EXHIBIT 5
DOBI MEDICAL INTERNATIONAL, INC.
2000 STOCK INCENTIVE PLAN
(AS ADOPTED AND ASSUMED FROM DOBI MEDICAL SYSTEMS, INC., AND AS AMENDED)
(AS AMENDED THROUGH DECEMBER 10, 2003)
1. PURPOSE. The purpose of the DOBI Medical International, Inc., 2000 Stock
Incentive Plan as amended through December 10, 2003 (the "Plan") is to provide a
means through which the Company and its Subsidiaries and Affiliates may attract
able persons to enter and remain in the employ of the Company and its
Subsidiaries and Affiliates and to provide a means whereby eligible persons can
acquire and maintain ownership of Stock, or be paid incentive compensation
measured by reference to the value of the Stock, thereby strengthening their
commitment to the welfare of the Company and its Subsidiaries and Affiliates and
promoting an identity of interest between the shareholders of the Company and
these eligible persons.
So that the appropriate incentive can be provided, the Plan provides for
granting Nonqualified Stock Options, Restricted Stock Awards and Stock Bonuses,
or any combination of the foregoing. This Plan also provides for granting
Incentive Stock Options to the extent that Section 422 of the Code or such other
applicable Section becomes available to give favorable or preferred tax
treatment to the grant of Stock. Capitalized terms not defined in the text are
defined in Section 24.
2. STOCK SUBJECT TO THE PLAN. Subject to Section 18, the total number of
Stock reserved and available for grant and issuance pursuant to this Plan will
be the lesser of (i) 15% of Common Stock outstanding (determined on a fully
diluted basis exclusive of Common Stock issued or issuable pursuant to options
and other awards granted under the Plan) or (ii) 5,630,000 shares of Common
Stock. At all times the Company shall reserve and keep available a sufficient
number of Stock as shall be required to satisfy the requirements of all
outstanding Options granted under this Plan and all other outstanding but
unvested Awards granted under this Plan. Stock that have been (a) reserved for
issuance under Options which have expired or otherwise terminated without
issuance of the underlying Stock, (b) reserved for issuance or issued under an
Award granted hereunder but have been forfeited or repurchased by the Company at
the original issue price, or (c) reserved for issuance or issued under an Award
that otherwise terminates without Stock being issued, shall again be available
for issuance.
3. ELIGIBILITY. Awards may be granted to employees, officers, managers,
consultants, independent contractors and advisors of the Company or any Parent,
Affiliate or Subsidiary of the Company; provided such consultants, contractors
and advisors render bona fide services not in connection with the offer and sale
of securities in a capital-raising transaction.
4. ADMINISTRATION.
4.1. Committee Authority. This Plan will be administered by the
Committee or by the Board. Any power, authority or discretion granted to the
Committee may also be taken by the Board. Subject to the general purposes, terms
and conditions of this Plan, and to the direction of the Board, the Committee
will have full power to implement and carry out this Plan. Without limitation,
the Committee will have the authority to:
(a) select persons to receive Awards;
(b) determine the nature, extent, form and terms of Awards and the
number of Stock or other consideration subject to Awards;
(c) subject to the provisions of Section 4.3, determine the
vesting, exercisability and payment of Awards;
(d) correct any defect, supply any omission or reconcile any
inconsistency in this Plan, any Award or any Award Agreement;
(e) determine whether Awards will be granted singly, in
combination with, in tandem with, in replacement of, or as
alternatives to, other Awards under this Plan or any other
incentive or compensation plan of the Company or any Parent or
Subsidiary of the Company;
(f) prescribe, amend and rescind rules and regulations relating to
this Plan or any Award;
(g) construe and interpret this Plan, any Award Agreement and any
other agreement or document executed pursuant to this Plan;
(h) grant waivers of Plan or Award conditions;
(i) determine whether an Award has been earned;
(j) accelerate the vesting of any Award; and
(k) make all other determinations necessary or advisable for the
administration of this Plan.
The Committee shall have the authority, subject to the provisions of
the Plan, to establish, adopt, or revise such rules and regulations and to make
all such determinations relating to the Plan as it may deem necessary or
advisable for the administration of the Plan. The Committee's interpretation of
the Plan or any documents evidencing Awards granted pursuant thereto and all
decisions and determinations by the Committee with respect to the Plan shall be
final, binding, and conclusive on all parties unless otherwise determined by the
Board.
4.2. Committee Discretion. Any determination made by the Committee with
respect to any Award will be made in its sole discretion at the time of grant of
the Award or, unless in contravention of any express term of this Plan or Award,
at any later time, and such determination will be final and binding on the
Company and on all persons having an interest in any Award under this Plan.
4.3. Vesting of Options. Unless an alternative vesting period is
provided by the Committee with respect to any particular Award of Options under
this
2
Plan, 25% of each Award of Options shall vest upon the first anniversary of
each Award, and a like amount shall vest on each subsequent anniversary.
5. OPTIONS. The Committee may grant Options to eligible persons and
will determine whether such Options will be intended to be "incentive Stock
options" which may give favorable or preferred tax treatment to the Grantee to
the extent that Section 422 of the Code or such other applicable section becomes
available ("ISO's") or Nonqualified Stock Options ("NQSO's"), the number of
shares subject to the Option, the Exercise Price of the Option, the period
during which the Option may be exercised, and all other terms and conditions of
the Option, subject to the following:
5.1. Form of Option Grant. Each Option granted under this Plan will be
evidenced by an Award Agreement ("Stock Option Agreement"), which will expressly
identify the Option as an ISO or an NQSO, and will be in such form and contain
such provisions (which need not be the same for each Participant) as the
Committee may from time to time approve, and which will comply with and be
subject to the terms and conditions of this Plan.
5.2. Exercise Period. Options may be exercisable to the extent vested
within the times or upon the events determined by the Committee as set forth in
the Stock Option Agreement governing such Option; provided, however, that no
Option will be exercisable after the expiration of ten (10) years from the date
the Option is granted; and provided further that no ISO granted to a person who
directly or by attribution owns more than ten percent (10%) of the total
combined voting power of all classes of Stockholders of the Company or of any
Parent or Subsidiary of the Company ("Ten Percent Stockholder") will be
exercisable after the expiration of five (5) years from the date the ISO is
granted. The Committee also may provide for Options to become exercisable at one
time or from time to time, periodically or otherwise, in such number of shares
or percentage of shares as the Committee determines.
5.3. Exercise Price. The Exercise Price of an Option will be determined
by the Committee when the Option is granted and may be not less than 75% of the
Fair Market Value of the Stock on the date of grant; provided that: (i) the
Exercise Price of an ISO will be not less than 100% of the Fair Market Value of
the Stock on the date of grant; and (ii) the Exercise Price of any ISO granted
to a Ten Percent Stockholder will not be less than 110% of the Fair Market Value
of the Stock on the date of grant. Payment for the Stock purchased shall be made
in accordance with Section 8 of this Plan.
5.4. Date of Grant. The date of grant of an Option will be the date on
which the Committee makes the determination to grant such Option, unless
otherwise specified by the Committee. The Stock Option Agreement and a copy of
this Plan will be delivered to the Participant within a reasonable time after
the granting of the Option.
5.5. Method of Exercise. Options may be exercised only by delivery to
the Company of a written option exercise agreement (the "Exercise Agreement") in
a form approved by the Committee (which need not be the same for each
Participant), stating the number of Stock being purchased, the restrictions
imposed on the Stock purchased under such Exercise Agreement, if any, and such
representations and agreements regarding Participant's investment intent and
access to information and
3
other matters, if any, as may be required or desirable by the Company to comply
with applicable securities laws, together with payment in full of the Exercise
Price for the number of Stock being purchased.
5.6. Termination. Notwithstanding the exercise periods set forth in the
Stock Option Agreement, exercise of an Option will always be subject to the
following:
(a) If the Participant is an employee, a manager or a director at
the time an Award is made and is Terminated for any reason
except death, Disability, Retirement, for Cause, or Voluntary
Termination (as defined below), then the Participant may
exercise such Participant's Options only to the extent that
such Options have vested on or prior to the Termination Date
no later than three (3) months after the Termination Date (or
such shorter or longer time period not exceeding five (5)
years as may be determined by the Committee, with any exercise
beyond three (3) months after the Termination Date deemed to
be an NQSO), but in any event, no later than the expiration
date of the Options.
(b) If the Participant is an employee, a manager or a director at
the time an Award is made and such Participant voluntarily
terminates employment with the Company (a "Voluntary
Termination"), then the Participant may exercise such
Participant's Options only to the extent that such Options
have vested on or prior to the Termination Date no later than
one (1) month after the Termination Date (or such shorter or
longer time period not exceeding five (5) years as may be
determined by the Committee, with any exercise beyond three
(3) months after the Termination Date deemed to be an NQSO),
but in any event, no later than the expiration date of the
Options.
(c) If the Participant is an employee, a manager or a director at
the time an Award is made and is Terminated because of
Participant's death or Disability, then Participant's Options
shall vest in full, notwithstanding such Participant's then
applicable vesting schedule, and must be exercised by
Participant (or Participant's legal representative or
authorized assignee) no later than twelve (12) months after
the Termination Date (or such shorter or longer time period
not exceeding five (5) years as may be determined by the
Committee, with any such exercise beyond twelve (12) months
after the Termination Date when the Termination is for
Participant's death or Disability, deemed to be an NQSO), but
in any event no later than the expiration date of the Options.
(d) If the Participant is an employee, a manager or a director at
the time an Award is made and Termination occurs because of
Participant's Retirement, then the Participant may exercise
such Participant's Options only to the extent that such
Options have vested on or prior to the Termination Date,
together with such
4
number of Options as are scheduled to vest at the next
regularly scheduled vesting date in accordance with the
specific provisions of the vesting schedule contained in such
Participant's Award Agreement, provided that such regularly
scheduled vesting date would have occurred not later than
twelve (12) months after the Termination Date, no later than
twelve (12) months after the Termination Date (or such shorter
or longer time period not exceeding five (5) years as may be
determined by the Committee, with any exercise beyond three
(3) months after the Termination Date deemed to be an NQSO),
but in any event, no later than the expiration date of the
Options.
(e) Notwithstanding the provisions in paragraph 5.6(a) above, if a
Participant is an employee and is terminated for Cause,
neither the Participant, the Participant's estate nor such
other person who may then hold the Option shall be entitled to
exercise any Option with respect to any Stock whatsoever,
after termination of service, whether or not after termination
of service the Participant may receive payment from the
Company or Subsidiary for vacation pay, for services rendered
prior to termination, for services rendered for the day on
which termination occurs, for salary in lieu of notice, or for
any other benefits. In making such determination, the Board
shall give the Participant an opportunity to present to the
Board evidence on his behalf. For the purpose of this
paragraph, termination of service shall be deemed to occur on
the date when the Company dispatches notice or advice to the
Participant that his service is terminated.
(f) If the Participant is not an employee or a director, the Award
Agreement shall specify treatment of the Award upon
Termination.
5.7. Limitations on ISO. The aggregate Fair Market Value (determined as
of the date of grant) of Stock with respect to which ISO's are exercisable for
the first time by a Participant during any calendar year (under this Plan or
under any other incentive stock option plan of the Company, Parent or Subsidiary
of the Company) will not exceed $100,000. If the Fair Market Value of Stock on
the date of grant with respect to which ISO's are exercisable for the first time
by a Participant during any calendar year exceeds $100,000, then the Options for
the first $100,000 worth of Stock to become exercisable in such calendar year
will be ISO's and the Options for the amount in excess of $100,000 that become
exercisable in that calendar year will be NQSO's. In the event that the Code or
the regulations promulgated hereunder are amended after the Effective Date of
this Plan to provide for a different limit on the Fair Market Value of Stock
permitted to be subject to ISO, such different limit will be automatically
incorporated herein and will apply to any Options granted after the effective
date of such amendment.
5.8. Modification, Extension or Renewal. The Committee may modify,
extend or renew outstanding Options and authorize the grant of new Options in
substitution therefore, provided that, except as expressly provided for in this
Plan or an Award Agreement, any such action may not, without the written consent
of a
5
Participant, impair any of such Participant's rights under any Option previously
granted. Any outstanding ISO that is modified, extended, renewed or otherwise
altered will be treated in accordance with Section 424(h) of the Code. The
Committee may, by a written notice to affected Participants, reduce the Exercise
Price of outstanding Options without the consent of such Participants; provided,
however, that the Exercise Price may not be reduced below the minimum Exercise
Price that would be permitted under Section 5.3 of this Plan for Options granted
on the date the action is taken to reduce the Exercise Price.
5.9. Limitations on Exercise. The Committee may specify a reasonable
minimum number of Stock that may be purchased on any exercise of an Option,
provided that such minimum number will not prevent Participant from exercising
the Option for the full number of Stock for which it is then exercisable.
6. RESTRICTED STOCK AWARD. A Restricted Stock Award is an offer by the
Company to sell to an eligible person (a "Participant-Offeree") Stock that are
subject to restrictions. The Committee will determine to whom an offer will be
made, the number of Stock the Participant-Offeree may purchase, the price to be
paid (the "Purchase Price"), the restrictions to which the Stock will be
subject, and all other terms and conditions of the Restricted Stock Award,
subject to the following:
6.1. Form of Restricted Stock Award. All purchases under a Restricted
Stock Award made pursuant to this Plan will be evidenced by an Award Agreement
("Restricted Stock Purchase Agreement") that will be in such form (which need
not be the same for each Participant-Offeree) as the Committee will from time to
time approve, and will comply with and be subject to the terms and conditions of
this Plan. A Participant-Offeree shall evidence his or her acceptance of the
offer of Restricted Stock by executing and delivering the Restricted Stock
Purchase Agreement and full payment for the Stock to the Company not later than
thirty (30) days from the date the Restricted Stock Purchase Agreement is
delivered to the Participant-Offeree. If the Participant-Offeree does not
execute and deliver the Restricted Stock Purchase Agreement and tender full
payment for the Stock to the Company within said thirty (30) days, then the
offer will terminate, unless otherwise determined by the Committee.
6.2. Purchase Price. The Purchase Price of Stock sold pursuant to a
Restricted Stock Award will be determined by the Committee on the date the
Restricted Stock Award is granted.
6.3. Terms of Restricted Stock Awards. Restricted Stock Awards shall be
subject to such restrictions as the Committee may impose. These restrictions may
be based upon completion of a specified number of years of service with the
Company or upon completion of the performance goals as set out in advance in the
Participant's individual Restricted Stock Purchase Agreement. Restricted Stock
Awards may vary from Participant to Participant and between groups of
Participants. Prior to the grant of a Restricted Stock Award, the Committee
shall: (a) determine the nature, length and starting date of any Performance
Period for the Restricted Stock Award; (b) select from among the Performance
Factors to be used to measure performance goals, if any; and (c) determine the
number of Stock that may be awarded to the Participant. Prior to the payment of
any Restricted Stock Award, the Committee shall determine the extent to which
such Restricted Stock Award has been earned. Performance Periods may overlap and
Participants may participate simultaneously with respect to
6
Restricted Stock Awards that are subject to different Performance Periods and
have different performance goals and other criteria.
6.4. Stock Restrictions. Each certificate representing Restricted Stock
awarded under the Plan shall bear the following legend until the lapse of all
restrictions with respect to such Stock:
"Transfer of this certificate and the Stock represented hereby is
restricted pursuant to the terms of a Restricted Stock Purchase Agreement, dated
as of _______, between the Company and ____________, and the Certificate of
Incorporation and the Bylaws of the Company, as amended from time to time. A
copy of the Certificate of Incorporation and Bylaws are on file at the principal
executive offices of the Company."
Appropriate stop-transfer orders with respect to Restricted Stock shall
be entered on the Company's Stockholder records and/or with the Company's
transfer agent and registrar; provided, however, that the failure or refusal to
enter any stop-transfer order shall not be construed as a modification or waiver
of any provision of the Plan, the Award Agreement, or otherwise.
6.5. Termination During Performance Period. If a Participant is
Terminated during a Performance Period for any reason, then such Participant
will be entitled to payment (whether in Stock, cash or otherwise) with respect
to the Restricted Stock Award only to the extent earned as of the date of
Termination in accordance with the Restricted Stock Purchase Agreement, unless
the Committee will determine otherwise.
7. STOCK BONUSES.
7.1. Awards of Stock Bonuses. A Stock Bonus is an award of Stock (which
may consist, in whole or in part, of Restricted Stock) for services rendered to
the Company or any Parent or Subsidiary of the Company. A Stock Bonus may be
awarded for past services already rendered to the Company, or any Parent or
Subsidiary of the Company pursuant to an Award Agreement (the "Stock Bonus
Agreement") that will be in such form (which need not be the same for each
Participant) as the Committee will from time to time approve, and will comply
with and be subject to the terms and conditions of this Plan. A Stock Bonus may
be awarded upon satisfaction of such performance goals as are set out in advance
in the Participant's individual Award Agreement (the "Performance Stock Bonus
Agreement") that will be in such form (which need not be the same for each
Participant) as the Committee will from time to time approve, and will comply
with and be subject to the terms and conditions of this Plan. Stock Bonuses may
vary from Participant to Participant and between groups of Participants, and may
be based upon the achievement by the Company, Parent or Subsidiary and/or
individual of Performance Factors or such other criteria as the Committee may
determine.
7.2. Terms of Stock Bonuses. The Committee will determine the number of
Stock to be awarded to the Participant. If the Stock Bonus is being earned upon
the satisfaction of performance goals pursuant to a Performance Stock Bonus
Agreement, then the Committee will: (a) determine the nature, length and
starting date of any Performance Period for each Stock Bonus; (b) select from
among the Performance Factors to be used to measure the performance, if any; and
(c)
7
determine the number of Stock that may be awarded to the Participant. Prior
to the payment of any Stock Bonus, the Committee shall determine the extent to
which such Stock Bonuses have been earned. Performance Periods may overlap and
Participants may participate simultaneously with respect to Stock Bonuses that
are subject to different Performance Periods and different performance goals and
other criteria. The number of Stock may be fixed or may vary in accordance with
such performance goals and criteria as may be determined by the Committee. The
Committee may adjust the Performance Factors applicable to the Stock Bonuses to
take into account changes in law and accounting or tax rules and to make such
adjustments as the Committee deems necessary or appropriate to reflect the
impact of extraordinary or unusual items, events or circumstances to avoid
windfalls or hardships.
7.3. Form of Payment. The earned portion of a Stock Bonus may be paid
currently or on a deferred basis with such interest or dividend equivalent, if
any, as the Committee may determine. Payment may be made in the form of cash or
whole Stock or a combination thereof, either in a lump sum payment or in
installments, all as the Committee may determine.
8. PAYMENT FOR STOCK PURCHASES.
8.1. Payment. Payment for Stock purchased pursuant to this Plan may be
made in cash (by check) or, where expressly approved for the Participant by the
Committee and where permitted by law:
(a) by cancellation of indebtedness of the Company to the
Participant;
(b) by surrender of Stock that either: (1) have been owned by
Participant for more than six (6) months and have been paid
for within the meaning of SEC Rule 144 (and, if such Stock
were purchased from the Company by use of a promissory note,
such note has been fully paid with respect to such Stock); or
(2) were obtained by Participant in the public market;
(c) by tender of a promissory note having such terms as may be
approved by the Committee and bearing interest at a rate
sufficient to avoid imputation of income under Sections 483
and 1274 of the Code; provided, however, that Participants who
are not employees or directors of the Company will not be
entitled to purchase Stock with a promissory note unless the
note is adequately secured by collateral other than the Stock;
(d) by waiver of compensation due or accrued to the Participant
for services rendered;
(e) with respect only to purchases upon exercise of an Option, and
provided that a public market for the Company's Stock exists:
(f) through a "same day sale" commitment from the Participant and
a broker-dealer that is a member of the National Association
of Securities Dealers (an "NASD Dealer") whereby the
Participant irrevocably elects to exercise the Option and sell
a portion of the
8
Stock so purchased to pay for the Exercise Price, and whereby
the NASD Dealer irrevocably commits upon receipt of such Stock
to forward the Exercise Price directly to the Company; or
(g) through a "margin" commitment from the Participant and an NASD
Dealer whereby the Participant irrevocably elects to exercise
the Option and to pledge the Stock so purchased to the NASD
Dealer in a margin account as security for a loan from the
NASD Dealer in the amount of the Exercise Price, and whereby
the NASD Dealer irrevocably commits upon receipt of such Stock
to forward the Exercise Price directly to the Company; or
(h) by any combination of the foregoing.
9. WITHHOLDING TAXES.
9.1. Withholding Generally. Whenever Stock are to be issued in
satisfaction of Awards granted under this Plan, the Company may require the
Participant to remit to the Company an amount sufficient to satisfy federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such Stock. Whenever, under this Plan, payments
in satisfaction of Awards are to be made in cash, such payment will be net of an
amount sufficient to satisfy federal, state, and local withholding tax
requirements.
9.2. Stock Withholding. When, under applicable tax laws, a Participant
incurs tax liability in connection with the exercise or vesting of any Award
that is subject to tax withholding and the Participant is obligated to pay the
Company the amount required to be withheld, the Committee may in its sole
discretion allow the Participant to satisfy the minimum withholding tax
obligation by electing to have the Company withhold from the Stock to be issued
that number of Stock having a Fair Market Value equal to the minimum amount
required to be withheld, determined on the date that the amount of tax to be
withheld is to be determined. All elections by a Participant to have Stock
withheld for this purpose will be made in accordance with the requirements
established by the Committee and shall be in writing in a form acceptable to the
Committee.
10. PRIVILEGES OF STOCK OWNERSHIP. No Participant will have any of the
rights of a Stockholder with respect to any Stock Option until the Participant
has exercised his Stock Option, paid for the Stock, and the Stock has been
issued to the Participant. Thereafter, the Participant will be a Stockholder and
have all the rights of Stockholder with respect to such Stock, including the
right to vote and receive all dividends or other distributions made or paid with
respect to such Stock; provided, that if such Stock are Restricted Stock, then
any new, additional or different securities the Participant may become entitled
to receive with respect to such Stock by virtue of a dividend of Stock, split of
Stock or any other change in the legal or capital structure of the Company will
be subject to the same restrictions as the Restricted Stock; provided, further,
that the Participant will have no right to retain such stock dividends or stock
distributions with respect to Stock that are repurchased at the Participant's
Purchase Price or Exercise Price pursuant to Section 12 hereof.
11. TRANSFERABILITY. Awards granted under this Plan, and any interest
therein, will not be transferable or assignable by any Participant, and may not
be made subject
9
to execution, attachment or similar process, otherwise than by will or by the
laws of descent and distribution, except as determined by the Committee and
expressly set forth in the Award Agreement.
12. RESTRICTIONS ON STOCK. At the discretion of the Committee, the Company
may reserve to itself and/or its assignee(s) in the Award Agreement a right to
repurchase a portion of or all Stock held by a Participant following such
Participant's Termination at any time within ninety (90) days after the later of
Participant's Termination Date and the date Participant purchases Stock under
this Plan, for cash and/or cancellation of purchase money indebtedness, at the
Participant's Exercise Price or Purchase Price, as the case may be.
13. CERTIFICATES. All certificates for Stock or other securities delivered
under this Plan will be subject to such stop-transfer orders, legends and other
restrictions consistent with the terms of the Awards as the Committee may deem
necessary or advisable, including restrictions under any applicable federal,
state or foreign securities law, or any rules, regulations and other
requirements of the SEC or any stock exchange or automated quotation system upon
which the Stock may be listed or quoted. 14. ESCROW; PLEDGE OF STOCK. To enforce
any restrictions on a Participant's Stock, the Committee may require the
Participant to deposit all certificates representing Stock, together with powers
of attorney or other instruments of transfer approved by the Committee,
appropriately endorsed in blank, with the Company or an agent designated by the
Company to hold in escrow until such restrictions have lapsed or terminated, and
the Committee may cause a legend or legends referencing such restrictions to be
placed on the certificates. Any Participant who is permitted to execute a
promissory note as partial or full consideration for the purchase of Stock under
this Plan will be required to pledge and deposit with the Company all or part of
the Stock so purchased as collateral to secure the payment of Participant's
obligation to the Company under the promissory note; provided, however, that the
Committee may require or accept other or additional forms of collateral to
secure the payment of such obligation and, in any event, the Company will have
full recourse against the Participant under the promissory note notwithstanding
any pledge of the Participant's Stock or other collateral. In connection with
any pledge of the Stock, Participant will be required to execute and deliver a
written pledge agreement in such form as the Committee will from time to time
approve. In the discretion of the Committee, the pledge agreement may provide
that the Stock purchased with the promissory note may be released from the
pledge on a pro rata basis as the promissory note is paid.
15. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or from
time to time, authorize the Company, with the consent of the respective
Participants, to issue new Awards in exchange for the surrender and cancellation
of any or all outstanding Awards. The Committee may at any time buy from a
Participant an Award previously granted with payment in cash, Stock (including
Restricted Stock) or other consideration, based on such terms and conditions as
the Committee and the Participant may agree.
16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award will not be
effective unless such Award is in compliance with all applicable federal and
state securities laws, rules and regulations of any governmental body, and the
requirements of any stock exchange or automated quotation system upon which the
Stock may then
10
be listed or quoted, as they are in effect on the date of grant of the Award and
also on the date of exercise or other issuance. However, in the event that an
Award is not effective as discussed in the preceding sentence, the Company will
use reasonable efforts to modify, revise or renew such Award in a manner so as
to make the Award effective. Notwithstanding any other provision in this Plan,
the Company will have no obligation to issue or deliver certificates for Stock
under this Plan prior to: (a) obtaining any approvals from governmental agencies
that the Company determines are necessary or advisable; and/or (b) completion of
any registration or other qualification of such Stock under any state or federal
law or ruling of any governmental body that the Company determines to be
necessary or advisable. The Company will be under no obligation to register the
Stock with the SEC or to effect compliance with the registration, qualification
or listing requirements of any state securities laws, stock exchange or
automated quotation system, and the Company will have no liability for any
inability or failure to do so.
17. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award granted
under this Plan will confer or be deemed to confer on any Participant any right
to continue in the employ of, or to continue any other relationship with, the
Company or any Parent or Subsidiary of the Company or limit in any way the right
of the Company or any Parent or Subsidiary of the Company to terminate
Participant's employment or other relationship with the Company at any time,
with or without cause.
18. CORPORATE TRANSACTIONS.
18.1. Assumption or Replacement of Awards by Successor. If a
Change-of-Control Event occurs:
(i) the successor company in any Change-of-Control Event may,
if approved in writing by the Committee prior to any
Change-of-Control Event:
(1) substitute equivalent Options or Awards or
provide substantially similar consideration to Participants as
was provided to Stockholders (after taking into account the
existing provisions of the Awards), or
(2) issue, in place of outstanding Stock of the
Company held by the Participant, substantially similar Stock
or other property subject to repurchase restrictions no less
favorable to the Participant.
(ii) Notwithstanding anything in this Plan to the contrary,
the Committee may, in its sole discretion, provide that the
vesting of any or all Options and Awards granted pursuant to
this Plan will accelerate immediately prior to the
consummation of a Change-of-Control Event. If the Committee
exercises such discretion with respect to Options, such
Options will become exercisable in full prior to the
consummation of such event at such time and on such conditions
as the Committee determines, and if such Options are not
exercised prior to the consummation of such event, they shall
terminate at such time as determined by the Committee.
11
18.2. Other Treatment of Awards. Subject to any greater rights granted
to Participants under Section 18.1, if a Change-of-Control Event occurs or has
occurred, any outstanding Awards will be treated as provided in the applicable
agreement or plan of merger, consolidation, dissolution, liquidation, or sale of
assets constituting the Change-of-Control Event.
18.3. Assumption of Awards by the Company. The Company, from time to
time, also may substitute or assume outstanding awards granted by another
company, whether in connection with an acquisition of such other company or
otherwise, by either; (a) granting an Award under this Plan in substitution of
such other company's award; or (b) assuming such award as if it had been granted
under this Plan if the terms of such assumed award could be applied to an Award
granted under this Plan. Such substitution or assumption will be permissible if
the holder of the substituted or assumed award would have been eligible to be
granted an Award under this Plan if the other company had applied the rules of
this Plan to such grant. If the Company assumes an award granted by another
company, the terms and conditions of such award will remain unchanged (except
that the exercise price and the number and nature of Stock issuable upon
exercise of any such option will be adjusted appropriately pursuant to Section
424(a) of the Code). If the Company elects to grant a new Option rather than
assuming an existing option, such new Option may be granted with a similarly
adjusted Exercise Price.
18.4. Adjustment of Stock in Certain Capital Changes.
(a) Upon the occurrence of a Change-of-Control Event, an
extraordinary transaction or other event or circumstance
affecting the Stock shall occur, including, but not limited
to, any distribution (whether in the form of cash, Stock or
other property), reorganization or conversion into a
corporation, recapitalization, Stock split, reverse Stock
split, reorganization, merger, consolidation, spin-off,
combination, repurchase, Stock exchange, sale of assets or
other similar transaction or event, and the Committee
determines that a change or adjustment in the terms of any
Award is appropriate, then the Committee may, in its sole
discretion, make such equitable changes or adjustments or take
any other actions that it deems necessary or appropriate
(which shall be effective at such time as the Committee in its
sole discretion determines), including, but not limited to (A)
causing changes or adjustments to any or all of (i) the number
and kind of Stock or other securities or property which may
thereafter be issued in connection with Awards, (ii) the
number and kind of Stock or other securities or property
issued or issuable in respect of outstanding Awards, (iii) the
exercise price relating to any Award, and (iv) the number and
kind of Stock or other securities reserved for issuance under
this Plan, and (B) canceling outstanding Awards in exchange
for replacement awards or cash, in such amounts or for such
price as the Committee may determine as fair, in its sole
discretion, it being understood that the Committee shall have
the authority to cause different changes or adjustments to be
made to any Awards held by Participants even if such Awards
are identical and such Participants are similarly situated;
further, provided,
12
however, that with respect to Options which are intended by
the Committee to remain ISOs' subsequent to any such
adjustment, such adjustment shall be made in accordance with
Section 424 of the Code.
(b) If the Company engages in a transaction the principal purpose
of which is to change the Company from a "pass-through" entity
for federal income tax purpose to an entity taxed as a
corporation, the Options and Awards outstanding immediately
prior to the consummation of transaction shall be treated by
the surviving company in such transaction in the same manner
as specified in Section 18.1(b)(i)(1).
19. ADOPTION AND STOCKHOLDER APPROVAL. This Plan became effective on
December 18, 2002, the date that this Plan was approved by the Stockholders of
the Company, consistent with applicable laws (the "Effective Date").
20. TERM OF PLAN. Unless earlier terminated as provided herein, this Plan
will terminate ten (10) years from the date this Plan is adopted by the Board
or, if earlier, the date of Stockholder approval.
21. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time terminate
or amend this Plan in any respect, including without limitation amendment of any
form of Award Agreement or instrument to be executed pursuant to this Plan;
provided, however, that the Board will not, without the approval of the
Stockholders of the Company, amend this Plan in any manner that requires such
Stockholder approval.
22. EFFECT OF SECTION 162(M) OF THE CODE. The Plan and all Awards issued
there under are intended to be exempt from the application of Section 162(m) of
the Code, which restricts under certain circumstances the Federal income tax
deduction for compensation paid by a public company to named executives in
excess of $1 million per year. The exemption is based on Treasury Regulation
Section 1.162-27(f) as in effect on the effective date of the Plan, with the
understanding that such regulation generally exempts from the application of
Section 162(m) of the Code compensation paid pursuant to a plan that existed
before a company becomes publicly held. The Committee may, without Stockholder
approval (unless otherwise required to comply with Rule 16b-3 under the Exchange
Act), amend the Plan retroactively and/or prospectively to the extent it
determines necessary in order to comply with any subsequent clarification of
Section 162(m) of the Code required to preserve the Company's Federal income tax
deduction for compensation paid pursuant to the Plan. To the extent that the
Committee determines as of the Date of Grant of an Award that (i) the Award is
intended to comply with Section 162(m) of the Code and (ii) the exemption
described above is no longer available with respect to such Award, such Award
shall not be effective until any Stockholder approval required under Section
162(m) of the Code has been obtained.
23. GENERAL.
23.1. Additional Provisions of an Award. Awards under the Plan also may
be subject to such other provisions (whether or not applicable to the benefit
awarded to any other Participant) as the Committee determines appropriate
including,
13
without limitation, provisions to assist the Participant in financing the
purchase of Stock upon the exercise of Options, provisions for the forfeiture of
or restrictions on resale or other disposition of Stock acquired under any
Award, provisions giving the Company the right to repurchase Stock acquired
under any Award in the event the Participant elects to dispose of such Stock,
and provisions to comply with Federal and state securities laws and Federal and
state tax withholding requirements. Any such provisions shall be reflected in
the applicable Award Agreement.
23.2. Claim to Awards and Employment Rights. Unless otherwise expressly
agreed in writing by the Company, no employee or other person shall have any
claim or right to be granted an Award under the Plan or, having been selected
for the grant of an Award, to be selected for a grant of any other Award.
Neither the Plan nor any action taken hereunder shall be construed as giving any
Participant any right to be retained in the employ or service of the Company, a
Subsidiary or an Affiliate.
23.3. Designation and Change of Beneficiary. Each Participant shall
file with the Committee a written designation of one or more persons as the
beneficiary who shall be entitled to receive the amounts payable with respect to
an Award of Restricted Stock, if any, due under the Plan upon his death. A
Participant may, from time to time, revoke or change his beneficiary designation
without the consent of any prior beneficiary by filing a new designation with
the Committee. The last such designation received by the Committee shall be
controlling; provided, however, that no designation, or change or revocation
thereof, shall be effective unless received by the Committee prior to the
Participant's death, and in no event shall it be effective as of a date prior to
such receipt. If no beneficiary designation is filed by the Participant, the
beneficiary shall be deemed to be his or her spouse or, if the Participant is
unmarried at the time of death, his or her estate.
23.4. Payments to Persons Other Than Participants. If the Committee
shall find that any person to whom any amount is payable under the Plan is
unable to care for his or her affairs because of illness or accident, or is a
minor or is otherwise legally incompetent or incapacitated, or has died, then
any payment due to such person or such person's estate (unless a prior claim
therefore has been made by a duly appointed legal representative) may, if the
Committee so directs the Company, be paid to such person's spouse, child,
relative, an institution maintaining or having custody of such person, or any
other person deemed by the Committee, in its absolute discretion, to be a proper
recipient on behalf of such person otherwise entitled to payment. Any such
payment shall be a complete discharge of the liability of the Committee and the
Company therefore.
23.5. No Liability of Committee Members. No member of the Committee
shall be personally liable by reason of any contract or other instrument
executed by such Committee member or on his or her behalf in his or her capacity
as a of the Committee nor for any mistake of judgment made in good faith, and
the Company shall indemnify and hold harmless each member of the Committee and
each other employee, officer or Manager of the Company to whom any duty or power
relating to the administration or interpretation of the Plan may be allocated or
delegated, against any cost or expense (including counsel fees) or liability
(including any sum paid in settlement of a claim) arising out of any act or
omission to act in connection with the Plan unless arising out of such person's
own fraud or willful bad faith; provided, however, that approval of the Board
shall be required for the payment of any amount in settlement of a claim against
any such person. The foregoing right
14
of indemnification shall not be exclusive of any other rights of indemnification
to which such persons may be entitled under the Company's Operating Agreement or
other governing or charter documents, or as a matter of law, or otherwise, or
any power that the Company may have to indemnify them or hold them harmless.
23.6. Governing law. The Plan and all agreements hereunder shall be
governed by and construed in accordance with the internal laws of the State of
Delaware without regard to the principles of conflicts of law thereof. 23.7.
Funding. No provision of the Plan shall require the Company, for the purpose of
satisfying any obligations under the Plan, to purchase assets or place any
assets in a trust or other entity to which contributions are made or otherwise
to segregate any assets, nor shall the Company maintain separate bank accounts,
books, records or other evidence of the existence of a segregated or separately
maintained or administered fund for such purposes. Participants shall have no
rights under the Plan other than as general unsecured creditors of the Company,
except that insofar as they may have become entitled to payment of additional
compensation by performance of services, they shall have the same rights as
other employees under general law.
23.8. Reliance on Reports. Each member of the Committee and each member
of the Board shall be fully justified in relying, acting or failing or refusing
to act, and shall not be liable for having so relied, acted or failed or refused
to act in good faith, upon any report made by the independent public accountant
of the Company and its Subsidiaries and Affiliates and upon any other
information furnished in connection with the Plan by any person or persons other
than himself.
23.9. Relationship to Other Benefits. No payment under the Plan shall
be taken into account in determining any benefits under any pension, retirement,
profit sharing, group insurance or other benefit plan of the Company or any
Subsidiary except as otherwise specifically provided in such other plan.
23.10. Expenses. The expenses of administering the Plan shall be borne
by the Company and its Subsidiaries and Affiliates.
23.11. Pronouns. Masculine pronouns and other words of masculine gender
shall refer to both men and women.
23.12. Titles and Headings. The titles and headings of the sections in
the Plan are for convenience of reference only, and in the event of any
conflict, the text of the Plan, rather than such titles or headings shall
control.
23.13. Termination of Employment. For all purposes herein, a person who
transfers from employment or service with the Company to employment or service
with a Subsidiary or Affiliate or vice versa shall not be deemed to have
terminated employment or service with the Company, a Subsidiary or Affiliate.
23.14. Nonexclusively of The Plan. Neither the adoption of this Plan by
the Board, the submission of this Plan to the Stockholders of the Company for
approval, nor any provision of this Plan will be construed as creating any
limitations on the power of the Board to adopt such incentive arrangements as it
may deem desirable, including, without limitation, the granting of Stock options
and bonuses
15
otherwise than under this Plan, and such arrangements may be either generally
applicable or applicable only in specific cases.
24. DEFINITIONS. As used in this Plan, the following terms will have
the following meanings:
"Affiliate" means any affiliate of the Company within the meaning of 17
CFR ss. 230.405.
"Award" means any award under this Plan, including any Option,
Restricted Stock or Stock Bonus.
"Award Agreement" means, with respect to each Award, the signed written
agreement between the Company and the Participant setting forth the terms and
conditions of the Award.
"Board" means the Board of Directors of the Company.
"Cause" means the Company, a Subsidiary or Affiliate having cause to
terminate a Participant's employment or service under any existing employment,
consulting or any other agreement between the Participant and the Company or a
Subsidiary or Affiliate or, in the absence of such an employment, consulting or
other agreement, upon (i) the determination by the Committee that the
Participant has ceased to perform his duties to the Company, a Subsidiary or
Affiliate (other than as a result of his incapacity due to physical or mental
illness or injury), which failure amounts to an intentional and extended neglect
of his duties to such party, (ii) the Committee's determination that the
Participant has engaged or is about to engage in conduct materially injurious to
the Company, a Subsidiary or Affiliate or (iii) the Participant having been
convicted of a felony or a misdemeanor carrying a jail sentence of six (6)
months or more.
"Change-of-Control Event" means any one or more of the following:
(i) a dissolution or liquidation of the Company,
(ii) a merger or consolidation in which the Company
is not the surviving corporation (other than a merger
or consolidation with a wholly-owned subsidiary, are
in corporation of the Company in a different
jurisdiction, or other transaction in which there is
no substantial change in the Stockholders of the
Company or their relative Stock holdings and the
Awards granted under this Plan are assumed, converted
or replaced by the successor corporation, which
assumption will be binding on all Participants),
(iii) a merger in which the Company is the surviving
corporation but after which the Stockholders of the
Company immediately prior to such merger (other than
any Stockholder that merges, or which owns or
controls another corporation that merges, with the
Company in such merger) cease to own their Stock or
other equity interest in the Company,
16
(iv) the sale of substantially all of the assets of
the Company, or
(v) the acquisition, sale, or transfer of more than
50% of the outstanding Stock of the Company by tender
offer or similar transaction.
Notwithstanding the foregoing, a transaction the principal purpose of
which is to change the Company from a "pass-through" entity for federal income
tax purpose to an entity taxed as a corporation shall not, by itself, constitute
a Change-of-Control Event.
"Code" means the Internal Revenue Code of 1986, as amended. Reference
in the Plan to any section of the Code shall be deemed to include any amendments
or successor provisions to such section and any regulations under such section.
"Committee" means (i) the Stock Option Committee or such other
committee appointed by the Board consisting of two or more Outside Directors or
(ii) the Board. If no Committee has been appointed, or if no Committee is
serving as such, any reference to the Committee shall include the Board.
"Company" means DOBI Medical Systems, Inc., a Delaware corporation, and
any successor thereto.
"Director" means a person who is a director of the Board of Directors
of the Company.
"Disability" means a disability, whether temporary or permanent,
partial or total, as determined by the Committee.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exercise Price" means the price at which a holder of an Option may
purchase the Stock issuable upon exercise of the Option.
"Fair Market Value" means, as of any date, the value of a Stock
determined as follows:
(a) if such Stock are then quoted on the NASDAQ National Market,
the closing price on the NASDAQ National Market on the date of
determination as reported in The Wall Street Journal;
(b) if such Stock are publicly traded and are then listed on a
national securities exchange, the closing price on the date of
determination on the principal national securities exchange on
which the Stock are listed or admitted to trading as reported
in The Wall Street Journal;
(c) if such Stock are publicly traded but is not quoted on the
NASDAQ National Market nor listed or admitted to trading on a
national securities exchange, the average of the closing bid
and
17
asked prices on the date of determination as reported in The
Wall Street Journal or, if not reported in The Wall Street
Journal, as reported by any reputable publisher or quotation
service, as determined by the Committee in good faith;
(d) if none of the foregoing is applicable, by the Committee in
good faith based upon factors available at the time of the
determination, including, but not limited to, capital raising
activities of the Company.
"ISO" has the meaning set forth in Section 5.
"Insider" means an officer or Manager of the Company or any other
person whose transactions in the Company's securities would be subject to
Section 16 of the Exchange Act if the Company were subject to the reporting
requirements of the Exchange Act.
"NQSO" has the meaning set forth in Section 5.
"Option" means an award of an option to purchase Stock pursuant to
Section 5.
"Outside Director" means a person who is (i) a member of the Board of
Directors of the Company, (ii) a "non employee director" within the meaning of
Rule 16b-3 under the Exchange Act, or any successor rule or regulation, and
(iii) an "outside director" within the meaning of Section 162(m) of the Code.
"Parent" means any corporation or other legal entity (other than the
Company) in an unbroken chain of corporations and/or other legal entities ending
with the Company if each of such corporations and other legal entities other
than the Company owns stock, other equity securities or other equity interests
possessing 50% or more of the total combined voting power of all classes of
stock, equity securities or other equity interests in one of the other
corporations or other entities in such chain.
"Participant" means a person who receives an Award under this Plan.
"Performance Factors" means the factors selected by the Committee from
time to time, including, but not limited, the following measures to determine
whether the performance goals established by the Committee and applicable to
Awards have been satisfied:
(a) Net revenue and/or net revenue growth;
(b) Earnings before income taxes and amortization and/or earnings
before income taxes and amortization growth;
(c) Operating income and/or operating income growth;
(d) Net income and/or net income growth;
(e) Earnings per share and/or earnings per share growth;
18
(f) Total Stockholder return and/or total Stockholder return
growth;
(g) Return on equity;
(h) Operating cash flow return on income;
(i) Adjusted operating cash flow return on income;
(j) Economic value added;
(k) Individual confidential business objectives;
(l) Successful capital raises;
(m) Obtaining standard FDA approvals;
(n) Completion of product development;
(o) Recruiting key employees;
(p) Actual shipments expressed in Stock or dollars;
(q) Successful completion of an audit;
(r) Sales levels; and
(s) Other factors deemed reasonable and appropriate by the
Committee.
"Performance Period" means the period of service determined by the
Committee, not to exceed five years, during which years of service or
performance is to be measured for Restricted Stock Awards or Stock Bonuses.
"Plan" means this DOBI Medical Systems, Inc., 2000 Stock Incentive
Plan, as amended from time to time.
"Restricted Stock Award" means an award of Stock pursuant to Section 6.
"Retirement" shall mean retirement pursuant to the retirement policy
developed by the Committee, if any, as may be applicable at the time that a
Participant in question voluntarily ceases to be an employee, manager or
director of the Company following attaining retirement age, which retirement age
shall initially be set at age 65, unless and until the Committee in its
discretion determines otherwise.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Stockholder" means any holder of the Company's Blank Check Preferred
Stock, its Class A Preferred Shares, or its Common Stock, as defined in the
19
Company's Certificate of Incorporation, as it may be amended from time to time,
which stock has been duly authorized and validly issued.
"Subsidiary" means any corporation or other legal entity (other than
the Company) in an unbroken chain of corporations and/or other legal entities
beginning with the Company if each of the corporations and entities other than
the last corporation or entity in the unbroken chain owns stock, other equity
securities or other equity interests possessing 50% or more of the total
combined voting power of all classes of stock, other equity securities or other
equity interests in one of the other corporations or entities in such chain.
"Ten Percent Stockholder" has the meaning set forth in Section 5.2.
"Termination" or "Terminated" means, for purposes of this Plan with
respect to a Participant, that the Participant has for any reason ceased to
provide services as an employee, officer, director Manager, consultant,
independent contractor, or advisor to the Company or a Parent or Subsidiary of
the Company. An employee will not be deemed to have ceased to provide services
in the case of (i) sick leave, (ii) military leave, or (iii) any other leave of
absence approved by the Committee, provided, that such leave is for a period of
not more than 90 days, unless re-employment upon the expiration of such leave is
guaranteed by contract or statute or unless provided otherwise pursuant to
formal policy adopted from time to time by the Company and issued and
promulgated to employees in writing. In the case of any employee on an approved
leave of absence, the Committee may make such provisions respecting suspension
of vesting of the Award while on leave from the employ of the Company or a
Subsidiary as it may deem appropriate, except that in no event may an Option be
exercised after the expiration of the term set forth in the Option agreement.
The Committee will have sole discretion to determine whether a Participant has
ceased to provide services and the effective date on which the Participant
ceased to provide services (the "Termination Date").
"Stock" means the common stock of the Company having a par value of
$0.001 per share, and as defined in the Company's Certificate of Incorporation,
as it maybe amended from time to time, which Stock has been or is hereafter
reserved for issuance under this Plan, as adjusted pursuant to Sections 2 and 18
hereof, and any successor security.
"Stock Bonus" means an award of Stock, or cash in lieu of Stock,
pursuant to Section 7.
"Unvested Stock" means "Unvested Stock" as defined in the Award
Agreement.
"Vested Stock" means "Vested Stock" as defined in the Award Agreement.
20