STOCK OPTION AGREEMENT
THIS AGREEMENT is made and entered into as of this 30th day of July,
1996, by and between BAYWOOD INTERNATIONAL, INC., a Nevada corporation (the
"Corporation") and Xxxxxx Xxxxxx ("Xx. Xxxxxx").
A. The Corporation has entered into an EMPLOYMENT AGREEMENT with Xx.
Xxxxxx which includes certain stock options as set forth in this Stock Option
Agreement; and
B. The grant of options in this Stock Option Agreement are subject to
shareholder approval at the Corporation's 1996 Annual Meeting. Failing
shareholder approval of the options at the Annual Meeting, the present Stock
Option Agreement will be voided, and thereupon the Corporation and Xx. Xxxxxx
will negotiate alternative compensation of equivalent value to him.
The Corporation and Xx. Xxxxxx agree as follows:
1. Option Grant. Pursuant to a resolution of the Board of Directors on
July 30, 1996 an Employment Agreement was entered between Xx. Xxxxxx and the
Corporation and Xx. Xxxxxx was granted options to purchase Two Hundred Thousand
(200,000) shares of the Corporation's Common Stock, $0.001 par value (the
"Stock") as follows: One Hundred Thousand (100,000) shares of the Corporation's
Common Stock at a price of Fifty Two Cents ($0.52) per share exercisable
immediately and until April 18, 2006 (the "First Option") and One Hundred
Thousand (100,000) shares of the Corporation's Common Stock at a price of Fifty
Two Cents ($0.52) per share exercisable on April 19, 1997 and until April 18,
2007 (the "Second Option") (collectively, the "Options").
2. Agreement Defined. The Options granted are separate from the options
described in the 1996 Incentive Stock Option Plan, but are nonetheless subject
to the same terms and conditions of the Corporation's 1996 Incentive Stock
Option Plan (the "Plan") and such additional terms and conditions as are set
forth in this Stock Option Agreement (collectively the "Agreement"). The terms
of the Plan are incorporated by reference in this Agreement and govern the
granting, holding and exercise of the options as though herein set forth in
full, except that where the terms set forth herein differ from the terms in the
Plan, the terms set forth herein shall control. A copy of the Plan is attached
as Exhibit A.
3. Procedure to Exercise. The Options may be exercised only in
accordance with Paragraphs 4-11 below, by delivery to the Corporation (in care
of its Secretary) at the principal offices of the Corporation, presently located
at 00000 Xxxxx 00xx Xxxxx, Xxxxx 0, Xxxxxxxxxx, Xxxxxxx 00000 written
irrevocable notice of exercise in the form attached to this Agreement as Exhibit
B, specifying the number of shares with respect to which the Options are being
exercised, together with payment of the exercise price for those shares in cash
or by check. Any other form of exercise or tender may be refused by the
Corporation, acting through the Board or otherwise, in its discretion.
4. Vesting. The First Option shall vest and become exercisable
immediately upon shareholder approval at the 1996 Annual Meeting following the
execution of this Agreement. The Second Option shall vest and become exercisable
on April 19, 1997, subject to Xx. Xxxxxx'x continued employment until such date.
5. Transfer. The Options are not transferable other than by will or the
laws of descent and distribution and are exercisable, during Xx. Xxxxxx'x
lifetime, only by Xx. Xxxxxx. Xx. Xxxxxx may not assign or otherwise transfer or
encumber his Options or any interest in his Options to any person in any way.
6. Termination. Notwithstanding any other provision of this Agreement
(other than Paragraph 11 below), the Options, to the extent not previously
exercised, shall automatically terminate and be of no further force or effect as
to all remaining shares of Stock as of five o'clock p.m., M.S.T., on April 18,
2006, with respect to the First Option and on April 18, 2007, with respect to
the Second Option.
7. Exercise Upon Termination of Employment. In the event Xx. Xxxxxx
leaves the employment of the Corporation for any reason whatsoever, including
termination by Xx. Xxxxxx'x voluntary resignation or at the direction of the
Corporation, with or without cause, or upon death or Permanent Disability, then,
at Xx. Xxxxxx'x option, or the option of his personal representative, Xx. Xxxxxx
or his personal representative may exercise the Options to the extent not
previously exercised or expired, such exercise to occur no later than sixty (60)
days following Xx. Xxxxxx'x last day of employment with the Corporation or the
date of Xx. Xxxxxx'x death or Permanent Disability, as applicable, and the
Corporation (or its nominee) shall have the right (but not the obligation) to
purchase any shares of Stock acquired pursuant to exercise of options under the
Plan held by Xx Xxxxxx and shares acquired pursuant to exercise of the Options
(along with shares acquired pursuant to this sentence) at a price equal to the
Appraised Value per share of such Stock, determined in accordance with Paragraph
9. The Corporation (or its nominee) shall exercise this right to repurchase the
shares of Stock, if at all, within six (6) months following the date of the
termination of Xx. Xxxxxx'x employment with the Corporation by delivering
written notice of exercise to Xx. Xxxxxx or his personal representative. Payment
on such exercise by the Corporation shall be made in not more than five equal
annual installments of principal and accrued interest (at an annual interest
rate, adjusted on a daily basis, equal to the prime rate of interest publicly
announced as such from time to time by Bank One in Phoenix, Arizona due
commencing on the Corporation's (or its nominee's) purchase and on the next four
(4) anniversaries of such purchase. The date for consummating such purchase
shall be the sixtieth (60th) day following delivery of the Corporation's notice
of exercise, provided that such date may be extended by Xx. Xxxxxx or his
personal representative by written notice to a date not later than the earlier
of ten (10) days after all holding periods under Section 422A of the Internal
Revenue Code expire or consummation of a transaction (e.g., merger,
consolidation, stock sale) pursuant to which the holder of Xx. Xxxxxx'x shares
would be entitled to receive consideration of any kind.
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8. Transfer and Right of First Refusal. In the event any shares of
Stock acquired pursuant to exercise of Options hereunder or any interest
therein, are to be transferred, voluntarily or involuntarily (including, without
limitation, any sale, encumbrance, foreclosure or transfer in lieu thereof, or
by operation of law, any division of marital property on account of divorce or
legal separation being deemed a "transfer" for purposes hereof, but excluding
transfers to which Paragraph 7 hereof applies), the Corporation (or its nominee)
shall have a right of first refusal as follows: Xx. Xxxxxx (or the holder of
such shares if not Xx. Xxxxxx) shall give the Corporation advance written notice
detailing all the terms of the proposed transfer. The Corporation (or its
nominees) shall have the right (but not the obligation), exercisable upon
delivery to the transferring shareholder of written notice of acceptance within
thirty (30) days following receipt of the notice of proposed transfer described
in the preceding sentence, to repurchase all or any of such shares on the terms
and conditions set forth in such notice; provided that the per share purchase
price shall be the lesser of (i) the price, plus the Appraised Value of any
non-cash consideration (determined in accordance with the procedures specified
in Paragraph 9 below) (or, if applicable, 110% of the loan amount), stated in
the notice or (ii) the Appraised Value of the shares, determined in accordance
with Paragraph 9 (and shall be the Appraised Value, determined in accordance
with Paragraph 9, in the event of a transfer not involving any consideration);
and provided further than the purchase price shall be payable, at the election
of the Corporation (or its nominees), either on the terms set forth in the
transferor's notice or in up to five equal annual installments of principal and
accrued interest (at an annual interest rate, adjusted on a daily basis, equal
to the prime rate of interest publicly announced as such from time to time by
Bank One in Phoenix, Arizona) due commencing on the Corporation's (or its
nominee's) purchase and on the next four (4) anniversaries of such purchase. The
date for consummating such purchase shall be the sixtieth (60th) day following
delivery of the Corporation's (or its nominees') notice of exercise, provided
that such date may be extended by the transferring shareholder by written notice
to a date not later than the earlier of ten (10) days after all holding periods
under Section 422A of the Code expire. Failure by the Corporation (or its
nominees) (without default by the transferring shareholder) to close such
purchase within the above 60-day period shall give the transferring shareholder
the right to transfer such shares or interest therein on the terms and to the
person described in the notice during the 60 days following expiration of the
original 60-day period; provided that the shares or interest therein to be
transferred shall for all purposes remain subject to this Agreement. If the
transferring shareholder fails to close the proposed transfer on those terms
within such second 60-day period, the proposed transfer shall again be subject
to the terms of this Paragraph 8. Notwithstanding the foregoing, such shares may
be transferred or retransferred without invoking this right of first refusal
between Xx. Xxxxxx and trusts of which Xx. Xxxxxx and/or Xx. Xxxxxx'x spouse are
the sole beneficiaries by giving prior written notice certifying such a transfer
is to be made; provided that following any such transfer, such shares shall
remain subject to this right of first refusal and all the other provisions of
this Agreement. For so long as the Corporation's right to repurchase the Stock
as set forth in this Paragraph 8 remains effective, neither Xx. Xxxxxx, nor Xx.
Xxxxxx'x personal representative(s), devisee(s), heir(s), successor(s), or
assignee(s) shall sell, assign or otherwise transfer any shares of Stock or
interest therein without obtaining the written agreement of the purchaser,
assignee or transferee that the shares remain subject to this
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repurchase right, and Xx. Xxxxxx agrees that certificates evidencing the Stock
may be legended to reflect the foregoing restrictions.
9. Appraised Value. "Appraised Value" of a share shall mean the market
value of the share. If no market value exists, "Appraised Value" shall mean that
value determined pursuant to the remainder of this Paragraph 9. The Appraised
Value may be mutually agreed upon by the selling and acquiring parties of the
shares of Stock. If the parties cannot mutually agree on the Appraised Value of
a share of Stock within ten (10) days after delivery of a written notice of
exercise of a purchase right or obligation hereunder, then the Appraised Value
of a share of Stock shall be equal to the fair market value of such share as
determined as of the date of termination of Xx. Xxxxxx'x employment with the
Corporation and in the following manner: the fair market value shall be
determined by a Board of Arbitration comprised of three (3) members, one of whom
shall be selected by the selling party and another of whom shall be selected by
the acquiring party. The third arbiter shall be appointed by the two arbiters so
selected. If either side fails to select an arbiter within fifteen (15) days
after written request to do so, then the other party's arbiter shall
unilaterally establish the Appraised Value in a written opinion. The decision of
the majority of said arbiters, or of the single arbiter if applicable, shall be
binding upon the parties hereto. If no two arbiters agree upon a single fair
market value, it shall be the arithmetic average of the values determined by the
two arbiters whose estimates are closest in value, which average value shall be
binding upon the parties hereto. The arbiters shall render a written decision
and shall conduct all proceedings pursuant to the Uniform Arbitration Act as
adopted in the State of Arizona and to the then existing rules of the American
Arbitration Association governing commercial transactions to the extent such
rules are not inconsistent with such Act and this Agreement. Costs of
arbitration shall be borne as determined by the arbiters. In determining the
Appraised Value, no value shall be placed on the good will or name of the
Corporation (except that good will may be valued at an amount not exceeding its
unamortized cost to the extent it represents a cost to the Corporation, and all
shares shall be valued equally, i.e., without regard to majority or minority
status of such shares.
10. Permanent Disability. "Permanent Disability" means that Xx. Xxxxxx
(1) is under a legal decree of incapacity or disability pursuant to title 14 of
Arizona Revised Statutes or other applicable statutes the date of such decree
being deemed to be the date on which such disability occurred for purposes of
this agreement), or (2) submits any claim for disability insurance benefits or
for early distribution of the amounts from a qualified pension or profit-sharing
plan maintained by the Corporation on account of disability (the date of the
earliest of such claims shall be the date on which such disability shall be
deemed to have occurred), or (3) are determined to be disabled pursuant to a
Determination of Disability. A determination of Disability means a determination
that Xx. Xxxxxx, because of a medically determinable disease, injury, or other
mental or physical disability, is unable to perform substantially all of Xx.
Xxxxxx'x regular duties and that such disability is determined or reasonably
expected to last at least twelve (12) months, based on then-available medical
information. The Determination of Disability will be based on the written
opinion of the physician regularly attending Xx. Xxxxxx. If the Corporation
disagrees with the opinion of such physician (the First Physician"), it may
engage at its own expense another physician (the "Second Physician") to examine
Xx. Xxxxxx. The Second Physician shall confer with the First Physician and, if
they together agree in writing
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that Xx. Xxxxxx is or is not disabled, their written opinion shall be conclusive
as to such disability. If the First and Second Physicians do not agree, they
shall choose a third consulting physician (the expense of which shall be borne
by the Corporation), and the written opinion of a majority of these three (3)
physicians shall be conclusive as to such disability. The date of any written
opinion which is conclusive to such disability is the date on which such
disability, if that is the conclusion, will be deemed to have occurred unless
the opinion expressly establishes the date of occurrence. In conjunction with
this Section, Xx. Xxxxxx consent to such examination, to furnish any medical
information requested by any examining physician, and to waive any applicable
physician-patient privilege that may arise because of such examination. All
physicians except the First Physician selected hereunder must be board-certified
in the specialty most closely related to the nature of the disability alleged to
exist.
11. Waiver or Extension of Expiration Dates. In its sole discretion,
the Board may waive or accelerate vesting of Options, or waive or extend
expiration dates, other than the final expiration date.
12. Reservation of Underlying Stock. The Corporation will reserve or
keep available at all times sufficient shares of its common stock to permit the
exercise of Xx. Xxxxxx'x Options and all other options granted or to be granted
under the Plan.
13. Contemplated Registration on Form S-8. The Corporation
contemplates, upon approval of the Options by shareholders at the 1996 Annual
Meeting, that it will thereafter amend its registration statement on Form S-8 to
reflect the then-current status of all authorized options under all Corporation
plans and grants, including the Options set forth herein. If the Corporation is
successful in registering such Options, then paragraph 14 shall not apply,
except to such extent that shares acquired by an affiliate continue to be
subject to restrictions on resale under Rule 144 pursuant to the Securities
Exchange Act of 1933.
14. Effect if No Registration. If, however, the Corporation is not
successful in registering the Options under such registration statement on Form
S-8, then the common stock in the Corporation to be issued to Xx. Xxxxxx upon
exercise of the Options will not be registered under the Securities Act of 1933,
as amended (the "Act") or any applicable state securities laws, in reliance on
exemptions from registration thereunder. If in the opinion of counsel
satisfactory to the Corporation no exemption from registration is then
available, or if such issuance is otherwise in violation of applicable law at
the time purchase rights are exercised under this option, then the Corporation's
obligation to issue shares of its common stock upon exercise of the Options
shall terminate. If such an exemption is available in the opinion of such
counsel, and such issuance is not otherwise in violation of applicable law, Xx.
Xxxxxx (or his personal representative(s), devisee(s), or heir(s)) will deliver
to the Corporation as a condition precedent to giving notice of each exercise,
an investment letter agreement in form and substance satisfactory to the
Corporation to enable the Corporation to comply with the Act or other applicable
securities laws and which may, among other things, limit or condition the right
to dispose of shares of Stock acquired by exercise of the Options will be
permitted only if in the opinion of counsel satisfactory to the Corporation such
disposition is not in violation of the Act, any applicable state securities laws
or any other applicable law, regulation or rule, and Mr.
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Xxxxxx (or Xx. Xxxxxx'x personal representative(s), devisee(s), or heirs(s))
deliver to the Corporation a letter agreement in form and substance satisfactory
to the Corporation whereby Xx. Xxxxxx'x successor(s) or assign(s) agrees to be
bound by the terms and conditions of paragraphs 3-11 above and this Paragraph
14. Xx. Xxxxxx (and Xx. Xxxxxx'x personal representative(s), devisee(s), or
heirs(s)) agree to pay all costs of obtaining any legal opinions and all costs
in connection with proposed exercise of the Options or dispositions of shares
acquired pursuant to the Options.
15. Taxes; Notice of Disposition. Xx. Xxxxxx agrees to pay to the
Corporation or to make arrangements satisfactory to the Committee to pay to the
Corporation, at such time as any income is recognized by Xx. Xxxxxx with respect
to the Options, any Federal, state, or local taxes of any kind required by law
to be withheld on such income by the Corporation. In the event of disposition or
other transfer by Xx. Xxxxxx of common stock issued to Xx. Xxxxxx upon exercise
of Xx. Xxxxxx'x Options, Xx. Xxxxxx agree to provide to the Corporation promptly
written notice describing in reasonable detail the disposition or transfer,
including without limitation the sale price, if any, and date of transfer or
disposition.
16. Plan Amendments. The Board may effect certain amendments to the
Plan (within the limitations prescribed by the Plan) which may affect the terms
of the Options and the Board has the ultimate and conclusive authority to
interpret and administer the Plan and the Options.
17. Governing Law. The Agreement and the Options granted to Xx. Xxxxxx
hereunder are governed by, and shall be interpreted according to, the laws of
the State of Arizona.
18. Further Measures. Each party hereto agrees to do all such things
and take all such actions, and to make, execute and deliver such other documents
and instruments, as shall be reasonably requested to carry out the provisions,
intent and purposes of this Agreement.
19. Possible Tax Treatment. Section 422A of the Internal Revenue Code
of 1986, as amended, provides for advantageous tax treatment upon the
disposition of shares acquired pursuant to incentive stock options and such
treatment may apply to the Options Xx. Xxxxxx has been granted. However, in
order to qualify presently for such advantageous treatment Xx. Xxxxxx must make
no disposition of Corporation shares acquired by Xx. Xxxxxx pursuant to the
Options within two (2) years from the date of grant of the Options nor within
one (1) year after the shares of the Stock are transferred to Xx. Xxxxxx.
Although the foregoing holding period requirements do not represent a term or
condition of the Options, Xx. Xxxxxx may find that it is in Xx. Xxxxxx'x best
interests to comply with them. Because the tax effect may vary depending on Xx.
Xxxxxx'x personal circumstances, and the tax law may change from time to time,
it is strongly recommended that Xx. Xxxxxx consult with tax counsel or a tax
advisor in order to realize any available tax benefits associated with this
Options. This paragraph 18 is for Xx. Xxxxxx'x information purposes only and
does not constitute a warranty by the Corporation as to any tax treatment
applicable to the Options.
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20. Not an Employment Agreement. This letter only grants the Options
described above and is not an employment agreement or a promise or assurance of
continued employment for any period of time including any period of time
necessary to permit full exercise of the Options under Paragraph 1 above.
The parties have executed this Agreement the day and year first
above-written.
The "Corporation" "Xx. Xxxxxx"
BAYWOOD INTERNATIONAL, INC.
a Nevada Corporation
By: /s/ Xxxxxxx Xxxxxxx /s/ Xxxxxx Xxxxxx
----------------------------- ---------------------
Its Secretary
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