INCENTIVE STOCK OPTION AGREEMENT MAKEMUSIC, INC.
Exhibit 10.3
2003 EQUITY INCENTIVE PLAN
THIS AGREEMENT, made effective as of this ___ day of ___, 20___, by and between MakeMusic, Inc.,
a Minnesota corporation (the “Company”), and (“Participant”).
W I T N E S S E T H:
WHEREAS, Participant on the date hereof is a key employee or officer of the Company or one of
its Subsidiaries; and
WHEREAS, the Company wishes to grant an incentive stock option to Participant to purchase
shares of the Company’s Common Stock pursuant to the Company’s 2003 Equity Incentive Plan (the
“Plan”); and
WHEREAS, the Administrator of the Plan has authorized the grant of an incentive stock option
to Participant and has determined that, as of the effective date of this Agreement, the fair market
value of the Company’s Common Stock is $ per share;
NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained,
the parties hereto agree as follows:
1. Grant of Option. The Company hereby grants to Participant on the date set forth
above (the “Date of Grant”), the right and option (the “Option”) to purchase all or portions of an
aggregate of
( ) shares
of Common Stock at a per share price of $ on the terms and conditions
set forth herein, and subject to adjustment pursuant to Section 14 of the Plan. This Option is
intended to be an incentive stock option within the meaning of Section 422, or any successor
provision, of the Internal Revenue Code of 1986, as amended (the “Code”), and the regulations
thereunder, to the extent permitted under Code Section 422(d).
2. Duration and Exercisability.
a. General. The term during which this Option may be exercised shall terminate on
, , except as otherwise
provided in Paragraphs 2(b) through 2(d) below. This Option shall become exercisable according to
the following schedule:
| Vesting Date | Cumulative Percentage of Shares | |
Once the Option becomes exercisable to the extent of one hundred percent (100%) of the aggregate
number of shares specified in Paragraph 1, Participant may continue to exercise this Option under
the terms and conditions of this Agreement until the termination of the Option as provided herein.
If Participant does not purchase upon an exercise of this Option the full number of shares which
Participant is then entitled to purchase, Participant may purchase upon any subsequent exercise
prior to this Option’s termination such previously unpurchased shares in addition to those
Participant is otherwise entitled to purchase.
b. Termination of Employment (other than Disability or Death). Except as otherwise
provided in Paragraph 4 hereof, if Participant’s employment with the Company or any Subsidiary is
terminated for any reason other than disability or death, this Option shall completely terminate on
the earlier of (i) the close of business on the three-month anniversary date of such termination of
employment, and (ii) the expiration date of this Option stated in Paragraph 2(a) above. In such
period following the termination of Participant’s employment, this Option shall be exercisable only
to the extent the Option was exercisable on the vesting date immediately preceding such termination
of employment, but had not previously been exercised. To the extent this Option was not exercisable
upon such termination of employment, or if Participant does not exercise the Option within the time
specified in this Paragraph 2(b), all rights of Participant under this Option shall be forfeited.
c. Disability. If Participant’s employment terminates because of disability (as
defined in Code Section 22(e), or any successor provision), this Option shall terminate on the
earlier of (i) the close of business on the twelve-month anniversary date of such termination of
employment, and (ii) the expiration date of this Option stated in Paragraph 2(a) above. In such
period following the termination of Participant’s employment, this Option shall be exercisable only
to the extent the Option was exercisable on the vesting date immediately preceding such termination
of employment, but had not previously been exercised. To the extent this Option was not exercisable
upon such termination of employment, or if Participant does not exercise the Option within the time
specified in this Paragraph 2(c), all rights of Participant under this Option shall be forfeited.
d. Death. In the event of Participant’s death, this Option shall terminate on the
earlier of (i) the close of business on the twelve-month anniversary date of the date of
Participant’s death, and (ii) the expiration date of this Option stated in Paragraph 2(a) above. In
such period following Participant’s death, this Option shall be exercisable by the person or
persons to whom Participant’s rights under this Option shall have passed by Participant’s will or
by the laws of descent and distribution only to the extent the Option was exercisable on the
vesting date immediately preceding the date of Participant’s death, but had not previously been
exercised. To the extent this Option was not exercisable upon the date of Participant’s death, or
if such person or persons do not exercise this Option within the time specified in this Paragraph
2(d), all rights under this Option shall be forfeited.
3. Manner of Exercise.
a. General. The Option may be exercised only by Participant (or other proper party in
the event of death or incapacity), subject to the conditions of the Plan and subject to such other
administrative rules as the Administrator may deem advisable, by delivering within the Option
Period written notice of exercise to the Company at its principal office. The notice shall state
the number of shares as to which the Option is being exercised and shall be accompanied by payment
in full of the Option price for all shares designated in the notice. The exercise of the Option
shall be deemed effective upon receipt of such notice by the Company and upon payment that complies
with the terms of the Plan and this Agreement. The Option may be exercised with respect to any
number or all of the shares as to which it can then be exercised and, if partially exercised, may
be so exercised as to the unexercised shares any number of times during the Option period as
provided herein.
b. Form of Payment. Subject to approval by the Administrator, payment of the option
price by Participant shall be in the form of cash, personal check, certified check or previously
acquired shares of Common Stock of the Company, or any combination thereof. Any stock so tendered
as part of such payment shall be valued at its Fair Market Value as provided in the Plan. For
purposes of this Agreement, “previously acquired shares of Common Stock” shall include shares of
Common Stock that are already owned by Participant at the time of exercise.
c. Stock Transfer Records. As soon as practicable after the effective exercise of all
or any part of the Option, Participant shall be recorded on the stock transfer books of the Company
as the owner of the shares purchased, and the Company shall deliver to Participant one or more duly
issued stock certificates evidencing such ownership. All requisite original issue or transfer
documentary stamp taxes shall be paid by the Company.
4. Change of Control.
a. Acceleration. Notwithstanding anything in the Plan or this Agreement to the
contrary, in the event of the termination of the Participant’s relationship with the Company in
connection with a Change of Control, this Option shall become immediately exercisable upon such
Change of Control to the extent of 100% of the aggregate number of shares specified in Paragraph 1,
minus any shares or securities previously purchased by Participant, and shall remain exercisable
until the earlier of the Expiration Date stated in Paragraph 2(a) above, and (ii) the date
determined by the Board in connection with the terms of the Plan (including, without limitation,
upon consummation of the Change of Control, if so determined by the Board). If Participant does
not exercise this Option, as the case may be, within the time specified in this Paragraph 4(a), all
rights of Participant under this Option shall be forfeited. If the Participant exercises this
Option on a date that is after the three-month anniversary of the date of his termination of
employment, this Option shall be treated as a nonqualified stock option and shall no longer qualify
as an incentive stock option under Code Section 422.
b. Change of Control Defined. For purposes of this Paragraph 4, a “Change of
Control” means:
i. The consummation of any merger, consolidation, exchange, or reorganization to which the
Company is a party if the individuals and entities who were shareholders of the Company immediately
prior to the effective date of such transaction have, immediately following the effective date of
such transaction, beneficial ownership (as
defined in Rule 13d-3 under the Securities Exchange Act
of 1934) of less than fifty percent (50%) of the total combined voting power of all classes of
securities issued by the surviving corporation for the election of directors of the surviving
corporation;
ii. The shareholders of the Company approve any plan or proposal for the liquidation of the
Company;
iii. A sale, lease or other transfer of all or substantially all of the assets of the Company
to any person or entity which is not an Affiliate of the Company; or
iv. The acquisition, without prior approval by resolution adopted by the Board, of direct or
indirect beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934)
of securities of the Corporation representing, in the aggregate, more than fifty percent (50%) or
more of the total combined voting power of all classes of the Company’s then-issued and outstanding
securities by any person or entity or by a group of associated persons or entities acting in
concert; provided, however, that a change of control will not be deemed to occur if such
acquisition is initiated by Participant or an entity in which Participant owns fifty percent (50%)
or more of the total combined voting power of all classes of such entity’s securities, or if
Participant or such entity is a member of the group of associated persons or entities acting in
concert.
c. Limitation on Change of Control Payments. Participant shall not be entitled to
receive any Change of Control Payment, as defined below, which would constitute a “parachute
payment” for purposes of Code Section 280G, or any successor provision, and the regulations
thereunder. In the event any Change of Control Payment payable to Participant would constitute a
“parachute payment,” Participant shall have the right to designate those Change of Control Payments
which would be reduced or eliminated so that Participant will not receive a “parachute payment.”
For purposes of this Paragraph 4(c), a “Change of Control Payment” shall mean any payment, benefit
or transfer of property in the nature of compensation paid to or for the benefit of Participant
under any arrangement which is considered contingent on a Change of Control for purposes of Code
Section 280G, including, without limitation, any and all of the Company’s salary, bonus, incentive,
restricted stock, stock option, equity-based compensation or benefit plans, programs or other
arrangements, and shall include the acceleration of this Option.
5. Miscellaneous.
a. Employment; Rights as Shareholder. This Agreement shall not confer on Participant
any right with respect to continuance of employment by the Company or any of its Subsidiaries, nor
will it interfere in any way with the right of the Company to terminate such employment.
Participant shall have no rights as a shareholder with respect to shares subject to this Option
until such shares have been issued to Participant upon exercise of this Option. No adjustment shall
be made for dividends (ordinary or extraordinary, whether in cash, securities or other property),
distributions or other rights for which the record date is prior to the date such shares are
issued, except as provided in Section 14 of the Plan.
b. Securities Law Compliance. The exercise of all or any parts of this Option shall
only be effective at such time as counsel to the Company shall have determined that the issuance
and delivery of Common Stock pursuant to such exercise will not violate any state or federal
securities or other laws. Participant may be required by the Company, as a condition of the
effectiveness of any exercise of this Option, to agree in writing that all Common Stock to be
acquired pursuant to such exercise shall be held, until such time that such Common Stock is
registered and freely tradable under applicable state and federal securities laws, for
Participant’s own account without a view to any further distribution thereof, that the certificates
for such shares shall bear an appropriate legend to that effect and that such shares will be not
transferred or disposed of except in compliance with applicable state and federal securities laws.
c. Mergers, Recapitalizations, Stock Splits, Etc. Pursuant and subject to Section 14
of the Plan, and subject to Paragraph 4 hereof, certain changes in the number or character of the
Common Stock of the Company
(through sale, merger, consolidation, exchange, reorganization, divestiture (including a spin-off),
liquidation, recapitalization, stock split, stock dividend or otherwise) shall result in an
adjustment, reduction or enlargement, as appropriate, in Participant’s rights with respect to any
unexercised portion of the Option (i.e., Participant shall have such “anti-dilution” rights
under the Option with respect to such events, but shall not have “preemptive” rights).
d. Shares Reserved. The Company shall at all times during the option period reserve
and keep available such number of shares as will be sufficient to satisfy the requirements of this
Agreement.
e. Withholding Taxes on Disqualifying Disposition. In the event of a disqualifying
disposition of the shares acquired through the exercise of this Option, Participant hereby agrees
to inform the Company of such disposition. Upon notice of a disqualifying disposition, the Company
may take such action as it deems appropriate to insure that, if necessary to comply with all
applicable federal or state income tax laws or regulations, all applicable federal and state
payroll, income or other taxes are withheld from any amounts payable by the Company to Participant.
If the Company is unable to withhold such federal and state taxes, for whatever reason, Participant
hereby agrees to pay to the Company an amount equal to the amount the Company would otherwise be
required to withhold under federal or state law. Participant may, subject to the approval and
discretion of the Administrator or such administrative rules it may deem advisable, elect to have
all or a portion of such tax withholding obligations satisfied by delivering shares of the
Company’s Common Stock having a fair market value equal to such obligations. Such election shall be
approved by the Administrator and otherwise comply with such rules as the Administrator may adopt
to assure compliance with Rule 16b-3, or any successor provision, as then in effect, of the General
Rules and Regulations under the Securities Exchange Act of 1934, if applicable.
f. Nontransferability. During the lifetime of Participant, the accrued Option shall be
exercisable only by Participant or by the Participant’s guardian or other legal representative, and
shall not be assignable or transferable by Participant, in whole or in part, other than by will or
by the laws of descent and distribution.
g. 2003 Equity Incentive Plan. The Option evidenced by this Agreement is granted
pursuant to the Plan, a copy of which Plan has been made available to Participant and is hereby
incorporated into this Agreement. This Agreement is subject to and in all respects limited and
conditioned as provided in the Plan. All defined terms of the Plan shall have the same meaning when
used in this Agreement. The Plan governs this Option and, in the event of any questions as to the
construction of this Agreement or in the event of a conflict between the Plan and this Agreement,
the Plan shall govern, except as the Plan otherwise provides.
h. Lockup Period Limitation. Participant agrees that in the event the Company advises
Participant that it plans an underwritten public offering of its Common Stock in compliance with
the Securities Act of 1933, as amended, and that the underwriter(s) seek(s) to impose restrictions
under which certain shareholders may not sell or contract to sell or grant any option to buy or
otherwise dispose of part or all of their stock purchase rights of the underlying Common Stock,
Participant hereby agrees that for a period not to exceed 180 days from the prospectus, Participant
will not sell or contract to sell or grant an option to buy or otherwise dispose of this option or
any of the underlying shares of Common Stock without the prior written consent of the
underwriter(s) or its representative(s).
i. Blue Sky Limitation. Notwithstanding anything in this Agreement to the contrary, in
the event the Company makes any public offering of its securities and determines in its sole
discretion that it is necessary to reduce the number of issued but unexercised stock purchase
rights so as to comply with any state securities or Blue Sky law limitations with respect thereto,
the Board of Directors of the Company shall have the right (i) to accelerate the exercisability of
this Option and the date on which this Option must be exercised, provided that the Company gives
Participant 15 days’ prior written notice of such acceleration, and (ii) to cancel any portion of
this Option or any other option granted to Participant pursuant to the Plan which is not exercised
prior to or contemporaneously with such public offering. Notice shall be deemed given when
delivered personally or when deposited in the United States mail, first class postage prepaid and
addressed to Participant at the address of Participant on file with the Company.
j. Stock Legend. The Administrator may require that the certificates for any shares of
Common Stock purchased by Participant (or, in the case of death, Participant’s successors) shall
bear an appropriate legend to reflect the restrictions of Paragraph 5(b) and Paragraphs 5(h)
through 5(k) of this Agreement.
k. Scope of Agreement. This Agreement shall bind and inure to the benefit of the
Company and its successors and assigns and Participant and any successor or successors of
Participant permitted by Paragraph 2 or Paragraph 5(f) above.
l. Arbitration. Any dispute arising out of or relating to this Agreement or the
alleged breach of it, or the making of this Agreement, including claims of fraud in the inducement,
shall be discussed between the disputing parties in a good faith effort to arrive at a mutual
settlement of any such controversy. If, notwithstanding, such dispute cannot be resolved, such
dispute shall be settled by binding arbitration. Judgment upon the award rendered by the arbitrator
may be entered in any court having jurisdiction thereof. The arbitrator shall be a retired state or
federal judge or an attorney who has practiced securities or business litigation for at least 10
years. If the parties cannot agree on an arbitrator within 20 days, any party may request that the
chief judge of the District Court for
Hennepin County, Minnesota, select an arbitrator. Arbitration
will be conducted pursuant to the provisions of this Agreement, and the commercial arbitration
rules of the American Arbitration Association, unless such rules are inconsistent with the
provisions of this Agreement. Limited civil discovery shall be permitted for the production of
documents and taking of depositions. Unresolved discovery disputes may be brought to the attention
of the arbitrator who may dispose of such dispute. The arbitrator shall have the authority to award
any remedy or relief that a court of this state could order or grant; provided, however, that
punitive or exemplary damages shall not be awarded. The arbitrator may award to the prevailing
party, if any, as determined by the arbitrator, all of its costs and fees, including the
arbitrator’s fees, administrative fees, travel expenses, out-of-pocket expenses and reasonable
attorneys’ fees. Unless otherwise agreed by the parties, the place of any arbitration proceedings
shall be Hennepin County, Minnesota.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on the day
and year first above written.
| MAKEMUSIC, INC. | ||||||||
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| Its: | ||||||||
| Participant | ||||||||