BIO-VASCULAR, INC.
1988 STOCK OPTION PLAN
(As amended as of March 19, 1997)
1. PURPOSE
The purpose of this 1988 Stock Option Plan (the "Plan") is to promote the
interests of Bio-Vascular Inc., a Minnesota corporation (the "Company"), by
providing employees of the Company with an opportunity to acquire a proprietary
interest in the Company, and thereby develop a stronger incentive to contribute
to the Company's continued success and growth. In addition, the opportunity to
acquire a proprietary interest in the Company by the offering and availability
of stock options will assist the Company in attracting and retaining key
personnel of outstanding ability. In connection with the Company's distribution
of all of the outstanding shares of the common stock of Vital Images, Inc.
("Vital Images") (the "Spin-Off"), certain amendments to the Plan have been
effected in order to allow awards under the Plan made to Vital Images employees
to continue following the effective date of the Spin-Off.
2. DEFINITIONS
Wherever used in the Plan, the following terms have the meanings set forth
below:
2.1. "Board" means the Board of Directors of the Company.
2.2. "Code" means the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
2.3. "Committee" means the Committee which may be designated from time to
time by the Board pursuant to Section 3.5 of the Plan.
2.4. "Employer" means the Company if the Participant renders employment or
other services to the Company or any Subsidiary of the Company, and
means Vital Images if the Participant renders employment or other
services to Vital Images or any Subsidiary of Vital Images.
2.5. "Incentive Stock Option" or "ISO" means a stock option which is
intended to qualify as an incentive stock option as defined in
Section 422A of the Code.
2.6. "Non-Statutory Stock Option" or "NSO" means a stock option to
purchase stock that does not qualify as an incentive stock option as
defined in Section 422A of the Code.
2.7. "Option" means, where required by the context of the Plan, an ISO
and/or NSO granted pursuant to the Plan.
2.8. "Optionee" means a Participant in the Plan who has been granted one
or more Options under the Plan.
2.9. "Participant" means an individual described in Section 5 of this Plan
who may be granted Options under the Plan.
2.10. "Stock" means the Common Stock, $.01 par value, of the Company.
2.11. "Subsidiary" means (i) when used in reference to the Company, any
corporation or entity, other than the Company, in an unbroken chain
of corporations beginning with the Company if each of the
corporations other than the last corporation or entity in the
unbroken chain owns 50% or more of the voting stock in one of the
other corporations or entities in such chain or (ii) when used in
reference to Vital Images, any corporation or entity, other than
Vital Images, in an unbroken chain of corporations beginning with
Vital Images if each of the corporations or entities other than the
last corporation or entity in the unbroken chain owns 50% or more of
the voting stock in one of the other corporations or entities in such
chain.
2.12. "Vital Images Committee" means the group of individuals administering
the Vital Images, Inc. Incentive Stock Option Adjustment Plan.
3. ADMINISTRATION
3.1. The Plan shall be administered by the Board, which shall have full
power, subject to the provisions of the Plan, to grant Options,
construe and interpret the Plan, establish rules and regulations with
respect to the Plan and Options granted hereunder, and perform all
other acts, including the delegation of administrative
responsibilities, that it believes reasonable and necessary.
3.2. The Board shall have the sole discretion, subject to the provisions
of the Plan, to determine the Participants eligible to receive
Options pursuant to the Plan and the amount, type, and terms of any
Options and the terms and conditions of option agreements relating to
any Option.
3.3. The Board may correct any defect, supply any omission, or reconcile
any inconsistency in the Plan or in any Option granted hereunder in
the manner and to the extent it shall deem necessary to carry out the
terms of the Plan.
3.4. Any decision made, or action taken, by the Board arising out of or in
connection with the interpretation and administration of the Plan
shall be final, conclusive and binding upon Optionee.
3.5. The Board may designate a Committee from time to time to administer
the Plan. If designated, the Committee shall be composed of not less
than three persons (who shall be members of the Board) who are
appointed from time to time by the Board. If the Board has appointed
a Committee pursuant to this Section 3.5, then the
2
Committee pursuant to this Section 3.5, then the Committee may
administer the Plan and exercise all of the rights and powers granted
to the Board in this Plan, including without limitation the right to
grant Options pursuant to the Plan and to establish the Option price
as provided in the Plan.
3.6. The Committee and the Vital Images Committee will reasonably cooperate
with each other to promote the purposes of the Plan.
4. SHARES SUBJECT TO THE PLAN
4.1. Number. The total number of shares of Stock reserved for issuance upon
exercise of Options under the Plan is 850,000. Such shares shall
consist of authorized but unissued Stock. If any Option granted under
the Plan lapses or terminates for any reason before being completely
exercised, the shares covered by the unexercised portion of such
Option may again be made subject to Options under the Plan.
4.2. Changes in Capitalization. Subject to the provisions of paragraphs
4.2(a-c), in the event of any change in the outstanding shares of
Stock of the Company by reason of any stock dividend, split,
recapitalization, reorganization, merger, consolidation, combination,
exchange of shares, or rights offering to purchase stock at a price
substantially below fair market value, or other similar corporate
change, the aggregate number of shares which may be subject to Options
under the Plan and the terms of any outstanding Option, including the
number and kind of shares subject to such Options and the purchase
price per share thereof, shall be appropriately adjusted by the Board,
in its sole discretion, may deem equitable to prevent substantial
dilution or enlargement of the rights granted to or available for
Optionees. Notwithstanding the preceding sentence, in no event shall
any fraction of a share of Stock be issued upon the exercise of an
Option.
(a) Change in Control. In the event of a "Change in Control" of the
Company, as defined in paragraph (b) below, then the following
acceleration and valuation provisions shall apply:
(i) Except as otherwise determined by the Board, in its
discretion, prior to the occurrence of a Change in Control,
any Options outstanding on the date such Change in Control
is determined to have occurred that are not yet exercisable
and vested on such date shall become fully exercisable and
vested;
(ii) Except as otherwise determined by the Board, in its
discretion, prior to the occurrence of a Change in Control,
the value of all outstanding Options, to the extent they
are exercisable and vested (including Options that shall
become exercisable and vested pursuant to subparagraph (i)
above), shall be cashed out at the Change in Control Price,
(reduced by the exercise price applicable to such Options).
The cash out proceeds shall be paid to the Optionee
3
or, in the event of an Optionee prior to payment, to the
estate of the Optionee or to a person who acquired the
right to exercise the Option by bequest or inheritance.
(b) Definition of "Change in Control". For purposes of this Section
4.2, a "Change in Control" means the happening of any of the
following, provided that it occurs after the date on which the
Company distributes (pursuant to that certain Distribution
Agreement, dated as of May 2, 1997, between Vital Images and the
Company (the "Distribution Agreement")) all of the outstanding
shares of Vital Images' common stock to the Company's
shareholders of record on the Record Date (as defined in the
Distribution Agreement):
(i) When any "person", as such term is used in Sections 13(d)
and 14(d) of the Exchange Act (other than the Company, a
Subsidiary or a Company employee benefit plan, including
any trustee of such plan acting as trustee) is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the
Company representing fifty percent (50%) or more of the
combined voting power of the Company's then outstanding
securities; or
(ii) The occurrence of a transaction requiring shareholder
approval, and involving the sale of all or substantially
all of the assets of the Company or the merger of the
Company with or into another corporation.
(c) Change in Control Price. For purposes of this Section 4.2,
"Change in Control Price" shall be, as determined by the Board,
(i) the highest Fair Market Value of a Share within the 60 day
period immediately preceding the date of determination of the
Change in Control Price by the Board (the "60-Day Period"), or
(ii) the highest price paid or offered per Share, as determined
by the Board, in any bona fide transaction or bona fide offer
related to the Change in Control of the Company, at any time
within the 60-Day Period, or (iii) some lower price as the
Board, in its discretion, determines to be a reasonable estimate
of the fair market value of a Share.
5. ELIGIBLE PARTICIPANTS
The following persons are eligible to participate in the Plan:
5.1. Participation Generally. Participants in the Plan will be (a) those
employees of the Company or any Subsidiary, including officers and
directors who are also employees of the Company or any Subsidiary,
who, in the judgment of the Committee, have contributed, are
contributing or are expected to contribute to the achievement of
economic objectives of the Company or any Subsidiaries; and (b)
4
those individuals employed by Vital Images as of the effective date
of the Spin-Off who held Options as of such date, whose Options will
continue thereafter according to the terms and conditions of the
Plan.
5.2. Incentive Stock Options. Incentive Stock Options may be granted only
to employees of the Employer or any Subsidiary of the Employer,
including officers and directors who are also employees of the
Employer or any Subsidiary of the Employer.
5.3. Non-Statutory Stock Options. Non-statutory stock options may be
granted to (i) any employee of the Employer or any Subsidiary of the
Employer, including any officer or director who is also an employee
of the Employer or any Subsidiary of the Employer; (ii) any non-
employee director of the Employer or any Subsidiary of the Employer;
and (iii) any consultant to, or other independent contractor of, the
Employer.
6. GRANT OF OPTIONS
Subject to the terms, conditions, and limitations set forth in this Plan,
the Company, by action of its Board, may from time to time grant Options to
purchase shares of the Company's Stock to those eligible Participants as
may be selected by the Board, in such amounts and on such other terms as
the Board in its sole discretion shall determine. Such Options may be (i)
"Incentive Stock Options" so designated by the Board and which, when
granted, are intended to qualify as incentive stock options as defined in
Section 422A of the Code; (ii) "Non-Statutory Stock Options" so designated
by the Board and which, when granted, do not qualify as incentive stock
options under Section 422A of the Code; or (iii) a combination of both. The
date on which the Board approves the granting of an Option shall be the
date of grant of such Option. Notwithstanding the foregoing, with respect
to the grant of any Incentive Stock Option under the Plan, the aggregate
fair market value of Stock (determined as of the date the Option is
granted) with respect to which such Options are exercisable for the first
time by an Optionee in any calendar year (under all such stock option plans
of the Company or Subsidiaries) shall not exceed $100,000. Each grant of an
Option under the Plan shall be evidenced by a written stock option
agreement between the Company and the Optionee setting forth the terms and
conditions, not inconsistent with the Plan, under which the Option so
granted may be exercised pursuant to the Plan and containing such other
terms with respect to the Option as the Board in its sole discretion may
determine.
7. OPTION PRICE AND FORM OF PAYMENT
The purchase price for a share of Stock subject to an Option granted
hereunder shall not be less than 100% of the fair market value of the
Stock. For purposes of this Section 7, the "fair market value" of the Stock
shall be determined as follows:
5
(a) if the Stock of the Company is listed or admitted to
unlisted trading privileges on a national securities
exchange, the fair market value on any given day
shall be the closing sale price for the Stock, or if
no sale is made on such day, the closing bid price
for such day on such exchange;
(b) if the Stock is not listed or admitted to unlisted trading
privileges on a national securities exchange, the fair market
value on any given day shall be the closing sale price for the
Stock as reported on the NASDAQ National Market System on such
day, or if no sale is made on such day, the closing bid price
for such day as entered by a market maker for the Stock;
(c) if the Stock is not listed on a national securities exchange, is
not admitted to unlisted trading privileges on any such
exchange, and is not eligible for inclusion in the NASDAQ
National Market System, the fair market value on any given day
shall be the closing price of the stock as reported by the
NASDAQ SmallCap Market, OTC Electronic Bulletin Board or the
National Quotation Bureau, Inc. or, if the Stock is so not
quoted, then the closing price or average of bid and asked
prices of the Stock as reported in any publicly available
compilation of prices of the Stock in any over-the-counter
market on which the Stock is traded; or
(d) if there exists no public trading market for the Stock, the fair
market value on any given day shall be an amount determined in
good faith by the Board in such manner as it may reasonably
determine in its discretion, provided that such amount shall not
be less than the book value per share, as reasonably determined
by the Board as of the date of determination, or less than the
par value of the Stock.
Notwithstanding the foregoing, in the case of an Incentive Stock Option
granted to any Optionee then owning more than 10% of the voting power of
all classes of the Company's stock, the purchase price per share of the
Stock subject to such Option shall not be less than 110% of the fair market
value of the Stock on the date of grant of the Incentive Stock Option,
determined as provided above.
Except as provided herein, the purchase price of each share of Stock
purchased upon the exercise of any Option shall be paid:
(a) in United States dollars in cash or by check, bank draft or
money order payable to the order of the Company; or
(b) at the discretion of the Board, through the delivery of shares
of Stock, having initially or as a result of successive
exchanges of shares, an aggregate fair market value (as
determined in the manner provided under this Plan) equal to the
Option price; or
6
(c) at the discretion of the Board, by a combination of both (a) and
(b) above; or
(d) by such other method as may be permitted in the written stock
option agreement between the Company and the Optionee.
If such form of payment is permitted, the Board shall determine procedures for
tendering Stock as payment upon exercise of an Option and may impose such
additional limitations and prohibitions on the use of Stock as payment upon the
exercise of an Option as it deems appropriate.
If the Board in its sole discretion so agrees, the Company may finance the
amount payable by an Optionee upon exercise of any Option upon such terms and
conditions as the Board may determine at the time such Option is granted under
this Plan, provided, however, that the amount financed shall not exceed the
"good faith loan value" (as that term is defined in Section 207.2(e) of
Regulation G of the Federal Reserve Board) of the shares of Stock to be acquired
upon exercise of an Option.
8. EXERCISE OF OPTIONS
8.1. Manner of Exercise. An Option, or any portion thereof, shall be
exercised by delivering a written notice of exercise to the Board and
paying to the Company the full purchase price of the Stock acquired
upon the exercise of the Option. Until certificates for the Stock
acquired upon the exercise of an Option are issued to an Optionee,
such Optionee shall not have any rights as a shareholder of the
Company.
8.2. The Limitations and Conditions on Exercise of Options. In addition to
any other limitations or conditions contained in this Plan or that
may be imposed by the Board from time to time or in the stock option
agreement to be entered into with respect to Options granted
hereunder, the following limitations and conditions shall apply to
the exercise of Options granted under this Plan:
(a) No Incentive Stock Option may be exercisable by its terms after
the expiration of 10 years from the date of the grant thereof.
(b) No Incentive Stock Option granted to an eligible Participant
then owning more than 10% of the voting power of all classes of
the Company's stock may be exercisable by its terms after the
expiration of five years from the date of the grant thereof.
9. INVESTMENT PURPOSES
Unless a registration statement under the Securities Act of 1933 is in
effect with respect to Stock to be purchased upon exercise of Options to be
granted under the Plan, the Company shall require that an Optionee agree
with and represent to the Company in writing that he or she is acquiring
such shares of Stock for the purpose of investment and with no present
intention to transfer, sell or otherwise dispose of such shares of Stock
7
other than by transfers which may occur by will or by the laws of descent
and distribution, and no shares of Stock may be transferred unless, in the
opinion of counsel to the Company, such transfer would be in compliance
with applicable securities laws. In addition, unless a registration
statement under the Securities Act of 1933 is in effect with respect to the
Stock to be purchased under the Plan, each certificate representing any
shares of Stock issued to an Optionee hereunder shall have endorsed thereon
a legend in substantially the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED WITHOUT
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") AND
WITHOUT REGISTRATION UNDER ANY APPLICABLE STATE SECURITIES LAWS, IN
RELIANCE UPON EXEMPTION(S) CONTAINED THEREIN. NO TRANSFER OF THESE SHARES
OR ANY INTEREST THEREIN MAY BE MADE EXCEPT PURSUANT TO EFFECTIVE
REGISTRATION STATEMENTS UNDER SAID LAWS UNLESS THE CORPORATION HAS RECEIVED
AN OPINION OF COUNSEL SATISFACTORY TO IT THAT SUCH TRANSFER OR DISPOSITION
DOES NOT REQUIRE REGISTRATION UNDER SAID LAWS AND, FOR ANY SALES UNDER RULE
144 OF THE ACT, SUCH EVIDENCE AS IT SHALL REQUEST FOR COMPLIANCE WITH THAT
RULE, OR APPLICABLE STATE SECURITIES LAWS."
10. TRANSFERABILITY OF OPTIONS
No Option granted under the Plan shall be transferable by an Option
(whether by sale, assignment, hypothecation or otherwise) other than by
will or the laws of descent and distribution, and Options shall be
exercisable during the Optionee's lifetime only by the Optionee.
11. TERMINATION OF EMPLOYMENT
11.1. Generally. The transfer by a Participant of employment or other
service from one Employer or its Subsidiaries to the other Employer
or its Subsidiaries will not be deemed to constitute a termination
of employment or other service for purposes of this Plan. Except as
otherwise provided in this Section 11, if an Optionee's employment
with the Employer and all of its Subsidiaries is terminated
(hereinafter "Termination") other than by death or Disability (as
hereinafter defined), the Optionee may exercise any Option granted
under the Plan, to the extent the Optionee was entitled to exercise
the Option at the date of Termination, for a period of 3 months
after the date of Termination or until the term of the Option has
expired, whichever date is earlier.
11.2. Death or Disability of Optionee. In the event of the death or
Disability of an Optionee prior to expiration of an Option held by
him or her, the following provisions shall apply:
8
(a) If the Optionee is at the time of his or her Disability employed
by the Employer or a Subsidiary of the Employer and has been in
continuous employment (as determined by (x) the Committee if the
Employer is the Company or a Subsidiary of the Company or (y)
the Vital Images Committee if the Employer is Vital Images or a
Subsidiary of Vital Images) since the date of grant of the
Option, then the Option may be exercised by the Optionee until
the earlier of one year following the date of such Disability or
the expiration date of the Option, but only to the extent the
Optionee was entitled to exercise such Option at the time of his
or her Disability. For the purpose of this Section, the term
"Disability" shall have the meaning given to it in Section 22(e)
(3) of the Code. The determination of whether an Optionee has a
Disability within the meaning of Section 22(e) (3) shall be made
by (x) the Board, in its sole discretion, if the Employer is the
Company or a Subsidiary of the Company or (y) the Vital Images
Committee, in its sole discretion, if the Employer is Vital
Images or a Subsidiary of Vital Images.
(b) If the Optionee is at the time of his or her death employed by
the Employer or a Subsidiary of the Employer and has been in
continuous employment (as determined by (x) the Committee if the
Employer is the Company or a Subsidiary of the Company or (y)
the Vital Images Committee if the Employer is Vital Images or a
Subsidiary of Vital Images) since the date of grant of the
Option, then the Option may be exercised by the Optionee's
estate or by a person who acquired the right to exercise the
Option by will or the laws of descent and distribution, until
the earlier of one year from the date of the Optionee's death or
the expiration date of the Option, but only to the extent the
Optionee was entitled to exercise the Option at the time of
death.
(c) If the Optionee dies within three months after Termination, the
Option may be exercised until the earlier of nine months
following the date of death or the expiration date of the
Option, by the Optionee's estate or by a person who acquires the
right to exercise the Option by will or the laws of descent or
distribution, but only to the extent the Optionee was entitled
to exercise the Option at the time of Termination.
11.3. Termination for Cause. If the employment of an is terminated by the
Employer or a Subsidiary of the Employer for cause (as determined by
(x) the Committee if the Employer is the Company or a Subsidiary of
the Company or (y) the Vital Images Committee if the Employer is
Vital Images or a Subsidiary of Vital Images), then the Board shall
have the right to cancel any Options granted to the Optionee under
the Plan.
9
12. AMENDMENT AND TERMINATION OF PLAN
12.1. The Board, without approval by the shareholders of the Company, may
at any time and from time to time suspend or terminate the Plan in
whole or in part or amend it from time to time in such respects as
may be in the best interests of the Company; provided, however, that
no such amendment shall be made without approval of the shareholders
if it would: (a) materially modify the eligibility requirements for
Participants; (b) increase the total number of shares of Stock which
may be issued pursuant to Options, except in accordance with Section
4.2 of the Plan; (c) reduce the minimum Option price per share as
set forth in Section 7 of the Plan, except in accordance with
Section 4.2 of the Plan; (d) extend the period of granting Options;
or (e) materially increase in any other way the benefits accruing to
Optionees.
12.2. No amendment, suspension or termination of this Plan shall, without
the Optionee's consent, alter or impair any of the rights or
obligations under any Option theretofore granted to the Optionee
under the Plan.
12.3. The Board may amend the Plan, subject to the limitations cited
above, in such manner as it deems necessary to permit the granting
of Incentive Stock Options meeting the requirements of future
amendments to the Code or regulations promulgated thereunder.
13. MISCELLANEOUS PROVISIONS
13.1. Right to Continued Employment. No person shall have any claim or
right to be granted an Option under the Plan, and the grant of an
Option under the Plan shall not be construed as giving an Optionee
the right to continued employment with the Employer or any
Subsidiary of the Employer. The Employer further expressly reserves
the right at any time to dismiss an Optionee or reduce an Optionee's
compensation with or without cause, free from any liability, or any
claim under the Plan, except as provided herein or in a stock option
agreement.
13.2. Withholding Taxes. The Employer shall have the right to require that
payment or provision for payment of any and all withholding taxes due
upon the grant or exercise of an Option hereunder or the disposition
of any Stock or other property acquired upon exercise of an Option be
made by an Optionee. In connection therewith, the Employer shall have
the right to establish such rules and regulations or impose such
terms and conditions in any agreement relating to an Option granted
hereunder with respect to such withholding as the Employer may deem
necessary and appropriate.
13.3. Governing Law. The Plan shall be administered in the State of
Minnesota, and the validity, construction, interpretation, and
administration of the Plan and all rights relating to the Plan shall
be determined solely in accordance with the laws of such state,
unless controlled by applicable federal law, if any.
10
14. EFFECTIVE DATE
The effective date of the Plan is November 13, 1987. No Option may be
granted after November 13, 1997, provided, however, that the Plan and all
outstanding Options shall remain in effect until such outstanding Options
have expired or been canceled.
11