwise.
14. Employee. Whenever the word “Employee” is used in any provision of this Agreement
under circumstances where the provision should logically be construed, as determined by the
Administrator, to apply to the estate, personal representative, or beneficiary to whom the Options
may be transferred by will or by the laws of descent and distribution, the word “Employee” shall be
deemed to include such person.
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15. Notices. All notices and other communications made or given pursuant to this
Agreement shall be in writing and shall be sufficiently made or given if hand delivered or mailed
by certified mail, addressed to the Employee at the address contained in the records of the
Company, or addressed to the Administrator, care of the Company for the attention of its Corporate
Secretary at its principal office or, if the receiving party consents in advance, transmitted and
received via telecopy or via such other electronic transmission mechanism as may be available to
the parties.
16. Entire Agreement. This Agreement contains the entire agreement between the
parties with respect to the Options granted hereunder. Any oral or written agreements,
representations, warranties, written inducements, or other communications made prior to the
execution of this Agreement with respect to the Options granted hereunder shall be void and
ineffective for all purposes.
17. Amendment. This Agreement may be amended from time to time by the Administrator
in its discretion; provided, however, that this Agreement may not be modified in a
manner that would have a materially adverse effect on the Options or Option Shares as determined in
the discretion of the Administrator, except as provided in the Plan or in a written document signed
by each of the parties hereto.
18. Conformity with Plan. This Agreement is intended to conform in all respects with,
and is subject to all applicable provisions of, the Plan. Inconsistencies between this Agreement
and the Plan shall be resolved in accordance with the terms of the Plan. In the event of any
ambiguity in this Agreement or any matters as to which this Agreement is silent, the Plan shall
govern. A copy of the Plan is available upon request to the Administrator.
19. Governing Law. The validity, construction and effect of this Agreement, and of any
determinations or decisions made by the Administrator relating to this Agreement, and the rights of
any and all persons having or claiming to have any interest under this Agreement, shall be
determined exclusively in accordance with the laws of the State of Maryland, without regard to its
provisions concerning the applicability of laws of other jurisdictions. Any suit with respect
hereto will be brought in the federal or state courts in the districts which include the city and
state in which the principal offices of the Company are located, and the Employee hereby agrees and
submits to the personal jurisdiction and venue thereof.
20. Headings. The headings in this Agreement are for reference purposes only and
shall not affect the meaning or interpretation of this Agreement.
Enclosure: Prospectus of the TeleCommunication Systems, Inc. Fifth Amended and Restated 1997
Stock Incentive Plan
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