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Exhibit (e)(6)
ENDOSONICS CORPORATION
RESTATED 1988 STOCK OPTION PLAN
(As Amended and Restated through April 18, 1997)
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSES OF THE PLAN
A. This Restated 1998 Stock Option Plan (the "Plan") is intended
to promote the interests of Endosonics Corporation, a Delaware corporation (the
"Company"), by providing a method whereby eligible individuals may be offered
incentives and rewards which will encourage them to acquire a proprietary
interest, or otherwise increase their proprietary interest, in the Company and
continue to render services to the Company (or its parent or subsidiary
corporations).
B. For purposes of the Plan, the following provisions shall be
applicable in determining the parent and subsidiary corporations of the Company:
Any corporation (other than the Company) in an unbroken chain
of corporations ending with the Company shall be considered to be a
parent corporation of the Company, provided each such corporation in
the unbroken chain (other than the Company) owns, at the time of the
determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
Each corporation (other than the Company) in an unbroken
chain of corporations beginning with the Company shall be considered to
be a subsidiary of the Company, provided each such corporation (other
than the last corporation) in the unbroken chain owns, at the time of
the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
II. STRUCTURE OF THE PLAN
A. Option Programs. The Plan shall be divided into two separate
components: the Discretionary Option Grant Program described in Article Two and
the Automatic Option Grant Program described in Article Three. Under the
Discretionary Option Grant Program, eligible individuals may, at the discretion
of the Plan Administrator, be granted options to purchase shares of Common Stock
in accordance with the provisions of Article Two. Under the Automatic Option
Grant Program, each eligible member of the Company's Board of Directors (the
"Board") will automatically receive an option grant to purchase shares of Common
Stock in accordance with the provisions of Article Three.
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B. General Provisions. Unless the context clearly indicates
otherwise, the provisions of Articles One and Four of the Plan shall apply to
both the Discretionary Option Grant Program and the Automatic Option Grant
Program and shall accordingly govern the interests of all individuals under the
Plan.
III. ADMINISTRATION OF THE PLAN
A. The Plan shall be administered in accordance with the following
standards:
(i) The Board shall appoint a committee (the "Committee") of
two (2) or more non-employee Board members to administer the
Discretionary Option Grant Program with respect to all individuals who
are subject to the short-swing profit restrictions of Section 16 of the
Securities Exchange Act of 1934, as amended (the "1934 Act"). The
Committee shall have the sole and exclusive authority to administer the
Discretionary Option Grant Program with respect to all such
individuals.
(ii) Administration of the Discretionary Option Grant Program
with respect to all other key employees, consultants and independent
advisors eligible to participate in the Plan shall be subject to
separate and concurrent administration by both the Board and the
Committee. Accordingly, either the Board or the Committee may from time
to time make discretionary option grants to such individuals upon such
terms and conditions as either deem appropriate, subject to the express
terms of the Plan.
B. Members of the Committee shall serve for such period of time as
the Board may determine and shall be subject to removal by the Board at any
time.
C. Administration of the Automatic Option Grant Program shall be
self-executing in accordance with the terms and conditions of Article Three.
D. The term "Plan Administrator" as used from time to time in this
plan document shall mean the particular entity, whether the Committee or the
Board, which is authorized to administer the Discretionary Option Grant Program
with respect to one or more classes of eligible individuals, to the extent such
entity is carrying out its administrative functions under the Plan with respect
to those individuals.
E. The Plan Administrator shall have full power and authority
(subject to the express provisions of the Plan) to establish such rules and
regulations as it may deem appropriate for the proper administration of the plan
functions within the scope of its administrative authority and to make any and
all determinations with respect to those functions which it may deem necessary
or advisable. All decisions of the Plan Administrator within the scope of its
administrative authority under the Plan shall be final and binding on all
parties who have an interest in the Plan or any outstanding option granted
pursuant to such authority.
IV. ELIGIBILITY FOR OPTION GRANTS
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A. The persons eligible to participate in the Option Grant Program
under Article Two of the Plan shall be limited to the following:
(i) officers and other key employees of the Company (or its
parent or subsidiary corporations) who render services which contribute
to the management, growth and financial success of the Company (or its
parent or subsidiary corporations);
(ii) those consultants or other independent advisors who
provide valuable services to the Company (or its parent or subsidiary
corporations); and
(iii) non-employee members of the Board or the board of
directors of any parent or subsidiary corporation of the Company.
B. Non-employee members of the Board shall also be eligible to
receive automatic option, grants pursuant to the provisions of Article Three.
C. The Plan Administrator shall have full authority to make
discretionary option grants under the Plan to the eligible individuals within
the scope of its administrative functions under the Plan and to determine the
number of shares to be covered by each such grant, whether the granted option is
to be an incentive stock option ("Incentive Option") which satisfies the
requirements of Section 422 of the Internal Revenue Code or nonstatutory option
not intended to meet such requirements, the time or times at which each such
option is to become exercisable, and the maximum term for which the option is to
remain outstanding.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of the
Company's authorized but unissued or reacquired Common Stock. The aggregate
number of shares which may be issued over the term of the Plan shall not exceed
4,100,000 shares(1). The total number of shares issuable under the Plan shall be
subject to adjustment from time to time in accordance with the provisions of
this Section V.
B. In no event may the maximum number of shares of Common Stock
for which any one individual participating in the Plan may be granted stock
options and separately exercisable stock appreciation rights exceed 550,000
shares in the aggregate over the remaining term of the Plan. For purposes of
this limitation, no stock options or stock appreciation rights granted prior to
January 1, 1994 shall be taken into account. Such limitation shall be subject to
periodic adjustment in accordance with the provisions of this Section V.
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(1) Includes (i) the 1,250,000-share increase authorized by the Board
on September 13, 1995 and approved by the stockholders at the 1996
Annual Stockholders Meeting and (ii) the 650,000 share increase
authorized by the Board on April 18, 1997, subject to stockholder
approval at the 1997 Annual Meeting.
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C. Should an outstanding option expire or terminate for any reason
prior to exercise in full (including any option cancelled in accordance with the
cancellation-regrant provisions of Section IV of Article Two of the Plan), the
shares subject to the portion of the option not so exercised shall be available
for subsequent option grant under the Plan. In addition, any unvested shares
issued under the Plan and subsequently repurchased by the Company, at the option
exercise price paid per share, pursuant to the Company's repurchase rights under
the Plan shall be added back to the number of shares of Common Stock reserved
for issuance under the Plan and shall accordingly be available for reissuance
through one or more subsequent option grants under the Plan. However, shares
subject to any option or portion thereof surrendered or cancelled in accordance
with Section V of Article Two or Section III of Article Three shall not be
available for subsequent option grant under the Plan. Should the exercise price
of an option under the Plan be paid with shares of Common Stock or should shares
of Common Stock otherwise issuable under the Plan be withheld by the Company in
satisfaction of the withholding taxes incurred in connection with the exercise
of an option or the vesting of a stock issuance under the Plan, then the number
of shares of Common Stock available for issuance under the Plan shall be reduced
by the gross number of shares for which the option is exercised or which vest
under the stock issuance, and not by the net number of shares of Common Stock
issued to the holder of such option or stock issuance.
D. If any change is made to the outstanding Common Stock by reason
of any stock split, stock dividend, recapitalization, combination of shares,
exchange of shares or other change affecting the outstanding Common Stock as a
class without the Company's receipt of consideration, then appropriate
adjustments shall be made to (i) the maximum number and/or class of securities
issuable under the Plan, (ii) the maximum number and/or class of securities for
which any one individual may be granted stock options and separately exercisable
stock appreciation rights under the Plan after December 31, 1993, (iii) the
number and/or class of securities and price per share in effect under each
outstanding option under the Plan and (iv) the number and/or class of securities
to be made the subject of each subsequent automatic grant. Such adjustments to
the outstanding options shall preclude the enlargement or dilution of rights and
benefits under such options.
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to this Article Two shall be authorized
by action of the Plan Administrator and may, at the Plan Administrator's
discretion, be either Incentive Options or non-statutory options. Individuals
who are not Employees may only granted non-statutory Options under this Article
Two. Each option granted shall be evidenced by one or more instruments in the
form approved by the Plan Administrator. Each such instrument shall, however,
comply with the terms and conditions specified below, and each instrument
evidencing an Incentive Option shall, in addition, be subject to the applicable
provisions of Section II of this Article Two.
A. Option Price.
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1. The option price per share shall be fixed by the Plan
Administrator. In no event, however, shall the option price per share be less
than eighty-five percent (85%) of the fair market value per share of Common
Stock on the date of the option grant.
2. The option price shall become immediately due upon exercise
of the option and shall, subject to the provisions of Section VI of this Article
Two and the instrument evidencing the grant, be payable as follows:
- in cash or check drawn to the Company's order; or
- in shares of Common Stock held by the optionee for the
requisite period necessary to avoid a charge to the Company's earnings
for financial reporting purposes and valued at fair market value on the
Exercise Date (as such term is defined below).
- through a broker dealer sale and remittance procedure
pursuant to which the optionee shall provide irrevocable instructions
(I) to a Company designated brokerage firm to effect the immediate sale
of the purchased shares and remit to the Company, out of the sale
proceeds available on the settlement date, sufficient funds to cover
the aggregate option price payable for the purchased shares plus all
applicable Federal and State income and employment taxes required to be
withheld by the Company in connection with such purchase and (II) to
the Company to deliver the certificates for the purchased shares
directly to such brokerage firm in order to complete the sale
transaction.
For purposes of this subparagraph 2, the Exercise Date shall be
the date on which written notice of the option exercise is delivered to the
Company. Except to the extent the sale and remittance procedure is utilized in
connection with the exercise of the option, payment of the option price for the
purchased shares must accompany such notice.
3. The fair market value per share of Common Stock on any
relevant date under the Plan shall be determined in accordance with the
following provisions:
- If the Common Stock is not at the time listed or admitted
to trading on any stock exchange but is traded on the Nasdaq National
Market, the fair market value shall be the closing selling price of one
share of Common Stock on the date in question, as such price is
reported by the National Association of Securities Dealers on the
Nasdaq National Market or any successor system. If there is no closing
selling price for the Common Stock on the date in question, then the
closing selling price on the last preceding date for which such
quotation exists shall be determinative of fair market value.
- If the Common Stock is at the time listed or admitted to
trading on any national stock exchange, then the fair market value
shall be the closing selling price per share of Common Stock on the
date in question on the stock exchange determined by the Plan
Administrator to be the primary market for the Common Stock, as such
price is officially quoted in the composite tape of transactions on
such exchange. If there is no reported sale of Common Stock on
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such exchange on the date in question, then the fair market value shall
be the closing selling price on the exchange on the last preceding date
for which such quotation exists.
- If the Common Stock is at the time neither listed nor
admitted to trading on any stock exchange nor traded in the
over-the-counter market, then the fair market value shall be determined
by the Committee after taking into account such factors as the
Committee shall deem appropriate.
B. Term and Exercise of Options.
Each option granted under this Article Two shall be exercisable at
such time or times, during such period, and for such number of shares as shall
be determined by the Plan Administrator and set forth in the instrument
evidencing the option grant. No such option, however, shall have a maximum term
in excess of ten (10) years from the grant date.
C. Termination of Service.
1. Except to the extent otherwise provided pursuant to Section
VII of this Article Two, the following provisions shall govern the exercise
period applicable to any options held by the optionee at the time of cessation
of Service or death.
- Should the optionee cease to remain in Service for any
reason other than death or permanent disability, then the period for
which each outstanding option held by such optionee is to remain
exercisable shall be limited to the three (3)-month period following
the date of such cessation of Service.
- In the event such Service terminates by reason of permanent
disability (as defined in Section 22(e)(3) of the Internal Revenue
Code), then the period for which each outstanding option held by the
optionee is to remain exercisable shall be limited to the twelve
(12)-month period following the date of such cessation of Service.
- Should the optionee die while in Service or during the
three (3)-month period following his or her cessation of Service, then
the period for which each of his or her outstanding options is to
remain exercisable shall be limited to the twelve (12)-month period
following the date of the optionee's death. During such limited period,
the option may be exercised by the personal representative of the
optionee's estate or by the person or persons to whom the option is
transferred pursuant to the optionee's will or in accordance with the
laws of descent and distribution.
- Under no circumstances, however, shall any such option be
exercisable after the specified expiration date of the option term.
- During the applicable limited post-Service exercise period,
no option may be exercised in the aggregate for more than the number of
shares for which the option is exercisable on the date of the
optionee's cessation of
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Service. Upon the expiration of such limited exercise period or (if
earlier) upon the expiration of the option term, the option shall
terminate, and cease to be exercisable. However, the option shall
immediately upon the optionee's cessation of Service, terminate and
cease to be outstanding with respect to any option shares for which the
option is not at that time exercisable.
2. The Plan Administrator shall have complete discretion,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to permit one or more options held by the optionee
under this Article Two to be exercised, during the limited period of
exercisability provided under subparagraph 1 above, not only with respect to the
number of shares for which each such option is exercisable at the time of the
optionee's cessation of Service but also with respect to one or more subsequent
installments of purchasable shares for which the option would otherwise have
become exercisable had such cessation of Service nor occurred.
3. For purposes of the foregoing provisions of this Section I.C
(and for all other purposes under the Plan):
- The optionee shall be deemed to remain in the Service of
the Company for so long as such individual renders services on a
periodic basis to the Company (or any parent or subsidiary corporation)
in the capacity of an Employee, a non-employee member of the Board or
an independent consultant or advisor.
- The optionee shall be considered to be an Employee for so
long as such individual remains in the employ of the Company or one or
more of its parent or subsidiary corporations, subject to the control
and direction of the employer entity not only as to the work to be
performed but also as to the manner and method of performance.
D. Stockholder Rights.
An optionee shall have no stockholder rights with respect to any
shares covered by the option until such individual shall have exercised the
option and paid the option price for the purchased shares.
E. Repurchase Rights.
The shares of Common Stock acquired upon the exercise of options
granted under the Plan may be subject to one or more repurchase rights of the
Company in accordance with the following provisions:
1. The Plan Administrator may in its discretion determine
that it shall be a term and condition of one or more options exercised under the
Plan that the Company (or its assignees) shall have the right, exercisable upon
the optionee's cessation of Service, to repurchase at the option price any or
all of the unvested shares of Common Stock at the time held by the optionee. Any
such repurchase right shall be exercisable by the Company (or its assignees)
upon such terms and conditions (including the establishment of the appropriate
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vesting schedule and other provision for the expiration of such right in one or
more installments over the optionee's period of Service) as the Plan
Administrator may specify in the instrument evidencing such right.
2. The Plan Administrator may assign the Company's repurchase
rights under subparagraph E.1 above to any person or entity selected by the Plan
Administrator, including one or more stockholders of the Company.
3. All of the Company's outstanding repurchase rights shall
automatically terminate, and all shares subject to such terminated rights shall
immediately vest in full, upon the occurrence of any Corporate Transaction under
Section III of this Article Two, except to the extent (i) the Company's
outstanding repurchase rights are to be assigned to the successor corporation
(or parent thereof) in connection with the Corporate Transaction or (ii) such
termination of repurchase rights and acceleration of vesting are precluded by
other limitations imposed by the Plan Administrator at the time of the option
grant.
F. Limited Transferability of Options. During the lifetime of the
optionee, Incentive Options shall be exercisable only by the optionee and shall
not be assignable or transferable other than by will or by the laws of descent
and distribution following the optionee's death. However, Non-Statutory Options
may, in connection with the optionee's estate plan, be assigned in whole or in
part during the optionee's lifetime to one or more members of the optionee's
immediate family or to a trust established exclusively for one or more such
family members. The assigned portion may only be exercised by the person or
persons who acquire a proprietary interest in the option pursuant to the
assignment. The terms applicable to the assigned portion shall be the same as
those in effect for the option immediately prior to such assignment and shall be
set forth in such documents issued to the assignee as the Plan Administrator may
deem appropriate. Should the optionee die while holding one or more
Non-Statutory Options, then those options shall be transferred in accordance
with the optionee's will or the laws of descent and distribution.
II. INCENTIVE OPTIONS
The terms and conditions specified below shall be applicable to
all Incentive Options granted under this Article Two. Incentive Options may only
be granted to individuals who are Employees of the Company. Options which are
specifically designated as non-statutory options when issued under the Plan
shall not be subject to such terms and conditions.
A. Option Price. The option price per share of the Common Stock
subject to an Incentive Option shall in no event be less than one hundred
percent (100%) of the fair market value of such Common Stock on the grant date.
B. Dollar Limitation. The aggregate fair market value (determined
as of the respective date or dates of grant) of the Common Stock for which one
or more options granted to any Employee under this Plan (or any other option
plan of the Company or its parent or subsidiary corporations) may for the first
time become exercisable as incentive stock options under the Federal tax laws
during any one calendar year shall not exceed the sum of One Hundred Thousand
Dollars ($100,000). To the extent the Employee holds two or more such
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options which become exercisable for the first time in the same calendar year,
the foregoing limitation on the exercisability of such option as incentive stock
options under the Federal tax laws shall be applied on the basis of the order in
which such options are granted.
C. 10% Stockholder. If any individual to whom an Incentive Option
is granted is the owner of stock (as determined under Section 424(d) of the
Internal Revenue Code) possessing ten percent (10%) or more of the total
combined voting power of all classes of stock of the Company or any one of its
parent or subsidiary corporations ("10% Stockholder"), then the option price per
share shall not be less than one hundred ten percent (110%) of the fair market
value per share of Common Stock on the grant date and the option term shall not
exceed five (5) years, measured from the grant date.
Except as modified by the preceding provisions of this Section II,
the provisions of the Plan shall apply to all Incentive Options granted
hereunder.
III. CORPORATE TRANSACTIONS/CHANGES IN CONTROL
A. In the event of any of the following stockholder-approved
transactions (a "Corporate Transaction"):
(i) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose of
which is to change the State of the Company's incorporation,
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company, or
(iii) any reverse merger in which the Company is the
surviving entity but in which fifty percent (50%) or more of the
Company's outstanding voting stock is transferred to holders different
from those who held the stock immediately prior to such merger,
the exercisability of each option outstanding under this
Article Two shall automatically accelerate so that each such option shall,
immediately prior to the specified effective date for the Corporate Transaction,
become fully exercisable with respect to the total number of shares of Common
Stock at the time subject to such option and may be exercised for all or any
portion of such shares. However, an outstanding option under this Article Two
shall not so accelerate if and to the extent: (i) such option is, in connection
with the Corporate Transaction, either to be assumed by the successor
corporation or parent thereof or be replaced with a comparable option to
purchase shares of the capital stock of the successor corporation or parent
thereof, (ii) such option is to be replaced with a cash incentive program of the
successor corporation based on the option spread at the time of the Corporate
Transaction, or (iii) the acceleration of such option is subject to other
limitations imposed by the Plan Administrator at the time of grant. The
determination of option comparability under clause (i) above shall be made by
the Committee, and its determination shall be final, binding and conclusive.
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B. Immediately following the consummation of the Corporate
Transaction, all outstanding options under this Article Two shall terminate and
cease to be outstanding, except to the extent assumed by the successor
corporation or its parent company.
C. Each outstanding option under this Article Two which is assumed
in connection with the Corporate Transaction or is otherwise to continue in
effect shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply and pertain to the number and class of securities which
would have been issuable, in consummation of such Corporate Transaction, to an
actual holder of the same number of shares of Common Stock as are subject to
such option immediately prior to such Corporate Transaction. Appropriate
adjustments shall also be made to the option price payable per share, provided
the aggregate option price payable for such securities shall remain the same. In
addition, the class and number of securities available for issuance under the
Plan on both an aggregate and per participant basis following the consummation
of the Corporate Transaction shall be appropriately adjusted.
D. The options outstanding under this Article Two shall in no way
affect the right of the Company to adjust, reclassify, reorganize or otherwise
change its capital or business structure or to merge, consolidate, dissolve,
liquidate or sell or transfer all or any part of its business or assets.
E. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to provide for the automatic acceleration of one or
more outstanding options under this Article Two upon the occurrence of a Change
in Control. The Plan Administrator shall also have full power and authority to
condition any such option acceleration upon the subsequent termination of the
optionee's Service within a specified period following the Change in Control.
F. For purposes of this Section III, a Change in Control shall be
deemed to occur in the event:
(i) any person or related group of persons (other than the
Company or a person that directly or indirectly controls, is controlled
by, or is under common control with, the Company) directly or
indirectly acquires beneficial ownership (within the meaning of Rule
13d-3 of the 1934 Act) of securities possessing more than twenty-five
percent (25%) of the total combined voting Power of the Company's
outstanding securities pursuant to a tender or exchange offer made
directly to the Company's stockholders which the Board does not
recommend such stockholders to accept; or
(ii) there is a change in the composition of the Board over a
period of twenty-four (24) consecutive months or less such that a
majority of the Board members (rounded up to the next whole number)
cease, by reason of one or more proxy contests for the election of
Board members, to be comprised of individuals who either (A) have been
Board members continuously since the beginning of such period or (B)
have been elected or nominated for election as Board members during
such period by at least
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two-thirds of the Board members described in clause (A) who were
still in office at the time such election or nomination was
approved by the Board.
G. Any options accelerated in connection with the Change in
Control shall remain fully exercisable until the expiration or sooner
termination of the option term.
H. The exercisability as incentive stock options under the Federal
tax laws of any options accelerated under this Section III in connection with a
Corporate Transaction or Change in Control shall remain subject to the dollar
limitation of Section II.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any
time and from time to time, with the consent of the affected optionees, the
cancellation of any or all outstanding options under this Article Two and to
grant in substitution new options under the Plan covering the same or different
numbers of shares of Common Stock but having an option price per share not less
than eighty-five percent (85%) of the fair market value of the Common Stock on
the new grant date (or one hundred percent (100%) of such fair market value in
the case of an Incentive Option or one hundred ten percent (110%) of such fair
market value in the case of an Incentive Option granted to a 10% Stockholder).
V. STOCK APPRECIATION RIGHTS
A. Provided and only if the Plan Administrator determines in its
discretion to implement the stock appreciation right provisions of this Section
V, one or more optionees may be granted the right, exercisable upon such terms
and conditions as the Plan Administrator may establish, to surrender all or part
of an unexercised option under this Article Two in exchange for a distribution
from the Company in an amount equal to the excess of (i) the fair market value
(on the option surrender date) of the number of shares in which the optionee is
at the time vested under the surrendered option (or surrendered portion thereof)
over (ii) the aggregate option price payable for such vested shares.
B. No surrender of an option shall be effective hereunder unless
it is approved by the Plan Administrator. If the surrender is so approved, then
the distribution to which the optionee shall accordingly become entitled under
this Section V may be made in shares of Common Stock valued at fair market value
on the option surrender date, in cash, or partly in shares and partly in cash,
as the Plan Administrator shall in its sole discretion deem appropriate.
C. If the surrender of an option is rejected by the Plan
Administrator, then the optionee shall retain whatever rights the optionee had
under the surrendered option (or surrendered portion thereof) on the option
surrender date and may exercise such rights at any time prior to the later of
(i) five (5) business days after the receipt of the rejection notice or (ii) the
last day on which the option is otherwise exercisable in accordance with the
terms of the instrument evidencing such option, but in no event may such rights
be exercised more than ten (10) years after the date of the option grant.
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D. Each officer of the Company subject to the short-swing profit
restrictions of the Federal securities laws may, in the Plan Administrator's
sole discretion, be granted limited stock appreciation rights in tandem with his
or her outstanding options under this Article Two. Upon the occurrence of a
Hostile Take-Over effected at any time after the Company's outstanding Common
Stock is registered under Section 12(g) of the 1934 Act, each outstanding option
with such a limited stock appreciation right shall automatically be cancelled
and the optionee shall in return be entitled to a cash distribution from the
Company in an amount equal to the excess of (i) the Take-Over Price of the
shares of Common Stock at the time subject to the cancelled option (whether or
not the option is otherwise at the time exercisable for such shares) over (ii)
the aggregate exercise price payable for such shares. The cash distribution
payable upon such cancellation shall be made within five (5) days following the
consummation of the Hostile Take-Over. The Plan Administrator shall pre-approve,
at the time the limited stock appreciation right is granted, the subsequent
exercise of that right in accordance with the terms of the grant and the
provisions of this Section V.D. No additional approval of the Plan Administrator
or the Board shall be required at the time of the actual option cancellation and
cash distribution.
E. For purposes of Section V.D, the following definitions shall be
in effect:
A Hostile Take-Over shall be deemed to occur in the event any
person or related group of persons (other than the Company or a person
that directly or indirectly controls, is controlled by, or is under
common control with, the Company) directly or indirectly acquires
beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act)
of securities possessing more than fifty percent (50%) of the total
combined voting power of the Company's outstanding securities pursuant
to a tender or exchange offer made directly to the Company's
stockholders which the Board does not recommend such stockholders to
accept.
The Take-Over Price per share shall be deemed to be equal to
the greater of (a) the fair market value per share on the date of
cancellation, as determined pursuant to the valuation provisions of
Section I.A.3 of this Article Two, or (b) the highest reported price
per share paid in effecting such Hostile Take-Over. However, if the
cancelled option is an Incentive Option, the Take-Over Price shall not
exceed the clause (a) price per share.
F. The shares of Common Stock subject to any option surrendered or
cancelled for an appreciation distribution pursuant to this Section V shall not
be available for subsequent option grant under the Plan.
VI. LOANS OR INSTALLMENT PAYMENT
The Plan Administrator may assist any optionee (including any
officer) in the exercise of one or more outstanding options under this Article
Two by (a) authorizing the extension of a loan to such optionee from the Company
or (b) permitting the optionee to pay the option price for the purchased Common
Stock in installments over a period of years. The terms of any loan or
installment method of payment (including the interest rate and terms of
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repayment) will be established by the Plan Administrator in its sole discretion.
Loans and installment payments may be granted without security or collateral,
but the maximum credit available to the optionee shall not exceed the sum of (i)
the aggregate option price of the purchased shares (less the par value) plus
(ii) any Federal and State income and employment tax liability incurred by the
optionee in connection with the exercise of the option.
VII. EXTENSION OF EXERCISE PERIOD
Each entity serving as Plan Administrator shall have full power
and authority, within the scope of its administrative functions under the Plan,
to extend the period of time for which any Option granted under this Article Two
is to remain exercisable following the optionee's cessation of Service or death
from the limited period in effect under Section I.C.1 of this Article Two to
such greater period of time as the Plan Administrator shall deem appropriate;
provided, however, that in no event shall such option be exercisable after the
specified expiration date of the option term.
ARTICLE THREE
AUTOMATIC OPTION GRANT PROGRAM
I. ELIGIBILITY
A. Eligible Optionees. The individuals eligible to receive
automatic option grants pursuant to the provisions of this Article Three shall
be limited to the following:
(i) each individual who is serving as a non-employee member
of the Board on March 4, 1992; and
(ii) each individual who is first appointed or elected as a
non-employee Board member at any time after March 4, 1992.
II. TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS
A. Grant Dates. Option grants will be made under this Article
Three on the dates specified below:
(i) Each individual who served as a non-employee Board member
on March 4, 1992 was automatically granted on such date a non-statutory
stock option to purchase 5,000 shares of Common Stock upon the terms
and conditions of this Article Three.
(ii) Each individual who was first appointed or elected as a
non-employee Board member after March 4, 1992 but prior to March 29,
1995 was automatically granted on the date of such appointment or
election a non-statutory stock option to purchase 5,000 shares of
Common Stock upon the terms and conditions of this Article Three.
(iii) Each individual who was serving as a non-employee Board
member on March 29, 1995 was automatically granted on such date a
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non-statutory stock option to purchase 10,000 shares of Common Stock
upon the terms and conditions of this Article Three.
(iv) Each individual who is first appointed or elected as a
non-employee Board member after March 29, 1995 shall automatically be
granted on the date of such appointment or election a non-statutory
stock option to purchase 10,000 shares of Common Stock upon the terms
and conditions of this Article Three.
(v) On the date of each Annual Stockholders Meeting after
March 4, 1992, each individual who is re-elected as a non-employee
member of the Board at such Annual Meeting (including individuals who
were initially elected as non-employee Board members prior to March 4,
1992) shall receive an automatic option grant under the Plan for 5,000
shares of Common Stock, provided such individual has been a member of
the Board for at least six (6) months.
The 5,000-share and 10,000-share limitation on the automatic option
grants to be made to each non-employee Board member shall be subject to periodic
adjustment pursuant to the applicable provisions of paragraph V.C of Article
One.
B. Exercise Price. The exercise price per share shall be equal to one
hundred percent (100%) of the fair market value per share of Common Stock on the
automatic grant date.
C. Payment. The exercise price shall be payable in one of the
alternative forms specified below:
(i) payment in cash or check made payable to the Company's
order; or
(ii) payment in shares of Common Stock held for the requisite
period necessary to avoid a charge to the Company's reported earnings
and valued at fair market value on the Exercise Date (as such term is
defined below).
(iii) through a broker-dealer sale and remittance procedure
pursuant to which the optionee shall provide irrevocable instructions
(I) to the Company designated broker-dealer to effect the immediate
sale of the purchased shares and remit to the Company, out of the sale
proceeds, an amount equal to the aggregate option price payable for the
purchased shares and (II) to the Company to deliver the certificates
for the purchased shares directly to such broker-dealer.
For purposes of this subparagraph, the Exercise Date shall be the date
on which written notice of the option exercise is delivered to the Company, and
the fair market value per share of Common Stock on any relevant date shall be
determined in accordance with the provisions of paragraph I.A.3 of Article Two.
Except to the extent the sale and remittance
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procedure specified above is utilized for the exercise of the option, payment of
the exercise price for the purchased shares must accompany such notice.
D. Option Term. Each automatic grant under this Article Three shall
have a maximum term of ten (10) years measured from the automatic grant date.
E. Exercisability.
1. Except as provided in subparagraph 2 below, each automatic
option shall become exercisable for the option shares in four (4) equal annual
installments commencing one year after the grant date. As the option becomes
exercisable for one or more installments of the option shares, the installments
shall accumulate, and the option shall remain exercisable for the accumulated
installments until the expiration or sooner termination of the option term. The
option, however, shall not become exercisable for any additional option shares
following the optionee's cessation of Board service, except to the extent the
option is otherwise to become exercisable in accordance with the provisions of
Section II.E.2 of this Article Three.
2. Should the optionee die or become permanently disabled (as
defined in Section 22(e)(3) of the Internal Revenue Code) while serving as a
Board member, then the option shall accelerate in full and become exercisable
for all of the shares of Common Stock at the time subject to the option.
F. Limited Transferability. The option may, in connection with the
optionee's estate plan, be assigned in whole or in part during the optionee's
lifetime to one or more members of the optionee's immediate family or to a trust
established exclusively for one or more such family members. The assigned
portion may only be exercised by the person or persons who acquire a proprietary
interest in the option pursuant to the assignment. The terms applicable to the
assigned portion shall be the same as those in effect for the option immediately
prior to such assignment and shall be set forth in such documents issued to the
assignee as the Plan Administrator may deem appropriate. Should the optionee die
while holding one or more options under this Article Three, then those options
shall be transferred in accordance with the optionee's will or the laws of
descent and distribution.
G. Effect of Termination of Board Membership.
1. Should the optionee cease to be a Board member for any reason
(other than death) while holding an automatic option grant under this Article
Three, then such optionee shall have a six (6)-month period following the date
of such cessation of Board membership in which to exercise such option for any
or all of the shares of Common Stock for which the option is exercisable at the
time the optionee ceases service as a Board member. However, each such option
shall immediately terminate and cease to be outstanding, at the time of such
cessation of Board service, with respect to any shares for which the option is
not otherwise at that time exercisable.
2. Should the optionee die while serving as a Board member or
during the six (6)-month period following his or her cessation of Board service,
than the option may subsequently be exercised, for any or all of the shares of
Common Stock for which the option is exercisable at the time of the optionee's
cessation of Board membership, by the
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<PAGE> 16
personal representative of the optionee's estate or by the person or persons to
whom the option is transferred pursuant to the optionee's will or in accordance
with the laws of descent and distribution. Any such exercise must, however,
occur within twelve (12) months after the date of optionee's death. However,
each such option shall immediately terminate and cease to be outstanding, at the
time of the optionee's cessation of Board service, with respect to any shares
for which the option is not otherwise at that time exercisable.
3. In no event shall any automatic grant under this Article Three
remain exercisable after the specified expiration date of the ten (10)-year
option term. Upon the expiration of the applicable exercise period in accordance
with subparagraphs 1 and 2 above or (if earlier) upon the expiration of the ten
(10)-year option term, the automatic grant shall terminate and cease to be
outstanding for all shares for which such option was exercisable at the time of
the optionee's cessation of Board service but for which that option was not
subsequently exercised.
H. Stockholder Rights. The holder of an automatic option grant under
this Article Three shall have no stockholder rights with respect to any shares
covered by such option until such individual shall have exercised the option and
paid the exercise price.
I. Remaining Terms. The remaining terms and conditions of each
automatic option grant shall be as set forth in the prototype Directors
Automatic Option Grant Agreement attached as Exhibit A to the Plan.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of a Corporate Transaction (as such term is
defined in Section III.A of Article Two), then the exercisability of each
automatic option grant outstanding under this Article Three shall automatically
accelerate so that each such option shall, immediately prior to the specified
effective date for the Corporate Transaction, become fully exercisable with
respect to the total number of shares of Common Stock at the time subject to
such option and may be exercised for all or any portion of those shares.
Immediately following the consummation of the Corporate Transaction, all
automatic option grants under this Article Three shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation or its
parent company.
B. In connection with any Change in Control (as such term is
defined in Section III.F of Article Two above), the exercisability of each
automatic option grant at the time outstanding under this Article Three shall
automatically accelerate so that each such option shall, immediately prior to
the specified effective date for the Change in Control, become fully exercisable
with respect to the total number of shares of Common Stock at the time subject
to such option and may be exercised for all or any portion of such shares.
C. Upon the occurrence of a Hostile Take-Over (as such term is
defined in Section V.E of Article Two above), each outstanding automatic option
grant under this Article Three shall automatically be cancelled in return for a
cash distribution from the Company in an amount equal to the excess of (i) the
Take-Over Price (as such term is defined below) of the
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<PAGE> 17
shares of Common Stock at the time subject to the cancelled option (whether or
not the option is otherwise at the time exercisable for such shares) over (ii)
the aggregate exercise price payable for such shares. The cash distribution
payable upon such cancellation shall be made within five (5) days following the
consummation of the Hostile Take-Over. Stockholder approval of this 1997
restatement of the Plan shall constitute preapproval of each option subsequently
granted with such an automatic cancellation provision and the subsequent
cancellation of that option in accordance with the provisions of this Section
III.C. No additional approval of the Plan Administrator or the Board shall be
required at the time of the actual option cancellation and cash distribution.
The Take-Over Price per share shall be deemed to be equal to the greater of (a)
the fair market value per share on the date of cancellation, as determined
pursuant to the valuation provisions of Section I.A.3 of Article Two, or (b) the
highest reported price per share paid in effecting such Hostile Take-Over.
D. The shares of Common Stock subject to each option cancelled in
connection with the Hostile Take-Over shall not be available for subsequent
issuance under this Plan.
E. The automatic option grants outstanding under this Article Three
shall in no way affect the right of the Company to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
ARTICLE FOUR
MISCELLANEOUS
I. AMENDMENT OF THE PLAN
The Board shall have complete and exclusive power and authority to
amend or modify the Plan in any or all respects whatsoever. However, no such
amendment or modification shall, without the consent of the, holders, adversely
affect rights and obligations with respect to options at the time outstanding
under the Plan. In addition, certain amendments may require stockholder approval
pursuant to applicable laws or regulations.
II. TAX WITHHOLDING
A. The Company's obligation to deliver shares or cash upon the
exercise of stock options or stock appreciation rights granted under the Plan
shall be subject to the satisfaction of all applicable Federal, State and local
income and employment tax withholding requirements.
B. Each entity serving as Plan Administrator may, within the scope
of its administrative functions under the Plan and upon such terms and
conditions as it may in its sole discretion deem appropriate (including the
applicable safe-harbor provisions of SEC Rule 16b-3), provide any or all holders
of outstanding option grants under Article Two of the Plan with the election to
have the Company withhold, from the shares of Common Stock otherwise issuable
upon the exercise of such options, a portion of such shares with an aggregate
fair market value equal to the designated percentage (any multiple of five
percent (5%) specified by the optionee) of the Federal and State income and
employment taxes ("Taxes") incurred in connection with the
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<PAGE> 18
acquisition of such shares. In lieu of such direct withholding, one or more
optionees may also be granted the right to deliver shares of Common Stock to the
Company in satisfaction of such Taxes. The withheld or delivered shares shall be
valued at the Fair Market Value on the applicable determination date for such
Taxes.
III. EFFECTIVE DATE AND TERM OF PLAN
A. The Plan was initially adopted in final form by the Board on
October 20, 1988 and approved by the Company's stockholders on April 5, 1989,
pursuant to which an aggregate of 1,600,000 shares of Common Stock (400,000
after giving effect to the 1992 Reverse Stock Split) were authorized for
issuance. The Board restated the Plan in March 1991 to increase the number of
shares issuable over the term of the Plan by 1,000,000 shares (250,000 after
giving effect to the 1992 Reverse Stock Split) and the restatement and increase
were approved by the stockholders in March 1991. In January 1992, the Board
restated the Plan to conform the Plan to the requirements of Rule 16b-3 and such
1992 restatement was effective on the first date on which the shares of the
Company's Common Stock were registered under Section 12(g) of the 1934 Act. The
Board subsequently amended the Plan on May 7, 1992 to increase the number of
shares issuable thereunder by 300,000 shares and on August 13, 1992 the
stockholders approved a restatement of the Plan to (i) include the 300,000-share
increase previously approved by the Board and (ii) to increase the frequency of
automatic grants made to non-employee Board members. The Board approved such
restatement on August 13, 1992. The Board again amended the Plan effective
October 28, 1992 to provide for bifurcated administration of the Discretionary
Option Grant Program.
On February 10, 1993, the Board adopted a new restatement of the
Plan to (i) increase the number of shares issuable thereunder by 400,000 shares
and (ii) provide for the acceleration of options under the Automatic Option
Grant Program in the event of the non-employee Board member's death or permanent
disability. The restatement was approved by the stockholders at the Annual
Stockholders Meeting held on May 25, 1993.
On February 8, 1994, the Board adopted another restatement of the
Plan to (i) increase the number of shares issuable thereunder by 450,000 shares
and (ii) impose a limitation on the maximum number of shares for which any one
individual participating in the Plan may be granted stock options and separately
exercisable stock appreciation rights after December 31, 1993. The restatement
was approved by the stockholders at the 1994 Annual Stockholders Meeting.
On January 9, 1995, the Board adopted an amendment to the Plan to
increase the number of shares issuable thereunder by 400,000 shares and such
increase was approved by the stockholders at the 1995 Annual Stockholders
Meeting.
On March 29, 1995, the Board adopted an amendment to the Plan to
(i) grant a 10,000 share option to each existing non-employee Board member under
the Automatic Option Grant Program and (ii) increase the number of shares of
Common Stock for which option grants are to be made under the Automatic Option
Grant Program to each newly elected or appointed non-employee Board member to
10,000 shares. The amendment was approved by the stockholders at the 1995 Annual
Stockholders Meeting.
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<PAGE> 19
On September 13, 1995, the Board adopted an amendment to the Plan
to increase the number of shares issuable thereunder by an additional 1,250,000
shares. The amendment was approved by the stockholders at the 1996 Annual
Stockholders Meeting.
On November 5, 1996, the Board adopted an amendment to the Plan
which renders the non-employee Board members eligible to receive option grants
under the Discretionary Option Grant Program in effect under Article Two of the
Plan. This amendment shall become effective immediately upon approval by the
stockholders at the 1997 Annual Stockholders Meeting. Options may be granted on
the basis of such amendment at any time on or after November 5, 1996, but no
such option shall become exercisable in whole or in part unless and until the
amendment is approved by the stockholders at the 1997 Annual Meeting.
The Plan was amended and restated by the Board on April 18, 1997
(the "1997 Restatement") to effect the following changes: (i) increase the
maximum number of shares of Common Stock authorized for issuance over the term
of the Plan from 3,450,000 shares to 4,100,000 shares, (ii) allow unvested
shares issued under the Plan and subsequently repurchased by the Company at the
option exercise price paid per share to be reissued under the Plan, (iii) remove
certain restrictions on the eligibility of non-employee Board members to serve
as Plan Administrator, (iv) extend the term of the Plan from October 19, 1998 to
December 31, 2002 and (v) effect a series of additional changes to the
provisions of the Plan (including the stockholder approval requirements, the
transferability of Non-Statutory Options and the elimination of the six
(6)-month holding period requirement as a condition to the exercise of stock
appreciation rights) in order to take advantage of the recent amendments to Rule
16b-3 of the Securities and Exchange Commission which exempts certain officer
and director transactions under the Plan from the short-swing liability
provisions of the federal securities laws. The 1997 Restatement is subject to
stockholder approval at the 1997 Annual Meeting, and no option grants made on
the basis of the 650,000-share increase shall become exercisable in whole or in
part unless and until the 1997 Restatement is approved by the stockholders.
Should such stockholder approval not be obtained, then any options granted on
the basis of the 650,000-share increase shall terminate without ever becoming
exercisable for those shares, and no further option grants issuances shall be
made on the basis of such share increase. However, option grants may continue to
be made pursuant to the provisions of the Plan as in effect immediately prior to
the 1997 Restatement until the original October 19, 1998 expiration date. All
option grants made prior to the 1997 Restatement shall remain outstanding in
accordance with the terms and conditions of the respective instruments
evidencing those options or issuances, and nothing in the 1997 Restatement shall
be deemed to modify or in any way affect those outstanding options or issuances.
Subject to the foregoing limitations, the Plan Administrator may make option
grants under the Plan at any time before the date fixed herein for the
termination of the Plan.
B. The provisions of each restatement of, and amendment to, the
Plan shall apply only to options granted under the Plan from and after the
effective date of such restatement or amendment. All options issued and
outstanding under the Plan immediately prior to the adoption of each restatement
or amendment shall continue to be governed by the terms and conditions of the
Plan (and the instrument evidencing each such option) as in effect on the date
each such option was previously granted, and nothing in a subsequent restatement
or amendment shall be deemed to affect or otherwise modify the rights or
obligations of the holders of such options with respect to the acquisition of
shares of Common Stock thereunder.
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<PAGE> 20
C. The Plan shall terminate upon the earlier of (i) December 31,
2002(2) or (ii) the date on which all shares available for issuance under the
Plan have been issued pursuant to the exercise of options granted under Article
Two or Article Three. If the date of termination is determined under clause (i)
above, then no options outstanding on such date shall be affected by the
termination of the Plan, and such securities shall thereafter continue to have
force and effect in accordance with the provisions of the stock option
agreements evidencing such options.
D. Options may be granted under this Plan to purchase shares of
Common Stock in excess of the number of shares then available for issuance under
the Plan, provided each option granted is not to become exercisable, in whole or
in part, at any time prior to stockholder approval of an amendment authorizing a
sufficient increase in the number of shares issuable under the Plan.
IV. USE OF PROCEEDS
Any cash proceeds received by the Company from the sale of shares
pursuant to options granted under the Plan shall be used for general corporate
purposes.
V. REGULATORY APPROVALS
The implementation of the Plan, the granting of any option
hereunder, and the issuance of stock upon the exercise or surrender of any such
option shall be subject to the procurement by the Company of all approvals and
permits required by regulatory authorities having jurisdiction over the Plan,
the options granted under it and the stock issued pursuant to it.
VI. NO EMPLOYMENT/SERVICE RIGHTS
Neither the action of the Company in establishing or restating the
Plan, nor any action taken by the Plan Administrator hereunder, nor any
provision of the restated Plan shall be construed so as to grant any individual
the right to remain in the employ or Service of the Company (or any parent or
subsidiary corporation) for any period of specific duration, and the Company (or
any parent or subsidiary corporation retaining the services of such individual)
may terminate such individual's employment or Service at any time and for any
reason with or without cause.
-------------------
(2) The extension of the term of the Plan from October 19, 1998 to December
31, 2002 is subject to stockholder approval at the 1997 Annual Meeting.
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EXHIBIT A
ENDOSONICS CORPORATION
STOCK OPTION AGREEMENT
WITNESSETH:
RECITALS
A. The Board of Directors of the Company has adopted the Company's
Restated 1988 Stock Option Plan (the "Plan") for the purpose of attracting and
retaining the services of selected key employees (including officers and
directors), non-employee members of the Board of Directors, and consultants and
other independent contractors who contribute to the financial success of the
Company or its Parent or Subsidiary corporations.
B. Optionee is an individual who is to render valuable services to the
Company or its Parent or Subsidiary corporations, and this Agreement is executed
pursuant to, and is intended to carry out the purposes of, the Plan in
connection with the Company's grant of a stock option to Optionee.
NOW, THEREFORE, it is hereby agreed as follows:
1. Grant of Option. Subject to and upon the terms and conditions set
forth in this Agreement, the Company hereby grants to Optionee, as of the grant
date (the "Grant Date") specified in the accompanying Notice of Grant of Stock
Option (the "Grant Notice"), a stock option to purchase up to that number of
shares of the Company's Common Stock (the "Optioned Shares") as is specified in
the Grant Notice. The Optioned Shares shall be purchasable from time to time
during the option term at the option price per share (the "Option Price")
specified in the Grant Notice.
2. Option Term. This option shall have a maximum term of ten (10) years
measured from the Grant Date and shall accordingly expire at the close of
business on the expiration date (the "Expiration Date") specified in the Grant
Notice, unless sooner terminated in accordance with Paragraph 5 or Paragraph 7.
3. Limited Transferability. This option shall be neither transferable
nor assignable by Optionee other than by will or by the laws of descent and
distribution following Optionee's death and may be exercised, during Optionee's
lifetime, only by Optionee.
4. Exercisability. This option shall become exercisable for the
Optioned Shares in one or more installments in accordance with the exercise
schedule specified in the Grant Notice. As the option becomes exercisable for
one or more installments, those installments shall accumulate and the option
shall remain exercisable for the accumulated installments until the Expiration
Date or sooner termination of the option term under Paragraph 5 or Paragraph 7
of this Agreement.
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<PAGE> 22
5. Accelerated Termination. The option term specified in Paragraph 2
shall terminate (and this option shall cease to be exercisable) prior to the
Expiration Date should one of the following provisions become applicable:
(i) Except as otherwise provided in subparagraphs (ii) through
(v) below, should Optionee cease to remain in Service at any time
during the option term, then the period for exercising this option
shall be reduced to a three (3)-month period commencing with the date
of such cessation of Service, but in no event shall this option be
exercisable at any time after the Expiration Date.(1) Upon the
expiration of such three (3)-month period or (if earlier) upon the
Expiration Date, this option shall terminate and cease to be
outstanding.
(ii) Should Optionee die while this option is outstanding,
then the personal representative of Optionee's estate or the person or
persons to whom the option is transferred pursuant to Optionee's will
or in accordance with the laws of descent and distribution shall have
the right to exercise this option. Such right shall lapse, and this
option shall cease to be exercisable, upon the earlier of (A) the
expiration of the twelve (12)-month period measured from the date of
Optionee's cessation of Service or (B) the Expiration Date. Upon the
expiration of such twelve (12)-month period or (if earlier) upon the
Expiration Date, this option shall terminate and cease to be
outstanding.
(iii) Should Optionee become permanently disabled and cease by
reason thereof to remain in Service at any time during the option term,
then Optionee shall have a period of twelve (12) months (commencing
with the date of such cessation of Service) during which to exercise
this option; provided, however, that in no event shall this option be
exercisable at any time after the Expiration Date. Optionee shall be
deemed to be permanently disabled if Optionee is unable 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 (12) months. Upon the
expiration of such twelve (12)-month period or (if earlier) upon the
Expiration Date, this option shall terminate and cease to be
outstanding.
(iv) During the limited post-Service exercise period provided
under subparagraphs (i), (ii) and (iii) above, this option may not be
exercised in the aggregate for more than the number of Optioned Shares
for which this option is at the time of Optionee's cessation of Service
exercisable in accordance with the normal exercise schedule specified
in the Grant Notice or the special acceleration provisions of Paragraph
7 below, to the extent applicable.
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(1) In the event this option is designated an incentive stack option in the
Grant Notice, the exercise of this option more than three (3) months after
Optionee ceases to be an Employee (twelve (12) months in the event of
disability) will disqualify this option for favorable tax treatment as further
specified in Paragraph 19.A.
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<PAGE> 23
(v) Upon Optionee's cessation of Service for any reason, this
option shall immediately terminate and cease to be outstanding with
respect to any and all Optioned Shares for which such option is not
otherwise at that time exercisable in accordance with the normal
exercise provisions of Paragraph 4 or the special acceleration
provisions of Paragraph 7.
(vi) For purposes of this Paragraph 5 and for all other
purposes under this Agreement, the following definitional provisions
shall be in effect:
A. Optionee shall be deemed to remain in service for so long
as Optionee continues to render periodic services to the Company or any
Parent or subsidiary corporation, whether as an Employee, a
non-employee member of the board of directors, or an independent
contractor or consultant.
B. Optionee shall be deemed to be an Employee and to continue
in the Company's employ for so long as Optionee remains in the employ
of the Company or one or more of its Parent or Subsidiary corporations,
subject to the control and direction of the employer entity as to both
the work to be performed and the manner and method of performance.
C. A corporation shall be considered to be a Subsidiary
corporation of the Company if it is a member of an unbroken chain of
corporations beginning with the company, provided each such corporation
in the chain (other than the last corporation) owns, at the time of
determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
D. A corporation shall be considered to be a Parent
corporation of the Company if it is a member of an unbroken chain
ending with the Company, provided each such corporation in the chain
(other than the Company) owns, at the time of determination, stock
possessing fifty percent (50%) or more of the total combined voting
power of all classes of stock in one of the other corporations in such
chain.
6. Adjustment in Optioned Shares.
A. In the event any change is made to the Common Stock issuable under
the Plan by reason of any stock split, stock dividend, combination of shares,
exchange of shares, or other change affecting the outstanding Common Stock as a
class without the Company's receipt of consideration, appropriate adjustments
shall be made to (i) the number and/or class of securities subject to this
option, (ii) the number of Optioned Shares for which this option shall become
exercisable on any installment date specified in the Grant Notice, and (ii) the
Option Price payable per share in order to reflect such change and thereby
preclude a dilution or enlargement of benefits hereunder.
B. To the extent this option is to be assumed in connection with any
Corporate Transaction (as defined below) or is otherwise to continue in effect,
the option shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply and pertain to the
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<PAGE> 24
number and class of securities which would have been issuable to Optionee, in
consummation of such Corporate Transaction, had the option been exercised
immediately prior to such Corporate Transaction, and appropriate adjustments
shall also be made to the option Price payable per share, provided the aggregate
Option Price payable hereunder shall remain the same.
7. Corporate Transaction.
A. In the event of one or more of the following shareholder-approved
transactions (a "Corporate Transaction"):
(i) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose of
which is to change the State of the company's incorporation,
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company, or
(iii) any reverse merger in which the Company is the surviving
entity but in which fifty percent (50%) or more of the Company's
outstanding voting stock is transferred to holders different from those
who held the stock immediately prior to such merger,
then the exercisability of this option, to the extent it is at the time
outstanding but not otherwise fully exercisable, shall automatically accelerate
so that such option shall, immediately prior to the specified effective date for
the Corporate Transaction, become fully exercisable for all the Optioned Shares
and may be exercised for all or any portion of such shares. No such acceleration
of this option, however, shall occur if and to the extent: (i) the option is, in
connection with the Corporate Transaction, either to be assumed by the successor
corporation or parent thereof or be replaced with a comparable option to
purchase shares of the capital stock of the successor corporation or parent
thereof or (ii) the option is to be replaced with a comparable cash incentive
program of the successor corporation which preserves the option spread existing
at the time of the Corporate Transaction. The determination of comparability
under clause (i) or (ii) shall be made by the Plan Administrator and its
determination shall be final, binding and conclusive.
B. Upon the acceleration of this option in connection with a Corporate
Transaction, the accelerated portion shall continue to qualify as an incentive
stock option under the Federal tax laws (if this option is designated as such in
the Grant Notice) only to the extent the applicable dollar limitation of
Paragraph 19 is not exceeded.
C. This option, to the extent not previously exercised, shall terminate
upon the consummation of the Corporate Transaction and cease to be exercisable,
unless it is expressly assumed by the successor corporation or Parent thereof.
D. This Agreement shall not in any way affect the right of the Company
to adjust, reclassify, reorganize or otherwise make changes in its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
A-4
<PAGE> 25
8. Privilege of Stock Ownership. The holder of this option shall not
have any of the rights of a shareholder with respect to the Optioned Shares
until such individual shall have exercised the option and paid the Option Price.
9. Manner of Exercising Option.
A. In order to exercise this option with respect to all or any part of
the Optioned Shares for which this option is at the time exercisable, Optionee
(or in the case of exercise after Optionee's death, Optionee's executor,
administrator, heir or legatee, as the case may be) must take the following
actions:
(i) Execute and deliver to the Secretary of the Company a
written notice of exercise (the "Exercise Notice"), in substantially
the form of Exhibit I attached hereto, in which there is specified the
number of Optioned Shares for which the option is exercised.
(ii) Pay the aggregate Option Price for the purchased shares
in one or more of the following alternative forms:
1. full payment in cash or check;
2. payment in shares of Common Stock of the Company
held by Optionee for the requisite period necessary to avoid a charge
to the Company's earnings for financial reporting purposes and valued
at Fair Market Value on the Exercise Date (as such terms are defined
below);
3. payment through a broker-dealer sale and
remittance procedure pursuant to which Optionee shall provide
irrevocable written instructions (I) to a designated brokerage firm to
effect the immediate sale of the purchased shares and remit to the
Company, out of the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate Option Price payable for the
purchased shares plus all applicable Federal and State income and
employment taxes required to be withheld by the Company by reason of
such purchase and (II) to the Company to deliver the certificates for
the purchased shares directly to such brokerage firm in order to
complete the sale transaction; or
4. payment in any other form which the Plan
Administrator may, in its discretion, approve at the time of exercise
in accordance with the provisions of Paragraph 15 of this Agreement.(2)
(iii) Furnish to the Company appropriate documentation that
the person or persons exercising the option, if other than Optionee,
have the right to exercise this option.
--------
(2) Authorization of a loan under this provision may, under currently proposed
Treasury Regulations, result in the loss of incentive stock option treatment
under the Federal tax laws.
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<PAGE> 26
B. For purposes of this Agreement, the Fair Market Value of a share of
Common Stock on any relevant date shall be determined in accordance with
subparagraphs (i) through (iii) below, and the Exercise Date shall be the date
on which written notice of the exercise of the option is delivered to the
Company. Except to the extent the sale and remittance procedure of clause 3
above is utilized for the exercise of the option, payment of the Option Price
for the purchased shares must accompany such notice. The procedure for measuring
Fair Market Value shall be as follows:
(i) If the Common Stock is not at the time listed or admitted
to trading on any stock exchange but is traded on the NASDAQ National
Market System, the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question, as such price is
reported by the National Association of Securities Dealers on the
NASDAQ National Market System or any successor system. If there is no
closing selling price for the Common Stock on the date in question,
then the closing selling price on the last preceding date for which
such quotation exists shall be determinative of Fair Market Value.
(ii) If the Common Stock is at the time listed or admitted to
trading on any national stock exchange, then the Fair Market Value
shall be the closing selling price per share of Common Stock on the
date in question on the stock exchange determined by the Plan
Administrator to be the primary market for the Common Stock, as such
price is officially quoted in the composite tape of transactions on
such exchange. If there is no reported sale of Common Stock on such
exchange on the date in question, then the Fair Market Value shall be
the closing selling price on the exchange on the last preceding date
for which such quotation exists.
C. As soon after the Exercise Date as practical, the company shall mail
or deliver to or on behalf of Optionee (or the other person or persons
exercising this option) a certificate or certificates representing the purchased
shares.
D. In no event may this option be exercised for any fractional shares.
10. Compliance with Laws and Regulations.
A. The exercise of this option and the issuance of Optioned Shares upon
such exercise shall be subject to compliance by the Company and Optionee with
all applicable requirements of law relating thereto and with all applicable
regulations of any stock exchange on which shares of the Company's Common Stock
may be listed at the time of such exercise and issuance.
B. In connection with the exercise of this option, Optionee shall
execute and deliver to the Company such representations in writing as may be
requested by the Company in order for it to comply with the applicable
requirements of Federal and State securities laws.
11. Successors and Assigns. Except to the extent otherwise provided in
Paragraph 3 or Paragraph 7, the provisions of this Agreement shall inure to the
benefit of, and be
A-6
<PAGE> 27
binding upon, the successors, administrators, heirs, legal representatives and
assigns of Optionee and the successors and assigns of the Company.
12. Liability of Company.
A. If the Optioned Shares covered by this Agreement exceed, as of the
Grant Date, the number of shares of Common Stock which may without shareholder
approval be issued under the Plan, then this option shall be void with respect
to such excess shares unless shareholder approval of an amendment sufficiently
increasing the number of shares of Common Stock issuable under the Plan is
obtained in accordance with the provisions of Article Four, Section III of the
Plan.
B. The inability of the Company to obtain approval from any regulatory
body having authority deemed by the Company to be necessary to the lawful
issuance and sale of any Common Stock pursuant to this option shall relieve the
Company of any liability with respect to the non-issuance or sale of the Common
Stock as to which such approval shall not have been obtained. The Company,
however, shall use its best efforts to obtain all such approvals.
13. No Employment or Service Contract. Nothing in this Agreement or in
the Plan shall confer upon Optionee any right to continue in the service of the
Company (or any Parent or Subsidiary corporation of the Company, employing or
retaining Optionee) for any period of time or interfere with or otherwise
restrict in any way the rights of the Company (or such Parent or Subsidiary
corporation) or Optionee, which rights are hereby expressly reserved by each, to
terminate Optionee's Service at any time for any reason whatsoever, with or
without cause.
14. 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 Company in care of the Corporate Secretary 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 below Optionee's
signature line on the Grant Notice. All notices shall be deemed to have been
given or delivered upon personal, delivery or upon deposit in the U.S. mail,
postage prepaid and properly addressed to the party to be notified.
15. Loans or Installment Payment. The Plan Administrator may, in its
absolute discretion and without any obligation to do so, assist Optionee in the
exercise of this option by (i) authorizing the extension of a loan to Optionee
from the Company, or (ii) permitting Optionee to pay the option price for the
purchased Common Stock in installments over a period of years. The terms of any
loan or installment method of payment (including the interest rate, the
collateral requirements and terms of repayment) shall be established by the Plan
Administrator in its sole discretion.
16. Construction. This Agreement and the option evidenced hereby are
made and granted pursuant to the Plan and are in all respects limited by and
subject to the express terms and provisions of the Plan. All decisions of the
Plan Administrator with respect to any question or issue arising under the Plan
or this Agreement shall be conclusive and binding on all persons having an
interest in this option.
A-7
<PAGE> 28
17. Governing Law. The interpretation, performance, and enforcement of
this Agreement shall be governed by the laws of the State of California without
resort to that State's conflict-of-law rules.
18. Additional Terms Applicable to an Incentive Stock Option. In the
event this option is designated an incentive stock option in the Grant Notice,
the following terms and conditions shall also apply to the grant:
A. This option shall cease to qualify for favorable tax treatment as an
incentive stock option under the Federal tax laws if (and to the extent) this
option is exercised for one or more Optioned Shares: (i) more than three (3)
months after the date the Optionee ceases to be an Employee for any reason other
than death or permanent disability (as defined in Paragraph 5) or (ii) more than
one (1) year after the date optioned ceases to be an Employee by reason of
permanent disability.
B. Should this option be designated as immediately exercisable in the
Grant Notice, then this option shall not become exercisable in the calendar year
in which granted if (and to the extent) the aggregate Fair Market Value
(determined at the Grant Date) of the Common Stock for which this option would
otherwise first become exercisable in such calendar year would, when added to
the aggregate value (determined as of the respective date or dates of grant) of
the Common Stock and any other securities for which this option or one or more
other Incentive options granted to Optionee prior to the Grant Date (whether
under the Plan or any other option plan of the Company or any Parent or
Subsidiary corporation) first become exercisable during the same calendar year,
exceed One Hundred Thousand Dollars ($100,000) in the aggregate. To the extent
the exercisability of this option is deferred by reason of the foregoing
limitation, the deferred portion will first become exercisable in the first
calendar year or years thereafter in which the One Hundred Thousand Dollar
($100,000) limitation of this Paragraph 18.B would not be contravened, but such
deferral shall in all events end immediately prior to the effective date of a
Corporate Transaction in which this option is not to be assumed, whereupon the
option shall become exercisable as a non-statutory option for the balance of the
Optioned Shares.
C. In the event this option is exercisable in installments as specified
in the Grant Notice, no installment under this option (whether annual or
monthly) shall qualify for favorable tax treatment as an incentive stock option
under the Federal tax laws if (and to the extent) the aggregate Fair Market
Value (determined at the Grant Date) of the Company's Common Stock for which
such installment first becomes exercisable hereunder will, when added to the
aggregate Fair Market Value (determined as of the respective date or dates of
grant) of the Company's Common Stock and other securities for which one or more
other post-1986 incentive stock options granted to Optionee prior to the Grant
Date (whether under the Plan or any other option plan of the Company or any
Parent or Subsidiary corporation) first become exercisable during the same
calendar year, exceed One Hundred Thousand Dollars ($100,000) in the aggregate.
Should such one Hundred Thousand Dollar ($100,000) limitation in fact be
exceeded in any calendar year, this option shall nevertheless become'
exercisable for the excess shares in such calendar year as a non-statutory
option.
A-8
<PAGE> 29
D. Should the exercisability of this option be accelerated upon a
Corporate Transaction in accordance with Paragraph 7, then this option shall
qualify for favorable tax treatment as an incentive stock option under the
Federal tax laws only to the extent the aggregate Fair Market Value (determined
at the Grant Date) of the Company's Common Stock for which this option first
becomes exercisable in the calendar year in which the Corporate Transaction
occurs does not, when added to the aggregate Fair Market Value (determined as of
the respective date, or dates of grant) of the Company's Common Stock and other
securities for which this option or one or more other post-1986 incentive stock
options granted to Optionee prior to the Grant Date (whether under the Plan or
any other option plan of the Company or any Parent or Subsidiary corporation)
first become exercisable during the same calendar year, exceed One Hundred
Thousand Dollars ($100,000) in the aggregate. Should the number of shares of
Common Stock for which this option first becomes exercisable in the calendar
year of such Corporate Transaction exceed the applicable One Hundred Thousand
Dollar ($100,000) limitation, the option may nevertheless be exercised for those
excess shares in such calendar year as a nonstatutory option.
E. To the extent this option should fail to qualify as an incentive
stock option under the Federal tax laws, Optionee will recognize compensation
income in connection with the acquisition of one or more Optioned Shares
hereunder, and Optionee must make appropriate arrangements for the satisfaction
of all Federal, State or local income and employment tax withholding
requirements applicable to such compensation income.
19. Additional Terms Applicable to a Non-Statutory Stock Option. In the
event this option is designated a non-statutory stock option in the Grant
Notice, Optionee hereby agrees to make appropriate arrangements with the Company
or Parent or Subsidiary corporation employing Optionee for the satisfaction of
all Federal, State or local income and employment tax withholding requirements
applicable to the exercise of this option.
A-9
<PAGE> 30
EXHIBIT I
NOTICE OF EXERCISE OF STOCK OPTION
I hereby notify Endosonics Corporation (the "Company") that I
elect to purchase _________ shares of the Company's Common Stock (the "Purchased
Shares") pursuant to that certain option (the "Option") granted to me on
____________, 199__ to purchase up to _________ shares of such Common Stock at
an option price of $________ per share (the "Option Price").
Concurrently with the delivery of this Exercise Notice to the
Secretary of the Company, I shall pay to the Company the Option Price for the
Purchased Shares in accordance with the provisions of my agreement with the
Company evidencing the Option and shall deliver whatever additional documents
may be required by such agreement as a condition for exercise. Alternatively, I
may utilize the special broker/dealer sale and remittance procedure specified in
my agreement to effect payment of the Option Price for the Purchased Shares.
_______________________________ __________________________________________
Date Optionee
Address: __________________________________________
__________________________________________
Print name in exact manner
it is to appear on the
stock certificate:
__________________________________________
__________________________________________
Address to which
certificate is to be sent,
if different from address
above:
__________________________________________
__________________________________________
Social Security Number: __________________________________________
I-1
