TECH LABORATORIES, INC.
FORM OF
STOCK OPTION AGREEMENT
This Stock Option Agreement (this "Agreement") is made and entered into as
of the Date of Grant set forth below (the "Date of Grant") by and between Tech
Laboratories, Inc., a New Jersey corporation (the "Company"), and the Optionee
named below ("Optionee"). Capitalized terms not defined herein shall have the
meanings ascribed to them in the Company's 1996 Incentive Stock Option Plan (the
"Plan").
Optionee:
Social Security Number:
Optionee's Address:
Total Option Shares:
Exercise Price Per Share:
Date of Grant:
Vesting Start Date:
Expiration Date:
------------------
(unless earlier terminated
under Section 3 hereof)
Type of Stock Option
(Check one): |X| Incentive Stock Option
|_| Nonqualified Stock Option
1. Grant of Option. The Company hereby grants to Optionee an option (this
"Option") to purchase up to the total number of shares of Common Stock of the
Company set forth above as Total Option Shares (collectively, 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. This 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"), to
the extent permitted under Code Section 422.
2. Vesting; Exercise Period.
2.1. Vesting Of Shares. This Option shall be exercisable as it vests.
Subject to the terms and conditions of the Plan and this Agreement, this Option
shall vest and 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"); (b) if Optionee has continuously
provided services to the Company, or any parent or Subsidiary of the Company,
then on the First Vesting Date, this Option shall become exercisable as to
________ Shares; and (c) thereafter this Option shall become exercisable as to
an additional ________ Shares on each yearly anniversary of the First Vesting
Date for ________ years, provided that Optionee has continuously provided
services to the Company, or any Parent or Subsidiary of the Company.
2.2. Vesting of Options. Shares that are vested pursuant to the schedule
set forth in Section 2.1 hereof are "Vested Shares." Shares that are not vested
pursuant to the schedule set forth in Section 2.1 hereof are "Unvested Shares."
2.3. Expiration. This Option shall expire on the Expiration Date set forth
above and must be exercised, if at all, on or before the earlier of the
Expiration Date or the date on which this Option is earlier terminated in
accordance with the provisions of Section 3 hereof.
3. Termination.
3.1. Termination For Any Reason Except Death, Disability, or Cause. If
Optionee is Terminated for any reason except Optionee's death, disability, or
cause, then this Option, to the extent (and only to the extent) that it is
vested in accordance with the schedule set forth in Section 2.1 hereof on the
Termination Date, may be exercised by Optionee no later than three (3) months
after the Termination Date, but in any event, no later than the Expiration Date.
3.2. Termination Because of Death or Disability. If Optionee is Terminated
because of death or disability of Optionee (or Optionee dies within three (3)
months after Termination other than for cause or because of disability), then
this Option, to the extent that it is vested in accordance with the schedule set
forth in Section 2.1 hereof on the Termination Date, may be exercised by
Optionee (or Optionee's legal representative or authorized assignee) no later
than twelve (12) months after the Termination Date, but in any event, no later
than the Expiration Date. Any exercise after three months after the Termination
Date when the Termination is for any reason other than Optionee's death or
disability, within the meaning of Code Section 22(e)(3), shall be deemed to be
the exercise of a nonqualified stock option.
3.3. Termination for Cause. If Optionee is Terminated for cause, this
Option will expire on Optionee's date of Termination.
4. Manner of Exercise.
4.1. Stock Option Exercise Agreement. To exercise this Option, Optionee (or
in the case of exercise after Optionee's death, Optionee'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, Optionee's
election to exercise this Option, the number of shares being purchased, any
restrictions imposed on the Shares and any representations, warranties, and
agreements regarding Optionee's investment intent and access to information as
may be required by the Company to comply with applicable securities laws. If
someone other than Optionee exercises this Option, then such person must submit
documentation reasonably acceptable to the Company that such person has the
right to exercise this Option.
4.2. Limitations on Exercise. This 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.
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 Optionee;
-2-
(b) provided that a public market for the Company's stock exists: (1)
through a "same day sale" commitment from Optionee and a broker-dealer that
is a member of the National Association of Securities Dealers, Inc. (an
"NASD Dealer"), whereby Optionee irrevocably elects to exercise this Option
and to sell a portion as 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 Optionee and an NASD Dealer, whereby
Optionee irrevocably elects to exercise this 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
(c) by any combination of the foregoing.
4.4. Tax Withholding. Prior to the issuance of the Shares upon exercise of
this Option, Optionee must pay or provide for any applicable federal or state
withholding obligations of the Company. If the Company permits, Optionee may
provide for payment of withholding taxes upon exercise of this 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 Optionee 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 Shares registered in the name of Optionee, Optionee's authorized
assignee, or Optionee's legal representative, and shall deliver certificates
representing the Shares with the appropriate legends affixed thereto.
5. Notice of Disqualifying Disposition of ISO Shares. To the extent this
Option is an ISO, if Optionee 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 Optionee upon exercise of this Option, then Optionee shall
immediately notify the Company in writing of such disposition.
6. Compliance with Laws and Regulations. The exercise of this Option and
the issuance and transfer of Shares shall be subject to compliance by the
Company and Optionee with all applicable requirements of federal and state
securities laws and with all applicable requirements of any stock exchange on
which the Company's Common Stock may be listed at the time of such issuance or
transfer. Optionee 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. Except as otherwise set forth in Section
11 of the Plan, this 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 Optionee only by Optionee. The terms of this Option shall be binding
upon the executors, administrators, successors, and assigns of Optionee.
8. Tax Consequences. Set forth below is a brief summary, as of the date the
Board adopted the Plan, of some of the federal tax consequences of exercise of
this Option and disposition of Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE,
AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT
A TAX ADVISOR BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
-3-
8.1. Exercise of Incentive Stock Option. To the extent this Option
qualifies as an ISO, there will be no regular federal income tax liability upon
the exercise of this 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
Optionee to the alternative minimum tax in the year of exercise.
8.2. Exercise of Nonqualified Stock Option. To the extent this Option does
not qualify as an ISO, there may be a regular federal income tax liability upon
the exercise of this Option. Optionee 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 may be required to withhold from Optionee's
compensation or collect from Optionee 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. The following tax consequences may apply upon
disposition of the Shares.
(a) Incentive Stock Options. 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 an ISO and 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 capital gain for federal income tax purposes. If Shares
purchased under an ISO are disposed of within the applicable one (1) year
or two (2) year period, 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.
(b) Nonqualified Stock Options. 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 an NQSO, any gain realized on disposition of the Shares
will be treated as long-term capital gains.
(c) Withholding. The Company may be required to withhold from
Participant's compensation, or collect from the Participant and pay to the
applicable taxing authorities, an amount equal to a percentage of the
compensation income.
9. Privileges of Stock Ownership. Optionee shall not have any of the rights
of a stockholder with respect to any Shares until the Shares are issued to
Optionee.
10. Interpretation. Any dispute regarding the interpretation of this
Agreement shall be submitted by Optionee or the Company to the Board of
Directors of the Company for review. The resolution of such dispute by the Board
of Directors shall be final and binding on the Company and Optionee.
11. Entire Agreement. The Plan is incorporated herein by reference. This
Agreement and the Plan and the Exercise Agreement constitute the entire
agreement and understanding of the parties hereto and with respect to the
subject matter hereof, and supersede all prior understandings and agreements
with respect to such subject matter.
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 Optionee shall be in writing and
addressed to Optionee 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
-4-
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 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 Optionee and
Optionee's heirs, executors, administrators, legal representatives, successors,
and assigns.
14. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New Jersey, without regard to
that body of law pertaining to choice of law or conflict of law.
15. Acceptance. Optionee hereby acknowledges receipt of a copy of the Plan
and this Agreement. Optionee has read and understands the terms and provisions
thereof, and accepts this Option, subject to all terms and conditions of the
Plan and this Agreement. Optionee acknowledges that there may be adverse tax
consequences upon exercise of this Option or disposition of the Shares and that
the Company has advised Optionee to consult a tax advisor prior to such exercise
or disposition.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed in
duplicate by its duly representative, and Optionee has executed this Agreement
in duplicate as of the Date of Grant.
TECH LABORATORIES, INC. OPTIONEE
By:
---------------------------- ---------------------------
Xxxx Xxxxxxxx Xxxxxxx X. Xxxxxxxx
Vice President
-5-
Exhibit A
TECH LABORATORIES, INC.
1996 INCENTIVE STOCK OPTION PLAN (the "Plan")
STOCK OPTION EXERCISE AGREEMENT
I hereby elect to purchase the number of shares of Common Stock of Tech
Laboratories, Inc. (the "Company") as set forth below:
Optionee:
-----------------------------------------------------------------------
Social Security Number:
---------------------------------------------------------
Address:
------------------------------------------------------------------------
Type of Option: |_| Incentive Stock Option
|_| Nonqualified Stock Option
Number of Shares Purchased:
-----------------------------------------------------
Purchase Price per Share:
-------------------------------------------------------
Aggregate Purchase Price:
-------------------------------------------------------
Date of Option Agreement:
-------------------------------------------------------
Exact Name of Title to Shares:
--------------------------------------------------
1. Delivery Purchase Price. Optionee hereby delivers to the Company the
Aggregate Purchase Price, to the extent permitted in the Option Agreement (the
"Option Agreement") as follows (check as applicable and complete):
|_| In cash (by check) in the amount of $______________, receipt of which is
acknowledged by the Company;
|_| By cancellation of indebtedness of the Company to Optionee in the amount of
$______________.
|_| Through a "same-day-sale" commitment, delivered herewith, from Optionee and
the NASD Dealer named therein, in the amount of $_________________; or
|_| Through a "margin" commitment, delivered herewith from Optionee and the
NASD Dealer named therein, in the amount of $________________.
2. Market Standoff Agreement. Optionee, if requested by the Company and an
underwriter of Common Stock (or other securities of the Company, agrees not to
sell or otherwise transfer or dispose of any Common Stock (or other securities)
of the Company held by Optionee during the period requested by the managing
underwriter following the effective date of a registration statement of the
Company filed under the Securities Act, provided that all officers and directors
of the Company are required to enter into a similar agreement. Such agreement
shall be in writing in a form satisfactory to the Company and such underwriter.
The Company may impose stop-transfer instructions with respect to the shares (or
other securities) subject to the foregoing restriction until the end of such
period.
3. Tax Consequences. OPTIONEE UNDERSTANDS THAT OPTIONEE MAY SUFFER ADVERSE TAX
CONSEQUENCES AS A RESULT OF OPTIONEE'S PURCHASE OR DISPOSITION OF THE SHARES.
OPTIONEE REPRESENTS THAT OPTIONEE HAS CONSULTED WITH ANY TAX CONSULTANT(S)
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.
4. Entire Agreement. The Plan and Option Agreement are incorporated herein by
reference. This Exercise Agreement, the Plan, and the Option Agreement
constitute the entire agreement and understanding of the parties and supersede
in their entirety all prior understandings and agreements of the Company and
Optionee with respect to the subject matter hereof, and are governed by New
Jersey law except for that body of law pertaining to choice of law or conflict
of law.
Date:
--------------------- ---------------------------------
Signature of Optionee
-6-
