SMART ONLINE, INC. INCENTIVE STOCK OPTION AGREEMENT
Exhibit
10.2
SMART
ONLINE, INC.
THIS
INCENTIVE STOCK OPTION AGREEMENT, made and entered into as of the 20th
day of
September, 2005, by and between Smart Online, Inc., a Delaware corporation
(the
“Company”),
and
Xxxxxxxxx Xxxxxx (the “Participant”).
WHEREAS,
the committee appointed under the Smart Online, Inc. Equity Compensation
Plan
(the “Committee”)
granted Participant an option to purchase shares of the Company’s Common Stock,
$0.001 par value per share (the “Common
Stock”),
pursuant to the Smart Online, Inc. 2004 Equity Compensation Plan (the
“Plan”)
(capitalized terms used herein shall have the meanings set out in the Plan
unless otherwise specified in this Agreement); and
WHEREAS,
this Agreement evidences the grant of such option.
NOW,
THEREFORE, in consideration of the foregoing, of the mutual promises set
forth
below and of other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto, intending to be legally
bound, agree as follows:
1. Grant
of Option.
The
Committee hereby grants Participant an option to purchase from the Company,
during the period specified in Section 2 of this Agreement, a total of two
hundred (200) shares of Stock, at the purchase price of nine dollars and
sixty
cents ($9.60) per share (the “Purchase
Price”),
in
accordance with the terms and conditions stated in this Agreement. The shares
of
Stock subject to the option granted hereby are referred to below as the
“Shares,” and the option to purchase such Shares is referred to below as the
“Option”.
2. Vesting
and Exercise of Option.
The
Option shall vest and become exercisable in increments in accordance with
the
five-year schedule set forth below, provided that the Option shall vest and
become exercisable with respect to an increment as specified only if Participant
is employed with the Company on the specified date for such
increment:
(a) on
the
first year anniversary of the Grant Date, the Option shall vest and become
exercisable with respect to twenty percent (20%) of the Shares;
(b) on
the
second year anniversary of the Grant Date, the Option shall vest and become
exercisable with respect to an additional twenty percent (20%) of the
Shares;
(c) on
the
third anniversary of the Grant Date, the Option shall vest and become
exercisable with respect to an additional twenty percent (20%) of the
Shares;
1
(d) on
the
fourth anniversary of the Grant Date, the Option shall vest and become
exercisable with respect to an additional twenty percent (20%) of the Shares;
and
(e) on
the
fifth anniversary of the Grant Date, the Option shall vest and become
exercisable with respect to an additional twenty percent (20%) of the
Shares.
The
schedule set forth above is cumulative, so that Shares as to which the Option
has become vested and exercisable on and after a date indicated by the schedule
may be purchased pursuant to exercise of the Option at any subsequent date
prior
to termination of the Option. The Option may be exercised at any time and
from
time to time to purchase up to the number of Shares as to which it is then
vested and exercisable.
Notwithstanding
the foregoing, the Option shall vest and become exercisable, to the extent
not
already vested and exercisable, upon a Change of Control or a Corporate
Reorganization, if the Company shall send Participant prior written notice
of
the effectiveness of such event and the last day on which Participant may
exercise the Option. Participant may, upon compliance with all of the terms
of
this Agreement and the Plan, purchase any or all of the Shares with respect
to
which the Option is vested and exercisable on or prior to the last day specified
in such notice, and, to the extent the Option is not exercised, it shall
terminate at 5:00 P.M., eastern standard time, on the last day specified
in such
notice. The last day specified in the notice shall not be less than twenty
(20)
days after the date of the notice.
3. Termination
of Option.
The
Option shall remain exercisable as specified in Section 2 above until the
earliest to occur of the dates specified below, upon which date the Option
shall
terminate:
(a) the
date
all of the Shares are purchased pursuant to the terms of this Agreement;
(b) in
the
event of Participant’s death or disability prior to Termination of Service of
Participant, the Option shall remain exercisable until one year following
the
Participant’s death or disability;
(c) upon
the
expiration of ninety (90) days following the Termination of Service of
Participant, provided that in the event of the Participant’s death or Disability
during such ninety (90) day period the Option shall remain exercisable until
the
expiration of one (1) year following the Participant’s death or
Disability;
(d) at
5:00
P.M., eastern standard time, on the last date specified in the notice described
in Section 2 above, in the event of a Change of Control or Corporate
Reorganization,
except
to the extent that the Option is assumed by the surviving entity or an affiliate
thereof in connection with such Change in Control or Corporate Reorganization;
or
(e) the
ten
year anniversary of the Grant Date at 5:00 P.M., eastern standard
time.
2
Upon
its
termination, the Option shall have no further force or effect and Participant
shall have no further rights under the Option or to any Shares which have
not
been purchased pursuant to prior exercise of the Option.
4. Manner
of Exercise of Option.
(a) The
Option may be exercised only by (i) Participant’s completion, execution and
delivery to the Company of a notice of exercise and, if required by the Company,
an “investment
letter”
as
supplied by the Company confirming Participant’s representations and warranties
in Section 17 of this Agreement, including the representation that Participant
is acquiring the Shares for investment only and not with a view to the resale
or
other distribution thereof, and (ii) the payment to the Company, pursuant
to the
terms of this Agreement, of an amount equal to the Purchase Price multiplied
by
the number of Shares being purchased as specified in Participant’s notice of
exercise. Participant’s notice of exercise shall be given in the manner
specified in Section 12 but any exercise of the Option shall be effective
only
when the items required by the preceding sentence are actually received by
the
Company. The notice of exercise and the “investment
letter”
may
be
in the form set forth in Exhibit
A
attached
to this Agreement. Payment of the aggregate Purchase Price for Shares
Participant has elected to purchase shall be made by cash or good check.
Notwithstanding anything to the contrary in this Agreement, the Option may
be
exercised only if compliance with all applicable federal and state securities
laws can be effected.
(b)Subject
to the provisions of Section 3.7 of the Plan, upon any exercise of the Option
by
Participant or as soon thereafter as is practicable, the Company shall issue
and
deliver to Participant a certificate or certificates evi-dencing such number
of
Shares as Participant has then elected to purchase. Such certificate or
certificates shall be registered in the name of Participant and shall bear
the
legend specified in Section 16 of this Agreement and any legend required
by any
federal or state securities laws and by the state in which the Company is
incorporated.
5. Definitions;
Authority of Committee.
(a) A
“Change
in Control”
shall
be deemed to have occurred if, after the class of stock then subject to this
Agreement becomes publicly traded, (i) the direct or indirect beneficial
ownership (within the meaning of Section 13(d) of the Act and Regulation
13D
thereunder) of fifty percent (50%) or more of the class of securities then
subject to this Agreement is acquired or becomes held by any person or group
of
persons (within the meaning of Section 13(d)(3) of the Act), but excluding
the
Company and any employee benefit plan sponsored or maintained by the Company,
or
(ii) assets or earning power constituting more than fifty percent (50%) of
the
assets or earning power of the Company and its subsidiaries (taken as a whole)
is sold, mortgaged, leased or otherwise transferred, in one or more transactions
not in the ordinary course of the Company’s business, to any such person or
group of persons; provided, however, that a Change in Control shall not be
deemed to have occurred upon an investment by one or more venture capital
funds,
Small Business Investment Companies (as defined in the Small Business Investment
Act of 1958, as amended) or similar financial investors. For the purposes
of
this Agreement, the class of stock then subject to this Agreement shall be
deemed to be “publicly traded” if such stock is listed or admitted to unlisted
trading privileges on a national securities exchange or as to which sales
or bid
and offer quotations are reported in the automated system operated by the
National Association of Securities Dealers, Inc.
3
(b) A
“Corporate
Reorganization”
means
the happening of any one (1) of the following events: (i) the dissolution
or
liquidation of the Company; (ii) a capital reorganization, merger or
consolidation involving the Company, unless (A) the transaction involves
only
the Company and one or more of the Company’s parent corporation and wholly-owned
(excluding interests held by employees, officers and directors) subsidiaries;
or
(B) the shareholders who had the power to elect a majority of the board of
directors of the Company immediately prior to the transaction have the power
to
elect a majority of the board of directors of the surviving entity immediately
following the transaction; (iii) the sale of all or substantially all of
the
assets of the Company to another corporation, person or business entity;
or (iv)
an acquisition of Company stock, unless the shareholders who had the power
to
elect a majority of the board of directors of the Company immediately prior
to
the acquisition have the power to elect a majority of the board of directors
of
the Company immediately following the transaction; provided, however, that
a
Corporate Reorganization shall not be deemed to have occurred upon an investment
by one or more venture capital funds, Small Business Investment Companies
(as
defined in the Small Business Investment Act of 1958, as amended) or similar
financial investors.
(c) “Termination
of Service”
shall
have the meaning defined in the Plan.
(d) All
determinations made by the Committee with respect to the interpretation,
construction and application of any provision of this Agreement shall be
final,
conclusive and binding on the parties.
6. Default
Treatment.
(a) The
Option shall be construed so that it is in compliance with the requirements
of
section 422 of the Internal Revenue Code of 1986, as amended (the “Code”). If
for any reason the Option does not meet the requirements of section 422 of
the
Code and the regulations thereunder, then the Option or any portion of the
Option, as necessary, shall be deemed a Nonqualified Stock Option granted
under
the Plan.
(b) If
the
aggregate Fair Market Value, determined on the date of grant, of the stock
to
which this Option and any other incentive stock options are exercisable for
the
first time by Participant during any calendar year under the Plan or any
other
stock option plan of the Company exceeds $100,000 (or such other amount as
the
Code may specify), the Option shall be deemed a Nonqualified Stock Option
granted under the Plan to the extent of such excess.
7. Rights
Prior to Exercise.
Participant will have no rights as a shareholder with respect to the Shares
except to the extent that Participant has exercised the Option and has been
issued and received delivery of a certificate or certificates evidencing
the
Shares so purchased.
4
8. Sale
or Other Disposition by Majority Interest.
Participant hereby irrevocably appoints the Company and its President, or
either
of them, as Participant’s agents and attor-neys-in-fact, with full power of
substitution for and in Partic-ipant’s name, to sell, exchange, transfer or
otherwise dispose of all or a portion of Participant’s Shares and to do any and
all things and to execute any and all documents and instruments (including,
without limitation, any stock transfer powers) in connection therewith, such
powers of attorney not to become operable until such time as the holder or
holders of a majority of the issued and outstanding shares of Stock of the
Company sell, exchange, transfer or otherwise dispose of, or contract to
sell,
exchange, transfer or otherwise dispose of, all or a majority of the issued
and
outstanding shares of Stock of the Company. Any sale, exchange, transfer
or
other disposition of all or a portion of Participant’s Shares pursuant to the
foregoing powers of attorney shall be made upon substantially the same terms
and
conditions (including sale price per share) applicable to a sale, exchange,
transfer or other disposition of shares of Stock of the Company owned by
the
holder or holders of a majority of the issued and outstanding shares of Stock
of
the Company. For purposes of determining the sale price per share of the
Shares
under this Section 8, there shall be excluded the consideration (if any)
paid or
payable to the holder or holders of a majority of the issued and outstanding
shares of Common Stock of the Company in connection with any employment,
consulting, noncompetition or similar agreements which such holder or holders
may enter into in connection with or subsequent to such sale, transfer, exchange
or other disposition. The foregoing power of attorney shall not impose or
be
deemed to impose any fiduciary duty or any other duty (except as set forth
in
this Section 8) or obligation on either the Company or its President, shall
be
irrevocable and coupled with an interest and shall not terminate by operation
of
law, whether by the death, bankruptcy or adjudication of incompetence or
insanity of Participant or the occurrence of any other event.
9. Engagement
of Participant.
Nothing
in this Agreement shall be construed as constituting a commitment, guarantee,
agreement or understanding of any kind or nature that the Company shall continue
to employ Participant, nor shall this Agreement affect in any way the right
of
the Company to terminate the employment of Participant at any time and for
any
reason. By Participant’s execution of this Agreement, Partici-pant acknowledges
and agrees that Participant’s employment is “at will.” No change of
Participant’s duties as an employee of the Company shall result in, or be deemed
to be, a modification of any of the terms of this Agreement.
10. Burden
and Benefit; Company.
This
Agreement shall be binding upon, and shall inure to the benefit of, the Company
and Participant, and their respective heirs, personal and legal representatives,
successors and assigns. As used in this Section 10, the term the “Company”
shall
also include any corporation which is the parent or a subsidiary of the Company
or any corporation or entity which is an affiliate of the Company by virtue
of
common (although not identical) owner-ship, and for which Participant is
providing services in any form during Participant’s employment with the Company
or any such other corporation or entity. Participant hereby consents to the
enforcement of any and all of the provisions of this Agreement by or for
the
benefit of the Company and any such other corpo-ration or
entity.
5
11. Entire
Agreement.
This
Agreement and the Plan under which it is issued contain the entire agreement
between the parties with respect to the subject matter hereof and supersedes
all
prior agreements or understandings, oral or written, with respect to the
subject
matter herein. Participant accepts the Option in full satisfaction of any
and
all obligations of the Company to grant stock options to Participant as of
the
date hereof.
12. Notices.
Any and
all notices under this Agreement shall be in writing, and sent by hand delivery
or by certified or registered mail (return receipt requested and first-class
postage prepaid), in the case of the Company, to its principal executive
offices
to the attention of the President, and, in the case of Participant, to
Participant’s address as shown on the Company’s records.
13. Governing
Law.
This
Agreement shall be construed and enforced in accordance with the laws of
the
state in which the Company is incorporated, without reference to its conflicts
of laws rules or the principles of the choice of law.
14. Modifications.
No
change or modification of this Agreement shall be valid unless the same is
in
writing and signed by the parties hereto.
15. Terms
and Conditions of Plan.
The
terms and conditions included in the Plan, the receipt of a copy of which
Participant hereby acknowledges by execution of this Agreement, are
incorpo-rated by reference herein, and to the extent that any conflict may
exist
between any term or provision of this Agreement and any term or provision
of the
Plan, such term or provision of the Plan shall control.
16. Stock
Legend.
All
certificates for Shares issued by the Company to Participant or Participant’s
successors and assigns or to any other person becoming a signatory to this
Agreement shall be endorsed with legends in substantially the following form,
and any transfer agent of the Company may be instructed to require compliance
with all legends on such certificates:
|
The
shares represented by this Certificate have not been registered
under the
Securities Act of 1933, as amended (the “Act”), or any state securities
law. Accordingly, the shares represented by this Certificate may
not be
sold, offered for sale, transferred, pledged or hypothecated without
an
effective registration statement for such shares under the Act
or
applicable state securities law or an opinion of counsel satisfactory
to
the Company that registration is not required under the Act or
any
applicable state securities
law.
|
6
17. Covenants
and Representations and Covenants of Participant.
Participant
represents, warrants, covenants and agrees with the Company as follows:
(a) The
Option is being received for Participant’s own account without the participation
of any other person, with the intent of holding the Option and the Shares
issuable pursuant thereto for investment and without the intent of
participating, directly or indirectly, in a distribution of the Shares and
not
with a view to, or for resale in connection with, any distribution of the
Shares
or any portion thereof.
(b) Participant
is not acquiring the Option or any Shares based upon any representation,
oral or
written, by any person with respect to the future value of, or income from,
the
Shares, but rather upon an independent examination and judgment as to the
prospects of the Company.
(c) Participant
has had the opportunity to ask questions of and receive answers from the
Company
and its executive officers and to obtain all information necessary for
Participant to make an informed decision with respect to the investment in
the
Company represented by the Option and any Shares issued upon its
exercise.
(d) Participant
is able to bear the economic risk of any investment in the Shares, including
the
risk of a complete loss of the investment, and Participant acknowledges that
Participant must continue to bear the economic risk of any investment in
Shares
received upon exercise of the Option for an indefinite period.
(e) Participant
understands and agrees that the Shares subject to the Option may be issued
and
sold to Participant without registration under any state or federal laws
relating to the registration of securities and in that event will be issued
and
sold in reliance on exemptions from registration under appropriate state and
federal laws.
(f) Shares
issued to Participant upon exercise of the Option will not be offered for
sale,
sold or transferred by Participant other than pursuant to: (i) an effective
registration under applicable state securities laws or in a transaction which
is
otherwise in compliance with those laws; (ii) an effective registration under
the Securities Act of 1933, or a transaction otherwise in compliance with
such
Act; and (iii) evidence satisfactory to the Company of compliance with all
applicable state and federal securities laws. The Company shall be entitled
to
rely upon an opinion of counsel satisfactory to it with respect to compliance
with the foregoing laws.
(g) The
Company will be under no obligation to register the Shares issuable pursuant
to
the Option or to comply with any exemption available for sale of the Shares
by
Participant without registration, and the Company is under no obligation
to act
in any manner so as to make Rule 144 promulgated under the Securities Act
of
1933 available with respect to any sale of the Shares by
Participant.
7
(h) Participant
has not relied upon the Company with respect to any tax consequences related
to
the grant or exercise of this Option, or the disposition of Shares purchased
pursuant to its exercise. Participant acknowledges that, as a result of the
grant and/or exercise of the Option, Participant may incur a substantial
tax
liability. Participant assumes full responsibility for all such consequences
and
the filing of all tax returns and elections Participant may be required or
find
desirable to file in connection therewith. In the event any valuation of
the
Option or Shares purchased pursuant to its exercise must be made under federal
or state tax laws and such valuation affects any return or election of the
Company, Participant agrees that the Company may determine such value and
that
Participant will observe any determination so made by the Company in all
returns
and elections filed by Participant. In the event the Company is required
by
applicable law to collect any withholding, payroll or similar taxes by reason
of
the grant or any exercise of the Option, Participant agrees that the Company
may
withhold such taxes from any monetary amounts otherwise payable by the Company
to Participant and that, if such amounts are insufficient to cover the taxes
required to be collected by the Company, Participant will pay to the Company
such additional amounts as are required.
(i) The
agreements, representations, warranties and covenants made by Participant
herein
with respect to the Option shall also extend to and apply to all of the Shares
issued to Participant from time to time pursuant to exercise of the Option.
Acceptance by Participant of any certificate representing Shares shall
constitute a confirmation by Participant that all such agreements,
representations, warranties and covenants made herein shall be true and correct
at that time.
(j) In
the
event any underwriter of securities of the Company requests Participant to
sign
any agreement restricting resale of the Shares in connection with any public
offering by the Company, Participant agrees to sign such agreement, provided
the
officers of the Company have signed an agreement no less restrictive. The
Company may instruct its transfer agent not to transfer the Shares if requested
by an underwriter as described above.
(k) Participant
hereby agrees to comply with any plan, policy or other document of the Company
approved by the Board of Directors of the Company to ensure compliance with
securities laws, rules and regulations both during the term of employment
of
Participant and for one (1) year thereafter. The Company may impose
stop-transfer restrictions with respect to Shares acquired upon exercise
of the
Options to enforce this provision.
(The
remainder of this page is intentionally left blank.)
8
IN
WITNESS WHEREOF, the parties hereto have caused this Award Agreement to be
executed effective as of the day and year first above written.
SMART
ONLINE, INC.
By:_____________________________________
Print
Name:
PARTICIPANT:
By:_____________________________________
Print
Name:
9
EXHIBIT
A
Attention:
Equity Compensation Plan Committee
Smart
Online, Inc.
Xxxx
Xxxxxx Xxx 00000
Xxxxxxxx
Xxxxxxxx Xxxx, Xxxxx Xxxxxxxx 00000-0000
Re: Exercise
of Incentive Stock Option
Dear
Committee Members:
Pursuant
to the terms and conditions of that certain Incentive Stock Option Agreement
dated as of _______________, 20_____ (the “Agreement”)
between
_________________________
and Smart Online, Inc. (the “Company”),
I
desire to purchase ____________ Shares of the Stock of the Company and hereby
tender payment in full for such Shares in accordance with the terms of the
Agreement.
I
hereby
reaffirm that the representations and warranties made in Section 17 of the
Agreement are true and correct on the date hereof as if made on the date
hereof.
Very
truly yours,
__________________________
Print
Name:
Date:
__________________________
