Exhibit 10.42
-------------
NEUROMEDICAL SYSTEMS, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT, effective as of the 4th day of November, 1997 (the
"Grant Date"), between NEUROMEDICAL SYSTEMS, INC., a Delaware corporation (the
"Company"), and XXXX XXXXXX (the "Optionee").
WHEREAS, the Company has previously determined to grant an option to
the Optionee as provided herein and the Company and the Optionee hereby wish to
memorialize the terms and conditions applicable to the Option;
NOW, THEREFORE, the parties hereto agree as follows:
1. Grant of Option.
---------------
1.1 Effective as of the Grant Date the Company granted to the
Optionee the right and option (the "Option") to purchase all or any part of an
aggregate of 750,000 whole shares of common stock, par value $.0001 per share,
of the Company. (the "Shares") subject to, and in accordance with, the terms and
conditions set forth in this Agreement.
1.2 The Option is not intended to qualify as an Incentive Stock
Option within the meaning of Section 422 of the Code.
1.3 Certain capitalized terms used herein shall have the
meanings ascribed to them in Section 19 hereof.
2. Purchase Price.
--------------
The price at which the Optionee shall be entitled to purchase Shares
upon the exercise of the Option shall be $4 9/16 per Share.
3. Duration of Option.
------------------
Subject to the terms and conditions of this Agreement, the Option
shall be exercisable to the extent and in the manner provided herein for a
period of ten (10) years from the Grant Date (the "Exercise Term"); provided,
--------
however, that the Option may be earlier terminated as provided in Section 6
-------
hereof.
4. Exercisability of Option.
------------------------
Subject to the terms and conditions of this Agreement, the Option
shall be exercisable as follows:
(a) The Option shall become vested and exercisable with respect to 25%
of the aggregate number of Shares covered by the Option as of each of the first,
second, third and fourth anniversaries of the Grant Date.
(b) Any fractional number of shares resulting from the application of
the percentages set forth above in this Section 4 shall be rounded to the next
higher whole number of Shares.
(c) Notwithstanding the vesting provisions set forth above in this
Section 4, the Option shall immediately become fully (100%) vested and
exercisable upon a Change in Control.
5. Manner of Exercise and Payment.
------------------------------
5.1 Subject to the terms and conditions of this Agreement, the
Option may be exercised by delivery of written notice to the Company, at its
principal executive office. Such notice shall state that the Optionee is
electing to exercise the Option and the number of Shares in respect of which the
Option is being exercised and shall be signed by the person or persons
exercising the Option. If requested by the Board of Directors of the Company
(the "Board"), such person or persons shall (i) deliver this Agreement to the
Secretary of the Company who shall endorse thereon a notation of such exercise
and (ii) provide satisfactory proof as to the right of such person or persons to
exercise the Option.
5.2 The notice of exercise described in Section 5.1 shall be
accompanied by (x) either (i) payment of the full purchase price for the Shares
in respect of which the Option is being exercised, in cash, by check or, at the
sole discretion of the Board, by transferring Shares to the Company having a
Fair Market Value on the day preceding the date of exercise equal to the cash
amount for which such Shares are substituted or (ii) subject to the consent of
the Board, instructions from the Optionee to the Company directing the Company
to deliver a specified number of Shares directly to a designated broker or
dealer pursuant to a cashless exercise election which is made in accordance with
such requirements and procedures as are acceptable to the Board in its sole
discretion and (y) full payment of all applicable Withholding Taxes (as defined
in Section 11) pursuant to Section 11 hereof.
5.3 Upon receipt of the notice of exercise and any payment or
other documentation as may be necessary pursuant to Section 5.2 relating to the
Shares in respect of which the Option is being exercised, the Company shall,
subject to this Agreement, take such action as may be necessary to effect the
transfer to the Optionee of the number of Shares as to which such exercise was
effective. No fractional Shares (or cash in lieu thereof) shall be issued
2
upon exercise of an Option and the number of Shares that may be purchased upon
exercise shall be rounded to the nearest number of whole Shares.
5.4 The Optionee shall not be deemed to be the holder of, or to
have any of the rights of a holder with respect to any Shares subject to the
Option until (i) the Option shall have been exercised pursuant to the terms of
this Agreement and the Optionee shall have paid the full purchase price for the
number of Shares in respect of which the Option was exercised, (ii) the Company
shall have issued and delivered the Shares to the Optionee, and (iii) the
Optionee's name shall have been entered as a stockholder of record on the books
of the Company, whereupon the Optionee shall have full voting and other
ownership rights with respect to such Shares.
6. Termination of Employment.
-------------------------
6.1 Death or Disability. In the event the employment of the
-------------------
Optionee is terminated as a result of Disability or death, the Optionee may at
any time within one (1) year after such termination of employment (but in no
event beyond the expiration of the stated term of the Option), exercise the
Option to the extent, but only to the extent, that the Option or portion thereof
was exercisable on the date of such termination of employment, after which time
the Option shall terminate in full. In the event of the Optionee's death, the
Option shall be exercisable, to the extent provided in this Agreement, by the
legatee or legatees under the Optionee's will, or by the Optionee's personal
representatives or distributees and such person or persons shall be substituted
for the Optionee each time the Optionee is referred to herein.
6.2 Cause. In the event the employment of the Optionee is
-----
terminated for Cause, the Option shall terminate on the date of the Optionee's
termination of employment whether or not exercisable.
6.3 Other Termination of Employment. If the employment of the
-------------------------------
Optionee is terminated for any reason other Disability, death or Cause, the
Optionee may at any time within three (3) months after such termination of
employment (but in no event beyond the expiration of the stated term of the
Option), exercise the Option to the extent, but only to the extent, that the
Option or portion thereof was exercisable on the date of the termination of
employment, after which time the Option shall terminate in full.
6.4 Following a Change in Control. Notwithstanding the
-----------------------------
foregoing provisions of Section 6, in the event the Optionee's employment with
the Company is terminated by the Company following a Change in Control, the
Option shall remain exercisable until the first anniversary of the termination
of the Optionee's employment (but in no event beyond the expiration of the
stated term of the Option.)
7. Nontransferability.
------------------
3
The Option shall not be transferable other than by will or by the laws
of descent and distribution or pursuant to a qualified domestic relations order
as defined in the Code or by such other means explicitly permitted pursuant to
Rule 16b-3 under the Exchange Act. During the lifetime of the Optionee, the
Option shall be exercisable only by the Optionee, except in the case of an
Option transferred pursuant to a qualified domestic relations order.
8. No Right to Continued Employment.
--------------------------------
Nothing in this Agreement shall be interpreted or construed to confer
upon the Optionee any right with respect to continuance of employment by the
Company, nor shall this Agreement interfere in any way with the right of the
Company to terminate the Optionee's employment at any time.
9. Adjustments.
-----------
In the event of a Change in Capitalization, the Board may make
appropriate adjustments to the number and class of Shares or other stock or
securities subject to the Option and the purchase price for such Shares or other
stock or securities. The Board's adjustment shall be final and binding for all
purposes of this Agreement.
10. Effect of a Liquidation, Merger or Consolidation.
------------------------------------------------
Upon the effective date of (i) the liquidation or dissolution of the
Company or (ii) a merger or consolidation of the Company (a "Transaction"), the
Option shall continue in effect in accordance with its terms and the Optionee
shall be entitled to receive in respect of each Share subject to the Option,
upon exercise of the Option, the same number and kind of stock, securities,
cash, property or other consideration that each holder of a Share was entitled
to receive in the Transaction in respect of a Share.
11. Withholding of Taxes.
--------------------
The Company shall have the right to deduct from any distribution of
cash to the Optionee an amount equal to the federal, state and local income
taxes and other amounts as may be required by law to be withheld (the
"Withholding Taxes") with respect to the Option. If the Optionee is entitled to
receive Shares upon exercise of the Option, the Optionee shall pay the
Withholding Taxes to the Company in cash prior to the issuance of such Shares.
In satisfaction of the Withholding Taxes, the Optionee may make a written
election (the "Tax Election"), which may be accepted or rejected in the
discretion of the Committee, to have withheld a portion of the Shares issuable
to him or her upon exercise of the Option, having an aggregate Fair Market
Value, on the date preceding the date of such issuance, equal to the Withholding
Taxes, provided that if the Optionee may be subject to liability under Section
16(b) of the Exchange Act either (i) (A) the Tax Election is made at least six
(6) months prior to the date the Option is exercised and (B) the Tax Election is
irrevocable with respect to the exercise of all Options which are exercised
prior to the expiration of six (6) months following a revocation of the Tax
Election or (ii) (A) the
4
Optionee makes the Tax Election at least six (6) months after the Grant Date,
(B) the Option is exercised during the ten-day period beginning on the third
business day and ending on the twelfth business day following the release for
publication of the Company's quarterly or annual statement of sales and earnings
(a "Window Period") and (C) the Tax Election is made during the Window Period in
which the Option is exercised or prior to such Window Period and subsequent to
the immediately preceding Window Period.
12. Modification of Agreement.
-------------------------
This Agreement may be modified, amended, suspended or terminated, and
any terms or conditions may be waived, but only by a written instrument executed
by the parties hereto.
13. Severability.
------------
Should any provision of this Agreement be held by a court of competent
jurisdiction to be unenforceable or invalid for any reason, the remaining
provisions of this Agreement shall not be affected by such holding and shall
continue in full force in accordance with their terms.
14. Governing Law.
-------------
The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Delaware without giving
effect to the conflicts of laws principles thereof.
15. Successors in Interest.
----------------------
This Agreement shall inure to the benefit of and be binding upon any
successor to the Company. This Agreement shall inure to the benefit of the
Optionee's legal representatives. All obligations imposed upon the Optionee and
all rights granted to the Company under this Agreement shall be final, binding
and conclusive upon the Optionee's heirs, executors, administrators and
successors.
16. Resolution of Disputes.
----------------------
Any dispute or disagreement which may arise under, or as a result of,
or in any way relate to, the interpretation, construction or application of this
Agreement shall be determined by the Committee. Any determination made
hereunder shall be final, binding and conclusive on the Optionee and Company for
all purposes.
17. No Assignment.
-------------
5
Except as otherwise provided herein, the rights of the Optionee
hereunder may not be assigned or otherwise transferred to any other party.
18. Entire Agreement.
----------------
This Agreement constitutes the entire agreement, and supersedes all
prior agreements and understandings, oral and written, between the parties
hereto with respect to the subject matter hereof.
19. Definitions.
-----------
(a) "Beneficial Ownership" of Shares means (i) direct or indirect
beneficial ownership of such Shares; (ii) the right to acquire such Shares
(whether such right is exercisable immediately or only after the passage of time
or under specific conditions) pursuant to any agreement, arrangement or
understanding, or upon the exercise of conversion rights, exchange rights,
rights, warrants or options, or otherwise; or (iii) the right to vote such
Shares pursuant to any agreement, arrangement or understanding; provided,
--------
however, that a person shall not be deemed to have Beneficial Ownership of any
-------
Share if the agreement, arrangement or understanding to vote such Share arises
solely from a revocable proxy or consent given to such person.
(b) "Cause" as used in this Agreement shall have the meaning set forth
in Section 5(a) of the employment agreement by and among the parties hereto,
effective November 4, 1997 (the "Employment Agreement").
(c) "Change in Capitalization" means any increase or reduction in the
number of Shares, or any change (including, but not limited to, a change in
value) in the Shares or exchange of Shares for a different number or kind of
shares or other securities of the Company or another corporation, by reason of a
reclassification, recapitalization, merger, consolidation, reorganization, spin-
off, split-up, issuance of warrants or rights or debentures, stock dividend,
stock split or reverse stock split, cash dividend, property dividend,
combination or exchange of shares, repurchase of shares, change in corporate
structure or otherwise.
(d) "Change in Control" means (i) the acquisition (by means of
purchase, merger or otherwise) by any person or any two or more persons acting
as a partnership, syndicate or other group for the purpose of acquiring, holding
or disposing of such securities of Beneficial Ownership of forty percent (40%)
or more of the sum of the amount of the Shares then outstanding, plus any Shares
which may be issued pursuant to the conversion or exercise of all outstanding
options, rights or warrants; or (ii) the sale of all or substantially all of the
assets of the Company. Notwithstanding anything to the contrary, for purposes
of this Section 2.7, a person shall not be deemed to have made an acquisition of
Beneficial Ownership of Shares if such person: (a) acquires Beneficial
Ownership of such Shares directly from the Company; (b) assumes Beneficial
Ownership of more than the permitted percentage of Shares solely as a result of
the acquisition of Beneficial Ownership of Shares by the Company which, by
reducing the
6
proportional Beneficial Ownership of Shares by other security holders, increases
the proportional Beneficial Ownership of Shares by such person; or (c) is (1)
the Company or any corporation or other person of which a majority of its voting
power or its equity securities or equity interest is owned directly or
indirectly by the Company (a "Controlled Entity") or is owned directly or
indirectly by the stockholders of the Company in the same proportion as their
Beneficial Ownership of Shares or (2) a trustee or other fiduciary holding
securities under one or more employee benefit plans or arrangements (or any
trust forming a part thereof) maintained by the Company or any Controlled
Entity.
(e) "Disability" as used in this Agreement shall have the meaning set
forth in Section 5(b) of the Employment Agreement.
(f) "Fair Market Value" on any date means the average of the high and
low sales prices of the Shares on such date on the principal national securities
exchange on which such Shares are listed or admitted to trading, or, if such
Shares are not so listed or admitted to trading, the arithmetic mean of the per
Share closing bid price and per Share closing asked price on such date as quoted
on the National Association of Securities Dealers Automated Quotation System or
such other market in which such prices are regularly quoted, or, if there have
been no published bid or asked quotations with respect to Shares on such date,
the Fair Market Value shall be the value established by the Board in good faith.
IN WITNESS WHEREOF the parties hereto have executed this Agreement to
be effective as of the day and year first set forth above.
NEUROMEDICAL SYSTEMS, INC.
Attest: By: /s/ Xxxxx Xxxxxx, Jr.
----------------------------
/s/ Xxxx X. Xxxxxxxx, III Vice President Finance
--------------------------------- and Administration, CFO
Secretary
/s/ Xxxx Xxxxxx
----------------------------
Optionee
7
