Form 12-11

See Tex. Bus. Orgs. Code §§ 21.168–.170 regarding stock rights, options, and convertible indebted­ness.

[Name of corporation]
Nonqualified Stock Option Agreement

[Name of corporation], a Texas corporation (the “Corporation”), grants the following stock option under its [year] Stock Incentive Plan. The terms and conditions attached to this agreement are incorporated into this option as an integral part of it.

This option and any shares acquired under this option are subject to the Corporation’s right of repurchase. The Optionee should consult with a tax or financial advisor concerning this option on grant and before exercise.

Name of optionee (the “Optionee”): [name]

Date of this option grant: [date]

Number of shares of the Corporation’s common stock subject to this option (“Shares”): [num­ber]

Option exercise price per share: $[amount]

Number, if any, of Shares that may be purchased on or after the grant date: [number]

Shares subject to vesting schedule: [specify]

Vesting Start Date: [date]

Vesting Schedule

One year from Vesting Start Date: [number] Shares

Two years from Vesting Start Date: an additional [number] Shares

Three years from Vesting Start Date: an additional [number] Shares

Four years from Vesting Start Date: all remaining Shares

All vesting is dependent on the continuation of a Business Relationship with the Corpo­ration, as provided herein.

Payment alternatives: [specify any or all of sections G(1)(a) though (d) below, e.g., sections G(1)(a) through (c)]

This option satisfies in full all commitments that the Corporation has to the Optionee with respect to the issuance of stock, stock options, or other equity securities.

[Name of corporation]
Nonqualified Stock Option Agreement—Incorporated
Terms and Conditions

A.Grant under Plan

This option is granted under and governed by the Corporation’s [year] Stock Incentive Plan (the “Plan”) and, unless otherwise defined herein or as the context otherwise requires, capitalized terms used herein will have the same meanings as in the Plan.

B.Grant as Nonqualified Stock Option

This option is not intended to qualify as an incentive stock option under section 422 of the Internal Revenue Code of 1986, as amended (the “IRC”).

C.Vesting of Option

1.Vesting If Business Relationship Continues. The Optionee may exercise this option on or after the date of this option for the number of Shares, if any, set forth in this agreement. If the Optionee has continuously maintained a Business Relationship (as defined in section C(2) below) with the Corporation through the dates listed on the vesting schedule set forth on the cover page of this agreement, the Optionee may exercise this option for the additional number of Shares set opposite the applicable vesting date. Notwithstanding the foregoing, the Board may, in its discretion, accelerate the date that any installment of this option becomes exercisable. The foregoing rights are cumulative and may be exercised only before the date that is ten years from the date of this option.

2.Definitions. The following definitions will apply:

“Business Relationship” means service to the Corporation or its successor in the capac­ity of an Employee, officer, director, or consultant.

“Cause” means (a) gross negligence or willful malfeasance in the performance of the Optionee’s work or a breach of fiduciary duty or confidentiality obligations to the Corporation by the Optionee; (b) continued failure to follow the proper directions of the Optionee’s direct or indirect supervisor after written notice of an initial failure; (c) the commission by the Optionee of illegal conduct directly or indirectly involving the Corporation or any of its cus­tomers; (d) disregard by the Optionee of the material rules or material policies of the Corpora­tion that is not cured within fifteen days after notice thereof from the Corporation; (e) intentional acts on the part of the Optionee that generate material adverse publicity toward or about the Corporation; or (f) unsatisfactory performance by the Optionee of his work for the Corporation, as determined by the Board in its sole discretion.

“Private Transaction” means any Acquisition in which the consideration received or retained by the holders of the then outstanding capital stock of the Corporation does not con­sist of (a) cash or cash equivalent consideration, (b) securities registered under the Securities Act (as defined in section H of this agreement), or (c) securities for which the Corporation or any other issuer thereof has agreed, including, without limitation, pursuant to a demand, to file a registration statement within ninety days of completion of the transaction for resale to the public pursuant to the Securities Act.

D.Termination of Business Relationship

1.Termination. If the Optionee’s Business Relationship with the Corporation ceases, voluntarily or involuntarily, with or without Cause, no further installments of this option will become exercisable. In that event, this option will expire and may no longer be exercised after the passage of three months from the date of termination, but in no event later than the scheduled expiration date described in section C(1) of this agreement. Any determi­nation under this agreement as to the status of a Business Relationship or other matters referred to above will be made in good faith by the Board.

2.Employment Status. For purposes of this agreement, with respect to Employees of the Corporation, employment will not be considered as having been terminated during any leave of absence if the leave of absence has been approved in writing by the Corporation and if the written approval contractually obligates the Corporation to continue the employment of the Optionee after the approved period of absence. During such an approved leave of absence, vesting of this option will be suspended (and the period of the leave of absence will be added to all vesting dates) unless otherwise provided in the Corporation’s written approval of the leave of absence. For purposes hereof, a termination of employment followed by another Business Relationship will be deemed a termination of the Business Relationship, ceasing all vesting, unless the Corporation enters into a written agreement related to the other Business Relationship in which it is specifically stated that there is no termination of the Business Rela­tionship under this agreement. This option will not be affected by any change of employment within or among the Corporation and its Subsidiaries as long as the Optionee continuously remains an Employee of the Corporation or any Subsidiary.

3.Termination for Cause. If the Business Relationship of the Optionee is termi­nated for Cause, this option may no longer be exercised after the Optionee’s receipt of written notice of the termination. In that event, the repurchase option described in section U of this agreement will also be applicable.

E.Death or Disability

1.Death. On the death of the Optionee while the Optionee maintains a Business Relationship with the Corporation, this option may be exercised (to the extent exercisable on the date of the Optionee’s death) by the Optionee’s estate, personal representative, or benefi­ciary to whom this option has been transferred pursuant to section J of this agreement any time within twelve months after the date of death, but not later than the scheduled expiration date.

2.Disability. If the Optionee ceases to maintain a Business Relationship with the Corporation by reason of disability, this option may be exercised (to the extent otherwise exercisable on the date of cessation of the Business Relationship) any time within twelve months after the cessation of the Business Relationship, but not later than the scheduled expi­ration date. For purposes hereof, “disability” means “permanent and total disability” as defined in section 22(e)(3) of the IRC.

F.Partial Exercise

This option may be exercised in part at any time and from time to time within the limits described in this agreement, except that this option may not be exercised for a fraction of a share.

G.Payment of Exercise Price

1.Payment Options. The exercise price will be paid by one or any combination of the following forms of payment that are applicable to this option, as indicated in this agree­ment:

a.By check payable to the order of the Corporation.

b.If the Common Stock is publicly traded, by delivery of an irrevocable and unconditional undertaking, satisfactory in form and substance to the Corpora­tion, by a creditworthy broker to deliver promptly to the Corporation suffi­cient funds to pay the exercise price, or delivery by the Optionee to the Corporation of a copy of irrevocable and unconditional instructions, satisfac­tory in form and substance to the Corporation, to a creditworthy broker to deliver promptly to the Corporation cash or a check sufficient to pay the exer­cise price.

c.Subject to section G(2) of this agreement, if the Common Stock is then traded on a national securities exchange or on the NASDAQ stock market (or suc­cessor trading system), by delivery of shares of Common Stock having a fair market value equal to the option price as of the date of exercise.

d.Unless a loan to the Optionee by the Corporation is not permitted under applicable law, by check payable to the order of the Corporation for the par value of the shares being purchased plus delivery of the Optionee’s three-year personal full-recourse promissory note for the balance of the exercise price, bearing interest, payable not less than annually, at the then market rate, as determined by the Board.

Notwithstanding tender of the exercise price under this section G, no exercise will be effective unless the Optionee is in full compliance with this agreement, including, without limitation, section N of this agreement (regarding withholding taxes) and the Plan. In the case of section (G)(1)(c), fair market value as of the date of exercise will be determined as of the last business day for which prices or quotes are available before the date of exercise and will mean (a) the last reported sale price (on that date) of the Common Stock on the principal national securities exchange on which the Common Stock is traded, if the Common Stock is then traded on a national securities exchange; or (b) the last reported sale price (on that date) of the Common Stock on the NASDAQ stock market (or successor trading system), if the Common Stock is then traded on the NASDAQ stock market (or successor trading system).

2.Limitations on Payment by Delivery of Common Stock. If section G(1)(c) is applicable, and if the Optionee delivers shares of Common Stock held by the Optionee (“Old Stock”) to the Corporation in full or partial payment of the exercise price and the Old Stock is subject to restrictions or limitations imposed by agreement between the Optionee and the Cor­poration, an equivalent number of Shares will be subject to all restrictions and limitations applicable to the Old Stock to the extent that the Optionee paid for the Shares by delivery of Old Stock, in addition to any restrictions or limitations imposed by this agreement. Notwith­standing the foregoing, the Optionee may not pay any part of the exercise price by transferring shares of Common Stock to the Corporation unless the Common Stock has been owned by the Optionee free of any substantial risk of forfeiture for at least six months plus one day.

H.Securities Laws, Restrictions on Resale, and Additional Agreements

Until registered under the Securities Act of 1933, as amended, or any successor statute (the “Securities Act”), the Shares will be illiquid and will be deemed to be “restricted securi­ties” for purposes of the Securities Act. Accordingly, such Shares must be sold in compliance with the registration requirements of the Securities Act and may need to be held indefinitely. Unless the Shares have been registered under the Securities Act, each certificate evidencing any of the Shares will bear a restrictive legend specified by the Corporation. To the extent that the Optionee will be bound by any agreement with the Corporation under which the Optionee has agreed to subject any Shares to restrictions, including without limitation restrictions on resale, then any actual or attempted transfer, sale, assignment, or hypothecation will be condi­tioned on and subject to that agreement, and the Corporation will be entitled to require com­pliance and evidence of compliance with that agreement as a condition to the issuance of any Shares.

I.Method of Exercising Option

Subject to the terms and conditions of this agreement, this option may be exercised by written notice to the Corporation at its principal executive office or to any transfer agent the Corporation designates. The notice must state the election to exercise this option and the num­ber of Shares for which it is being exercised and be signed by the person or persons exercising this option. The notice must be accompanied by payment of the full purchase price of such shares, and the Corporation will deliver a certificate or certificates representing such Shares as soon as practicable after the notice is received. The certificate or certificates will be registered in the name of the person or persons exercising this option (or in the name of the Optionee and another person jointly, with right of survivorship, if this option is exercised by the Optionee and if the Optionee so requests in the notice). If this option is exercised pursuant to section E of this agreement by any person or persons other than the Optionee, the notice must be accom­panied by appropriate proof of the right of the person or persons to exercise this option.

J.Option Not Transferable

This option is not transferable or assignable except by will or by the laws of descent and distribution. During the Optionee’s lifetime, only the Optionee may exercise this option.

K.No Obligation to Exercise Option

The grant and acceptance of this option imposes no obligation on the Optionee to exer­cise it.

L.No Obligation to Continue Business Relationship

Neither the Plan, this agreement, nor the grant of this option imposes any obligation on the Corporation to continue the Optionee in employment or other Business Relationship.

M.Adjustments

Except as expressly provided in the Plan with respect to certain changes in the capital­ization of the Corporation, no adjustment will be made for dividends or similar rights with record dates before the date of exercise of this option.

N.Withholding Taxes

If the Corporation in its discretion determines that it is obligated to withhold any tax in connection with the exercise of this option or in connection with the transfer of, or the lapse of restrictions on, any Shares or other property acquired under this option, the Optionee, as a condition to the exercise of this option or the receipt of property acquired under this option, will pay to or deposit with the Corporation, in cash, the amount of any such withholding obli­gation. In addition, to the extent that the Corporation will ever become obligated to withhold any tax in connection with the exercise of this option, or in connection with the transfer of, or the lapse of restrictions on, any shares of Common Stock or other property acquired under this option, the Optionee agrees that the Corporation may, in addition to its right to require a deposit of taxes under the preceding sentence, withhold from the Optionee’s wages or other remuneration the appropriate amount of tax. At the discretion of the Corporation, the amount required to be withheld may be withheld in cash from wages or other remuneration or in kind from the shares of Common Stock or other property otherwise deliverable to the Optionee on exercise of this option. The Optionee further agrees that, if the Corporation does not withhold an amount from the Optionee’s wages or other remuneration sufficient to satisfy the withhold­ing obligation of the Corporation, the Optionee will reimburse the Corporation on demand, in cash, for the amount not withheld.

O.Restrictions on Transfer; Corporation’s Right of First Refusal

1.Exercise of Right. Shares may not be transferred without the Corporation’s writ­ten consent except by will, by the laws of descent and distribution, or in accordance with the provisions of this section O. If the Optionee desires to transfer all or any part of the Shares to any person other than the Corporation (an “Offeror”), the Optionee will (a) obtain in writing an irrevocable and unconditional bona fide offer (the “Offer”) for the purchase thereof from the Offeror and (b) give written notice (the “Option Notice”) to the Corporation setting forth the Optionee’s desire to transfer the Shares. The Option Notice will be accompanied by a copy of the Offer and will set forth at least the name and address of the Offeror and the price and other material terms of the Offer. On receipt of the Option Notice, the Corporation will have an assignable option to purchase any or all of such Shares (the “Offered Shares”) specified in the Option Notice, exercisable by giving a written counter-notice to the Optionee within fif­teen days after receipt of the Option Notice. If the Corporation or its assignees elects to pur­chase all Offered Shares, it will be obligated to purchase, and the Optionee will be obligated to sell to the Corporation or its assignees, the Offered Shares at the price and other material terms indicated in the Offer within thirty days from the date of delivery by the Corporation of the counternotice. To the extent that the consideration proposed to be paid by the Offeror for the Shares consists of property other than cash or a promissory note, the consideration required to be paid by the Corporation may consist of cash equal to the fair market value of such property, as determined in good faith by the Board.

2.Sale of Shares to Offeror. The Optionee may, for sixty days after the expiration of the thirty-day option period set forth in section O(1) of this agreement, sell to an Offeror, under the terms of the Offer, all Offered Shares not purchased or agreed to be purchased by the Corporation or its assignees, provided, however, that the Optionee will not sell such Shares to an Offeror if that Offeror is a competitor of the Corporation and the Corporation gives written notice to the Optionee, within thirty days of its receipt of the Option Notice, stat­ing that the Optionee must not sell his Shares to that Offeror. Further, before the sale of such Shares to an Offeror, that Offeror must execute an agreement with the Corporation under which the Offeror agrees to be subject to the restrictions set forth in this section O. If any or all of the Shares are not sold pursuant to an Offer within the time permitted in this section, the unsold Shares will remain subject to the terms of this section O.

3.Failure to Deliver Shares. If the Optionee (or his legal representative) becomes obligated to sell Shares under this section O but fails to deliver such Shares to the Corporation in accordance with the terms of this agreement, the Corporation may, at its option, in addition to all other remedies it may have, mail or deliver to the Optionee the purchase price for such Shares. The Corporation (a) will cancel on its books the certificate or certificates representing such Shares to be sold and (b) will issue, in lieu thereof, a new certificate or certificates in the name of the Corporation representing such Shares (or cancel such Shares), and then all of the Optionee’s rights in such Shares will terminate.

4.Expiration of Corporation’s Right of First Refusal and Transfer Restrictions. 
The first-refusal rights of the Corporation and the transfer restrictions set forth in this section O will expire as to Shares on the earliest of (a) the tenth anniversary of the date of this agree­ment, (b) immediately before the closing of the first underwritten public offering of shares of Common Stock by the Corporation pursuant to an effective registration statement filed under the Securities Act, or (c) the occurrence of an Acquisition that is not a Private Transaction.

5.Conflicting or Concurrent Agreements. Notwithstanding this section O, as long as the Corporation and the Optionee are parties to an agreement containing first-refusal provi­sions regarding the Shares similar to the foregoing, including without limitation any agree­ment under which the Optionee grants first-refusal or similar rights to any third party with the consent of the Corporation or in connection with any financing transaction by the Corpora­tion, such other agreement will control.

P.Early Disposition

The Optionee agrees to notify the Corporation in writing immediately after the Optionee transfers any Shares, if the transfer occurs on or before the later of (1) the date that is two years after the date of this agreement or (2) the date that is one year after the date on which the Optionee acquired the Shares. The Optionee also agrees to provide the Corporation with any information concerning the transfer required by the Corporation for tax purposes. The provisions of this section P will not be deemed to waive any of the provisions of section O of this agreement.

Q.Lockup Agreement

The Optionee agrees that if the Corporation effects an initial underwritten public offer­ing of shares of Common Stock registered under the Securities Act, the Shares may not be sold, offered for sale, or otherwise disposed of, directly or indirectly, by the Optionee without the prior written consent of the managing underwriters of the offering, for the period of time after the execution of an underwriting agreement in connection with the offering that all the Corporation’s then directors and executive officers agree to be similarly bound (regarding any of their shares of Common Stock).

R.Arbitration

Except as provided in section U of this agreement regarding any valuation dispute under that section, any dispute, controversy, or claim arising out of, in connection with, or relating to the performance of this agreement or its termination will be settled by arbitration in [county] County, Texas, under the then-effective rules of the American Arbitration Associa­tion. Any award will be final, binding, and conclusive on the parties, and judgment rendered on the award may be entered in any court having jurisdiction.

S.Provision of Documentation to Optionee

By signing this agreement, the Optionee acknowledges receipt of a copy of this agree­ment and a copy of the Plan.

T.Miscellaneous

1.Notices. All notices hereunder will be in writing and will be deemed given when sent by mail or delivered in person or by courier, (a) if to the Optionee, to the address set forth above or at the address then shown on the records of the Corporation, and (b) if to the Corpo­ration, to the Corporation’s principal executive offices to the attention of the corporate secre­tary.

2.Entire Agreement; Modification. Together with the Plan, this agreement consti­tutes the entire agreement between the parties regarding the subject matter hereof and super­sedes all proposals, written or oral, and all other communications between the parties regarding the subject matter of this agreement. This agreement may be modified, amended, or rescinded only by a written agreement executed by both parties.

3.Fractional Shares. If this option becomes exercisable for a fraction of a Share because of the adjustment provisions contained in the Plan, the fraction will be rounded down.

4.Issuances of Securities; Changes in Capital Structure. Except as expressly pro­vided in this agreement or in the Plan, no issuance by the Corporation of shares of stock of any class or securities convertible into shares of stock of any class will affect, and no adjustment by reason thereof will be made with respect to, the number or price of Shares subject to this option. No adjustments need be made for dividends paid in cash or in property other than securities of the Corporation. If there is any change in the Common Stock of the Corporation through merger, consolidation, reorganization, recapitalization, stock dividend, stock split, combination or exchange of shares, spin-off, split-up, or other similar change in capitalization or event, the restrictions contained in this agreement will apply with equal force to additional or substitute securities, if any, received by the Optionee in exchange for, or by virtue of his ownership of, Shares, except as otherwise determined by the Board.

5.Severability. The unenforceability of any provision of this agreement will in no way affect the enforceability of any other provision.

6.Successors and Assigns. Nothing in this agreement, express or implied, is intended to confer on any party, other than the parties hereto and their respective permitted assigns, any rights, remedies, obligations, or liabilities under or by reason of this agreement, and no person who is not a party to this agreement may rely on the terms except as otherwise set out. This agreement will be binding on and inure to the benefit of the parties hereto and their respective successors and assigns, subject to the limitations set forth in sections J and O of this agreement.

7.Governing Law. This agreement will be governed by, enforced under, and inter­preted in accordance with the laws of the state of Texas, without regard to any applicable
conflict-of-laws principles that would apply the laws of any other jurisdiction.

8.Assignment. No party to this agreement may assign its rights or delegate its obli­gations hereunder without the prior written consent of each party. Any such attempted assign­ment will be void ab initio. Subject to the preceding sentences, this agreement will be binding on and inure to the benefit of the parties and their respective successors and assigns.

9.Counterparts. This agreement may be executed in two or more counterparts, each of which will be deemed an original and all of which will constitute one instrument.

10.Waiver. No term or provision of this agreement may be waived or modified unless such waiver or modification is in writing and executed by all the parties hereto. Any waiver by any party hereto of a breach or failure to perform will not constitute a waiver of any subsequent breach or failure.

11.Further Assurances. The parties agree to take further actions and execute and deliver other documents, certificates, agreements, and other instruments as may be reasonably necessary or desirable to implement transactions contemplated by this agreement.

12.Section Headings. The headings contained in this agreement are for reference purposes only and will not affect in any way the meaning or interpretation of this agreement.

13.Gender and Number of Words. When the context requires, the gender of all words used in this agreement includes the masculine, feminine, and neuter, and the number of all words includes the singular and the plural.

U.Corporation’s Right of Repurchase of Shares

1.Right of Repurchase. The Corporation will have the assignable right (the “Repurchase Right”) to repurchase from the Optionee all, but not less than all, the Shares pur­chased from the Corporation under this option on the occurrence of any of the events specified in section U(2) of this agreement (a “Repurchase Event”). The Repurchase Right may be exer­cised within sixty days following the date the Corporation receives actual knowledge of a Repurchase Event (the “Repurchase Period”). The Repurchase Right may be exercised by the Corporation or its assignees only by giving the holder of the Shares written notice during the Repurchase Period of its intention to exercise the Repurchase Right and, together with the notice, tendering to the holder an amount (the “Repurchase Price”) equal to (a) in the case of an event specified in section U(2)(b) or (c) of this agreement, the greater of the purchase price or the fair market value of the Shares; or (b) in the case of an event specified in section U(2)(a) or (d) of this agreement, the lesser of the purchase price or the fair market value of the Shares. On timely exercise of the Repurchase Right in the manner provided in this section U(1), the holder will deliver to the Corporation or its assignees the stock certificate or certifi­cates representing the Shares being repurchased, duly endorsed, and free and clear of any liens, charges, or encumbrances.

If Shares are not purchased under the Repurchase Right, the Optionee and his successor in interest, if any, will hold any such Shares subject to all the provisions of this agreement.

2.Right to Exercise Repurchase Right. The Corporation or its assignees will have the Repurchase Right on the occurrence of any of the following Repurchase Events:

a.The voluntary termination of the Optionee’s Business Relationship with the Corporation for any reason.

b.The receivership, bankruptcy, or other creditor proceeding involving the Optionee or the taking of any of the Optionee’s Shares by legal process, such as a levy of execution.

c.Distribution or transfer of record title to any of the Shares held by the Optionee to his spouse as the spouse’s separate property, under a decree of dissolution, operation of law, divorce, or property settlement agreement or for any other reason, except as may be otherwise permitted by the Corpora­tion, the involuntary termination of the Optionee’s employment with the Cor­poration other than for Cause, or any termination as a result of death or disability.

d.The termination of the Optionee’s Business Relationship for Cause.

3.Determination of Fair Market Value. For the purpose of this section U, the fair market value of the Shares will be determined by the Board in its sole discretion as of the date of the Repurchase Event. If the Optionee disagrees with the Board’s determination of the fair market value (the “Board Determination”), the Optionee will notify the Board in writing (the “Dispute Notification”) that the Optionee wishes to dispute the determination. If the dispute is not resolved between the Board and the Optionee within fifteen days of receipt of the Dispute Notification, the Board will appoint a third-party expert in valuing companies that are compa­rable to the Corporation to conduct a determination of the fair market value (the “Third-Party Determination”). The Third-Party Determination will be conclusive and binding on the Board and the Optionee. If the Third-Party Determination is within [percent] percent of the Board Determination, the Optionee will bear the costs incurred in obtaining the Third-Party Determi­nation. If the Third-Party Determination differs from the Board Determination by [percent] percent or more, the Corporation will bear the costs.

4.Repurchase Procedure. Any repurchase of Shares by the Corporation or its assignees will take place at the principal executive offices of the Corporation at the time and date set by the Corporation. The sale will be accomplished by the Optionee’s delivery to the Corporation or its assignees of a certificate or certificates evidencing the repurchased Shares, duly endorsed for transfer to the Corporation or its assignees, and payment to the Optionee by the Corporation or its assignees of the Repurchase Price by check for the repurchased Shares or by cancellation of indebtedness owed to the Corporation or its assignees by the Optionee. If payment is by check, the check may be delivered by mail. On [mailing/delivery] of a check in payment of the Repurchase Price or cancellation of indebtedness, the Corporation or its assignees will become the legal and beneficial owner of the Shares being repurchased and all rights and interests therein, and the Corporation will have the right to transfer to its own name or to the name of its assignees the Shares so repurchased.

5.Expiration of Corporation’s Repurchase Right. The Repurchase Right will remain in effect until such time, if ever, as (a) the Shares are transferred in accordance with section O of this agreement or (b) as to section U(2)(b) and (c) of this agreement, a distribu­tion to the public of shares of Common Stock is made by the Corporation under an effective registration statement filed under the Securities Act.