1
EXHIBIT 10.20
MEDICAL SCIENCE SYSTEMS, INC.
1996 EQUITY INCENTIVE PLAN
STOCK OPTION EXERCISE AGREEMENT
This Exercise Agreement is made and entered into as of ________, 199_ (the
"Effective Date") by and between Medical Science Systems, Inc., a Texas
corporation (the "Company"), and the purchaser named below (the "Purchaser").
Capitalized terms not defined herein shall have the meaning ascribed to them in
the Company's 1996 Equity Incentive Plan (the "Plan").
PURCHASER: _______________________________________
SOCIAL SECURITY NUMBER: _______________________________________
ADDRESS: _______________________________________
_______________________________________
TOTAL NUMBER OF SHARES: _______________________________________
PURCHASE PRICE PER SHARE: _______________________________________
TOTAL PURCHASE PRICE: _______________________________________
OPTION NO.: _______________________________________
DATE OF GRANT: _______________________________________
TYPE OF OPTION (CHECK ONE): [_] INCENTIVE STOCK OPTION
[_] NONQUALIFIED STOCK OPTION
2
1. EXERCISE OF OPTION.
1.1 EXERCISE. Pursuant to exercise of that certain option
("Option") granted to Purchaser under the Plan and subject to the terms and
conditions of this Agreement, Purchaser hereby purchases from the Company, and
the Company hereby sells to Purchaser, the total number of shares set forth
above ("Shares") of the Company's Common Stock, no par value per share, at a
purchase price per share set forth above for a total purchase price set forth
above (the "Purchase Price"). As used in this Agreement, the term "Shares"
refers to the Shares purchased under this Exercise Agreement and includes all
securities received (a) in replacement of the Shares, (b) as a result of stock
dividends or stock splits with respect to the Shares, and (c) all securities
received in replacement of the Shares in a merger, recapitalization,
reorganization or similar corporate transaction.
1.2 TITLE TO SHARES. The exact spelling of the name(s) under
which Purchaser will take title to the Shares is:
_______________________________________________
_______________________________________________
Purchaser desires to take title to the Shares as follows:
[_] Individual, as separate property
[_] Husband and wife, as community property
[_] Joint Tenants
[_] Alone or with spouse as trustee(s) of the following trust (including date):
_____________________________________________________
_____________________________________________________
[_] Other; please specify:_______________________________
_______________________________
1.3 PAYMENT. Purchaser hereby delivers payment of the Purchase
Price in the manner permitted in the Stock Option Agreement as follows (check
and complete as appropriate):
[_] in cash in the amount of $__________, receipt of which is acknowledged by
the Company;
[_] by cancellation of indebtedness of the Company to Purchaser in the amount
of $________;
[_] at the discretion of the Committee, by delivery of __________
fully-paid, nonassessable and vested shares of the Common Stock of the
Company owned by Purchaser for at least six (6) months prior to the date
hereof which have been paid for within the meaning of SEC Rule 144, if
purchased by use of a promissory note, such note has been fully paid
with respect to such vested shares), or obtained by Purchaser in the
open public market, and owned free and clear of all liens, claims,
encumbrances or security interests, valued at the current Fair Market
Value of $_______ per share;
[_] at the discretion of the Committee, by tender of a Full Recourse
Promissory Note in the principal amount of $_______, secured by a Pledge
Agreement of even date herewith;
[_] by the waiver hereby of compensation due or accrued for services rendered
in the amount of $_____.
3
2. DELIVERY.
2.1 DELIVERIES BY PURCHASER. Purchaser hereby delivers to the
Company (i) this Exercise Agreement, (ii) two (2) copies of a blank Stock Power
and Assignment Separate from Stock Certificate in the form of Exhibit 1 attached
hereto (the "Stock Powers"), both executed by Purchaser (and Purchaser's spouse,
if any), (iii) if Purchaser is married, a Consent of Spouse in the form of
Exhibit 2 attached hereto (the "Spouse Consent") executed by Purchaser's spouse,
and (iv) the Purchase Price [NOTE FOR PREPARATION OF SPECIFIC EXERCISE
AGREEMENT: USE THE FOLLOWING IF ALL OR PART OF THE PURCHASE PRICE IS PAID WITH A
NOTE: [BY DELIVERY OF A SECURED FULL RECOURSE PROMISSORY NOTE IN THE FORM OF
EXHIBIT 4 AND (V) A STOCK PLEDGE AGREEMENT IN THE FORM OF EXHIBIT 5, EXECUTED BY
PURCHASER (THE "PLEDGE AGREEMENT")]
2.2 DELIVERIES BY THE COMPANY. Upon its receipt of the Purchase
Price and all the documents to be executed and delivered by Purchaser to the
Company under Section 2.1, the Company will issue a duly executed stock
certificate evidencing the Shares in the name of Purchaser, to be placed in
escrow as provided in Section [11] until expiration or termination of the
Company's [REPURCHASE OPTION AND] Right of First Refusal described in Section[S
8 AND 9.
3. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser represents and
warrants to the Company that:
3.1 AGREES TO TERMS OF THE PLAN. Purchaser has received a copy of
the Plan and the Stock Option Agreement, has read and understands the terms of
the Plan, the Stock Option Agreement and this Exercise Agreement, and agrees to
be bound by their terms and conditions. Purchaser acknowledges that there may be
adverse tax consequences upon exercise of the Option or disposition of the
Shares, and that Purchaser should consult a tax adviser prior to such exercise
or disposition.
3.2 PURCHASE FOR OWN ACCOUNT FOR INVESTMENT. Purchaser is
purchasing the Shares for Purchaser's own account for investment purposes only
and not with a view to, or for sale in connection with, a distribution of the
Shares within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"). Purchaser has no present intention of selling or otherwise
disposing of all or any portion of the Shares and no one other than Purchaser
has any beneficial ownership of any of the Shares.
3.3 ACCESS TO INFORMATION. Purchaser has had access to all
information regarding the Company and its present and prospective business,
assets, liabilities and financial condition that Purchaser reasonably considers
important in making the decision to purchase the Shares, and Purchaser has had
ample opportunity to ask questions of the Company's representatives concerning
such matters and this investment.
3.4 UNDERSTANDING OF RISKS. Purchaser is fully aware of: (i) the
highly speculative nature of the investment in the Shares; (ii) the financial
hazards involved; (iii) the lack of liquidity of the Shares and the restrictions
on transferability of the Shares (~, that Purchaser may not be able to sell or
dispose of the Shares or use them as collateral for loans); (iv) the
qualifications and backgrounds of the management of the Company; and (v) the tax
consequences of investment in the Shares. Purchaser is capable of evaluating the
merits and risks of this investment, has the ability to protect Purchaser's own
interests in this transaction and is financially capable of bearing a total loss
of this investment.
4
3.5 NO GENERAL SOLICITATION. At no time was Purchaser presented
with or solicited by any publicly issued or circulated newspaper, mail, radio,
television or other form of general advertising or solicitation in connection
with the offer, sale and purchase of the Shares.
4. COMPLIANCE WITH SECURITIES LAWS.
4.1 COMPLIANCE WITH FEDERAL SECURITIES LAWS. Purchaser understands
and acknowledges that the Shares have not been registered with the Securities
and Exchange Commission ("SEC") under the Securities Act and that,
notwithstanding any other provision of the Stock Option Agreement to the
contrary, the exercise of any rights to purchase any Shares is expressly
conditioned upon compliance with the Securities Act and all applicable state
securities laws. Purchaser agrees to cooperate with the Company to ensure
compliance with such laws. The Shares are being issued under the Securities Act
pursuant to the following (the Company will check the applicable box):
[_] the exemption provided by SEC Rule 701;
[_] the exemption provided by SEC Rule 504;
[_] the exemption provided by Section 4(2) of the Securities Act;
[_] other: _________________________________________.
4.2 COMPLIANCE WITH CALIFORNIA SECURITIES LAWS. THE SALE OF THE
SECURITIES THAT ARE THE SUBJECT OF THIS EXERCISE AGREEMENT, IF NOT YET QUALIFIED
WITH THE CALIFORNIA COMMISSIONER OF CORPORATIONS AND NOT EXEMPT FROM SUCH
QUALIFICATION, IS SUBJECT TO SUCH QUALIFICATION, AND THE ISSUANCE OF SUCH
SECURITIES, AND THE RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO
SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE IS EXEMPT. THE RIGHTS OF THE
PARTIES TO THIS EXERCISE AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH
QUALIFICATION BEING OBTAINED OR AN EXEMPTION BEING AVAILABLE.
5. RESTRICTED SECURITIES.
5.1 NO TRANSFER UNLESS REGISTERED OR EXEMPT. Purchaser understands
that Purchaser may not transfer any Shares unless such Shares are registered
under the Securities Act or qualified under applicable state securities laws
or unless, in the opinion of counsel to the Company, exemptions from such
registration and qualification requirements are available. Purchaser
understands that only the Company may file a registration statement with the SEC
and that the Company is under no obligation to do so with respect to the Shares.
Purchaser has also been advised that exemptions from registration and
qualification may not be available or may not permit Purchaser to transfer all
or any of the Shares in the amounts or at the times proposed by Purchaser.
5.2 SEC RULE 144. In addition, Purchaser has been advised that
SEC Rule l44 promulgated under the Securities Act, which permits certain limited
sales of unregistered securities, is not presently available with respect to the
Shares and, in any event, requires that the Shares be held for a minimum of two
years, and in certain cases three years, after they have been purchased and paid
for (within the meaning of Rule 144). [[NOTE FOR PREPARATION OF SPECIFIC
EXERCISE
5
AGREEMENT: USE THE FOLLOWING IF SHARES ARE PURCHASED WITH A NOTE:]
[PURCHASER UNDERSTANDS THAT SHARES PAID FOR WITH A NOTE MAY NOT BE DEEMED TO BE
FULLY "PAID FOR" WITHIN THE MEANING OF RULE 144 UNLESS CERTAIN CONDITIONS ARE
MET AND THAT, ACCORDINGLY, THE RULE 144 HOLDING PERIOD OF SUCH SHARES MAY NOT
BEGIN TO RUN UNTIL SUCH SHARES ARE FULLY PAID FOR WITHIN THE MEANING OF RULE
144]. Purchaser understands that Rule l44 may indefinitely restrict transfer of
the Shares so long as Purchaser remains an "affiliate" of the Company or if
"current public information" about the Company (as defined in Rule 144) is not
publicly available.
5.3 SEC RULE 701. The Shares may become freely tradable by
non-affiliates if issued pursuant to SEC Rule 701 promulgated under the
Securities Act (under limited conditions regarding the method of sale) 90 days
after the first sale of Common Stock of the Company to the general public
pursuant to a registration statement filed with and declared effective by the
SEC, subject to the lengthier market standoff agreement contained in Section 7
of this Exercise Agreement or any other agreement entered into by Purchaser.
Affiliates must comply with the provisions (other than the holding period
requirements) of Rule l44.
5.4 STATE LAW RESTRICTIONS ON TRANSFER. Purchaser understands
that transfer of the Shares may be restricted by Section 260.14 l .11 of the
Rules of the California Commissioner of Corporations, a copy of which is
attached hereto as Exhibit 3, and that the certificate(s) representing the
Shares may bear a legend to that effect.
6. RESTRICTIONS ON TRANSFERS.
6.1 DISPOSITION OF SHARES. Purchaser hereby agrees that Purchaser
shall make no disposition of the Shares (other than as permitted by this
Agreement) unless and until:
(a) Purchaser shall have notified the Company of the proposed
disposition and provided a written summary of the terms and conditions of the
proposed disposition;
(b) Purchaser shall have complied with all requirements of this
Exercise Agreement applicable to the disposition of the Shares;
(c) Purchaser shall have provided the Company with written
assurances, in form and substance satisfactory to counsel for the Company, that
(i) the proposed disposition does not require registration of the Shares under
the Securities Act or (ii) all appropriate action necessary for compliance with
the registration requirements of the Securities Act or of any exemption from
registration available under the Securities Act (including Rule 144) has been
taken: and
(d) Purchaser shall have provided the Company with written
assurances, in form and substance satisfactory to the Company, that the proposed
disposition will not result in the contravention of any transfer restrictions
applicable to the Shares pursuant to the provisions of the Commissioner Rules
identified in Section 4.2.
6.2 RESTRICTION ON TRANSFER. Purchaser shall not transfer, assign,
▇▇▇▇▇ ▇ ▇▇▇▇ or security interest in, pledge, hypothecate, encumber or otherwise
dispose of any of the Shares which are
6
subject to [THE COMPANY'S REPURCHASE OPTION OR] the Company's Right of First
Refusal. except as permitted by this Agreement.
6.3 TRANSFEREE OBLIGATIONS. Each person (other than the Company)
to whom the Shares are transferred by means of one of the permitted transfers
specified in this Agreement must, as a condition precedent to the validity of
such transfer, acknowledge in writing to the Company that such person is bound
by the provisions of this Exercise Agreement and that the transferred shares are
subject to (i) [BOTH THE COMPANY'S REPURCHASE OPTION (only with respect to
Vested Shares) and] the Company's Right of First Refusal granted hereunder and
(ii) the market stand-off provisions of Section 7, to the same extent such
shares would be so subject if retained by the Purchaser.
7. MARKET STANDOFF AGREEMENT. Purchaser agrees in connection with any
registration of the Company's securities that, upon the request of the Company
or the underwriters managing any public offering of the Company's securities,
Purchaser will not sell or otherwise dispose of any Shares without the prior
written consent of the Company or such underwriters, as the case may be, for
such period of time (not to exceed 180 days) after the effective date of such
registration requested by such managing underwriters and subject to all
restrictions as the Company or the underwriters may specify.
[NOTE FOR PREPARATION OF SPECIFIC EXERCISE AGREEMENT: IF THE REPURCHASE RIGHT
ALTERNATIVE IS NOT USED, REMEMBER TO RENUMBER SUBSEQUENT SECTIONS AND CHECK
SECTION REFERENCES THROUGHOUT TO CONFORM TO THIS FACT, AND TO DELETE REFERENCES
THROUGHOUT TO REPURCHASE OPTION]
8. COMPANY'S REPURCHASE OPTION. The Company, or its assignee, shall have
the option to repurchase the Unvested Shares (as defined in the Option) on the
terms and conditions set forth in this Section (the "Repurchase Option") if
Purchaser is Terminated (as defined in the Option) for any reason, or no reason,
including without limitation Purchaser's death, Disability (as defined in the
Plan), voluntary resignation or termination by the Company with or without
cause.
8.1 TERMINATION AND TERMINATION DATE. In case of any dispute as
to whether Purchaser is Terminated, the Committee shall have discretion to
determine whether Purchaser has been Terminated and the effective date of such
Termination (the "Termination Date").
8.2 EXERCISE OF REPURCHASE OPTION. At any time within ninety (90)
days after the later of the Termination Date or the date the Purchaser purchased
the Shares, the Company, or its assignee, may elect to repurchase the Unvested
Shares by giving Purchaser written notice of exercise of the Repurchase Option
as specified below.
8.3 CALCULATION OF REPURCHASE PRICE. The Company or its assignee
shall have the option to repurchase from Purchaser (or from Purchaser's personal
representative as the case may be) the Unvested Shares at the Purchaser's
original Purchase Price Per Share (as adjusted to reflect any stock dividend,
stock split, reverse stock split or recapitalization of the Common Stock of the
Company occurring after the Effective Date).
7
8.4 PAYMENT OF REPURCHASE PRICE. The repurchase price shall be
payable, at the option of the Company or its assignee, by check or by
cancellation of all or a portion of any outstanding indebtedness of Purchaser to
the Company or such assignee, or by any combination thereof. The repurchase
price shall be paid without interest within thirty (30) days after exercise of
the Repurchase Option.
8.5 RIGHT OF TERMINATION UNAFFECTED. Nothing in this Exercise
Agreement shall be construed to limit or otherwise affect in any manner
whatsoever the right or power of the Company (or any Parent or Subsidiary of the
Company) to terminate Purchaser's employment or other relationship with Company
(or the Parent or Subsidiary of the Company) at any time, for any reason or no
reason, with or without cause.]
[NOTE FOR PREPARATION OF SPECIFIC EXERCISE AGREEMENT: IF THE COMPANY'S BYLAWS
ALREADY CONTAIN, AT THE DATE THE OPTION IS EXERCISED, A RIGHT OF FIRST REFUSAL
ON TRANSFERS, THIS SECTION 9 WILL NOT BE NECESSARY AND SHOULD BE DELETED. IF
DELETED, REMEMBER TO RENUMBER SUBSEQUENT SECTIONS AND CHECK SECTION REFERENCES
THROUGHOUT TO CONFORM TO THIS FACT.]
9. COMPANY'S RIGHT OF FIRST REFUSAL. Unvested Shares may not be sold or
otherwise transferee by Purchaser without the Company's prior written consent.
Before any Vested Shares held by Purchaser or any transferee of such Vested
Shares (either being sometimes referred to herein as the "Holder") may be sold
or otherwise transferred (including without limitation a transfer by gift or
operation of law), the Company and/or its assignee(s) shall have an assignable
right of first refusal to purchase the Vested Shares to be sold or transferred
(the "Offered Shares") on the terms and conditions set forth in this Section
(the "Right of First Refusal").
9.1 NOTICE OF PROPOSED TRANSFER. The Holder of the Shares shall
deliver to the Company a written notice (the "Notice") stating: (i) the Holder's
bona fide intention to sell or otherwise transfer the Offered Shares; (ii) the
name of each proposed bona fide purchaser or other transferee ("Proposed
Transferee"); (iii) the number of Offered Shares to be transferred to each
Proposed Transferee; (iv) the bona fide cash price or other consideration for
which the Holder proposes to transfer the Offered Shares (the "Offered Price");
and (v) that the Holder will offer to sell the Offered Shares to the Company
and/or its assignee(s) at the Offered Price as provided in this Section.
9.2 EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within thirty
(30) days after the date of the Notice, the Company and/or its assignee(s) may,
by giving written notice to the Holder, elect to purchase all of the Offered
Shares proposed to be transferred to any one or more of the Proposed Transferees
named in the Notice, at the purchase price determined as specified below.
9.3 PURCHASE PRICE. The purchase price for the Offered Shares
purchased under this Section will be the Offered Price. If the Offered Price
includes consideration other than cash, then the cash equivalent value of the
non-cash consideration shall conclusively be deemed to be the value of such
non-cash consideration as determined in good faith by the Company's Board of
Directors.
9.4 PAYMENT. Payment of the purchase price for Offered Shares
will be payable, at the option of the Company and/or its assignee(s) (as
applicable), by check or by cancellation of all or a portion
8
of any outstanding indebtedness of the Holder to the Company (or to such
assignee, in the case of a purchase of Offered Shares by such assignee) or by
any combination thereof. The purchase price will be paid without interest within
thirty (30) days after the Company's receipt of the Notice, or, at the option of
the Company and/or its assignee(s), in the manner and at the time(s) set forth
in the Notice.
9.5 HOLDER'S RIGHT TO TRANSFER. If all of the Offered Shares
proposed in the Notice to be transferred to a given Proposed Transferee are not
purchased by the Company and/or its assignee(s) as provided in this Section,
then the Holder may sell or otherwise transfer such Offered Shares to that
Proposed Transferee at the Offered Price or at a higher price, provided that
such sale or other transfer is consummated within 120 days after the date of the
Notice, and provided further, that (i) any such sale or other transfer is
effected in compliance with all applicable securities laws and (ii) the Proposed
Transferee agrees in writing that the provisions of this Section will continue
to apply to the Offered Shares in the hands of such Proposed Transferee. If the
Offered Shares described in the Notice are not transferred to the Proposed
Transferee within such 120 day period, then a new Notice must be given to the
Company, and the Company will again be offered the Right of First Refusal before
any Shares held by the Holder may be sold or otherwise transferred.
9.6 EXEMPT TRANSFERS. Notwithstanding anything to the contrary in
this Section, the following transfers of Shares will be exempt from the Right of
First Refusal: (i) the transfer of any or all of the Vested Shares during
Purchaser's lifetime by gift or on Purchaser's death by will or intestacy to
Purchaser's "immediate family" (as determined below) or to a trust for the
benefit of Purchaser or Purchaser's immediate family, provided that each
transferee or other recipient agrees in a writing satisfactory to the Company
that the provisions of this Section Will continue to apply to the transferred
Vested Shares in the hands of such transferee or other recipient; (ii) any
transfer of Vested Shares made pursuant to a statutory merger or statutory
consolidation of the Company with or into another corporation or corporations
(except that the Right of First Refusal will continue to apply thereafter to
such Vested Shares, in which case the surviving corporation of such merger or
consolidation shall succeed to the rights of the Company under this Section
unless the agreement of merger or consolidation expressly otherwise provides);
or (iii) any transfer of Shares pursuant to the winding up and dissolution of
the Company. As used herein, the term "immediate family" will mean Purchaser's
spouse, the lineal descendant or antecedent, father, mother, brother or sister,
adopted child or grandchild of the Purchaser or the Purchaser's spouse, or the
spouse of any child, adopted child, grandchild or adopted grandchild of
Purchaser or the Purchaser's spouse.
9.7 TERMINATION OF RIGHT OF FIRST REFUSAL. The Right of First
Refusal will terminate as to all Shares on the effective date of the first sale
of Common Stock of the Company to the general public pursuant to a registration
statement filed with and declared effective by the SEC under the Securities Act
(other than a registration statement relating solely to the issuance of Common
Stock pursuant to a business combination or an employee incentive or benefit
plan).]
10. RIGHTS AS SHAREHOLDER. Subject to the terms and conditions of this
Exercise Agreement, Purchaser will have all of the rights of a shareholder of
the Company with respect to the Shares from and after the date that Purchaser
delivers payment of the Purchase Price until such time as Purchaser disposes of
the Shares or the Company and/or its assignee(s) exercise(s) [THE REPURCHASE
OPTION OR] Right of First Refusal. Upon an exercise of [THE REPURCHASE OPTION
OR]THE Right of First Refusal, Purchaser will have no further rights as a holder
of the Shares so purchased upon such exercise, except the right to receive
9
payment for the Shares so purchased in accordance with the provisions of this
Exercise Agreement, and Purchaser will promptly surrender the stock
certificate(s) evidencing the Shares so purchased to the Company for transfer or
cancellation.
11. ESCROW. As security for Purchaser's faithful performance of this
Agreement, Purchaser agrees, immediately upon receipt of the stock
certificate(s) evidencing Unvested Shares subject to the Repurchase Option or
Shares purchased with a promissory note, to deliver such certificate(s),
together with the Stock Powers executed by Purchaser and by Purchaser's spouse,
if any (with the date and number of Shares left blank), to the Secretary of the
Company or other designee of the Company ("Escrow Holder"), who is hereby
appointed to hold such certificate(s) and Stock Powers in escrow and to take all
such actions and to effectuate all such transfers and/or releases of such Shares
as are in accordance with the terms of this Agreement. Purchaser and the Company
agree that Escrow Holder will not be liable to any party to this Exercise
Agreement (or to any other party) for any actions or omissions unless Escrow
Holder is grossly negligent or intentionally fraudulent in carrying out the
duties of Escrow Holder under this Exercise Agreement. Escrow Holder may rely
upon any letter, notice or other document executed by any signature purported to
be genuine and may rely on the advice of counsel and obey any order of any court
with respect to the transactions contemplated by this Agreement. The Shares will
be released from escrow upon termination of the Repurchase Option for Unvested
Shares [NOTE FOR PREPARATION OF SPECIFIC EXERCISE AGREEMENT: ADD IF SHARES ARE
PLEDGED:] [PROVIDED, HOWEVER, THAT THE SHARES WILL BE RETAINED IN ESCROW SO LONG
AS THEY ARE SUBJECT TO THE PLEDGE AGREEMENT].
12. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
12.1 LEGENDS. Purchaser understands and agrees that the Company
will place the legends set forth below or similar legends on any stock
certificate(s) evidencing the Shares, together with any other legends that may
be required by state or federal securities laws, the Company's Articles
Certificate of Incorporation or Bylaws, any other agreement between Purchaser
and the Company or any agreement between Purchaser and any third party:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR
UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE
SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT
BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE
REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN
INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY
REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY
TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE
IS IN COMPLIANCE WITH THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON PUBLIC RESALE, TRANSFER, [RIGHT OF REPURCHASE]
AND RIGHT OF FIRST REFUSAL OPTIONS HELD BY THE ISSUER AND/OR ITS
10
ASSIGNEE(S) AS SET FORTH IN A STOCK OPTION EXERCISE AGREEMENT
BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A
COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE
ISSUER. SUCH PUBLIC SALE AND TRANSFER RESTRICTIONS AND THE [RIGHT
OF REPURCHASE AND] RIGHT OF FIRST REFUSAL ARE BINDING ON
TRANSFEREES OF THESE SHARES.
The California Commissioner of Corporations may require that the
following legend also be placed upon the share certificate(s) evidencing
ownership of the Shares:
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR
ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR,
WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS
OF THE STATE OF CALIFORNIA. EXCEPT AS PERMITTED IN THE COMMISSIONER'S
RULES.
12.2 STOP-TRANSFER INSTRUCTIONS. Purchaser agrees that, to ensure
compliance with the restrictions imposed by this Agreement, the Company may
issue appropriate "stop-transfer" instructions to its transfer agent, if any,
and if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
12.3 REFUSAL TO TRANSFER. The Company will not be required (i) to
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares, or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares have been so transferred.
13. TAX CONSEQUENCES. PURCHASER UNDERSTANDS THAT PURCHASER MAY SUFFER
ADVERSE TAX CONSEQUENCES AS A RESULT OF PURCHASER'S PURCHASE OR DISPOSITION OF
THE SHARES. PURCHASER REPRESENTS THAT PURCHASER HAS CONSULTED WITH ANY TAX
ADVISER PURCHASER DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR DISPOSITION
OF THE SHARES AND THAT PURCHASER IS NOT RELYING ON THE COMPANY FOR ANY TAX
ADVICE. IN PARTICULAR, IF THE SHARES ARE SUBJECT TO REPURCHASE BY THE COMPANY OR
IF PURCHASER IS AN INSIDER SUBJECT TO SECTION 16(b) OF THE EXCHANGE ACT,
PURCHASER REPRESENTS THAT PURCHASER HAS CONSULTED WITH PURCHASER'S TAX ADVISER
CONCERNING THE ADVISABILITY OF FILING AN 83(b) ELECTION WITH THE INTERNAL
REVENUE SERVICE. Set forth below is a brief summary as of the date of this
Exercise Agreement of some of the federal and California tax consequences of
exercise of the Option and disposition of the Shares. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
PARTICIPANT SHOULD CONSULT A TAX ADVISER BEFORE EXECUTING THIS OPTION OR
DISPOSING OF THE SHARES.
13.1 EXERCISE OF INCENTIVE STOCK OPTION. If the Option qualifies
as an incentive stock option, there will be no regular federal income tax
liability or California income tax liability upon the exercise of the Option,
although the excess, if any, of the fair market value of the Shares on the date
of exercise over the Purchase Price Per Share will be treated as a tax
preference item for federal income tax
11
purposes and may subject Purchaser to the alternative minimum tax in the year
of exercise as discussed further in Section 13.4 below.
13.2 EXERCISE OF NONQUALIFIED STOCK OPTION. If the Option does
not qualify as an incentive stock option, there may be a regular federal income
tax liability and a California income tax liability upon the exercise of the
Option. Purchaser will be treated as having received compensation income
(taxable at ordinary income tax rates) equal to the excess, if any, of the fair
market value of the Shares on the date of exercise over the Purchase Price Per
Share. The Company will be required to withhold from Purchaser's compensation or
collect from Purchaser and pay to the applicable taxing authorities an amount
equal to a percentage of this compensation income at the time of exercise.
13.3 DISPOSITION OF SHARES. If the Shares are held for more than
twelve months after the date of the transfer of the Shares pursuant to the
exercise of the Option (and, in the case of an ISO, are disposed of more than
two years after the Option Date of Grant), any gain realized on disposition of
the Shares will be treated as long term capital gain for federal and California
income tax purposes. If Shares purchased under an ISO are disposed of within one
year of exercise or within two years after the Option Date of Grant, any gain
realized on such disposition will be treated as compensation income (taxable at
ordinary income rates) to the extent of the excess, if any, of the fair market
value of the Shares on the date of exercise over the Purchase Price Per Share.
The Company will be required to withhold from Purchaser's compensation or
collect from Purchaser and pay to the applicable taxing authorities an amount
equal to a percentage of this compensation income at the time of exercise.
13.4 SECTION 83(b) ELECTION FOR UNVESTED SHARES. With respect to
Unvested Shares, which are subject to repurchase at the original Purchase Price,
Purchaser hereby acknowledges that Purchaser has been informed that, unless and
election is filed by the Purchaser with the Internal Revenue Service (and, if
necessary, the proper state taxing authorities), within 30 days of the purchase
of the Unvested Shares, electing pursuant to Section 83(b) of the Internal
Revenue Code (and similar state tax provisions, if applicable) to be taxed
currently on any difference between the Purchase Price of the of the Unvested
Shares and their Fair Market Value on the date of purchase, there may be a
recognition of taxable income (including, where applicable, alternative minimum
tax) to the Purchaser, measured by the excess, if any, of the Fair Market Value
of the Unvested Shares. Purchaser represents that Purchaser has consulted any
tax advisers Purchaser deems advisable in connection with Purchaser's purchase
of the Unvested Shares and the filing of the election under Section 83(b) and
similar tax provisions. A form of Election under Section 83(b) is attached
hereto as Exhibit 5 for reference. PURCHASER HEREBY ASSUMES ALL RESPONSIBILITY
FOR FILING SUCH ELECTION AND PAYING ANY TAXES RESULTING FROM SUCH ELECTION OR
FROM FAILURE TO FILE THE ELECTION AND PAYING TAXES RESULTING FROM THE LAPSE OF
THE REPURCHASE RESTRICTIONS ON THE UNVESTED SHARES.
14. COMPLIANCE WITH LAWS AND REGULATIONS. The issuance and transfer of
the Shares will be subject to and conditioned upon compliance by the Company and
Purchaser with all applicable state and federal laws and regulations and with
all applicable requirements of any stock exchange or automated quotation system
on which the Company's Common Stock may be listed or quoted at the time of such
issuance or transfer.
12
15. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights
under this Agreement, including its rights to repurchase Shares under [THE
REPURCHASE OPTION AND] the Right of First Refusal. This Agreement shall be
binding upon and inure to the benefit of the successors and assigns of the
Company. Subject to the restrictions on transfer herein set forth, this
Agreement will be binding upon Purchaser and Purchaser's heirs, executors,
administrators, legal representatives, successors and assigns.
16. GOVERNING LAW: SEVERABILITV. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of California as
such laws are applied TO AGREEMENTS between California residents entered into
and to be performed entirely within California, excluding that body of laws
pertaining to conflict of laws. If any provision of this Agreement is determined
by a court of law to be illegal or unenforceable, then such provision will be
enforced to the maximum extent possible and the other provisions will remain
fully effective and enforceable.
17. NOTICES. Any notice required to be given or delivered to the Company
shall be in writing and addressed to the Corporate Secretary of the Company at
its principal corporate offices. Any notice required to be given or delivered to
Purchaser shall be in writing and addressed to Purchaser at the address
indicated above or to such other address as Purchaser may designate in writing
from time to time to the Company. All notices shall be deemed effectively given
upon personal delivery, three (3) days after deposit in the United States mail
by certified or registered mail (return receipt requested), one ( l ) business
day after its deposit with any return receipt express courier (prepaid), or one
(l) business day after transmission by rapifax or telecopier.
18. FURTHER INSTRUMENTS. The parties agree to execute such further
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
19. HEADINGS. The captions and headings of this Agreement are included
for ease of reference only and will be disregarded in interpreting or construing
this Agreement. All references herein to Sections will refer to Sections of this
Agreement.
20. ENTIRE AGREEMENT. The Plan, the Stock Option Agreement and this
Exercise Agreement, together with all its Exhibits, constitute the entire
agreement and understanding of the parties with respect to the subject matter of
this Agreement, and supersede all prior understandings and agreements, whether
oral or written, between the parties hereto with respect to the specific subject
matter hereof.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed in duplicate by its duly authorized representative and Purchaser has
executed this Agreement in duplicate as of the Effective Date.
MEDICAL SCIENCE SYSTEMS, INC. PURCHASER
By: _______________________________ _______________________________
(Signature)
___________________________________ _______________________________
(Please print name) (Please print name)
___________________________________
(Please print title)
[SIGNATURE PAGE TO MEDICAL SCIENCE SYSTEMS, INC.
STOCK OPTION EXERCISE AGREEMENT]
13
LIST OF EXHIBITS
Exhibit 1: Stock Power and Assignment Separate from Stock Certificate
Exhibit 2: Spouse Consent
Exhibit 3: California Commissioner Rule 260.141.11
Exhibit 4: Copy of Purchaser's Check [AND/OR SECURED FULL RECOURSE
PROMISSORY NOTE
Exhibit 5: STOCK PLEDGE AGREEMENT]
14
EXHIBIT 1
STOCK POWER AND ASSIGNMENT
SEPARATE FROM STOCK CERTIFICATE
15
STOCK POWER AND ASSIGNMENT
SEPARATE FROM STOCK CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Stock Option Exercise
Agreement No.__ dated as of __________, 199_, (the "Agreement"), the undersigned
hereby sells, assigns and transfers unto ______________________, shares of the
Common Stock of Medical Science Systems, Inc., a Texas corporation (the
"Company"), standing in the undersigned's name on the books of the Company
represented by Certificate No(s).________ delivered herewith, and does hereby
irrevocably constitute and appoint the Secretary of the Company as the
undersigned's attorney-in-fact, with full power of substitution, to transfer
said stock on the books of the Company. THIS ASSIGNMENT MAY ONLY BE USED AS
AUTHORIZED BY THE AGREEMENT AND ANY EXHIBITS THERETO.
Dated: ____________, 199_
PURCHASER
__________________________________
(Signature)
-------------------------------
(Please Print Name)
-------------------------------
(Spouse's Signature, if any)
-------------------------------
(Please Print Spouse's Name)
INSTRUCTIONS: Please do not fill in any blanks other than the signature line.
The purpose of this Stock Power and Assignment is to enable the Company to
acquire the shares upon [A DEFAULT UNDER PURCHASER'S NOTE AND TO] exercise of
its ["REPURCHASE OPTION" AND/OR "RIGHT OF FIRST REFUSAL"] set forth in the
Agreement without requiring additional signatures on the part of the PURCHASER
[OR PURCHASER'S SPOUSE].
16
EXHIBIT 2
SPOUSE CONSENT
17
SPOUSE CONSENT
The undersigned spouse of Purchaser has read, understands, and hereby
approves the Stock Option Exercise Agreement (the "Agreement") between Purchaser
and Medical Science Systems, Inc. (the "Company"). In consideration of the
Company's granting my spouse the right to purchase the Shares as set forth in
the Agreement, the undersigned hereby agrees to be irrevocably bound by the
Agreement and further agrees that any community property interest shall
similarly be bound by the Agreement. The undersigned hereby appoints Purchaser
as my attorney-in-fact with respect to any amendment or exercise of any rights
under the Agreement.
Date: ____________ ____________________
Signature of Purchaser's Spouse
Printed Name: ____________________
Address: ____________________
____________________
18
EXHIBIT 3
CALIFORNIA COMMISSIONER RULE 260.141.11
(a) The issuer of any security upon which a restriction on transfer has been
imposed pursuant to Sections 260.102.6, 260.141.10 or 260.534 shall
cause a copy of this section to be delivered to each issuee or
transferee of such security at the time the certificate evidencing the
security is delivered to the issuee or transferee.
(b) It is unlawful for the holder of any such security to consummate a sale
or transfer of such security, or any interest therein, without the prior
written consent of the Commissioner (until this condition is removed
pursuant to Section 260.141.12 of these rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in Subdivision (i) of Section 25102 of the Code or
Section 260.105.14 of these rules:
(4) to the transferor's ancestors, descendants or spouse, or any custodian
or trustee for the account of the transferor or the transferor's
ancestors, descendants, or spouse; or to a transferee by a trustee or
custodian for the account of the transferee or the transferee's
ancestors, descendants or spouse;
(5) to holders of securities of the same class of the same issuer;
(6) by way of gift or donation intervivos or on death;
(7) by or through a broker-dealer licensed under the Code (either acting as
such or as a finder) to a resident of a foreign state, territory or
country who is neither domiciled in this state to the knowledge of the
broker-dealer, nor actually present in this state if the sale of such
securities is not in violation of any securities law of the foreign
state, territory or country concerned;
(8) to a broker-dealer licensed under the Code in a principal transaction,
or as an underwriter or member of an underwriting syndicate or selling
group;
(9) if the interest sold or transferred is a pledge or other lien given by
the purchaser to the seller upon a sale of the security for which the
Commissioner's written consent is obtained or under this rule not
required;
(10) by way of a sale qualified under Section 25111, 25112, 25113, or 25121 of
the Code, of the securities to be transferred, provided that no order
under Section 25140 or subdivision (a) of Section 25143 is in effect with
respect to such qualification;
(11) by a corporation to a wholly owned subsidiary of such corporation, or by
a wholly owned subsidiary of a corporation to such corporation;
19
(12) by way of an exchange qualified under Section 25111, 25112 or 25113 of
the Code, provided that no order under Section 25140 or subdivision (a)
of Section 25143 is in effect with respect to such qualification;
(13) between residents of foreign states, territories or countries who are
neither domiciled nor actually present in this slate;
(14) to the State Controller pursuant to the Unclaimed Property Law or the
administrator of the unclaimed property law of another state; or
(15) by the State Controller pursuant to the Unclaimed Property Law or by the
administrator of the unclaimed property law of another state if, in
either such case, such person (i) discloses to potential purchasers at
the sale that transfer of the securities is restricted under this rule,
(ii) delivers to each purchaser a copy of this rule, and (iii) advises
the Commissioner of the name of each purchaser;
(16) by a trustee to a successor trustee when such transfer does not involve
a change in the beneficial ownership of the securities;
(17) by way of an offer and sale of outstanding securities in an issuer
transaction that is subject to the qualification requirements of Section
25110 of the Code but exempt from that qualification requirement by
subdivision (f) of Section 25102;
provided that any such transfer is on the condition that any certificate
evidencing the security issued to such transferee shall contain the legend
required by this section.
(c) The certificates representing all such securities subject to such a
restriction on transfer, whether upon initial issuance or upon any
transfer thereof, shall bear on their face a legend, prominently stamped
or printed thereon in capital letters of not less than 10-point size,
reading as follows:
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFORE, WITHOUT THE
PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE
OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
20
EXHIBIT 4
COPY OF PURCHASER'S CHECK [AND/OR
SECURED FULL RECOURSE PROMISSORY NOTE]
21
SECURED FULL RECOURSE PROMISSORY NOTE
___________________, California
$ _________________ _________, 199_
1. OBLIGATION. In exchange for the issuance to the undersigned
("Purchaser") of ________ shares (the "Shares") of the Common Stock of Medical
Science Systems, Inc., a Texas corporation (the "Company"), receipt of which is
hereby acknowledged, Purchaser hereby promises to pay to the order of the
Company on or before _______________, 199_, at the Company's principal place of
business at _______________, California __________, or at such other place as
the Company may direct, [ALTERNATIVE FOR PREPARATION OF SPECIFIC PROMISSORY
NOTE:] [IN INSTALLMENTS AS HEREINAFTER SET FORTH] the principal sum of
____________ Dollars ($______) together with interest compounded semi-annually
on the unpaid principal at the rate of __________ percent (____%), which rate
is not less than the minimum rate established pursuant to Section 1274(d) of
the Internal Revenue Code of 1986, as amended, on the earliest date on which
there was a binding contract in writing for the purchase of the Shares;
provided, however, that the rate at which interest will accrue on unpaid
principal under this Note will not exceed the highest rate permitted by
applicable law. [NOTE FOR PREPARATION OF SPECIFIC PROMISSORY NOTE: IF NOTE WILL
BE PAID IN INSTALLMENTS ADD FOLLOWING:] [THE PRINCIPAL SUM WILL BE PAYABLE IN
SUCCESSIVE [MONTHLY] [QUARTERLY] [ANNUAL] INSTALLMENTS OF $_____ EACH, EACH DUE
AND PAYABLE ON [IF MONTHLY: THE FIRST DAY OF EACH CALENDAR MONTH BEGINNING
__________, 19___ [IF QUARTERLY: MARCH 31, JUNE 30, SEPTEMBER 30 AND DECEMBER
31 OF EACH YEAR] [IF ANNUALLY: EACH SUCCESSIVE ANNIVERSARY OF THE DATE OF THIS
NOTE] AND ALL PAYMENTS OF ACCRUED INTEREST WILL BE PAYABLE WITH EACH INSTALLMENT
OF PRINCIPAL.]
2. SECURITY. Payment of this Note is secured by a security interest in
the Shares granted to the Company by Purchaser under a Stock Pledge Agreement
dated of even date herewith between the Company and Purchaser (the "Pledge
Agreement"). This Note is being tendered by Purchaser to the Company as part of
the purchase price of the Shares pursuant to that certain Stock Option Exercise
Agreement between Purchaser and the Company dated of even date with this Note
(the "Purchase Agreement").
3. DEFAULT: ACCELERATION OF OBLIGATION. Purchaser will be deemed to be
in default under this Note and the principal sum of this Note, together with all
interest accrued thereon, will immediately become due and payable in full: (a)
upon Purchaser's failure to make any payment when due under this Note; (b) in
the event Purchaser is Terminated (as defined in the Company's 1996 Equity
Incentive Plan) for any reason; [ALTERNATIVE FOR PREPARATION OF SPECIFIC
PROMISSORY NOTE:] [(c) UPON ANY TRANSFER OF ANY OF THE SHARES (EXCEPT A TRANSFER
TO THE COMPANY);] (d) upon the filing by or against Purchaser of any voluntary
or involuntary petition in bankruptcy or any petition for relief under the
federal bankruptcy code or any other state or federal law for the relief of
debtors; or (e) upon the execution by Purchaser of an assignment for the benefit
of creditors or the appointment of a receiver, custodian, trustee or similar
party to take possession of Purchaser's assets or property.
22
4. REMEDIES ON DEFAULT. Upon any default of Purchaser under this Note,
the Company will have, in addition to its rights and remedies under this Note
and the Pledge Agreement, full recourse against any real, personal, tangible or
intangible assets of Purchaser, and may pursue any legal or equitable remedies
that are available to it.
5. PREPAYMENT. Prepayment of principal and/or interest due under this
Note may be made at any time without penalty. Unless otherwise agreed in writing
by the Company, all payments will be made in lawful tender of the United States
and will be applied first to the payment of accrued interest, and the remaining
balance of such payment, if any, will then he applied to the payment of
principal. If Purchaser prepays all or a portion of the principal amount of this
Note, the Shares paid for by the portion of principal so paid will continue to
be held in pledge under the Pledge Agreement to serve as independent collateral
for the outstanding portion of this Note for the purpose of commencing the
holding period under Rule 144(d) of the Securities and Exchange Commission with
respect to other Shares purchased with this Note unless Purchaser notifies the
Company in writing otherwise and the Company consents to release of the Shares
from the Pledge Agreement.
6. GOVERNING LAW: WAIVER. The validity, construction and performance of
this Note will be governed by the internal laws of the State of California,
excluding that body of law pertaining to conflicts of law. Purchaser hereby
waives presentment, notice of non-payment, notice of dishonor, protest, demand
and diligence.
7. ATTORNEYS' FEES. If suit is brought for collection of this Note,
Purchaser agrees to pay all reasonable expenses, including attorneys' fees,
incurred by the holder in connection therewith whether or not such suit is
prosecuted to judgment.
8. RULE 144 HOLDING PERIOD. PURCHASER UNDERSTANDS THAT THE HOLDING
PERIOD SPECIFIED UNDER RULE 144(d) OF THE SECURITIES AND EXCHANGE COMMISSION
WILL NOT BEGIN TO RUN WITH RESPECT TO SHARES PURCHASED WITH THIS NOTE UNTIL
EITHER (A) THE PURCHASE PRICE OF SUCH SHARES IS PAID IN FULL IN CASH OR BY OTHER
PROPERTY ACCEPTED BY THE COMPANY, OR (B) THIS NOTE IS SECURED BY COLLATERAL,
OTHER THAN THE SHARES THAT HAVE NOT BEEN FULLY PAID FOR, HAVING A FAIR MARKET
VALUE AT LEAST EQUAL TO THE AMOUNT OF PURCHASER'S THEN OUTSTANDING OBLIGATION
UNDER THIS NOTE (INCLUDING ACCRUED INTEREST).
IN WITNESS WHEREOF, Purchaser has executed this Note as of the date and
year first above written
____________________________________ __________________________________
Purchaser's Name [type or print] Purchaser's Signature
[SIGNATURE PAGE TO MEDICAL SCIENCE SYSTEMS, INC.
SECURED FULL RECOURSE PROMISSORY NOTE]
23
EXHIBIT 5
STOCK PLEDGE AGREEMENT
24
STOCK PLEDGE AGREEMENT
This Agreement is made and entered into as of __________, 199_ between Medical
Science Systems, Inc., a Texas corporation (the "Company"), and
__________________________("Pledgor").
RECITALS
A. In exchange for Pledgor's Secured Full Recourse Promissory
Note to the Company of even date herewith (the "Note"), the Company has issued
and sold to Pledgor ______ shares of its Common Stock, no par value per share
(the "Shares"), pursuant to the terms and conditions of that Stock Option
Exercise Agreement between the Company and Pledgor of even date herewith (the
"Purchase Agreement").
B. Pledgor has agreed that repayment of the Note will be secured
by the pledge of the Shares pursuant to this Agreement.
NOW, THEREFORE, the parties agree as follows:
1. CREATION OF SECURITY INTEREST. Pursuant to the provisions of
the California Commercial Code, Pledgor hereby grants to the Company, and the
Company hereby accepts, a first and present security interest in the Shares as
collateral to secure the payment of Pledgor's obligation to the Company under
the Note. Pledgor herewith delivers to the Company Common Stock certificate(s)
No(s)._________, representing all the Shares, together with one stock power for
each certificate in the form attached as an Exhibit to the Purchase Agreement,
duly executed (with the date and number of shares left blank) by Pledgor and
Pledgor's spouse, if any. For purposes of this Agreement, the Shares pledged to
the Company hereby, together with any additional collateral pledged pursuant to
Sections 5 and 6 hereof, will hereinafter be collectively referred to as the
"Collateral." Pledgor agrees that the Collateral pledged to the Company will be
deposited with and held by the Escrow Holder (as defined in the Purchase
Agreement) and that, notwithstanding anything to the contrary in the Purchase
Agreement, for purposes of carrying out the provisions of this Agreement, Escrow
Holder will act solely for the Company as its agent.
2. REPRESENTATIONS AND WARRANTIES. Pledgor hereby represents and
warrants to the Company that Pledgor has good title (both record and beneficial)
to the Collateral, free and clear of all claims, pledges, security interests,
liens or encumbrances of every nature whatsoever, and that Pledgor has the right
to pledge and grant the Company the security interest in the Collateral granted
under this Agreement. Pledgor further agrees that, until the entire principal
sum and all accrued interest due under the Note has been paid in full, Purchaser
will not, without the Company's prior written consent, (i) sell, assign or
transfer, or attempt to sell, assign or transfer, any of the Collateral, or (ii)
grant or create, or attempt to grant or create, any security interest, lien,
pledge, claim or other encumbrance with respect to any of the Collateral.
25
3. RIGHTS ON DEFAULT. In the event of default (as defined in the
Note) by Pledgor under the Note, the Company will have full power to sell,
assign and deliver the whole or any part of the Collateral at any broker's
exchange or elsewhere, at public or private sale, at the option of the Company,
in order to satisfy any part of the obligations of Pledgor now existing or
hereinafter arising under the Note. On any such sale, the Company or its assigns
may purchase all or any part of the Collateral. In addition, at its sole option,
the Company may elect to retain all the Collateral in full satisfaction of
Pledgor's obligation under the Note, in accordance with the provisions and
procedures set forth in the California Commercial Code.
4. ADDITIONAL REMEDIES. The rights and remedies granted to the
Company herein upon default under the Note will be in addition to all the
rights, powers and remedies of the Company under the California Commercial Code
and applicable law and such rights, powers and remedies will be exercisable by
the Company with respect to all of the Collateral. Pledgor agrees that the
Company's reasonable expenses of holding the Collateral, preparing it for resale
or other disposition, and selling or otherwise disposing of the Collateral,
including attorneys' fees and other legal expenses, will be deducted from the
proceeds of any sale or other disposition and will be included in the amounts
Pledgor must tender to redeem the Collateral. All rights, powers and remedies of
the Company will be cumulative and not alternative. Any forbearance or failure
or delay by the Company in exercising any right, power or remedy hereunder will
not be deemed to be a waiver of any such right, power or remedy and any single
or partial exercise of any such right. power or remedy hereunder will not
preclude the further exercise thereof.
5. DIVIDENDS: VOTING. All dividends hereinafter declared on or
payable with respect to the Collateral during the term of this pledge (excluding
only ordinary cash dividends, which will be payable to Pledgor so long as
Pledgor is not in default under the Note) will be immediately delivered to the
Company to be held in pledge under this Agreement. Notwithstanding this
Agreement, so long as Pledgor owns the Shares and is not in default under the
Note, Pledgor will be entitled to vote any shares comprising the Collateral,
subject to any proxies granted by Pledgor.
6. ADJUSTMENTS. In the event that during the term of this pledge,
any stock dividend, reclassification, readjustment, stock split or other change
is declared or made with respect to the Collateral, or if warrants or any other
rights, options or securities are issued in respect of the Collateral, then all
new, substituted and/or additional shares or other securities issued by reason
of such change or by reason of the exercise of such warrants, rights, options or
securities, will be immediately pledged to the Company to be held under the
terms of this Agreement in the same manner as the Collateral is held hereunder.
7. RIGHTS UNDER PURCHASE AGREEMENT. Pledgor understands and
agrees that the Company's rights to repurchase the Collateral under the Purchase
Agreement, if any, will continue for the periods and on the terms and conditions
specified in the Purchase Agreement, whether or not the Note has been paid
during such period of time, and that to the extent that the Note is not paid
during such period of time, the repurchase by the Company of the Collateral may
be made by way of cancellation of all or any part of Pledgor's indebtedness
under the Note.
26
8. REDELIVERY OF COLLATERAL. Upon payment in full of the entire
principal sum and all accrued interest due under the Note, and subject to the
terms and conditions of the Purchase Agreement, the Company will immediately
redeliver the Collateral to Pledgor and this Agreement will terminate; provided,
however, that all rights of the Company to retain possession of the Shares
pursuant to the Purchase Agreement will survive termination of this Agreement.
9. SUCCESSORS AND ASSIGNS. This Agreement will inure to the
benefit of the respective heirs, personal representatives, successors and
assigns of the parties hereto.
10. GOVERNING LAW: SEVERABILITV. This Agreement will be governed
by and construed in accordance with the internal laws of the State of
California, excluding that body of law relating to conflicts of law. Should one
or more of the provisions of this Agreement be determined by a court of law to
be illegal or unenforceable, the other provisions nevertheless will remain
effective and will be enforceable.
11. MODIFICATION: ENTIRE AGREEMENT. This Agreement will not be
amended without the written consent of both parties hereto. This Agreement
constitutes the entire agreement of the parties hereto with respect to the
subject matter hereof and supersedes all prior agreements and understandings
related to such subject matter.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date and year first above written.
MEDICAL SCIENCE SYSTEMS, INC. PLEDGOR
By:____________________________ _______________________________
(Signature)
_______________________________ _______________________________
(Please print name) (Please print name)
_______________________________
(Please print title)
[SIGNATURE PAGE TO MEDICAL SCIENCE SYSTEMS, INC.
STOCK PLEDGE AGREEMENT]