AKSYS, LTD. INCENTIVE STOCK OPTION AGREEMENTEquity Contribution Agreement |
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Exhibit 10.17
AKSYS, LTD.
INCENTIVE STOCK OPTION AGREEMENT
Employee Award
February 28, 2005
Aksys, Ltd. (the “Company”) is pleased to advise that it has granted to you a stock option (the “Option”) to acquire shares of the Common Stock, par value $0.01 per share (the “Common Stock”), of the Company. This Option shall be null and void unless you accept the same below and return it to the Chief Financial Officer of the Company at its office in Lincolnshire, Illinois within thirty (30) days from the date the Option is granted.
THIS OPTION IS SUBJECT TO THE FOLLOWING TERMS AND CONDITIONS. THIS OPTION IS SUBJECT TO VESTING.
1.
Option Grant. The Company hereby grants to Laurence Birch
(the “Employee”) the right to purchase from the Company 150,000
shares of Common Stock (the “Option Shares”) at a price
per share of $4.65 (the “Option Price”)(1), to
be exercisable at the times and on the terms and subject to the conditions set
forth herein. The Option will expire on the tenth anniversary of the date
hereof (the “Final Expiration Date”), unless terminated
earlier as provided under paragraphs 4, 5 or 6 hereof. To the extent possible,
your Option awarded under this Agreement is intended to be an “incentive
stock option” (an “ISO”) within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”).
In order to qualify for special tax treatment under Section 422 of the
Code, you must not sell or otherwise transfer your Option Shares within two
years from the date of this Agreement and within one year from the date you
exercise your Option with respect to such Option Shares. Notwithstanding
anything in this Agreement to the contrary, your ISO shall be exercisable only
during your employment by the Company or any of its Subsidiaries (as such term
is defined in Section 424(f) of the Code); provided, however,
that your ISO may be exercised for a period ending no later than either (x) the
Final Expiration Date or (y) the date that is three months after termination of
your employment if and to the extent that (a) you were entitled to
exercise your ISO on the date of termination and (b) your ISO would not
have expired had you continued to be employed by the Company or any of its
Subsidiaries. The aggregate fair market value (as established by the
Committee) of the Option Shares with respect to which your Option is
exercisable for the first time during any calendar year shall not exceed
$100,000 or such other amount as may subsequently be specified by the Code; provided
that, to the extent such limitation is exceeded with respect to your
Option, any excess portion of your Option (as determined under the Code) shall
be deemed a nonqualified stock option.
(1)
For ISOs, such exercise price is equal to
the fair market value (as established by the Committee) of the Common Stock of
the Company on the date hereof.
2.
Vesting and Exercise. The Option may be exercised only to the extent
it is vested, provided Employee is employed by the Company on such anniversary
dates and events stated below and has served continuously and without
interruption in the employment of the Company from the date of grant of the
Option until such anniversary date and event, except that any leave of absence
for periods and purposes conforming to the personnel policies of the Company or
approved by the Compensation Committee (the “Committee”) of
the Board of Directors of the Company (the “Board”) shall
not cause Employee to fail to satisfy either of such conditions.
(a) Eighty thousand (80,000) shares shall vest over four years: On each of the first four anniversary dates of the date of grant of the Option, 20,000 shares will vest and become exercisable (any shares so vested, the “Vested Shares”) However, if the Employee ceases to be employed with the Company after the first anniversary of the date of grant of the Option, the Option will vest and become exercisable with respect to the percentage of Option Shares equal to (i) the number of full calendar months of service with the Company by the Employee from the date of grant of the Option to the date of cessation of employment with the Company divided by (ii) 48 (the shares so vested, also “Vested Shares”). If the Employee ceases to be employed with the Company before the first anniversary of the date of grant of the Option, the Option will terminate and become null and void with no Option Shares becoming Vested Shares. The Option shall be exercisable, and Employee shall have the right to purchase shares hereunder, from time to time and in whole or in part, only if Employee is employed by the Company on the exercise date (except as provided under paragraphs 5 and 6 hereof) and only with regard to Vested Shares.
(b) Twenty thousand (20,000) shares will vest and become exercisable (any shares so vested, the “Vested Shares”) when the Company secures funds to cover all of 2006.
(c) Twenty thousand (20,000) shares will vest and become exercisable (any shares so vested, the “Vested Shares”) at the end of the first quarter the Company has positive gross profit.
(d) Thirty thousand (30,000) shares will vest and become exercisable (any shares so vested, the “Vested Shares”) at the end of the first quarter the Company has positive cash flow.
3.
Acceleration of Vesting on Sale of the
Company. If the Employee has
been continuously employed by the Company from the date of grant of the Option
until a Sale of the Company (as defined below), except that any leave of
absence for periods and purposes conforming to the personnel policies of the
Company or approved by the Committee shall not cause Employee to fail to
satisfy such condition, the portion of the Option which is not vested and
exercisable immediately prior to the Sale of the Company shall immediately vest
and become exercisable with respect to 100% of the Option Shares simultaneously
with the consummation of
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the Sale of the Company. “Sale of the Company” shall mean (i) a merger or consolidation effecting a change in control of the Company, (ii) a sale of all or substantially all of the Company’s assets or (iii) a sale of a majority of the Company’s outstanding voting securities other than to the public in a registered public offering. In any event, any portion of the Option which has not been exercised prior to or in connection with the Sale of the Company shall terminate and be forfeited by the Employee, unless otherwise determined by the Committee or the Board.
4.
Termination of Option upon Cessation
of Employment for Cause.
Notwithstanding anything to the contrary in this Agreement, if Employee resigns
or is discharged for Cause (as defined below), all of the Option not previously
exercised will expire and be forfeited whether or not vested and exercisable at
the time of Employee’s resignation or discharge for Cause. “Cause”
means (i) the commission by Employee of a felony or a crime involving
moral turpitude or the commission of any other act by Employee involving
dishonesty, disloyalty or fraud with respect to the Company, (ii) conduct
of Employee tending to bring the Company into substantial public disgrace or
disrepute, (iii) the failure or inability of Employee to carry out
effectively Employee’s duties and obligations to the Company or to
participate effectively and actively in the management of the Company, as
determined in the good faith judgment of the Board or the Committee or
(iv) gross negligence or willful misconduct on the part of Employee with
respect to the Company.
5.
Cessation of Employment. This Option shall expire and permanently
terminate upon, and shall not be exercisable or exercised, after cessation of
Employee’s employment with the Company for any reason other than death,
except that any leave of absence for periods and purposes conforming to the
personnel policies of the Company or approved by the Committee shall not be
deemed cessation of employment; provided that (a) Employee may exercise
the Option with respect to Vested Shares (if any) within 12 months from the
date of cessation of employment with the Company if employment ceases due to
the total and permanent disability of Employee (determined in the good faith
judgment of the Board or Committee) and (b) Employee may exercise the
Option with respect to Vested Shares (if any) within 3 months from the date of
cessation of employment with the Company if employment ceases for any other
reason, but under no circumstance may exercise occur after the Final Expiration
Date.
6.
Death of Employee. If Employee dies (a) while employed by
the Company or (b) after cessation of employment with the Company but
(i) within 12 months of the date of cessation if cessation from the
Company was due to the total and permanent disability of Employee (determined
in the good faith judgment of the Board or the Committee) or (ii) within 3
months of the date of cessation if employment with the Company ceased for any
other reason, the Option may be exercised for Vested Shares (if any) by the
beneficiary designated for such purpose or by the estate of the Employee as
provided for in this Agreement, but only within 12 months from the date of
death of Employee; provided that under no circumstance may exercise occur after
the Final Expiration Date.
7.
Payment. Subject to the limitations herein set forth,
exercise of the Option shall be by delivery of written notice to the Chief
Executive Officer of the Company specifying
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