Common use of Incentive Stock Option Grant Clause in Contracts

Incentive Stock Option Grant. Employee is hereby granted an incentive stock option grant the ("Option") pursuant to the ISO Agreement referred to below with respect to options under the Dynacq International, Inc. Year-2000 Stock Incentive Plan (the "Stock Plan"), a copy of which has been provided to Employee to purchase 100,000 shares of the Company's common stock, $.001 par value (the "Common Stock") at an exercise price equal to the Fair Market Value as defined in Section 2.22 of the Stock Plan ($8.875 per share) which represents the closing sales price per share on the date the Company and Employee agreed to the material Employment Agreement terms and material Option terms, including the number thereof, the expiration date for vesting and exercise, the exercise price, and other terms and conditions on December 6, 2000. The right to purchase Common Stock issuable pursuant to the Option (the "Option Shares") will vest over a three-year period with: (i) 30% vesting after the first full year of employment; (ii) 30% vesting after the second full year of employment; and (iii) 40% vesting after the third full year of employment. Except as specifically provided for to the contrary in the event of termination without cause in years two and three of the vesting period as set forth in the ISO Agreement, vesting shall be contingent upon the achievement of the "Final Performance Goals of the Company and/or DYI as defined and set forth in the ISO Agreement entered into between DYI and Employee effective December 6, 2000, when they agreed to the material Option terms (the "ISO Agreement"), which is attached hereto as EXHIBIT A and incorporated herein by reference. Notwithstanding anything in this Agreement to the contrary with respect to the grant of the Option, the terms thereof, the rights and obligations of Employee with respect thereto or any ambiguity, conflict, interpretive question or matter not specifically addressed and answered herein which may arise out of this Employment Agreement, the ISO Agreement or the Stock Plan (the "ISO Issues") the terms of the Stock Plan shall first control, secondly the terms of the ISO Agreement shall control subject to the terms of the Stock Plan and lastly the terms of this Employment Agreement shall control. If ISO Issues remain after reviewing the foregoing agreements the Employee and Company agree that the Compensation Committee of DYI (the "Compensation Committee" or the "Committee") shall be entitled to resolve any ISO Issues as provided for in Section 3 of the Stock Plan and elsewhere therein. In addition, the Company shall cause its Compensation Committee to provide Employee with evidence of its separate and formal approval acting in its official capacity as the Compensation Committee of the ISO Agreement and this Agreement, although its members have previously approved the ISO Agreement, the Employment Agreement and all other Merger Documentation (with the exception of Schedule 1 to the ISO Agreement which has not been completed, but which shall be completed as to the Final Performance Goals on or before March 9, 2001. If Employee and DYI are not able to agree within the thirty (30) day period ending March 9, 2001, as to the Final Performance Goals to be utilized in connection with the performance vesting requirements of the Option, each of ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇ and Employee shall submit a written position paper outlining their material concerns and proposals including what has been agreed to and the Compensation Committee shall conclusively determine the Final Performance Goals to include in SCHEDULE 1 to the ISO Agreement in their sole discretion, which goals may include, but are not limited to: a. Net Profit or Profit Growth. b. Revenue Growth. c. EPS or EPS Growth. d. Return on Equity or Assets. e. The number of ASC's acquired and the number of start-up de novo ASC developments undertaken. f. Overall compensatory arrangements within the industry including performance goal benefits available under benefit plans for similarly situated public companies. The Final Performance Goals may be subject to yearly change as approved by the Compensation Committee and Employee. The Compensation Committee shall be authorized in advance to have prepared a peer review compensation survey by a reputable executive benefits consulting firm comparing the benefits and remuneration provided by other public companies of similar size and success to those provided by the Company or DYI for executive officers and directors.

Incentive Stock Option Grant. Employee is shall be issued incentive stock options, so long as Company employs Executive in a senior executive position, such options to be issued in addition to any options which may be issued Executive pursuant to the Company stock option plan, and in accordance with the provisions set forth below: A. The Company hereby granted grants to the Executive the right and option (the "OPTION") to purchase from the Company, on the terms and subject to the conditions set forth below, 350,000 shares of the common stock of the Company (the "STOCK"). This Option shall constitute an incentive stock option grant within the ("Option") pursuant to meaning of Section 422 of the ISO Agreement referred to below with respect to options under the Dynacq InternationalInternal Revenue Code of 1986, Inc. Year-2000 Stock Incentive Plan as amended (the "Stock PlanCODE"), to the maximum extent permitted by applicable law, rule and regulation, and otherwise shall be treated as a copy non-incentive option. The date of which grant of this Option is September 23, 1999. This Option shall expire September 23, 2009. B. The purchase prices (the applicable price being referred to herein as the "OPTION PRICE") for the shares of Stock subject to the Option evidenced by this Agreement and the vesting of the Option shall be as set forth below: (i) a portion of the Option consisting of options to purchase 50,000 shares shall have an Option Price equal to $.10 per share and shall vest on July 1, 2000, and a portion of the Option consisting of options to purchase an additional 50,000 shares shall have an Option Price equal to $7.73 and shall vest on July 1, 2000, if Executive has been provided providing services to Employee the Company or a subsidiary continuously from the date of grant through such date, subject to purchase 100,000 shares achievement of certain reasonable financial performance targets approved by the Board, consisting of, annual projections for revenue and cash from operations and minimum annual revenues from the Company's common stockASP business line (including acquisitions related thereto) of not less than $10,000,000 for the fiscal year ended June 30, $.001 par value 2000. (ii) a portion of the "Common Stock") at Option consisting of options to purchase 50,000 shares shall have an exercise price Option Price equal to the Fair Market Value as defined in Section 2.22 $.10 per share and shall vest on July 1, 2001, and a portion of the Stock Plan Option consisting of options to purchase an additional 50,000 shares shall have an Option Price equal to $7.73 and shall vest on July 1, 2001, if Executive has been providing services to the Company or a subsidiary continuously from the date of grant through such date, subject to achievement of certain reasonable financial performance targets approved by the Board, consisting of, annual projections for revenue and cash from operations and minimum annual revenues from the Company's ASP business line (including acquisitions related thereto) of not less than $8.875 per share20,000,000 for the fiscal year ended June 30, 2001. (iii) which represents a portion of the closing sales price Option consisting of options to purchase 75,000 shares shall have an Option Price equal to $.10 per share and shall vest on July 1, 2002, and a portion of the Option consisting of options to purchase an additional 75,000 shares shall have an Option Price equal to $7.73 and shall vest on July 1, 2002, if Executive has been providing services to the Company or a subsidiary continuously from the date of grant through such date, subject to achievement of certain reasonable financial performance targets approved by the Board, consisting of, annual projections for revenue and cash from operations and minimum annual revenues from the Company's ASP business line (including acquisitions related thereto) of not less than $30,000,000 for the fiscal year ended June 30, 2002. C. Service for this purpose includes service as an employee or director providing bona fide services to the Company and Employee agreed or a subsidiary. For purposes of this Agreement, termination of service would not be deemed to occur if the Executive, after terminating service in one capacity, continues to provide service to the material Employment Agreement terms Company or any subsidiary in another capacity. Termination of service is sometimes also referred to herein as termination of employment or other relationship with the Company or its subsidiaries. D. All Options shall immediately vest and material Option termsbecome exercisable in full upon a Change in Control, including even if all or any portion of the number thereofOptions shall have not vested. For purposes of this Agreement, the expiration date for vesting and exercise, the exercise price, and other terms and conditions on December 6, 2000. The right to purchase Common Stock issuable pursuant to the Option (the a "Option Shares") will vest over a three-year period withCHANGE IN CONTROL" shall mean: (i) 30% vesting after the first full year any transaction or series of employment; (ii) 30% vesting after the second full year transactions in which any person or group of employment; and (iii) 40% vesting after the third full year of employment. Except as specifically provided for to the contrary in the event of termination without cause in years two and three of the vesting period as set forth in the ISO Agreementpersons, vesting shall be contingent upon the achievement of the "Final Performance Goals of the Company and/or DYI as defined and set forth in the ISO Agreement entered into between DYI and Employee effective December 6, 2000, when they agreed to the material Option terms (the "ISO Agreement"), which is attached hereto as EXHIBIT A and incorporated herein by reference. Notwithstanding anything in this Agreement to the contrary with respect to the grant of the Option, the terms thereof, the rights and obligations of Employee with respect thereto or any ambiguity, conflict, interpretive question or matter not specifically addressed and answered herein which may arise out of this Employment Agreement, the ISO Agreement or the Stock Plan (the "ISO Issues") the terms of the Stock Plan shall first control, secondly the terms of the ISO Agreement shall control subject to the terms of the Stock Plan and lastly the terms of this Employment Agreement shall control. If ISO Issues remain after reviewing the foregoing agreements the Employee and Company agree that the Compensation Committee of DYI (the "Compensation Committee" or the "Committee") shall be entitled to resolve any ISO Issues as provided for in Section 3 of the Stock Plan and elsewhere therein. In addition, the Company shall cause its Compensation Committee to provide Employee with evidence of its separate and formal approval acting in its official capacity as the Compensation Committee of the ISO Agreement and this Agreement, although its members have previously approved the ISO Agreement, the Employment Agreement and all other Merger Documentation (with the exception of Schedule 1 to the ISO Agreement which has not been completed, but which shall be completed as to the Final Performance Goals on or before March 9, 2001. If Employee and DYI are not able to agree within the thirty (30) day period ending March 9, 2001, as to the Final Performance Goals to be utilized in connection with the performance vesting requirements of the Option, each of than ▇▇▇▇ ▇▇▇▇, . ▇▇▇▇▇▇ ▇▇▇▇ and Employee shall submit a written position paper outlining their material concerns and proposals including what has been agreed to and the Compensation Committee shall conclusively determine the Final Performance Goals to include in SCHEDULE 1 to the ISO Agreement in their sole discretion, which goals may include, but are not limited to: a. Net Profit or Profit Growth. b. Revenue Growth. c. EPS or EPS Growth. d. Return on Equity or Assets. e. The number of ASC's acquired and the number of start-up de novo ASC developments undertaken. f. Overall compensatory arrangements within the industry including performance goal benefits available under benefit plans for similarly situated public companies. The Final Performance Goals may be subject to yearly change as approved by the Compensation Committee and Employee. The Compensation Committee shall be authorized in advance to have prepared a peer review compensation survey by a reputable executive benefits consulting firm comparing the benefits and remuneration provided by other public companies of similar size and success to those provided by the Company or DYI for executive officers and directors.