SCIENCE DYNAMICS CORPORATION
2002 EMPLOYEE STOCK PURCHASE PLAN
1. Purpose.
The purpose of the Plan is to provide eligible Employees of the Company
and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions and to
enhance such Employees' sense of participation in the affairs of the
Company and its Designated Subsidiaries. It is the intention of the
Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986. The provisions
of the Plan, accordingly, shall be construed so as to extend and limit
participation in a manner consistent with the requirements of that
section of the Code.
2. Definitions.
a. Board shall mean the Board of Directors of the Company.
b. Business Day shall mean any day on which the OTC Bulletin Board is
open for trading.
c. Code shall mean the Internal Revenue Code of 1986, as amended.
d. Common Stock shall mean the Common Stock of the Company.
e. Company shall mean Science Dynamics Corporation, a Delaware
corporation, and any Designated Subsidiary of the Company.
f. Compensation shall mean gross earnings and commissions, exclusive of
payments for overtime, shift premium, incentive compensation,
incentive payments, bonuses and other compensation.
g. Designated Subsidiary shall mean any Subsidiary which has been
designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
h. Employee shall mean any individual who is an Employee of the Company
for tax purposes whose customary employment with the Company is at
least thirty (30) hours per week and more than five (5) months in any
calendar year. For purposes of the Plan, the employment relationship
shall be treated as continuing intact while the individual is on sick
leave or other leave of absence approved by the Company. Where the
period of leave exceeds 90 days and the individual's right to
reemployment is not guaranteed either by statute or by contract, the
employment relationship shall be deemed to have terminated on the
91st day of such leave.
i. Enrollment Date shall mean the first day of each Offering Period.
j. Exercise Date shall mean the last day of each Offering Period.
k. Fair Market Value shall mean, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange
or a national market system, including without limitation the
Nasdaq National Market, The Nasdaq SmallCap Market of The Nasdaq
Stock Market or the OTC Bulletin Board, its Fair Market Value
shall be the closing sales price for such stock (or the closing
bid, if no sales were reported) as quoted on such exchange or
system for the last market trading day on the date of such
determination, as reported in The Wall Street Journal or such
other source as the Board deems reliable, or;
- -1-
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean of the closing bid and asked
prices for the Common Stock on the date of such determination,
as reported in The Wall Street Journal or such other source as
the Board deems reliable, or;
(iii) In the absence of an established market for the Common Stock,
the Fair Market Value thereof shall be determined in good faith
by the Board.
l. Offering Period shall mean a period of approximately six (6) months
during which an option granted pursuant to the Plan may be exercised,
commencing on the first Trading Day on or after September 1st and
terminating on the last Trading Day in the period ending the
following February 28th, or commencing on the first Trading Day on or
after March 1st and terminating on the last Trading Day in the period
ending the following August 31st; provided, however, that the first
Offering Period under the Plan shall commence with the first Trading
Day on or after the date on which the Securities and Exchange
Commission declares the Company's Registration Statement effective
and ending on the last Trading Day on or before February 28th. The
duration of Offering Periods may be changed pursuant to Section 4 of
this Plan.
m. Plan shall mean this Employee Stock Purchase Plan.
n. Purchase Price shall mean an amount equal to 85% of the Fair Market
Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower; provided, however, that the
Purchase Price may be adjusted by the Board pursuant to Section 21.
o. Reserves shall mean the number of shares of Common Stock covered by
each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for
issuance under the Plan but not yet placed under option.
p. Subsidiary shall mean a corporation, domestic or foreign, of which
not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is
hereafter organized or acquired by the Company or a Subsidiary.
q. Trading Day shall mean a day on which national stock exchanges and
the Nasdaq System are open for trading.
3. Limitations on Stock to be Purchased.
Any Employee of the Company on a given Enrollment Date shall be eligible
to participate in the Plan except as follows:
(i) to the extent that, immediately after the grant, such Employee
(or any other person whose stock would be attributed to such
Employee pursuant to Section 424(d) of the Code) would own
capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the
total combined voting power or value of all classes of the
capital stock of the Company or of any Subsidiary, or
(ii) to the extent that his or her rights to purchase stock under all
employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars
($25,000) worth of stock (determined at the Fair Market Value of
the shares at the time such option is granted) for each calendar
year in which such option is outstanding at any time.
(iii)in no event shall an Employee be permitted to purchase during
each Offering Period more than [ ] shares (subject to any
adjustment pursuant to Section 21 below).
- -2-
(iv) Employees who are not employed by the Company or Designated
Subsidiaries prior to the beginning of such Enrollment Date.
(v) if the number of Common Stock to be purchased on an Exercise Date
by all Employees participating in this Plan exceeds the number of
shares then available for issuance under this Plan, then the
Company will make a pro rata allocation of the remaining shares
in as uniform a manner as shall be reasonably practicable and as
the Board shall determine to be equitable.
4. Offering Periods.
The Plan shall be implemented by consecutive Offering Periods with a new
Offering Period commencing on the first Trading Day on or after
September 1 and March 1 each year, or on such other date as the Board
shall determine, and continuing thereafter until terminated in
accordance with Section 21 hereof; provided, however, that the first
Offering Period under the Plan shall commence with the first Trading Day
on or after the date on which the Securities and Exchange Commission
declares the Company's Registration Statement effective and ending on
the last Trading Day on or before February 28th. The Board shall have
the power to change the duration of Offering Periods (including the
commencement dates thereof) with respect to future offerings without
stockholder approval if such change is announced at least five (5)
Business Days prior to the scheduled beginning of the first Offering
Period to be affected thereafter.
5. Participation.
a. An eligible Employee may become a participant in an Offering Period
under the Plan by completing an Enrollment Form and a Subscription
Agreement authorizing payroll deductions in the form of Exhibit A and
Exhibit B to this Plan and filing it with the Company's Human
Resources Department no later than five (5) Business Days prior to the
applicable Enrollment Date.
b. Once an Employee becomes a participant in an Offering Period, such
Employee will automatically participate in the subsequent Offering
Period unless the Employee withdraws or is deemed to withdraw from
this Plan or terminates further participation in the Offering Period
as set forth in Section 10 below.
c. Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last
payroll in the Offering Period to which such authorization is
applicable, unless sooner terminated by the participant as provided
in Section 10 hereof.
6. Payroll Deductions.
a. At the time a participant files his or her Subscription Agreement, he
or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding ten percent
(10%) of the Compensation which he or she receives on each pay day
during the Offering Period.
- -3-
b. All payroll deductions made for a participant shall be credited to
his or her account under the Plan and shall be withheld in one
percent (1%) increments only. A participant may not make any
additional payments into such account.
c. A participant may discontinue his or her participation in the Plan as
provided in Section 10 hereof, or may increase or decrease the rate
of his or her payroll deductions during the Offering Period by
completing or filing with the Company a new Subscription Agreement
authorizing a change in payroll deduction rate. The Board may, in
its discretion, limit the number of participation rate changes during
any Offering Period. The change in rate shall be effective with the
first full payroll period following five (5) Business Days after the
Company's receipt of the new Subscription Agreement unless the
Company elects to process a given change in participation more
quickly. A participant's Subscription Agreement shall remain in
effect for successive Offering Periods unless terminated as provided
in Section 10 hereof.
d. Notwithstanding the foregoing, to the extent necessary to comply with
Section 423(b)(8) of the Code and Section 3(b) hereof, a
participant's payroll deductions may be decreased to zero percent
(0%) at any time during an Offering Period. Payroll deductions shall
recommence at the rate provided in such participant's Subscription
Agreement at the beginning of the first Offering Period which is
scheduled to end in the following calendar year, unless terminated by
the participant as provided in Section 10 hereof.
e. At the time the option is exercised, in whole or in part, or at the
time some or all of the Company's Common Stock issued under the Plan
is disposed of, the participant must make adequate provision for the
Company's federal, state, provincial, or other tax-withholding
obligations, if any, which arise upon the exercise of the option or
the disposition of the Common Stock. At any time, the Company may,
but shall not be obligated to withhold from the participant's
Compensation the amount necessary for the Company to meet applicable
withholding obligations, including any withholding required to make
available to the Company any tax deductions or benefits attributable
to sale or early disposition of Common Stock by the Employee.
7. Grant of Option.
On the Enrollment Date of each Offering Period, each eligible Employee
participating in such Offering Period shall be granted an option to
purchase on the Exercise Date of such Offering Period (at the applicable
Purchase Price) up to a number of shares of the Company's Common Stock
determined by dividing:
(a) the Employee's payroll deductions accumulated prior to such
Exercise Date and retained in the Participant's account as of
the Exercise Date by
(b) the lesser of (i) eighty-five percent (85%) of the Fair
Market Value of the Common Stock on the Enrollment Date, and
(ii) eighty-five percent (85%) of the Fair Market Value of
the Common Stock on the Exercise Date.
Exercise of the option shall occur as provided in Section 8 hereof,
unless the participant has withdrawn pursuant to Section 10 hereof. The
Option shall expire on the last day of the Offering Period.
- -4-
8. Exercise of Option.
Unless a participant withdraws from the Plan as provided in Section 10
hereof, his or her option for the purchase of shares shall be exercised
automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his
or her account. No fractional shares shall be purchased; any payroll
deductions accumulated in a participant's account which are not
sufficient to purchase a full share shall be retained in the
participant's account for the subsequent Offering Period, subject to
earlier withdrawal by the participant as provided in Section 10 hereof.
Any other monies left over in a participant's account after the Exercise
Date shall be returned to the participant. During a participant's
lifetime, a participant's option to purchase shares hereunder is
exercisable only by him or her.
9. Delivery.
As promptly as practicable after each Exercise Date on which a purchase
of shares occurs, the Company shall arrange the delivery to each
participant, as appropriate, the shares purchased upon exercise of his
or her option.
10. Withdrawal.
a. A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to
exercise his or her option under the Plan at any time by giving
written notice to the Company in the form of Exhibit C to this Plan.
All of the participant's payroll deductions credited to his or her
account shall be paid to such participant promptly after receipt of
notice of withdrawal and such participant's option for the Offering
Period shall be automatically terminated, and no further payroll
deductions for the purchase of shares shall be made for such Offering
Period. If a participant withdraws from an Offering Period, payroll
deductions shall not resume at the beginning of the succeeding
Offering Period unless the participant delivers to the Company a new
Subscription Agreement.
b. A participant's withdrawal from an Offering Period shall not have any
effect upon his or her eligibility to participate in any similar plan
which may hereafter be adopted by the Company or in succeeding
Offering Periods which commence after the termination of the Offering
Period from which the participant withdraws.
11. Termination of Employment.
Upon a participant's ceasing to be an Employee for any reason, he or she
shall be deemed to have elected to withdraw from the Plan and the
payroll deductions credited to such participant's account during the
Offering Period but not yet used to exercise the option shall be
returned to such participant or, in the case of his or her death, to the
person or persons entitled thereto under Section 15 hereof, and such
participant's option shall be automatically terminated.
12. Interest.
No interest shall accrue on the payroll deductions of a participant in
the Plan.
13. Stock.
a. Subject to adjustment upon changes in capitalization of the Company
as provided in Section 20 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under
the Plan shall be twenty million (20,000,000) shares.
b. The participant shall have no interest or voting right in shares
covered by his option until such option has been exercised.
c. Shares to be delivered to a participant under the Plan shall be
registered in the name of the participant or in the name of the
participant and his or her designee (please note that if resident in
the United States and you name someone other than your spouse, you
will cause a "disqualifying disposition" of the shares and you will
be deemed to have received ordinary income in the amount that the
Fair Market Value of the shares on the date of purchase was greater
than the amount you paid for the shares).
14. Administration.
The Plan shall be administered by the Board or a committee of members of
the Board appointed by the Board. The Board or its committee shall have
full and exclusive discretionary authority to construe, interpret and
apply the terms of the Plan, to determine eligibility and to adjudicate
all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full
extent permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary.
a. A participant may file a written designation of a beneficiary who is
to receive any shares and cash, if any, from the participant's
account under the Plan in the event of such participant's death
subsequent to an Exercise Date on which the option is exercised but
prior to delivery to such participant of such shares and cash. In
addition, a participant may file a written designation of a
beneficiary who is to receive any cash from the participant's account
under the Plan in the event of such participant's death prior to
exercise of the option.
b. Such designation of beneficiary may be changed by the participant at
any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated
under the Plan who is living at the time of such participant's death,
the Company shall deliver such shares and/or cash to the executor or
administrator of the estate of the participant, or if no such
executor or administrator has been appointed (to the knowledge of the
Company), the Company, in its discretion, may deliver such shares
and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative
is known to the Company, then to such other person as the Company may
designate.
16. Transferability.
Neither payroll deductions credited to a participant's account nor any
rights with regard to the exercise of an option or to receive shares
under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant.
Any such attempt at assignment, transfer, pledge or other disposition
shall be without effect, except that the Company may treat such act as
an election to withdraw funds from an Offering Period in accordance with
Section 10 hereof.
- -6-
17. Use of Funds.
All payroll deductions received or held by the Company under the Plan
may be used by the Company for any corporate purpose, and the Company
shall not be obligated to segregate such payroll deductions.
18. Reports.
Individual accounts shall be maintained for each participant in the
Plan. Statements of account shall be given to participating Employees at
least annually, which statements shall set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the
remaining cash balance, if any.
19. Equal Rights and Privileges.
All eligible Employees shall have equal rights and privileges with
respect to this Plan so that this Plan qualifies as an "employee stock
purchase plan" within the meaning of Section 423 or any successor
provision of the Code and the related regulations. Any provision of
this Plan which is inconsistent with Section 423 or any successor
provision of the Code shall, without further act or amendment by the
Company, or the Board, be reformed to comply with the requirements of
Section 423. This Section 19 shall take precedence over all other
provision in this Plan.
20. Adjustments Upon Changes in Capitalization, Dissolution, Liquidation,
Merger or Asset Sale.
a. Changes in Capitalization.
Subject to any required action by the stockholders of the Company,
the Reserves, the maximum number of shares each participant may
purchase per Offering Period (pursuant to Section 7), as well as the
price per share and the number of shares of Common Stock covered by
each option under the Plan which has not yet been exercised shall be
proportionately adjusted for any increase or decrease in the number
of issued shares of Common Stock resulting from a stock split,
reverse stock split, stock dividend, combination or reclassification
of the Common Stock, or any other increase or decrease in the number
of shares of Common Stock effected without receipt of consideration
by the Company; provided, however, that conversion of any convertible
securities of the Company shall not be deemed to have been "effected
without receipt of consideration". Such adjustment shall be made by
the Board, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to
an option.
- -7-
b. Dissolution or Liquidation.
In the event of the proposed dissolution or liquidation of the
Company, the Offering Period then in progress shall be shortened by
setting a new Exercise Date (the "New Exercise Date"), and shall
terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board.
The New Exercise Date shall be before the date of the Company's
proposed dissolution or liquidation. The Board shall notify each
participant in writing, at least ten (10) Business Days prior to the
New Exercise Date, that the Exercise Date for the participant's
option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New
Exercise Date, unless prior to such date the participant has
withdrawn from the Offering Period as provided in Section 10 hereof.
c. Merger or Asset Sale.
In the event of a proposed sale of all or substantially all of the
assets of the Company, or the merger of the Company with or into
another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a
Parent or Subsidiary of the successor corporation. In the event that
the successor corporation refuses to assume or substitute for the
option, the Offering Period then in progress shall be shortened by
setting a new Exercise Date (the "New Exercise Date"). The New
Exercise Date shall be before the date of the Company's proposed sale
or merger. The Board shall notify each participant in writing, at
least ten (10) Business Days prior to the New Exercise Date, that the
Exercise Date for the participant's option has been changed to the
New Exercise Date and that the participant's option shall be
exercised automatically on the New Exercise Date, unless prior to
such date the participant has withdrawn from the Offering Period as
provided in Section 10 hereof.
21. Amendment or Termination.
a. The Board of Directors of the Company may at any time and for any
reason terminate or amend the Plan. Except as provided in Section 20
hereof, no such termination can affect options previously granted,
provided that an Offering Period may be terminated by the Board of
Directors on any Exercise Date if the Board determines that the
termination of the Offering Period or the Plan is in the best
interests of the Company and its stockholders. Except as provided in
Section 20 and Section 21 hereof, no amendment may make any change in
any option theretofore granted which adversely affects the rights of
any participant. To the extent necessary to comply with Section 423
of the Code (or any other applicable law, regulation or stock
exchange rule), the Company shall obtain shareholder approval in such
a manner and to such a degree as required.
b. Without stockholder consent and without regard to whether any
participant rights may be considered to have been "adversely
affected," the Board (or its committee) shall be entitled to change
the Offering Periods, limit the frequency and/or number of changes in
the amount withheld during an Offering Period, establish the exchange
ratio applicable to amounts withheld in a currency other than U.S.
dollars, permit payroll withholding in excess of the amount
designated by a participant in order to adjust for delays or mistakes
in the Company's processing of properly completed withholding
elections, establish reasonable waiting and adjustment periods and/or
accounting and crediting procedures to ensure that amounts applied
toward the purchase of Common Stock for each participant properly
correspond with amounts withheld from the participant's Compensation,
and establish such other limitations or procedures as the Board (or
its committee) determines in its sole discretion advisable which are
consistent with the Plan.
- -8-
c. In the event the Board determines that the ongoing operation of the
Plan may result in unfavorable financial accounting consequences, the
Board may, in its discretion and, to the extent necessary or
desirable, modify or amend the Plan to reduce or eliminate such
accounting consequence including, but not limited to:
(i) altering the Purchase Price for any Offering Period including
an Offering Period underway at the time of the change in
Purchase Price;
(ii) shortening any Offering Period so that Offering Period ends
on a new Exercise Date, including an Offering Period underway
at the time of the Board action; and
(iii) allocating shares.
Such modifications or amendments shall not require stockholder approval or
the consent of any Plan participants.
22. Notices.
All notices or other communications by a participant to the Company
under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the
location, or by the person, designated by the Company for the receipt
thereof.
23. Conditions Upon Issuance of Shares.
Shares shall not be issued with respect to an option unless the exercise
of such option and the issuance and delivery of such shares pursuant
thereto shall comply with all applicable provisions of law, domestic or
foreign, including, without limitation, the Securities Act of 1933, as
amended, the Securities Exchange Act of 1934, as amended, the rules and
regulations promulgated thereunder, and the requirements of any stock
exchange upon which the shares may then be listed, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of
any such exercise that the shares are being purchased only for
investment and without any present intention to sell or distribute such
shares if, in the opinion of counsel for the Company, such a
representation is required by any of the aforementioned applicable
provisions of law.
24. Term of Plan.
The Plan shall become effective upon the earlier to occur of its
adoption by the Board of Directors or its approval by the stockholders
of the Company. It shall continue in effect for a term of ten (10) years
unless sooner terminated under Section 21 hereof.
- -9-