WIZZARD SOFTWARE CORPORATION
STOCK OPTION PLAN
ARTICLE 1
GENERAL PROVISIONS
1.1. PURPOSE OF THE PLAN. This Stock Option Plan (the "Plan") is
intended to promote the interests of Wizzard Software Corporation, a Colorado
corporation, (the "Corporation") by providing eligible persons with the
opportunity to acquire or increase their proprietary interest in the
Corporation as compensation for services rendered and/or as an incentive for
them to remain in the Service of the Corporation. Capitalized terms shall
have the meanings assigned to such terms in the attached Appendix.
1.2. ADMINISTRATION OF THE PLAN.
a. Prior to the Section 12(g) Registration Date (if applicable), the
Plan shall be administered by the Board or a committee of the Board.
b. Beginning with the Section 12(g) Registration Date, the Primary
Committee shall have sole and exclusive authority to administer the Plan with
respect to Section 16 Insiders. Administration of the Plan with respect to all
other persons eligible under the Plan may, at the Board's discretion, be
vested in the Primary Committee or a Secondary Committee, or the Board may
retain the power to administer the Plan with respect to all such persons.
c. Members of the Primary Committee or any Secondary Committee shall
serve for such period of time as the Board may determine and may be removed by
the Board at any time. The Board may also terminate the functions of any
Secondary Committee at any time and reassume all powers and authority
previously delegated to such committee.
d. Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority to
establish such rules and regulations as it may deem appropriate for proper
administration of the Plan and to make such determinations under, and issue
such interpretations of, the provisions of the Plan and any outstanding
options thereunder as it may deem necessary or advisable. Decisions of the
Plan Administrator within the scope of its administrative functions under the
Plan shall be final and binding on all parties who have an interest in the
Plan under its jurisdiction or any option thereunder.
e. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary
Committee or the Secondary Committee shall be liable for any act or omission
made in good faith with respect to the Plan or any option grants under the
Plan.
f. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority (subject to
the provisions of the Plan) to determine which eligible persons are to receive
option grants, the time or times when such option grants are to be made, the
number of shares to be covered by each such grant, the status of the granted
option as either an Incentive Option or a Non-Statutory Option, the time or
times at which each option is to become exercisable, the vesting schedule (if
any) applicable to the option shares, the acceleration of such vesting
schedule, the maximum term for which the option is to remain outstanding,
whether the option shares shall be subject to rights of repurchase and/or
rights of first refusal, and all other terms and conditions of the option
grants.
1.3. ELIGIBILITY. The following persons shall be eligible to participate
in the Plan:
a. Employees, as to both Incentive and/or Non-Statutory Options,
b. non-employee members of the Board or the board of directors of
any Parent or Subsidiary as to Non-Statutory Options, and
c. consultants and other independent advisors who provide Services
to the Corporation or any Parent or Subsidiary, as to Non-Statutory Options.
1.4. STOCK SUBJECT TO THE PLAN.
a. The stock issuable under the Plan shall be shares of authorized
but unissued Common Stock, including shares repurchased by the Corporation on
the open market. The maximum number of shares of Common Stock which may be
issued over the term of the Plan shall not exceed one million (1,000,000)
shares, which number of shares may be changed from time to time in accordance
with Section 3.4 below.
b. Shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent the options
expire or terminate for any reason prior to exercise in full. However, should
the Exercise Price be paid with shares of Common Stock or should shares of
Common Stock otherwise issuable under the Plan be withheld by the Corporation
in satisfaction of the withholding taxes incurred in connection with the
exercise of an option under the Plan, then the number of shares of Common
Stock available for issuance under the Plan shall be reduced by the gross
number of shares for which the option is exercised, and not by the net number
of shares of Common Stock issued to the holder of such option.
c. Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and/or class of securities issuable
under the Plan, (ii) the number and/or class of securities for which any one
person may be granted options per calendar year, and (iii) the number and/or
class of securities and the Exercise Price in effect under each outstanding
option in order to prevent the dilution or enlargement of benefits thereunder.
The adjustments determined by the Plan Administrator shall be final, binding,
and conclusive.
ARTICLE 2.
OPTION GRANT PROGRAM
2.l. OPTION TERMS. Each option shall be evidenced by one or more
documents in the form approved by the Plan Administrator; provided, however,
that each such document shall comply with the terms specified below. Each
document evidencing an Incentive Option shall, in addition, be subject to the
provisions of Section 2.2 of the Plan, below.
a. Exercise Price.
(1) The Exercise Price shall be fixed by the Plan Administrator
but shall not be less than one hundred percent (100%) of the Fair Market Value
per share of Common Stock on the Grant Date.
(2) The Exercise Price shall become immediately due upon
exercise of the option and shall, subject to the provisions of Article 3. 1,
and the documents evidencing the option, be payable in one or more of the
forms specified below: (a) cash or check made payable to the Corporation,
(b) shares of Common Stock held for the requisite period necessary to avoid a
charge to the Corporation's earnings for financial reporting purposes and
valued at Fair Market Value on the Exercise Date, (c) services valued at the
Fair Market Vale on the Exercise Date, or (d) to the extent the option is
exercised for vested shares, through a special sale and remittance procedure
pursuant to which the Optionee shall concurrently provide irrevocable written
instructions to (a) a Corporation designated brokerage firm to effect the
immediate sale of the Purchased Shares and remit to the Corporation, out of
the sale proceeds available on the settlement date, sufficient funds to cover
the aggregate Exercise Price payable for the Purchased Shares plus all
applicable federal, state and local income and employment taxes required to be
withheld by the Corporation by reason of such exercise and (b) the Corporation
to deliver the certificates for the Purchased Shares directly to such
brokerage firm in order to complete the sale. Except to the extent the sale
and remittance procedure is utilized, payment of the Exercise Price for the
Purchased Shares must be made on the Exercise Date.
b. Exercise and Term of Options. Each option shall be exercisable at
such time or times, during such period and for such number of shares as shall
be determined by the Plan Administrator and set forth in the documents
evidencing the option. However, no option shall have a term in excess of ten
(10) years measured from the Grant Date.
c. Effect of Termination of Service.
(1) The following provisions shall govern the exercise of any
options held by the Optionee at the time of cessation of Service:
(a) Any option outstanding at the time of the Optionee's
cessation of Service for any reason except death, Permanent Disability or
Misconduct shall remain exercisable for a three (3) month period thereafter,
provided no option shall be exercisable after the Expiration Date.
(b) Any option outstanding at the time of the Optionee's
cessation of Service due to death or Permanent Disability shall remain
exercisable for a twelve (12) month period thereafter, provided no option
shall be exercisable after the Expiration Date. Subject to the foregoing, any
option exercisable in whole or in part by the Optionee at the time of death
may be exercised subsequently by the personal representative of the Optionee's
estate or by the person or persons to whom the option is transferred pursuant
to the Optionee's will or in accordance with the laws of descent and
distribution.
(c) Should the Optionee's Service be terminated for
Misconduct, then all outstanding options held by the Optionee shall terminate
immediately and cease to be outstanding.
(d) During the applicable post-Service exercise period,
the option may not be exercised in the aggregate for more than the number of
shares for which the option is exercisable on the date of the Optionee's
cessation of Service; the option shall, immediately upon the Optionee's
cessation of Service, terminate and cease to be outstanding to the extent the
option is not otherwise at that time exercisable. Upon the expiration of the
applicable exercise period or (if earlier) upon the Expiration Date, the
option shall terminate and cease to be outstanding for any shares for which
the option has not been exercised.
(2) The Plan Administrator shall have the discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to: (a) extend the period of time for which the
option is to remain exercisable following the Optionee's cessation of Service
from the period otherwise in effect for that option to such greater period of
time as the Plan Administrator shall deem appropriate, but in no event beyond
the Expiration Date, and/or (b) permit the option to be exercised, during the
applicable post-Service exercise period, not only with respect to the number
of shares of Common Stock for which such option is exercisable at the time of
the Optionee's cessation of Service but also with respect to one or more
additional shares that would have vested under the option had the Optionee
continued in Service.
d. Stockholder Rights. The holder of an option shall have no
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the Exercise Price, and become a
holder of record of the Purchased Shares.
e. Limited Transferability of Options. During the lifetime of the
Optionee, Incentive Options may be exercised only by the Optionee, and shall
not be assignable or transferable except by will or the laws of descent and
distribution following the Optionee's death. Non-Statutory Options may be
assigned or transferred in whole or in part only (i) during the Optionee's
lifetime if in connection with the Optionee's estate plan to one or more
members of the Optionee's immediate family (spouse and children) or to a trust
established exclusively for the benefit of one or more such immediate family
members, or (ii) by will or the laws of descent and distribution following the
Optionee's death. The assigned portion may only be exercised by the person or
persons who acquire a proprietary interest in the option pursuant to the
assignment. The terms applicable to the assigned portion shall be the same as
those in effect for the option immediately prior to such assignment and shall
be set forth in such documents issued to the assignee as the Plan
Administrator may deem appropriate.
2.2. INCENTIVE OPTIONS. The terms specified below shall apply to all
Incentive Options. Except as modified by the provisions of this Section 2.2,
all the provisions of this Plan shall apply to Incentive Options. Options
specifically designated as Non-Statutory Options when issued under the Plan
shall NOT be subject to the terms of this Section 2.2.
a. Eligibility. Incentive Options may only be granted to Employees.
b. Exercise Price. The Exercise Price shall not be less than one
hundred percent (100%) of the Fair Market Value per share of Common Stock on
the Grant Date.
c. Dollar Limitation. The aggregate Fair Market Value of the shares
of Common Stock (determined as of the respective date or dates of grant) for
which one or more options granted to any Employee under the Plan (or any other
option plan of the Corporation or any Parent or Subsidiary) may for the first
time become exercisable as Incentive Options during any one (1) calendar year
shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the
extent the Employee holds two (2) or more such options which become
exercisable for the first time in the same calendar year, the foregoing
limitation on the exercisability of such options as Incentive Options shall be
applied in the order in which such options are granted.
d. 10% Stockholder. If an Employee to whom an Incentive Option is
granted is a 10% Stockholder, then the Exercise Price shall not be less than
one hundred ten percent (110%) of the Fair Market Value per share of Common
Stock on the Grant Date, and the option term shall not exceed five (5) years
measured from the Grant Date.
e. Holding Period. Shares purchased pursuant to an option shall
cease to qualify for favorable tax treatment as Incentive Option Shares if and
to the extent Optionee disposes of such shares within two (2) years of the
Grant Date or within one (1) year of Optionee's purchase of said shares.
2.3. CORPORATE TRANSACTION/CHANGE IN CONTROL.
a. In the event of any Corporate Transaction, the Board of Directors
shall have the sole discretion to elect that each outstanding option shall
automatically accelerate so that each such option shall, immediately prior to
the effective date of the Corporate Transaction, become fully exercisable for
all of the shares of Common Stock at the time subject to such option and may
be exercised for any or all of those shares as fully-vested shares of Common
Stock. The Board may exercise its discretion to accelerate the vesting of
options whether or not (i) such option is, in connection with the Corporate
Transaction, either to be assumed by the successor corporation or Parent
thereof or to be replaced with a comparable option to purchase shares of the
capital stock of the successor corporation or Parent thereof, (ii) such option
is to be replaced with a cash incentive program of the successor corporation
which preserves the spread existing on the unvested option shares at the time
of the Corporate Transaction and provides for subsequent payout in accordance
with the same vesting schedule applicable to such option, except to the extent
that the acceleration of such option is subject to other limitations imposed
by the Plan Administrator at the time of the option grant. The determination
of option comparability under clause (i) above shall be made by the Plan
Administrator, whose determination shall be final, binding and conclusive.
b. In the event of any Corporate Transaction, the Board of Directors
shall have sole discretion to elect that all outstanding repurchase rights may
also be terminated automatically whether or not those repurchase rights are to
be assigned to the successor corporation (or Parent thereof) in connection
with such Corporate Transaction.
c. The Plan Administrator's discretion under Sections 2.3.a. and b.
above shall be exercisable either at the time the option is granted or at any
time while the option remains outstanding, whether or not those options are to
be assumed or replaced (or those repurchase rights are to be assigned) in the
Corporate Transaction. The Plan Administrator shall also have the discretion
to grant options which do not accelerate whether or not such options are
assumed (and to provide for repurchase rights that do not terminate whether or
not such rights are assigned) in connection with a Corporate Transaction.
d. If the Board of Directors elects the automatic acceleration of
some or all of the outstanding options upon the occurrence of a Corporate
Transaction, all such outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof) immediately following the consummation of the Corporate
Transaction.
e. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities that would have
been issuable to the Optionee in consummation of such Corporate Transaction
had the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (i) the number and class of
securities available for issuance under the Plan following the consummation of
such Corporate Transaction, (ii) the exercise price payable per share under
each outstanding option, provided the aggregate exercise price payable for
such securities shall remain the same and (iii) the maximum number of
securities and/or class of securities for which any one person may be granted
stock options.
f. The Plan Administrator shall have the discretion, exercisable at
the time the option is granted or at any time while the option remains
outstanding, to provide for the automatic acceleration of any options assumed
or replaced in a Corporate Transaction that do not otherwise accelerate at
that time (and the termination of any of the Corporation's outstanding
repurchase rights that do not otherwise terminate at the time of the Corporate
Transaction) in the event the Optionee's Service should subsequently terminate
by reason of an Involuntary Termination within eighteen (18) months following
the effective date of such Corporate Transaction. Any options so accelerated
shall remain exercisable for shares until the earlier of (i) the expiration of
the option term or (ii) the expiration of the one (l)-year period measured
from the effective date of the Involuntary Termination.
g. The Plan Administrator shall have the discretion, exercisable
either at the time the option is granted or at any time while the option
remains outstanding, to (i) provide for the automatic acceleration of one or
more outstanding options (and the automatic termination of one or more
outstanding repurchase rights) upon the occurrence of a Change in Control or
(ii) condition any such option acceleration (and the termination of any
outstanding repurchase rights) upon the subsequent Involuntary Termination of
the Optionee's Service within a specified period (not to exceed eighteen (18)
months) following the effective date of such Change in Control. Any options
accelerated in connection with a Change in Control shall remain fully
exercisable until the expiration or sooner termination of the option term.
h. The portion of any Incentive Option accelerated in connection
with a Corporate Transaction or Change in Control shall remain exercisable as
an Incentive Option only to the extent the applicable One Hundred Thousand
Dollar ($100,000) limitation is not exceeded. To the extent such dollar
limitation is exceeded, the accelerated portion of such option shall be
exercisable as a Non-Statutory Option under the federal tax laws.
i. The grant of options under the Plan shall in no way affect the
right of the Corporation to adjust, reclassify, reorganize or otherwise change
its capital or business structure or to merge, consolidate, dissolve,
liquidate or sell or transfer all or any part of its business or assets.
ARTICLE 3.
MISCELLANEOUS
3.1. FINANCING.
a. The Plan Administrator may permit any Optionee to pay the option
Exercise Price by delivering a promissory note payable in one or more
installments. The terms of any such promissory note (including the interest
rate and the terms of repayment) shall be established by the Plan
Administrator in its sole discretion. Promissory notes may be authorized with
or without security or collateral. In all events, the maximum credit available
to the Optionee may not exceed the sum of (i) the aggregate option Exercise
Price payable for the Purchased Shares plus (ii) the amount of any federal,
state and local income and employment tax liability incurred by the Optionee
in connection with the option exercise.
b. The Plan Administrator may, in its discretion, determine that one
or more such promissory notes shall be subject to forgiveness by the
Corporation in whole or in part upon such terms as the Plan Administrator may
deem appropriate.
3.2. TAX WITHHOLDING.
a. The Corporation's obligation to deliver shares of Common Stock
upon the exercise of options under the Plan shall be subject to the
satisfaction of all applicable federal, state and local income and employment
tax withholding requirements.
b. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options under the Plan with the right to use shares
of Common Stock in satisfaction of all or part of the Taxes incurred by such
holders in connection with the exercise of their options. Such right may be
provided to any such holder in either or both of the following formats:
(1) Stock Withholding: The election to have the Corporation
withhold, from the shares of Common Stock otherwise issuable upon the
exercise of such Non- Statutory Option, a portion of those shares with an
aggregate Fair Market Value equal to the percentage of the Taxes (not to
exceed one hundred percent (100%)) designated by the holder.
(2) Stock Delivery: The election to deliver to the
Corporation, at the time the Non-Statutory Option is exercised, one or more
shares of Common Stock previously acquired by such holder (other than in
connection with the option exercise triggering the Taxes) with an aggregate
Fair Market Value equal to the percentage of the Taxes (not to exceed one
hundred percent (100%)) designated by the holder.
3.3. EFFECTIVE DATE AND TERM OF THE PLAN.
a. The Plan shall become effective on the Plan Effective Date.
However, no shares shall be issued under the Plan pursuant to Incentive
Options until the Plan is approved by the Corporation's stockholders. If such
stockholder approval is not obtained within twelve (12) months after the Plan
Effective Date, then all Incentive Options previously granted under this Plan
shall automatically convert into Non-Statutory Options.
b. The Plan shall terminate upon the earliest of (i) December 31,
2007, (ii) the date on which all shares available for issuance under the Plan
shall have been issued, or (iii) the termination of all outstanding options in
connection with a Corporate Transaction. Upon such Plan termination, all
outstanding options shall continue to have force and effect in accordance with
the provisions of the documents evidencing such options.
3.4. AMENDMENT OF THE PLAN.
a. The Board shall have complete and exclusive power and authority
to amend or modify the Plan in any or all respects. However, no such amendment
or modification shall adversely affect any rights and obligations with respect
to options at the time outstanding under the Plan unless each affected
Optionee consents to such amendment or modification. In addition, amendments
to the Plan shall be subject to approval of the Corporation's stockholders to
the extent required by applicable laws or regulations.
b. Options to purchase shares of Common Stock may be granted under
the Plan that are in each instance in excess of the number of shares then
available for issuance under the Plan, provided any excess shares actually
issued are held in escrow until there is obtained Board approval (and
shareholder approval if required by applicable laws or regulations) of an
amendment sufficiently increasing the number of shares of Common Stock
available for issuance under the Plan.
3.5. USE OF PROCEEDS. Any cash proceeds received by the Corporation from
the sale of shares of Common Stock under the Plan shall be used for general
corporate purposes.
3.6. REGULATORY APPROVALS.
a. The implementation of the Plan, the granting of any option under
the Plan, and the issuance of any shares of Common Stock upon the exercise of
any option shall be subject to the Corporation's obtaining all approvals and
permits required by regulatory authorities having jurisdiction over the Plan
and the options granted under it, and the shares of Common Stock issued
pursuant to the Plan.
b. No shares of Common Stock shall be issued or delivered under the
Plan unless and until there shall have been compliance with all applicable
requirements of federal and state securities laws and all applicable listing
requirements of any stock exchange (or the Nasdaq market, if applicable) on
which Common Stock is then listed for trading.
3.7. NO EMPLOYMENT/SERVICE RIGHTS. Nothing in the Plan shall confer upon
the Optionee any right to continue in Service for any period of specific
duration or interfere with or otherwise restrict in any way the rights of the
Corporation (or any Parent or Subsidiary employing or retaining such person)
or of the Optionee, which rights are hereby expressly reserved by each, to
terminate such person's Service at any time for any reason, with or without
cause.
IN WITNESS WHEREOF the Corporation has executed this Plan effective as of
the Effective Date.
Wizzard Software Corporation
By: /s/ Christopher J. Spencer, President
APPENDIX
The following definitions shall be in effect under the Plan and the Plan
Documents:
1. Board shall mean the Corporation's Board of Directors.
2. Change in Control shall mean a change in ownership or control of the
Corporation effected through either of the following transactions:
a. the acquisition, directly or indirectly, by any person or related
group of persons (other than the Corporation or a person that directly or
indirectly controls, is controlled by, or is under common control with, the
Corporation), of beneficial ownership (within the meaning of Rule 13d-3 of the
1934 Act) of securities possessing more than fifty percent (50%) of the total
combined voting power of the Corporation's outstanding securities pursuant to
a tender or exchange offer made directly to the Corporation's stockholders,
which the Board does not recommend such stockholders to accept, or
b. a change in the composition of the Board over a period of thirty-six
(36) consecutive months or less such that a majority of the Board members
ceases, by reason of one or more contested elections for Board membership, to
be comprised of individuals who either (i) have been Board members
continuously since the beginning of such period or (ii) have been elected or
nominated for election as Board members during such period by at least a
majority of the Board members described in clause (i) who were still in office
at the time the Board approved such election or nomination.
3. Code shall mean the Internal Revenue Code of 1986, as amended.
4. Common Stock shall mean the Corporation's common stock.
5. Corporate Transaction shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
a. a merger or consolidation in which securities possessing more than
fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities are transferred to a person or persons different from
the persons holding those securities immediately prior to such transaction; or
b. the sale, transfer or other disposition of all or substantially all of
the Corporation's assets in complete liquidation or dissolution of the
Corporation.
6. Eligible Director shall mean a non-employee Board member eligible to
participate in the Plan.
7. Employee shall mean an individual who is in the employ of the Corporation
(or any Parent or Subsidiary), subject to the control and direction of the
employer entity as to both the work to be performed and the manner and method
of performance, and shall include any individual consultant engaged by the
Corporation, regardless of his or her independence of Service.
8. Exercise Date shall mean the date on which the Corporation shall have
received written notice of the option exercise.
9. Exercise Price shall mean the exercise price per share as specified in the
Stock Option Grant.
10. Expiration Date shall mean the date on which the option expires as
specified in the Stock Option Grant.
11. Fair Market Value per share of Common Stock on any relevant date shall be
determined in accordance with the following provisions:
a. If the Common Stock is traded at the time on the Nasdaq National
Market, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question, as such price is reported by
the National Association of Securities Dealers on the Nasdaq National Market
or any successor system. If there is no closing selling price for the Common
Stock on the date in question, then the Fair Market Value shall be the closing
selling price on the last preceding date for which such quotation exists.
b. If the Common Stock is at the time listed on any Stock Exchange, then
the Fair Market Value shall be the closing selling price per share of Common
Stock on the date in question on the Stock Exchange determined by the Plan
Administrator to be the primary market for the Common Stock, as such price is
officially quoted in the composite tape of transactions on such exchange. If
there is no closing selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing selling price on the
last preceding date for which such quotation exists.
c. If the Common Stock is not listed on any Stock Exchange nor traded on
the Nasdaq National Market, then the Fair Market Value shall be determined by
the Plan Administrator after taking into account such factors as the Plan
Administrator shall deem appropriate.
d. In all instances the determination of Fair Market Value shall be made
in accordance with Regulation Sections 1.421-7(e)(2) and 20.2031-2(f)(2) as
promulgated under Sections 421 and 2031 of the Code, as then in effect.
12. Grant Date shall mean the date on which the option is granted to Optionee
as specified in the Stock Option Grant.
13. Incentive Option shall mean an option which satisfies the requirements of
Code Section 422.
14. Involuntary Termination shall mean the termination of the Service of any
individual which occurs by reason of:
a. such individual's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
b. such individual's voluntary resignation following (i) a change in his
or her position with the Corporation which materially reduces his or her level
of responsibility, (ii) a reduction in his or her level of compensation
(including base salary, fringe benefits and participation in
corporate-performance based bonus or incentive programs) by more than fifteen
percent (15 %) or (iii) a relocation of such individual's place of employment
by more than fifty (50) miles, provided and only if such change, reduction or
relocation is effected by the Corporation without the individual's consent.
15. Misconduct shall mean the commission of any act of fraud, embezzlement or
dishonesty by the Optionee, any unauthorized use or disclosure by such person
of confidential information or trade secrets of the Corporation (or any Parent
or Subsidiary), or any other intentional misconduct by such person adversely
affecting the business or affairs of the Corporation (or any Parent or
Subsidiary) in a material manner. The foregoing definition shall not be deemed
to be inclusive of all the acts or omissions which the Corporation (or any
Parent or Subsidiary) may consider as grounds for the dismissal or discharge
of any Optionee or other person in the Service of the Corporation (or any
Parent or Subsidiary).
16. 1933 Act shall mean the Securities Act of 1933, as amended.
17. 1934 Act shall mean the Securities Exchange Act of 1934, as amended.
18. Non-Statutory Option shall mean an option not intended to satisfy the
requirements of Code Section 422.
19. Optionee shall mean any person to whom an option is granted under Plan.
20. Option Shares shall mean the number of shares of Common Stock subject to
the option as specified in the Stock Option Grant.
21. Owner shall mean Optionee and all subsequent holders of the Purchased
Shares who derive their chain of ownership through a Permitted Transfer from
Optionee.
22. Parent shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one or the other
corporations in such chain.
23. Permanent Disability or Permanently Disabled shall mean the inability of
the Optionee to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment expected to result in
death or to be of continuous duration of twelve (12) months or more.
24. Permitted Transfer shall mean (i) a gratuitous transfer of the Purchased
Shares, provided and only if Optionee obtains the Corporation's prior written
consent to such transfer, (ii) a transfer of title to the Purchased Shares
effected pursuant to Optionee's will or the laws of intestate succession
following Optionee's death, or (iii) a transfer to the Corporation in pledge
as security for any purchase-money indebtedness incurred by Optionee in
connection with the acquisition of the Purchased Shares.
25. Plan Administrator shall mean the particular entity, whether the Board or
a committee of the Board, which is authorized to administer the Plan with
respect to one or more classes of eligible persons, to the extent such entity
is carrying out its administrative functions under the Plan with respect to
the persons under its jurisdiction.
26. Plan Documents shall mean the Plan, the Stock Option Grant, and Stock
Option Exercise Notice and Purchase Agreement, collectively.
27. Plan Effective Date shall mean November 14, 2002, the date as of which the
Plan was adopted by the Board.
28. Primary Committee shall mean the committee of two (2) or more non-employee
Board members (as defined in the regulations to Section 16 of the 1934 Act)
appointed by the Board to administer the Plan with respect to Section 16
Insiders.
29. Purchased Shares shall mean the shares purchased upon exercise of the
Option.
30. Recapitalization shall mean any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares or other charge
affecting the Corporation's outstanding Common Stock as a class without the
Corporation's receipt of consideration.
31. Reorganization shall mean any of the following transactions:
a. a merger or consolidation in which the Corporation is not the
surviving entity;
b. a sale, transfer, or other disposition of all or substantially all of
the Corporation's assets;
c. a reverse merger in which the Corporation is the surviving entity but
in which the Corporation's outstanding voting securities are transferred in
whole or in part to a person or persons different from the persons holding
those securities immediately prior to the merger; or
d. any transaction effected primarily to change the state in which the
Corporation is incorporated or to create a holding company structure.
32. SEC shall mean the Securities Exchange Commission.
33. Secondary Committee shall mean a committee of two (2) or more Board
members appointed by the Board to administer the Plan with respect to eligible
persons other than Section 16 Insiders.
34. Section 12(g) Registration Date shall mean the date on which the Common
Stock is first registered under Section 12(g) of the 1934 Act.
35. Section 16 Insider shall mean an officer or director of the Corporation
subject to the short-swing profit liabilities of Section 16 of the 1934 Act.
36. Service shall mean the performance of services to the Corporation (or any
Parent or Subsidiary) by a person in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant.
37. Stock Exchange shall mean either the American Stock Exchange, the New York
Stock Exchange, or another regional stock exchange.
38. Stock Option Exercise Notice and Purchase Agreement shall mean the
agreement of said title in substantially the form of Exhibit A to the Stock
Option Grant, pursuant to which Optionee gives notice of his intent to
exercise the option and purchase Shares.
39. Stock Option Grant shall mean the Stock Option Grant document, pursuant to
which Optionee has been informed of the basic terms of the option granted
under the Plan.
40. Subsidiary shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at
the time of the determination, stock possessing fifty percent (50%) or more of
the total combined voting power of all classes of stock in one of the other
corporations in such chain.
41. Taxes shall mean the Federal, state and local income and employment tax
liabilities incurred by the holder of Non-Statutory Options in connection with
the exercise of those options.
42. 10% Stockholder shall mean the owner of stock (as determined under Code
Section 424(d)) possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Corporation (or any Parent or
Subsidiary).
Grant No. _________
WIZZARD SOFTWARE CORPORATION STOCK OPTION GRANT
Optionee: __________________________________________________________
Address: ___________________________________________________________
Grant Date: ________________________________________________________
Exercise Price: $__________ per share
Number of Option Shares: __________ shares
Expiration Date: _____________________________________________________
Type of Option: _____ Incentive Option _____ Non-Statutory Option
This Stock Option Grant is made, as of the Grant Date set forth above, by and
between Wizzard Software Corporation, a Colorado corporation (the
"Corporation") and the Optionee named above. This Stock Option Grant includes
the terms of the Stock Option Exercise Notice and Purchase Agreement attached
hereto as Exhibit A, and is subject to the terms of the Corporation's Stock
Option Plan (the "Plan"), a copy of which is attached hereto as Exhibit B. All
capitalized terms not defined herein shall have the meaning set forth in the
Appendix to the Plan.
1. Grant of Option. The Corporation hereby grants to Optionee named
above, as of the Grant Date, an option to purchase up to the total number of
Option Shares specified above. The Option Shares shall be purchasable from
time to time during the option term specified in paragraph 2 below at the
Exercise Price.
2. Option Term. The option term shall be measured from the Grant Date and
shall accordingly expire at the close of business on the Expiration Date
specified above, unless sooner terminated in accordance with paragraph 5
below.
3. Limited Transferability. This option shall be neither transferable nor
assignable, in whole or in part, by Optionee other than by will or by the laws
of descent and distribution following Optionee's death and may be exercised,
during Optionee's lifetime, only by Optionee. However, if this option is
designated a Non-Statutory Option above, then this option may also, in
connection with Optionee's estate plan, be assigned in whole or in part during
Optionee's lifetime to one or more members of Optionee's immediate family
(spouse or children) or to a trust established exclusively for the benefit of
one or more such immediate family members. Optionee shall give written notice
of any such assignment during Optionee's lifetime to the Corporation within 20
days of assignment. The assigned portion may only be exercised by the person
or persons who acquire a proprietary interest in the option pursuant to the
assignment. The terms applicable to the assigned portion shall be the same as
those in effect for this option immediately prior to such assignment and shall
be set forth in such documents issued to the assignee as the Plan
Administrator may deem appropriate.
4. Exercisability. This option shall become vested or exercisable for the
Option Shares in installments as provided in the Exercise Schedule below:
[EXERCISE SCHEDULE] For purposes of calculating the number of months
since grant only full complete calendar months from the first of said month
until the end of said month will be counted. For example, if the grant was
issued on June 18th, the remaining days in the month of June would be
disregarded and a full calendar month would not accrue until July 31st. If the
grant was issued on June 1st a full calendar month would accrue on June 30th.
If the Optionee is terminated by the actions of the Corporation, except for
Misconduct, at any time before he has obtained an accumulated exercisable
percentage of 100% then, upon such termination, he shall be deemed to have
obtained the next exercisable percentage upon such termination. For example,
if the Optionee has worked twenty-two months after the grant of option and the
Optionee is then terminated by the Corporation without cause, the Optionee,
upon such termination, will obtain an additional fifteen percent (15 %) of
exercisable percent as if he had worked twenty-seven (27) months after the
grant of the Option. As the option becomes exercisable or vested for such
installments, those installments shall accumulate and the option shall remain
exercisable for the accumulated installments until the Expiration Date or
sooner termination of the option term under paragraph 5 below. The exercisable
installments may be exercised in whole or in part, but only as to whole
shares.
5. Cessation of Service. The option term specified in paragraph 2 above
shall terminate, and this option shall cease to be outstanding prior to the
Expiration Date, upon Optionee's ceasing to be in the Service of the
Corporation. In such event, the following provisions shall apply:
a. Should Optionee cease to remain in Service for any reason (other
than death, Permanent Disability or Misconduct) while this option is
outstanding, then Optionee shall have a period of three (3) months (commencing
with the date of such cessation of Service) during which to exercise this
option as to vested Option Shares.
b. Should Optionee die while this option is outstanding, then
personal representative of Optionee's estate (or the person or persons to whom
the option is transferred pursuant to Optionee's will or in accordance with
the laws of descent and distribution) shall have a period of twelve (12)
months (commencing with the date of such cessation of service) during which to
exercise this option as to vested Option Shares.
c. Should Optionee cease Service by reason of Permanent Disability
while this option is outstanding, then Optionee shall have a period of twelve
(12) months (commencing with the date of such cessation of Service) during
which to exercise this option as to vested Option Shares.
d. Should Optionee's Service be terminated for Misconduct, then this
option shall terminate immediately and cease to remain outstanding.
e. During the limited post-Service exercise period, this option may
not be exercised in the aggregate for more than the number of vested Option
Shares for which the option is exercisable on the date of the Optionee's
cessation of Service. Upon the expiration of such limited post-Service
exercise period or upon the Expiration Date (if earlier), this option shall
terminate and cease to be outstanding for any vested Option Shares for which
the option has not been exercised. In no event shall this option be
exercisable at any time after the Expiration Date. To the extent this option
is not otherwise exercisable for vested Option Shares at the time of
Optionee's cessation of Service, this option shall immediately terminate and
cease to be outstanding with respect to those shares.
6. Adjustment in Option Shares. Should any change be made to the Common
Stock by reason of any split, stock dividend, recapitalization, combination of
shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without the Corporation's receipt of consideration,
appropriate adjustments shall be made to (i) the total number and/or class of
securities subject to this option, and (ii) the Exercise Price, in order to
reflect such change and thereby preclude a dilution or enlargement of benefits
hereunder.
7. Stockholder Rights. The holder of this option shall not have any
stockholder rights with respect to the Option Shares until such person shall
have exercised the option, paid the Exercise Price, and become a holder of
record of the Purchased Shares.
8. Manner of Exercising Options
a. In order to exercise this option with respect to all or any part
of the Option Shares for which this option is at the time exercisable,
Optionee (or any other person or persons exercising this option) must take the
following actions: (1) Execute and deliver to the Corporation a Stock Option
Exercise Notice and Purchase Agreement (Exhibit A) for the Option Shares for
which the option is exercised. (2) Pay the aggregate Exercise Price for the
Purchased Shares in one or more of the following forms:
(a) Cash or check made payable to the Corporation; or
(b) A promissory note payable to the Corporation, but only to the
extent authorized by the Plan Administrator in accordance with paragraph 13.
Upon prior written approval of the Plan Administrator, the Exercise Price may
also be paid as follows:
(c) In shares of Common Stock held by Optionee (or any other person
or persons exercising the option) for the requisite period necessary to avoid
a charge to the Corporation's earnings for financial reporting purposes and
valued at Fair Market Value on the Exercise Date; or
(d) Through a special sale and remittance procedure pursuant to
which Optionee (or any other person or persons exercising the option) shall
concurrently provide irrevocable written instructions (1) to a Corporation-
designated brokerage firm to effect the immediate sale of the Purchased
Shares and remit to the Corporation, out of the sale proceeds available on
the settlement date, sufficient funds to cover the aggregate Exercise Price
payable for the Purchased Shares plus all applicable federal, state and local
income and employment taxes required to be withheld by the Corporation by
reason of such exercise and (2) to the Corporation to deliver the certificates
for the Purchased Shares directly to such brokerage firm in order to complete
the sale. Except to the extent the sale and remittance procedure is utilized
in connection with the option exercise, payment of the Exercise Price must
accompany the Stock Option. Exercise Notice and Purchase Agreement delivered
to the Corporation in connection with the option exercise. (3) Furnish to the
Corporation appropriate documentation that the person or persons exercising
the option (if other than Optionee) have the right to exercise this option.
(4) Execute and deliver to the Corporation such written representations as may
be requested by the Corporation in order for it to comply with the applicable
requirements of federal and state securities laws. (5) Make appropriate
arrangements with the Corporation (or Parent or Subsidiary employing or
retaining Optionee) for the satisfaction of all federal, state and local
income and employment tax withholding requirements applicable to the option
exercise.
b. As soon as practical after the Exercise Date, the Corporation
shall issue to, or, on behalf of Optionee (or any other person or persons
exercising this option), a share certificate for the Purchased Shares, with
the appropriate legends affixed thereto.
c. In no event may this option be exercised for any fractional
shares.
9. Compliance with Laws and Regulations
a. The exercise of this option and the issuance of the Option Shares
upon such exercise shall be subject to compliance by the Corporation and
Optionee with all applicable requirements of law relating thereto and with all
applicable regulations of any stock exchange (or Nasdaq, if applicable) on
which the Common Stock may be listed for trading at the time of such exercise
and issuance.
b. The inability of the Corporation to obtain approval from any
regulatory body having authority deemed by the Corporation to be necessary to
the lawful issuance and sale of any Common Stock pursuant to this option shall
relieve the Corporation of any liability with respect to the non-issuance or
sale of the Common Stock as to which such approval shall not have been
obtained. The Corporation, however, shall use its best efforts to obtain all
such approvals.
10. Successors and Assigns. Except to the extent otherwise provided in
paragraph 3 above, the provisions of this Agreement shall inure to the benefit
of, and be binding upon, the Corporation and its successors and assigns and
Optionee, Optionee's permitted assigns and the legal representatives, heirs
and legatees of Optionee's estate.
11. Notices. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and
addressed to the Corporation at its principal corporate offices. Any notice
required to be given or delivered to Optionee shall be in writing and
addressed to Optionee at the address indicated on the Stock Option Grant. All
notices shall be deemed effective upon personal delivery or upon deposit in
the U.S. mail, postage prepaid and properly addressed to the party to be
notified.
12. Financing. The Plan Administrator may, in its absolute discretion and
without any obligation to do so, permit Optionee to pay the Exercise Price for
the purchase Option Shares by delivering a full-recourse promissory note
payable to the Corporation. The terms of any such promissory note (including
the interest rate, the requirements for collateral and the terms of repayment)
shall be established by the Plan Administrator in its sole discretion.
13. Construction. This Agreement and the option evidenced hereby are made
and granted pursuant to the Plan and are in all respects limited by and
subject to the terms of the Plan and the Stock Option Exercise Notice and
Purchase Agreement. All decisions of the Plan Administrator with respect to
any question or issue arising under the Plan or this Agreement shall be
conclusive and binding on all persons having an interest in this option.
14. Additional Terms Applicable to an Incentive Option. In the event this
option is designated an Incentive Option above, the following terms and
conditions shall also apply to the grant:
a. This option shall cease to qualify for favorable tax treatment as
an Incentive Option if (and to the extent) this option is exercised for one or
more Option Shares: (1) more than three (3) months after the date Optionee
ceases to be an Employee or in the Service of the Corporation for any reason
other than death or Permanent Disability or (2) more than twelve (12) months
after the date Optionee ceases to be an Employee by reason of death or
Permanent Disability.
b. No installment under this option shall qualify for favorable tax
treatment as an Incentive Option if (and to the extent) the aggregate Fair
Market Value (determined at the Grant Date) of the Common Stock for which such
installment first becomes exercisable hereunder would, when added to the
aggregate value (determined as of the respective date or dates of grant) of
any earlier installments of the Common Stock and any other securities for
which this option or any other Incentive Options granted to Optionee prior to
the Grant Date (whether under the Plan or any other option plan of the
Corporation or any Parent or Subsidiary) first become exercisable during the
same calendar year, exceed One Hundred Thousand Dollars ($100,000) in the
aggregate. Should such One Hundred Thousand Dollar ($100,000) limitation be
exceeded in any calendar year, this option shall nevertheless become
exercisable for the excess shares in such calendar year as a Non-Statutory
Option.
c. Should the Board elect to accelerate the exercisability of this
option upon a Corporate Transaction, then this option shall qualify as an
Incentive Option only to the extent the aggregate Fair Market Value
(determined at the Grant Date) of the Common Stock for which this option first
becomes exercisable in the calendar year in which the Corporate Transaction
occurs does not, when added to the aggregate value (determined as of the
respective date or dates of grant) of the Common Stock or other securities for
which this option or one or more other Incentive Options granted to Optionee
prior to the Grant Date (whether under the Plan or any other option plan of
the Corporation or any Parent or Subsidiary) first become exercisable during
the same calendar year, exceed One Hundred Thousand Dollars ($100,000) in the
aggregate. Should the applicable One Hundred Thousand Dollar ($100,000)
limitation be exceeded in the calendar year of such Corporate Transaction, the
option may nevertheless be exercised for the excess shares in such calendar
year as a Non-Statutory Option.
d. Should Optionee hold, in addition to this option, one or more
other options to purchase Common Stock which become exercisable for the first
time in the same calendar year as this option, then the foregoing limitations
on the exercisability of such options as Incentive Options shall be applied on
the basis of the order in which such options are granted.
e. The grant of this option is subject to approval of the Plan by
Corporation's stockholders within twelve (12) months after the adoption of the
Plan by the Board. In the event that such stockholder approval is not
obtained, then this option shall not qualify as an Incentive Option.
f. If the Option Shares covered by this Agreement exceed, as of the
Grant Date, the number of shares of Common Stock which may without stockholder
approval be issued under the Plan, then this option shall cease to qualify as
an Incentive Option unless stockholder approval of an amendment sufficiently
increasing the number of shares of Common Stock issuable under the Plan is
obtained in accordance with the provisions of the Plan.
g. If Optionee is a 10% Stockholder, then the Exercise Price shall
not be less than one hundred ten percent (110%) of the Fair Market Value per
share of Common Stock on the Grant Date, and the option term shall not exceed
five (5) years measured from the Grant Date. h. Shares purchased pursuant to
this option shall cease to qualify for favorable tax treatment as Incentive
Option shares if and to the extent Optionee disposes of such shares within two
(2) years from the Grant Date or within one (1) year of Optionee's purchase of
said shares. i. Optionee acknowledges that the rules regarding Incentive
Options as contained in the Internal Revenue Code are subject to amendment in
the future. Optionee should consult his or her tax advisor prior to taking any
action with respect to this option or the shares purchased hereunder.
IN WITNESS WHEREOF, this Agreement is executed as of the Grant Date first
noted above.
Wizzard Software Corporation
By: /s/ Christopher J. Spencer, President
ACKNOWLEDGMENT
Optionee understands and agrees that the option is granted subject to and
in accordance with the terms of the Corporation's Stock Option Plan (the
"Plan"). Optionee further agrees to be bound by the terms of the Plan and the
terms of the option as set forth in this Agreement. Optionee understands that
any Option Shares purchased under the option shall be subject to the terms set
forth in the Stock Option Exercise Notice and Purchase Agreement attached
hereto as Exhibit A. Optionee hereby acknowledges receipt of a copy of the
Plan in the form attached hereto as Exhibit B, and represents that Optionee
has read and understands the Plan, and accepts this option subject to all
terms and provisions of the Plan and the Plan documents. Optionee hereby
agrees to accept as binding, conclusive and final, all decisions and
interpretations of the Board of Directors upon any questions arising under the
Plan. Optionee acknowledges that there may be adverse tax consequences upon
exercise of this option and/or upon disposition of the Purchased Shares, and
that Optionee should consult a tax advisor prior to such exercise or
disposition.
Optionee
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Signature
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Please Print Name
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Date
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EXHIBIT A
FORM OF STOCK OPTION EXERCISE NOTICE AND PURCHASE AGREEMENT
(To be signed only upon exercise of Option)
To: Wizzard Software Corporation
The undersigned, the owner of the attached Stock Option Grant, hereby
irrevocable elects to exercise the purchase rights represented by the Stock
Option Grant for, and to purchase thereunder, _____________ shares of Common
Stock of Wizzard Software Corporation. Enclosed is payment in the amount of
$_______________ as the exercise price of the Common Stock to be acquired.
Please have the certificate(s) registered in the name of and delivered to the
following address: Registered Name(s) ---------------------------------
- --------------------------------- --------------------------------- Mailing
Address --------------------------------- ---------------------------------
- --------------------------------- If this exercise does not include all of
the Common Stock covered by the attached Stock Option Grant, please deliver a
new Stock Option Grant of like tenor for the balance of the Common Stock to
the undersigned at the foregoing address. DATED this ______ day of __________
200___.