ENDOREX CORP.
AUTOMATIC STOCK OPTION AGREEMENT
RECITALS
A. Endorex Corp. has implemented an automatic option grant program
under the Corporation's Amended and Restated 1995 Omnibus Incentive Plan
pursuant to which eligible non-employee members of the Board will automatically
receive special option grants at designated intervals over their period of
Board service in order to provide such individuals with a meaningful incentive
to continue to serve as a member of the Board.
B. Optionee is an eligible non-employee Board member, and this
Agreement is executed pursuant to, and is intended to carry out the purposes
of, the Plan in connection with the automatic grant of a stock option to
purchase shares of the Corporation's Common Stock under the Plan.
C. The granted option is intended to be a non-statutory option which
does not meet the requirements of Section 422 of the Code.
D. All capitalized terms in this Agreement, to the extent not
otherwise defined in the Agreement, shall have the meaning assigned to them in
the attached Appendix.
NOW, THEREFORE, it is hereby agreed as follows:
1. Grant of Option. The Corporation hereby grants to Optionee,
as of the Grant Date, a Non-Statutory Option to purchase up to the number of
Option Shares specified in the Grant Notice. The Option Shares shall be
purchasable from time to time during the option term specified in Paragraph 2
at the Exercise Price.
2. Option Term. This option shall have a maximum term of ten
(10) years measured from the Grant Date and shall accordingly expire at the
close of business on the Expiration Date, unless sooner terminated in
accordance with Paragraph 5, 6 or 7.
3. Limited Transferability. This option may, in connection with
the Optionee's estate plan, be assigned in whole or in part during Optionee's
lifetime to one or more members of the Optionee's immediate family or to a
trust established for the exclusive benefit of one or more such family members.
The assigned portion shall be exercisable only by the person or persons who
acquire a proprietary interest in the option pursuant to such assignment. The
terms applicable to the assigned portion shall be the same as those in effect
for this option immediately prior to such assignment and shall be set forth in
such documents issued to the assignee as the Corporation may deem appropriate.
Should the Optionee die while holding this option, then this option shall be
transferred in accordance with Optionee's will or the laws of descent and
distribution.
4. Exercisability/Vesting.
(a) This option shall be immediately exercisable for any or
all of the Option Shares, whether or not the Option Shares are vested in
accordance with the Vesting Schedule set forth in the Grant Notice, and shall
remain so exercisable until the Expiration Date or the sooner termination of
the option term under Paragraph 5, 6 or 7.
(b) Optionee shall, in accordance with the Vesting Schedule
set forth in the Grant Notice, vest in the Option Shares in a series of
installments over his or her period of Board service. Vesting in the Option
Shares may be accelerated pursuant to the provisions of Paragraph 5, 6 or 7.
In no event, however, shall any additional Option Shares vest following
Optionee's cessation of service as a Board member.
5. Cessation of Board Service. Should Optionee's service as a
Board member cease while this option remains outstanding, then the option term
specified in Paragraph 2 shall terminate (and this option shall cease to be
outstanding) prior to the Expiration Date in accordance with the following
provisions:
(i) Should Optionee cease to serve as a Board member
for any reason (other than death or Permanent Disability) while holding
this option, then the period during which this option may be exercised
shall be limited to the twelve (12)-month period commencing with the date
of such cessation of Board service, but in no event shall this option be
exercisable at any time after the Expiration Date. During such limited
period of exercisability, this option may not be exercised in the
aggregate for more than the number of Option Shares (if any) in which
Optionee is vested on the date of his or her cessation of Board service.
Upon the earlier of (i) the expiration of such twelve (12)-month period
or (ii) the specified Expiration Date, the option shall terminate and
cease to be exercisable with respect to any vested Option Shares for
which the option has not been exercised.
(ii) Should Optionee die during the twelve (12)-month
period following his or her cessation of Board service, then the personal
representative of Optionee's estate or the person or persons to whom the
option is transferred pursuant to Optionee's will or in accordance with
the laws of descent and distribution shall have the right to exercise
this option for any or all of the Option Shares in which Optionee is
vested at the time of Optionee's cessation of Board service (less any
Option Shares purchased by Optionee after such cessation of Board service
but prior to death). Such right of exercise shall terminate, and this
option shall accordingly cease to be exercisable for those vested Option
Shares, upon the earlier of (i) the expiration of the twelve (12)-month
period measured from the date of Optionee's cessation of Board service or
(ii) the specified Expiration Date of the option term.
(iii) Should Optionee cease service as a Board member
by reason of death or Permanent Disability, then all Option Shares at the
time subject to this option but not otherwise vested shall immediately
vest in full so that this option may be exercised for any or all of the
Option Shares as fully-vested shares of Common Stock at any time prior to
the earlier of (i) the expiration of the twelve (12)-month period
measured from the date of Optionee's cessation of Board service or (ii)
the specified Expiration Date.
(iv) Upon Optionee's cessation of Board service for
any reason other than death or Permanent Disability, this option shall
immediately terminate and cease to be outstanding with respect to any and
all Option Shares in which Optionee is not otherwise at that time vested
in accordance with the normal Vesting Schedule set forth in the Grant
Notice or the special vesting acceleration provisions of Paragraph 6 or 7
below.
6. Corporate Transaction.
(a) In the event of a Corporate Transaction, all Option
Shares at the time subject to this option but not otherwise vested shall
automatically vest so that this option shall, immediately prior to the
specified effective date for the Corporate Transaction, become fully
exercisable for all of the Option Shares at the time subject to this
option and may be exercised for all or any portion of such shares as fully-
vested shares of Common Stock. Immediately following the consummation of the
Corporate Transaction, this option shall terminate and cease to be outstanding,
except to the extent assumed by the successor corporation or its parent
company.
(b) If this option is assumed in connection with a
Corporate Transaction, then this option shall be appropriately adjusted,
immediately after such Corporate Transaction, to apply to the number and class
of securities which would have been issuable to Optionee in consummation of
such Corporate Transaction had the option been exercised immediately prior to
such Corporate Transaction, and appropriate adjustments shall also be made to
the Exercise Price, provided the aggregate Exercise Price shall remain the
same.
7. Change in Control/Hostile Take-Over.
(a) All Option Shares subject to this option at the time of
a Change in Control but not otherwise vested shall automatically vest so that
this option shall, immediately prior to the effective date of such Change in
Control, become fully exercisable for all of the Option Shares at the time
subject to this option and may be exercised for all or any portion of such
shares as fully-vested shares of Common Stock. This option shall remain
exercisable for such fully-vested Option Shares until the earliest to occur of
(i) the specified Expiration Date, (ii) the sooner termination of this option
(ii) in accordance with Paragraph 5 or 6 or (iii) the surrender of this option
(iii) under Paragraph 7(b).
(b) Optionee shall have an unconditional right (exercisable
during the thirty (30)-day period immediately following the consummation of a
Hostile Take-Over) to surrender this option to the Corporation in exchange for
a cash distribution from the Corporation in an amount equal to the excess of
(i) the Take-Over Price of the Option Shares at the time subject to the
(ii) surrendered option (whether or not those Option Shares are otherwise at
(iii) the time vested) over (ii) the aggregate Exercise Price payable for such
(iv) shares. This Paragraph 7(b) limited stock appreciation right shall in
(v) all events terminate upon the expiration or sooner termination of the
(vi) option term and may not be assigned or transferred by Optionee.
(c) To exercise the Paragraph 7(b) limited stock
appreciation right, Optionee must, during the applicable thirty (30)-day
exercise period, provide the Corporation with written notice of the option
surrender in which there is specified the number of Option Shares as to which
the option is being surrendered. Such notice must be accompanied by the return
of Optionee's copy of this Agreement, together with any written amendments to
such Agreement. The cash distribution shall be paid to Optionee within five
(5) business days following such delivery date. Upon receipt of such cash
distribution, this option shall be cancelled with respect to the shares subject
to the surrendered option (or the surrendered portion), and Optionee shall
cease to have any further right to acquire those Option Shares under this
Agreement. The option shall, however, remain outstanding for the balance of
the Option Shares (if any) in accordance with the terms and provisions of this
Agreement, and the Corporation shall accordingly issue a new stock option
agreement (substantially in the same form as this Agreement) for those
remaining Option Shares.
8. Adjustment in Option Shares. Should any change be made to
the Common Stock by reason of any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration, appropriate adjustments shall be made to (i) the
number and/or class of securities subject to this option and (ii) the Exercise
Price in order to reflect such change and thereby preclude a dilution or
enlargement of benefits hereunder; provided, however, that the aggregate
Exercise Price shall remain the same.
9. Stockholder Rights. The holder of this option shall not have
any stockholder rights with respect to the Option Shares until such person
shall have exercised the option, paid the Exercise Price and become a holder of
record of the purchased shares.
10. Manner of Exercising Option.
(a) In order to exercise this option for all or any part of
the Option Shares for which the option is at the time exercisable, Optionee
(or any other person or persons exercising the option) must take the following
actions:
(i) To the extent the option is
exercised for vested Option Shares, execute and deliver to the
Secretary of the Corporation a Notice of Exercise for the number of
vested Option Shares to be purchased under the exercised option; to
the extent that the option is exercised for one or more unvested
Option Shares, execute and deliver to the Secretary of the
Corporation a Purchase Agreement for those unvested Option Shares.
(ii) Pay the aggregate Exercise Price for
the purchased shares shall be paid in one or more of the following
forms:
(A) cash or check made payable to the
Corporation;
(B) shares of Common Stock held by
Optionee (or any other person or persons exercising the
option) for the requisite period necessary to avoid a charge
to the Corporation's earnings for financial reporting
purposes and valued at Fair Market Value on the Exercise
Date; or
(C) to the extent the option is
exercised for vested Option Shares, through a special sale
and remittance procedure pursuant to which Optionee shall
provide irrevocable written instructions (I) to a
Corporation-designated brokerage firm to effect the immediate
sale of the vested shares purchased under the option and
remit to the Corporation, out of the sale proceeds available
on the settlement date, sufficient funds to cover the
aggregate Exercise Price payable for those shares plus all
applicable Federal, state and local income taxes required to
be withheld by the Corporation by reason of such exercise and
(II) to the Corporation to deliver the certificates for the
purchased shares directly to such brokerage firm in order to
complete the sale.
Except to the extent the sale and remittance
procedure specified above is utilized in connection with the
exercise of the option for vested Option Shares, payment of
the Exercise Price for the purchased shares must accompany
the Exercise Notice or Purchase Agreement delivered to the
Corporation in connection with the option exercise.
(iii) Furnish to the Corporation
appropriate documentation that the person or persons exercising the
option (if other than Optionee) has the right to exercise this
option.
(iv) Make appropriate arrangements with
the Corporation for the satisfaction of all Federal, state and
local income tax withholding requirements applicable to the option
exercise.
(b) As soon as practical after the Exercise Date, the
Corporation shall issue to or on behalf of Optionee (or any other person or
persons exercising this option) a certificate or certificates representing the
purchased Option Shares. To the extent any such Option Shares are unvested,
the certificates for those Option Shares shall be endorsed with an appropriate
legend evidencing the Corporation's repurchase rights and may be held in escrow
with the Corporation until such shares vest.
(c) In no event may this option be exercised for fractional
shares.
11. No Impairment of Rights. This Agreement shall not in any way
affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise make changes in its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets. Nor shall this Agreement in any way be construed or
interpreted so as to affect adversely or otherwise impair the right of the
Corporation or the stockholders to remove Optionee from the Board at any time
in accordance with the provisions of applicable law.
12. Compliance with Laws and Regulations.
(a) The exercise of this option and the issuance of the
Option Shares upon such exercise shall be subject to compliance by the
Corporation and Optionee with all applicable requirements of law relating
thereto and with all applicable regulations of any stock exchange (or the
Nasdaq National Market, if applicable) on which the Common Stock may be listed
for trading at the time of such exercise and issuance.
(b) The inability of the Corporation to obtain approval
from any regulatory body having authority deemed by the Corporation to be
necessary to the lawful issuance and sale of any Common Stock pursuant to this
option shall relieve the Corporation of any liability with respect to the non-
issuance or sale of the Common Stock as to which such approval shall not have
been obtained. However, the Corporation shall use its best efforts to obtain
all such applicable approvals.
13. Successors and Assigns. Except to the extent otherwise
provided in Paragraph 3 or 6, the provisions of this Agreement shall inure to
the benefit of, and be binding upon, the Corporation and its successors and
assigns and Optionee, Optionee's assigns and the legal representatives, heirs
and legatees of Optionee's estate.
14. Construction/Governing Law. This Agreement and the option
evidenced hereby are made and granted pursuant to the automatic option grant
program in effect under the Plan and are in all respects limited by and subject
to the express terms and provisions of that program. The interpretation,
performance, and enforcement of this Agreement shall be governed by the laws of
the State of Illinois without resort to that State's conflict-of-laws rules.
15. Notices. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation at its principal corporate offices. Any notice required to
be given or delivered to Optionee shall be in writing and addressed to Optionee
at the address indicated below Optionee's signature line on the Grant Notice.
All notices shall be deemed effective upon personal delivery or upon deposit in
the U.S. mail, postage prepaid and properly addressed to the party to be
notified.
EXHIBIT I
NOTICE OF EXERCISE
I hereby notify Endorex Corp. (the "Corporation") that I elect to
purchase shares of the Corporation's Common Stock (the "Purchased
Shares") at the option exercise price of $ per share (the "Exercise
Price") pursuant to that certain option (the "Option") granted to me pursuant
to the automatic option grant program under the Corporation's Amended and
Restated 1995 Omnibus Incentive Plan on , 199 .
Concurrently with the delivery of this Exercise Notice to the
Secretary of the Corporation, I shall hereby pay to the Corporation the
Exercise Price for the Purchased Shares in accordance with the provisions of my
agreement with the Corporation evidencing the Option and shall deliver whatever
additional documents may be required by such agreement as a condition for
exercise. Alternatively, I may utilize the special broker/dealer sale and
remittance procedure specified in my agreement to effect payment of the
Exercise Price for any Purchased Shares in which I am vested at the time of
exercise.
, 199
Date
Optionee
Address:
Print name in exact manner
it is to appear on the
stock certificate:
Address to which certificate
is to be sent, if different
from address above:
Social Security Number:
APPENDIX
The following definitions shall be in effect under the Agreement:
A. Agreement shall mean this Automatic Stock Option Agreement.
B. Board shall mean the Corporation's Board of Directors.
C. Change in Control shall mean a change in ownership or control of
the Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly, by any person
or related group of persons (other than the Corporation or a person
that directly or indirectly controls, is controlled by, or is under
common control with, the Corporation) of beneficial ownership
(within the meaning of Rule 13d-3 of the ▇▇▇▇ ▇▇▇) of securities
possessing more than fifty percent (50%) of the total combined
voting power of the Corporation's outstanding securities pursuant
to a tender or exchange offer made directly to the Corporation's
stockholders which the Board does not recommend such stockholders
to accept, or
(ii) a change in the composition of the Board over a period
of thirty-six (36) consecutive months or less such that a majority
of the Board members ceases, by reason of one or more contested
elections for Board membership, to be comprised of individuals who
either (A) have been Board members continuously since the beginning
of such period or (B) have been elected or nominated for election
as Board members during such period by at least a majority of the
Board members described in clause (A) who were still in office at
the time the Board approved such election or nomination.
D. Code shall mean the Internal Revenue Code of 1986, as amended.
E. Common Stock shall mean the Corporation's common stock.
F. Corporate Transaction shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined
voting power of the Corporation's outstanding securities are
transferred to a person or persons different from the persons
holding those securities immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete
liquidation or dissolution of the Corporation.
G. Corporation shall mean Endorex Corp., a Delaware corporation.
H. Exercise Date shall mean the date on which the option shall have
been exercised in accordance with Paragraph 10 of the Agreement.
I. Exercise Price shall mean the exercise price payable per share as
specified in the Grant Notice.
J. Expiration Date shall mean the date on which the option term
expires as specified in the Grant Notice.
K. Fair Market Value per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the
Nasdaq National Market, then the Fair Market Value shall be the
closing selling price per share of Common Stock on the date in
question, as the price is reported by the National Association of
Securities Dealers on the Nasdaq National Market or any successor
system. If there is no closing selling price for the Common Stock
on the date in question, then the Fair Market Value shall be the
closing selling price on the last preceding date for which such
quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question on the
Stock Exchange determined by the Plan Administrator to be the
primary market for the Common Stock, as such price is officially
quoted in the composite tape of transactions on such exchange. If
there is no closing selling price for the Common Stock on the date
in question, then the Fair Market Value shall be the closing
selling price on the last preceding date for which such quotation
exists.
(iii) If the Common Stock is at the time traded on the
Nasdaq OTC Market, then the Fair Market Value shall be the mean of
the highest bid and lowest asked prices per share of Common Stock
on the date in question, as such prices are quoted by the National
Association of Securities Dealers. If both bid and asked prices
are not available for the date in question, then the Fair Market
Value shall be the average of the highest bid and lowest asked
prices for the last preceding date for which such quotations exist.
▇. ▇▇▇▇▇ Date shall mean the date of grant of the option as specified
in the Grant Notice.
▇. ▇▇▇▇▇ Notice shall mean the Notice of Grant of Automatic Stock
Option accompanying this Agreement, pursuant to which Optionee has been
informed of the basic terms of the option evidenced hereby.
N. Hostile Take-Over shall mean the acquisition, directly or
indirectly, by any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is controlled by,
or is under common control with, the Corporation) of beneficial ownership
(within the meaning of Rule 13d-3 of the ▇▇▇▇ ▇▇▇) of securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities pursuant to a tender or exchange offer
made directly to the Corporation's stockholders which the Board does not
recommend such stockholders to accept.
O. 1934 Act shall mean the Securities Exchange Act of 1934, as
amended.
P. Non-Statutory Option shall mean an option not intended to satisfy
the requirements of Code Section 422.
Q. Notice of Exercise shall mean the notice of exercise in the form
attached hereto as Exhibit I.
R. Option Shares shall mean the number of shares of Common Stock
subject to the option.
S. Optionee shall mean the person to whom the option is granted as
specified in the Grant Notice.
T. Permanent Disability shall mean the inability of Optionee to
perform his or her usual duties as a Board member by reason of any medically
determinable physical or mental impairment which is expected to result in death
or has lasted or can be expected to last for a continuous period of twelve (12)
months or more.
U. Plan shall mean Corporation's Amended and Restated 1995 Omnibus
Incentive Plan.
V. Purchase Agreement shall mean the stock purchase agreement (in form
and substance satisfactory to the Corporation) which must be executed at the
time the option is exercised for unvested Option Shares and which will
accordingly (i) grant the Corporation the right to repurchase, at the Exercise
Price, any and all of those Option Shares in which Optionee is not otherwise
vested at the time of his or her cessation of service as a Board member and
(ii) preclude the sale, transfer or other disposition of any of the Option
Shares purchased under such agreement while those Option Shares remain subject
to the repurchase right.
W. Stock Exchange shall mean the American Stock Exchange or the New
York Stock Exchange.
X. Take-Over Price shall mean the greater of (i) the Fair Market Value
per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting the
Hostile Take-Over.
Y. Vesting Schedule shall mean the vesting schedule specified in the
Grant Notice, pursuant to which Optionee will vest in the Option Shares in one
or more installments over his or her period of Board service, subject to
acceleration in accordance with the provisions of the Agreement.