Exhibit 10.40

 

HOLLIS-EDEN PHARMACEUTICALS, INC.

 

2005 NON-EMPLOYEE DIRECTORS’ EQUITY INCENTIVE PLAN

 

ADOPTED BY BOARD OF DIRECTORS: APRIL 27, 2005

APPROVED BY STOCKHOLDERS:                     

 

1. GENERAL.

 

(a)        Eligible Recipients.    The persons eligible to receive Stock Awards
are the Non-Employee Directors of the Company.

 

(b)        Available Stock Awards.    The Plan provides for the grant of the
following Stock Awards: (i) Nonstatutory Stock Options, (ii) Stock Purchase
Awards, (iii) Restricted Stock Awards, (iv) Stock Appreciation Rights, (v)
Restricted Stock Unit Awards, and (vi) Other Stock Awards.

 

(c)        General Purpose.    The Company, by means of the Plan, seeks to
retain the services of its Non-Employee Directors, to secure and retain the
services of new Non-Employee Directors and to provide incentives for such
persons to exert maximum efforts for the success of the Company and any
Affiliate and to provide a means by which such persons may be given an
opportunity to benefit from increases in value of the Common Stock through the
granting of Stock Awards.

 

2. DEFINITIONS.

 

As used in the Plan, the following definitions shall apply to the capitalized
terms indicated below:

 

(a)        “Affiliate” means (i) any corporation (other than the Company) in an
unbroken ownership chain of corporations ending with the Company, provided each
corporation in the unbroken ownership chain owns, at the time of the
determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such ownership chain, and (ii) any corporation (other than the Company) in an
unbroken ownership chain of corporations beginning with the Company, provided
each corporation (other than the last corporation) in the unbroken ownership
chain owns, at the time of the determination, stock possessing fifty percent
(50%) or more of the total combined voting power of all classes of stock in one
of the other corporations in such ownership chain. The Board shall have the
authority to determine (x) the time or times at which the ownership tests are
applied, and (y) whether “Affiliate” includes entities other than corporations
within the foregoing definition.

 

(b)        “Board” means the Board of Directors of the Company.

 

(c)        “Capitalization Adjustment” has the meaning ascribed to that term in
Section 11(a).

 

(d)        “Cause” means, with respect to a Participant, the occurrence of any
of the following: (i) such Participant’s commission of any felony or any crime
involving fraud, dishonesty or moral turpitude under the laws of the United
States or any state thereof; (ii) such Participant’s attempted commission of, or
participation in, a fraud or act of dishonesty against the Company; (iii) such
Participant’s intentional, material violation of any material contract or
agreement between the Participant and the Company or any statutory duty owed to
the Company; (iv) such Participant’s unauthorized use or disclosure of the
Company’s confidential information or trade secrets; or (v) such Participant’s
gross misconduct. The determination that a termination is for Cause shall be
made by the Company in its sole discretion. Any determination by the Company
that the Continuous Service of a Participant was terminated by reason of
dismissal with or without Cause for the purposes of outstanding Stock Awards
held by such Participant shall have no effect upon any determination of the
rights or obligations of the Company or such Participant for any other purpose.

 

1.

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(e)        “Change in Control” means the occurrence, in a single transaction or
in a series of related transactions, of any one or more of the following events:

 

(i)        any Exchange Act Person becomes the Owner, directly or indirectly, of
securities of the Company representing more than forty percent (40%) of the
combined voting power of the Company’s then outstanding securities other than by
virtue of a merger, consolidation or similar transaction. Notwithstanding the
foregoing, a Change in Control shall not be deemed to occur (A) on account of
the acquisition of securities of the Company by an investor, any affiliate
thereof or any other Exchange Act Person from the Company in a transaction or
series of related transactions the primary purpose of which is to obtain
financing for the Company through the issuance of equity securities or (B)
solely because the level of Ownership held by any Exchange Act Person (the
“Subject Person”) exceeds the designated percentage threshold of the outstanding
voting securities as a result of a repurchase or other acquisition of voting
securities by the Company reducing the number of shares outstanding, provided
that if a Change in Control would occur (but for the operation of this sentence)
as a result of the acquisition of voting securities by the Company, and after
such share acquisition, the Subject Person becomes the Owner of any additional
voting securities that, assuming the repurchase or other acquisition had not
occurred, increases the percentage of the then outstanding voting securities
Owned by the Subject Person over the designated percentage threshold, then a
Change in Control shall be deemed to occur;

 

(ii)        there is consummated a merger, consolidation or similar transaction
involving (directly or indirectly) the Company and, immediately after the
consummation of such merger, consolidation or similar transaction, the
stockholders of the Company immediately prior thereto do not Own, directly or
indirectly, either (A) outstanding voting securities representing more than
fifty percent (50%) of the combined outstanding voting power of the surviving
Entity in such merger, consolidation or similar transaction or (B) more than
fifty percent (50%) of the combined outstanding voting power of the parent of
the surviving Entity in such merger, consolidation or similar transaction, in
each case in substantially the same proportions as their Ownership of the
outstanding voting securities of the Company immediately prior to such
transaction;

 

(iii)        the stockholders of the Company approve or the Board approves a
plan of complete dissolution or liquidation of the Company, or a complete
dissolution or liquidation of the Company shall otherwise occur;

 

(iv)        there is consummated a sale, lease, exclusive license or other
disposition of all or substantially all of the consolidated assets of the
Company and its Subsidiaries, other than a sale, lease, license or other
disposition of all or substantially all of the consolidated assets of the
Company and its Subsidiaries to an Entity, more than fifty percent (50%) of the
combined voting power of the voting securities of which are Owned by
stockholders of the Company in substantially the same proportions as their
Ownership of the outstanding voting securities of the Company immediately prior
to such sale, lease, license or other disposition; or

 

(v)        individuals who, on the date this Plan is adopted by the Board, are
members of the Board (the “Incumbent Board”) cease for any reason to constitute
at least a majority of the members of the Board; provided, however, that if the
appointment or election (or nomination for election) of any new Board member was
approved or recommended by a majority vote of the members of the Incumbent Board
then still in office, such new member shall, for purposes of this Plan, be
considered as a member of the Incumbent Board.

 

The term Change in Control shall not include a sale of assets, merger or other
transaction effected exclusively for the purpose of changing the domicile of the
Company.

 

Notwithstanding the foregoing or any other provision of this Plan, the
definition of Change in Control (or any analogous term) in an individual written
agreement between the Company or any Affiliate and the Participant shall
supersede the foregoing definition with respect to Stock Awards subject to such
agreement where such agreement provides for acceleration of vesting of such
Stock Awards in the event of a Change in Control; provided, however, that if no
definition of Change in Control or any analogous term is set forth in such an
individual written agreement, the foregoing definition shall apply.

 

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(f)        “Code” means the Internal Revenue Code of 1986, as amended.

 

(g)        “Committee” means a committee of one (1) or more Directors to whom
authority has been delegated by the Board in accordance with Section 3(c).

 

(h)        “Common Stock” means the common stock of the Company.

 

(i)        “Company” means Hollis-Eden Pharmaceuticals, Inc., a Delaware
corporation.

 

(j)        “Consultant” means any person, including an advisor, who is (i)
engaged by the Company or an Affiliate to render consulting or advisory services
and is compensated for such services, or (ii) serving as a member of the board
of directors of an Affiliate and is compensated for such services. However,
service solely as a Director, or payment of a fee for such service, shall not
cause a Director to be considered a “Consultant” for purposes of the Plan.

 

(k)        “Continuous Service” means that the Participant’s service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. A change in the capacity in which the Participant
renders service to the Company or an Affiliate as an Employee, Consultant or
Director or a change in the entity for which the Participant renders such
service, provided that there is no interruption or termination of the
Participant’s service with the Company or an Affiliate, shall not terminate a
Participant’s Continuous Service. For example, a change in status from a
Non-Employee Director of the Company to a Consultant of an Affiliate or an
Employee of the Company will not constitute an interruption of Continuous
Service. To the extent permitted by law, the Board or the chief executive
officer of the Company, in that party’s sole discretion, may determine whether
Continuous Service shall be considered interrupted in the case of any leave of
absence approved by that party, including sick leave, military leave or any
other personal leave. Notwithstanding the foregoing, a leave of absence shall be
treated as Continuous Service for purposes of vesting in a Stock Award only to
such extent as may be provided in the Company’s leave of absence policy, in the
written terms of any leave of absence agreement or policy applicable to the
Participant, or as otherwise required by law.

 

(l)        “Corporate Transaction” means the occurrence, in a single transaction
or in a series of related transactions, of any one or more of the following
events:

 

(i)        a sale or other disposition of all or substantially all, as
determined by the Board in its sole discretion, of the consolidated assets of
the Company and its Subsidiaries;

 

(ii)        a sale or other disposition of at least ninety percent (90%) of the
outstanding securities of the Company;

 

(iii)        the consummation of a merger, consolidation or similar transaction
following which the Company is not the surviving corporation; or

 

(iv)        the consummation of a merger, consolidation or similar transaction
following which the Company is the surviving corporation but the shares of
Common Stock outstanding immediately preceding the merger, consolidation or
similar transaction are converted or exchanged by virtue of the merger,
consolidation or similar transaction into other property, whether in the form of
securities, cash or otherwise.

 

(m)        “Director” means a member of the Board.

 

(n)        “Disability” means the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.

 

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(o)        “Effective Date” means the later of (i) the date this Plan is
approved by the Company’s stockholders, and (ii) the date this Plan is approved
by the Board. Stockholder approval shall be within twelve (12) months before or
after the date this Plan is adopted by the Board.

 

(p)        “Eligible Committee Director” means a Director who either (i) is not
a current Employee or officer of the Company or an Affiliate, does not receive
compensation, either directly or indirectly, from the Company or an Affiliate
for services rendered as a Consultant or in any capacity other than as a
Director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act
(“Regulation S-K”)), does not possess an interest in any other transaction for
which disclosure would be required under Item 404(a) of Regulation S-K, and is
not engaged in a business relationship for which disclosure would be required
pursuant to Item 404(b) of Regulation S-K; or (ii) is otherwise considered a
“non-employee director” for purposes of Rule 16b-3.

 

(q)        “Employee” means any person employed by the Company or an Affiliate.
However, service solely as a Director, or payment of a fee for such services,
shall not cause a Director to be considered an “Employee” for purposes of the
Plan.

 

(r)        “Entity” means a corporation, partnership, limited liability company
or other entity.

 

(s)        “Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

(t)        “Exchange Act Person” means any natural person, Entity or “group”
(within the meaning of Section 13(d) or 14(d) of the Exchange Act), except that
“Exchange Act Person” shall not include (i) the Company or any Subsidiary of the
Company, (ii) any employee benefit plan of the Company or any Subsidiary of the
Company or any trustee or other fiduciary holding securities under an employee
benefit plan of the Company or any Subsidiary of the Company, (iii) an
underwriter temporarily holding securities pursuant to an offering of such
securities, (iv) an Entity Owned, directly or indirectly, by the stockholders of
the Company in substantially the same proportions as their Ownership of stock of
the Company; or (v) any natural person, Entity or “group” (within the meaning of
Section 13(d) or 14(d) of the Exchange Act) that, as of the Effective Date of
the Plan, is the Owner, directly or indirectly, of securities of the Company
representing more than fifty percent (50%) of the combined voting power of the
Company’s then outstanding securities.

 

(u)        “Fair Market Value” means, as of any date, the value of the Common
Stock determined as follows:

 

(i)        If the Common Stock is listed on any established stock exchange or
traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair
Market Value of a share of Common Stock shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or market (or the exchange or market with the greatest volume of
trading in the Common Stock) on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable. Unless otherwise provided by the Board, if there is no
closing sales price (or closing bid if no sales were reported) for the Common
Stock on the last market trading day prior to the date in question, then the
Fair Market Value shall be the closing selling price (or closing bid if no sales
were reported) on the last preceding date for which such quotation exists.

 

(ii)        In the absence of such markets for the Common Stock, the Fair Market
Value shall be determined by the Board in good faith.

 

(v)        “Non-Employee Director” means a Director who is not an Employee.

 

(w)        “Nonstatutory Stock Option” means an Option not intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.

 

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(x)        “Option” means a Nonstatutory Stock Option to purchase shares of
Common Stock granted pursuant to the Plan.

 

(y)        “Option Agreement” means a written agreement between the Company and
an Optionholder evidencing the terms and conditions of an Option grant. Each
Option Agreement shall be subject to the terms and conditions of the Plan.

 

(z)        “Optionholder” means a person to whom an Option is granted pursuant
to the Plan or, if permitted under the terms of this Plan, such other person who
holds an outstanding Option.

 

(aa)        “Other Stock Award” means an award based in whole or in part by
reference to the Common Stock which is granted pursuant to the terms and
conditions of Section 7(e).

 

(bb)        “Other Stock Award Agreement” means a written agreement between the
Company and a holder of an Other Stock Award evidencing the terms and conditions
of an Other Stock Award grant. Each Other Stock Award Agreement shall be subject
to the terms and conditions of the Plan.

 

(cc)        “Own,” “Owned,” “Owner,” “Ownership” A person or Entity shall be
deemed to “Own,” to have “Owned,” to be the “Owner” of, or to have acquired
“Ownership” of securities if such person or Entity, directly or indirectly,
through any contract, arrangement, understanding, relationship or otherwise, has
or shares voting power, which includes the power to vote or to direct the
voting, with respect to such securities.

 

(dd)        “Participant” means a person to whom a Stock Award is granted
pursuant to the Plan or, if applicable, such other person who holds an
outstanding Stock Award.

 

(ee)        “Plan” means this Hollis-Eden Pharmaceuticals, Inc. 2005
Non-Employee Directors’ Equity Incentive Plan.

 

(ff)        “Restricted Stock Award” means an award of shares of Common Stock
which is granted pursuant to the terms and conditions of Section 7(b).

 

(gg)        “Restricted Stock Award Agreement” means a written agreement between
the Company and a holder of a Restricted Stock Award evidencing the terms and
conditions of a Restricted Stock Award grant. Each Restricted Stock Award
Agreement shall be subject to the terms and conditions of the Plan.

 

(hh)        “Restricted Stock Unit Award” means a right to receive shares of
Common Stock which is granted pursuant to the terms and conditions of Section
7(c).

 

(ii)        “Restricted Stock Unit Award Agreement” means a written agreement
between the Company and a holder of a Restricted Stock Unit Award evidencing the
terms and conditions of a Restricted Stock Unit Award grant. Each Restricted
Stock Unit Award Agreement shall be subject to the terms and conditions of the
Plan.

 

(jj)        “Rule 16b-3” means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.

 

(kk)        “Securities Act” means the Securities Act of 1933, as amended.

 

(ll)        “Stock Appreciation Right” means a right to receive the appreciation
on Common Stock that is granted pursuant to the terms and conditions of Section
7(d).

 

(mm)        “Stock Appreciation Right Agreement” means a written agreement
between the Company and a holder of a Stock Appreciation Right evidencing the
terms and conditions of a Stock Appreciation Right grant. Each Stock
Appreciation Right Agreement shall be subject to the terms and conditions of the
Plan.

 

5.

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(nn)        “Stock Award” means any right granted under the Plan, including a
Nonstatutory Stock Option, a Stock Purchase Award, Restricted Stock Award, a
Stock Appreciation Right, a Restricted Stock Unit Award, or any Other Stock
Award.

 

(oo)        “Stock Award Agreement” means a written agreement between the
Company and a Participant evidencing the terms and conditions of a Stock Award
grant. Each Stock Award Agreement shall be subject to the terms and conditions
of the Plan.

 

(pp)        “Stock Purchase Award” means an award of shares of Common Stock
which is granted pursuant to the terms and conditions of Section 7(a).

 

(qq)        “Stock Purchase Award Agreement” means a written agreement between
the Company and a holder of a Stock Purchase Award evidencing the terms and
conditions of a Stock Purchase Award grant. Each Stock Purchase Award Agreement
shall be subject to the terms and conditions of the Plan.

 

(rr)        “Subsidiary” means, with respect to the Company, (i) any corporation
of which more than fifty percent (50%) of the outstanding capital stock having
ordinary voting power to elect a majority of the board of directors of such
corporation (irrespective of whether, at the time, stock of any other class or
classes of such corporation shall have or might have voting power by reason of
the happening of any contingency) is at the time, directly or indirectly, Owned
by the Company, and (ii) any partnership in which the Company has a direct or
indirect interest (whether in the form of voting or participation in profits or
capital contribution) of more than fifty percent (50%).

 

3. ADMINISTRATION.

 

(a)        Administration by Board.    The Board shall administer the Plan
unless and until the Board delegates administration of the Plan to a Committee
or Committees, as provided in Section 3(c).

 

(b)        Powers of Board.    The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:

 

(i)        To determine from time to time (A) which of the persons eligible
under the Plan shall be granted Stock Awards; (B) when and how each Stock Award
shall be granted; (C) what type or combination of types of Stock Award shall be
granted; (D) the provisions of each Stock Award granted (which need not be
identical), including the time or times when a person shall be permitted to
receive Common Stock pursuant to a Stock Award; and (E) the number of shares of
Common Stock with respect to which a Stock Award shall be granted to each such
person.

 

(ii)        To construe and interpret the Plan and Stock Awards granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan or Stock Award Agreement fully effective.

 

(iii)        To settle all controversies regarding the Plan and Stock Awards
granted under it.

 

(iv)        To accelerate the time at which a Stock Award may first be exercised
or the time during which an Award or any part thereof will vest in accordance
with the Plan, notwithstanding the provisions in the Award stating the time at
which it may first be exercised or the time during which it will vest.

 

(v)        To suspend or terminate the Plan at any time. Suspension or
termination of the Plan shall not impair rights and obligations under any Stock
Award granted while the Plan is in effect except with the written consent of the
affected Participant.

 

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(vi)        To amend the Plan, subject to the limitations, if any, of applicable
law. However, except as provided in Section 11(a) relating to Capitalization
Adjustments, no amendment shall be effective unless approved by the stockholders
of the Company to the extent stockholder approval is necessary to satisfy
applicable law or applicable exchange listing requirements. Rights under any
Award granted before amendment of the Plan shall not be impaired by any
amendment of the Plan unless (i) the Company requests the consent of the
affected Participant, and (ii) such Participant consents in writing.

 

(vii)        To submit any amendment to the Plan for stockholder approval,
including, but not limited to, amendments to the Plan intended to satisfy the
requirements of Section 162(m) of the Code and the regulations thereunder
regarding the exclusion of performance-based compensation from the limit on
corporate deductibility of compensation paid to Covered Employees.

 

(viii)        To amend the Plan in any respect the Board deems necessary or
advisable to provide eligible Employees with the maximum benefits provided or to
be provided under the provisions of the Code and the regulations promulgated
thereunder relating to Incentive Stock Options or to bring the Plan or Incentive
Stock Options granted under it into compliance therewith.

 

(ix)        To amend the terms of any one or more Awards, including, but not
limited to, amendments to provide terms more favorable than previously provided
in the Award Agreement, subject to any specified limits in the Plan that are not
subject to Board discretion; provided, however, that the rights under any Award
shall not be impaired by any such amendment unless (i) the Company requests the
consent of the affected Participant, and (ii) such Participant consents in
writing.

 

(x)    Generally, to exercise such powers and to perform such acts as the Board
deems necessary or expedient to promote the best interests of the Company and
that are not in conflict with the provisions of the Plan or Stock Awards.

 

(c)        Delegation to Committee.

 

(i)        General.    The Board may delegate some or all of the administration
of the Plan to a Committee or Committees. If administration of the Plan is
delegated to a Committee, the Committee shall have, in connection with the
administration of the Plan, the powers theretofore possessed by the Board that
have been delegated to the Committee, including the power to delegate to a
subcommittee of the Committee any of the administrative powers the Committee is
authorized to exercise (and references in this Plan to the Board shall
thereafter be to the Committee or subcommittee), subject, however, to such
resolutions, not inconsistent with the provisions of the Plan, as may be adopted
from time to time by the Board. The Board may retain the authority to
concurrently administer the Plan with the Committee and may, at any time, revest
in the Board some or all of the powers previously delegated.

 

(ii)    Rule 16b-3 Compliance.    In the sole discretion of the Board, the
Committee may consist solely of two or more Eligible Committee Directors, in
accordance with Rule 16b-3.

 

(d)        Effect of Board’s Decision.    All determinations, interpretations
and constructions made by the Board in good faith shall not be subject to review
by any person and shall be final, binding and conclusive on all persons.

 

4. SHARES SUBJECT TO THE PLAN.

 

(a)        Subject to the provisions of Section 12(a) relating to Capitalization
Adjustments, the number of shares of Common Stock that may be issued pursuant to
Stock Awards shall not exceed, in the aggregate, one hundred fifty thousand
(150,000) shares of Common Stock.

 

(b)        Reversion of Shares to the Share Reserve.    If any Stock Award shall
for any reason expire or otherwise terminate, in whole or in part, without
having been exercised in full, if any shares of Common Stock

 

7.

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issued to a Participant pursuant to a Stock Award are forfeited to or
repurchased by the Company, including any repurchase or forfeiture caused by the
failure to meet a contingency or condition required for the vesting of such
shares, or if any shares of Common Stock are cancelled in accordance with the
cancellation and regrant provisions of Section 8, then the shares of Common
Stock not issued under such Stock Award, or forfeited to or repurchased by the
Company, shall revert to and again become available for issuance under the Plan.
If any shares subject to a Stock Award are not delivered to a Participant
because the Stock Award is exercised through a reduction of shares subject to
the Stock Award (i.e., “net exercised”), the number of shares that are not
delivered to the Participant shall remain available for issuance under the Plan.
If any shares subject to a Stock Award are not delivered to a Participant
because such shares are withheld in satisfaction of the withholding of taxes
incurred in connection with the exercise of an Option, Stock Appreciation Right,
or the issuance of shares under a Stock Purchase Award, Restricted Stock Award,
or Restricted Stock Unit Award, the number of shares that are not delivered to
the Participant shall remain available for subsequent issuance under the Plan.
If the exercise price of any Stock Award is satisfied by tendering shares of
Common Stock held by the Participant (either by actual delivery or attestation),
then the number of shares so tendered shall remain available for subsequent
issuance under the Plan.

 

(c)        Source of Shares.    The stock issuable under the Plan shall be
shares of authorized but unissued or reacquired Common Stock, including shares
repurchased by the Company.

 

5. ELIGIBILITY.

 

Only Non-Employee Directors may be granted Stock Awards under the Plan.

 

6. OPTION PROVISIONS.

 

Each Option shall be in such form and shall contain such terms and conditions as
required by the Plan. Each Option shall contain such additional terms and
conditions, not inconsistent with the Plan, as the Board shall deem appropriate.
Each Option shall include (through incorporation of provisions hereof by
reference in the Option or otherwise) the substance of each of the following
provisions:

 

(a)        Term.    No Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.

 

(b)        Exercise Price.    The exercise price of each Option shall be not
less than one hundred percent (100%) of the Fair Market Value of the Common
Stock subject to the Option on the date the Option is granted.

 

(c)        Consideration.    The purchase price of Common Stock acquired
pursuant to the exercise of an Option shall be paid, to the extent permitted by
applicable law and as determined by the Board in its sole discretion, by any
combination of the methods of payment set forth below. The Board shall have the
authority to grant Options that do not permit all of the following methods of
payment (or otherwise restrict the ability to use certain methods) and to grant
Options that require the consent of the Company to utilize a particular method
of payment. The methods of payment permitted by this Section 6(c) are:

 

(i)        by cash or check;

 

(ii)        bank draft or money order payable to the Company;

 

(iii)        pursuant to a program developed under Regulation T as promulgated
by the Federal Reserve Board that, prior to the issuance of Common Stock,
results in either the receipt of cash (or check) by the Company or the receipt
of irrevocable instructions to pay the aggregate exercise price to the Company
from the sales proceeds;

 

(iv)        by delivery to the Company (either by actual delivery or
attestation) of shares of Common Stock;

 

8.

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(v)        by a “net exercise” arrangement pursuant to which the Company will
reduce the number of shares of Common Stock issued upon exercise by the largest
whole number of shares with a Fair Market Value that does not exceed the
aggregate exercise price; provided, however, that the Company shall accept a
cash or other payment from the Participant to the extent of any remaining
balance of the aggregate exercise price not satisfied by such reduction in the
number of whole shares; provided, further, that shares of Common Stock will no
longer be outstanding under an Option and will not be exercisable thereafter to
the extent that (A) shares are used to pay the exercise price pursuant to the
“net exercise,” (B) shares are delivered to the Participant as a result of such
exercise, and (C) shares are withheld to satisfy tax withholding obligations; or

 

(vi)        in any other form of legal consideration that may be acceptable to
the Board.

 

(d)        Transferability.    The Board may, in its sole discretion, impose
such limitations on the transferability of Options as the Board shall determine.
In the absence of such a determination by the Board to the contrary, the
following restrictions on the transferability of Options shall apply:

 

(i)        Restrictions on Transfer.    An Option shall not be transferable
except by will or by the laws of descent and distribution and shall be
exercisable during the lifetime of the Optionholder only by the Optionholder;
provided, however, that the Board may, in its sole discretion, permit transfer
of the Option upon the Optionholder’s request, provided that such transfer is in
compliance with applicable tax and securities laws.

 

(ii)        Domestic Relations Orders.    Notwithstanding the foregoing, an
Option may be transferred pursuant to a domestic relations order.

 

(iii)        Beneficiary Designation.    Notwithstanding the foregoing, the
Optionholder may, by delivering written notice to the Company, in a form
provided by or otherwise satisfactory to the Company, designate a third party
who, in the event of the death of the Optionholder, shall thereafter be entitled
to exercise the Option.

 

(e)        Vesting Generally.    The total number of shares of Common Stock
subject to an Option may vest and therefore become exercisable in periodic
installments that may or may not be equal. The Option may be subject to such
other terms and conditions on the time or times when it may or may not be
exercised as the Board may deem appropriate. The vesting provisions of
individual Options may vary. The provisions of this Section 6(e) are subject to
any Option provisions governing the minimum number of shares of Common Stock as
to which an Option may be exercised.

 

(f)        Termination of Continuous Service.    In the event that an
Optionholder’s Continuous Service terminates (other than for Cause or upon the
Optionholder’s death or Disability or as of, or within twelve (12) months
following a Change in Control), the Optionholder may exercise his or her Option
(to the extent that the Optionholder was entitled to exercise such Option as of
the date of termination of Continuous Service) but only within such period of
time ending on the earlier of (i) the date three (3) months following the
termination of the Optionholder’s Continuous Service (or such longer or shorter
period specified in the Option Agreement), or (ii) the expiration of the term of
the Option as set forth in the Option Agreement. If, after termination of
Continuous Service, the Optionholder does not exercise his or her Option within
the time specified herein or in the Option Agreement (as applicable), the Option
shall terminate.

 

(g)        Extension of Termination Date.    An Optionholder’s Option Agreement
may provide that if the exercise of the Option following the termination of the
Optionholder’s Continuous Service (other than for Cause or upon the
Optionholder’s death or Disability or upon a Change in Control) would be
prohibited at any time solely because the issuance of shares of Common Stock
would violate the registration requirements under the Securities Act, then the
Option shall terminate on the earlier of (i) the expiration of a period of three
(3) months after the termination of the Optionholder’s Continuous Service during
which the exercise of the Option would not be in violation of such registration
requirements, or (ii) the expiration of the term of the Option as set forth in
the Option Agreement.

 

9.

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(h)        Disability of Optionholder.    In the event that an Optionholder’s
Continuous Service terminates as a result of the Optionholder’s Disability, the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise such Option as of the date of termination of Continuous
Service), but only within such period of time ending on the earlier of (i) the
date twelve (12) months following such termination of Continuous Service (or
such longer or shorter period specified in the Option Agreement), or (ii) the
expiration of the term of the Option as set forth in the Option Agreement. If,
after termination of Continuous Service, the Optionholder does not exercise his
or her Option within the time specified herein or in the Option Agreement (as
applicable), the Option shall terminate.

 

(i)        Death of Optionholder.    In the event that (i) an Optionholder’s
Continuous Service terminates as a result of the Optionholder’s death, or (ii)
the Optionholder dies within the period (if any) specified in the Option
Agreement after the termination of the Optionholder’s Continuous Service for a
reason other than death, then the Option may be exercised (to the extent the
Optionholder was entitled to exercise such Option as of the date of death) by
the Optionholder’s estate, by a person who acquired the right to exercise the
Option by bequest or inheritance or by a person designated to exercise the
option upon the Optionholder’s death, but only within the period ending on the
earlier of (i) the date eighteen (18) months following the date of death (or
such longer or shorter period specified in the Option Agreement), or (ii) the
expiration of the term of such Option as set forth in the Option Agreement. If,
after the Optionholder’s death, the Option is not exercised within the time
specified herein or in the Option Agreement (as applicable), the Option shall
terminate.

 

(j)        Termination for Cause.    Except as explicitly provided otherwise in
an Optionholder’s Option Agreement, in the event that an Optionholder’s
Continuous Service is terminated for Cause, the Option shall terminate upon the
termination date of such Optionholder’s Continuous Service, and the Optionholder
shall be prohibited from exercising his or her Option from and after the time of
such termination of Continuous Service.

 

(k)        Termination Upon or Following a Change in Control.    In the event
that an Optionholder’s Continuous Service terminates as of, or within twelve
(12) months following a Change in Control, the Optionholder may exercise his or
her Option (to the extent that the Optionholder was entitled to exercise such
Option as of the date of termination of Continuous Service) within such period
of time ending on the earlier of (i) the date twelve (12) months following the
effective date of the Change in Control (or such longer or shorter period
specified in the Option Agreement), or (ii) the expiration of the term of the
Option as set forth in the Option Agreement. If, after termination of Continuous
Service, the Optionholder does not exercise his or her Option within the time
specified herein or in the Option Agreement (as applicable), the Option shall
terminate.

 

7. PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS.

 

(a)        Stock Purchase Awards.    Each Stock Purchase Award Agreement shall
be in such form and shall contain such terms and conditions as the Board shall
deem appropriate. To the extent consistent with the Company’s Bylaws, at the
Board’s election, shares of Common Stock may be (x) held in book entry form
subject to the Company’s instructions until any restrictions relating to the
Stock Purchase Award lapse; or (y) evidenced by a certificate, which certificate
shall be held in such form and manner as determined by the Board. The terms and
conditions of Stock Purchase Award Agreements may change from time to time, and
the terms and conditions of separate Stock Purchase Award Agreements need not be
identical, provided, however, that each Stock Purchase Award Agreement shall
include (through incorporation of the provisions hereof by reference in the
Agreement or otherwise) the substance of each of the following provisions:

 

(i)        Purchase Price.    At the time of the grant of a Stock Purchase
Award, the Board will determine the price to be paid by the Participant for each
share subject to the Stock Purchase Award. To the extent required by applicable
law, the price to be paid by the Participant for each share of the Stock
Purchase Award will not be less than the par value of a share of Common Stock.

 

10.

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(ii)        Consideration.    At the time of the grant of a Stock Purchase
Award, the Board will determine the consideration permissible for the payment of
the purchase price of the Stock Purchase Award. The purchase price of Common
Stock acquired pursuant to the Stock Purchase Award shall be paid either: (A) in
cash or by check at the time of purchase, (B) by past or future services
actually rendered to the Company or an Affiliate, or (C) in any other form of
legal consideration that may be acceptable to the Board in its sole discretion
and permissible under applicable law.

 

(iii)        Vesting.    Shares of Common Stock acquired under a Stock Purchase
Award may be subject to a share repurchase right or option in favor of the
Company in accordance with a vesting schedule to be determined by the Board.

 

(iv)        Termination of Participant’s Continuous Service.    In the event
that a Participant’s Continuous Service terminates, the Company shall have the
right, but not the obligation, to repurchase or otherwise reacquire, any or all
of the shares of Common Stock held by the Participant that have not vested as of
the date of termination under the terms of the Stock Purchase Award Agreement.
At the Board’s election, the price paid for all shares of Common Stock so
repurchased or reacquired by the Company may be at the lesser of: (A) the Fair
Market Value on the relevant date, or (B) the Participant’s original cost for
such shares. The Company shall not be required to exercise its repurchase or
reacquisition option until at least six (6) months (or such longer or shorter
period of time necessary to avoid a charge to earnings for financial accounting
purposes) have elapsed following the Participant’s purchase of the shares of
Common Stock acquired pursuant to the Stock Purchase Award unless otherwise
determined by the Board or provided in the Stock Purchase Award Agreement.

 

(v)        Transferability.    Rights to purchase or receive shares of Common
Stock granted under a Stock Purchase Award shall be transferable by the
Participant only upon such terms and conditions as are set forth in the Stock
Purchase Award Agreement, as the Board shall determine in its sole discretion,
and so long as Common Stock awarded under the Stock Purchase Award remains
subject to the terms of the Stock Purchase Award Agreement.

 

(b)        Restricted Stock Awards.    Each Restricted Stock Award Agreement
shall be in such form and shall contain such terms and conditions as the Board
shall deem appropriate. To the extent consistent with the Company’s Bylaws, at
the Board’s election, shares of Common Stock may be (x) held in book entry form
subject to the Company’s instructions until any restrictions relating to the
Restricted Stock Award lapse; or (y) evidenced by a certificate, which
certificate shall be held in such form and manner as determined by the Board.
The terms and conditions of Restricted Stock Award Agreements may change from
time to time, and the terms and conditions of separate Restricted Stock Award
Agreements need not be identical, provided, however, that each Restricted Stock
Award Agreement shall include (through incorporation of provisions hereof by
reference in the agreement or otherwise) the substance of each of the following
provisions:

 

(i)        Consideration.    A Restricted Stock Award may be awarded in
consideration for (A) past or future services actually rendered to the Company
or an Affiliate, or (B) any other form of legal consideration that may be
acceptable to the Board in its sole discretion and permissible under applicable
law.

 

(ii)        Vesting.    Shares of Common Stock awarded under the Restricted
Stock Award Agreement may be subject to forfeiture to the Company in accordance
with a vesting schedule to be determined by the Board.

 

(iii)        Termination of Participant’s Continuous Service.    In the event a
Participant’s Continuous Service terminates, the Company may receive via a
forfeiture condition, any or all of the shares of Common Stock held by the
Participant which have not vested as of the date of termination of Continuous
Service under the terms of the Restricted Stock Award Agreement.

 

(iv)        Transferability.    Rights to acquire shares of Common Stock under
the Restricted Stock Award Agreement shall be transferable by the Participant
only upon such terms and conditions as are set forth in

 

11.

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the Restricted Stock Award Agreement, as the Board shall determine in its sole
discretion, so long as Common Stock awarded under the Restricted Stock Award
Agreement remains subject to the terms of the Restricted Stock Award Agreement.

 

(c)        Restricted Stock Unit Awards.    Each Restricted Stock Unit Award
Agreement shall be in such form and shall contain such terms and conditions as
the Board shall deem appropriate. The terms and conditions of Restricted Stock
Unit Award Agreements may change from time to time, and the terms and conditions
of separate Restricted Stock Unit Award Agreements need not be identical,
provided, however, that each Restricted Stock Unit Award Agreement shall include
(through incorporation of the provisions hereof by reference in the Agreement or
otherwise) the substance of each of the following provisions:

 

(i)        Consideration.    At the time of grant of a Restricted Stock Unit
Award, the Board will determine the consideration, if any, to be paid by the
Participant upon delivery of each share of Common Stock subject to the
Restricted Stock Unit Award. The consideration to be paid (if any) by the
Participant for each share of Common Stock subject to a Restricted Stock Unit
Award may be paid in any form of legal consideration that may be acceptable to
the Board in its sole discretion and permissible under applicable law.

 

(ii)        Vesting.    At the time of the grant of a Restricted Stock Unit
Award, the Board may impose such restrictions or conditions to the vesting of
the Restricted Stock Unit Award as it, in its sole discretion, deems
appropriate.

 

(iii)        Payment.    A Restricted Stock Unit Award may be settled by the
delivery of shares of Common Stock, their cash equivalent, any combination
thereof or in any other form of consideration, as determined by the Board and
contained in the Restricted Stock Unit Award Agreement.

 

(iv)        Additional Restrictions.    At the time of the grant of a Restricted
Stock Unit Award, the Board, as it deems appropriate, may impose such
restrictions or conditions that delay the delivery of the shares of Common Stock
(or their cash equivalent) subject to a Restricted Stock Unit Award after the
vesting of such Restricted Stock Unit Award.

 

(v)        Dividend Equivalents.    Dividend equivalents may be credited in
respect of shares of Common Stock covered by a Restricted Stock Unit Award, as
determined by the Board and contained in the Restricted Stock Unit Award
Agreement. At the sole discretion of the Board, such dividend equivalents may be
converted into additional shares of Common Stock covered by the Restricted Stock
Unit Award in such manner as determined by the Board. Any additional shares
covered by the Restricted Stock Unit Award credited by reason of such dividend
equivalents will be subject to all the terms and conditions of the underlying
Restricted Stock Unit Award Agreement to which they relate.

 

(vi)        Termination of Participant’s Continuous Service.    Except as
otherwise provided in the applicable Restricted Stock Unit Award Agreement, such
portion of the Restricted Stock Unit Award that has not vested will be forfeited
upon the Participant’s termination of Continuous Service.

 

(vii)        Compliance with Section 409A of the Code.    Notwithstanding
anything to the contrary set forth herein, any Restricted Stock Unit Award
granted under the Plan that is not exempt from the requirements of Section 409A
of the Code shall contain such provisions so that such Restricted Stock Unit
Award will comply with the requirements of Section 409A of the Code. Such
restrictions, if any, shall be determined by the Board and contained in the
Restricted Stock Unit Award Agreement evidencing such Restricted Stock Unit
Award. For example, such restrictions may include, without limitation, a
requirement that any Common Stock that is to be issued in a year following the
year in which the Restricted Stock Unit Award vests must be issued in accordance
with a fixed pre-determined schedule.

 

(d)        Stock Appreciation Rights.    Each Stock Appreciation Right Agreement
shall be in such form and shall contain such terms and conditions as the Board
shall deem appropriate. Stock Appreciation Rights may be

 

12.

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granted as stand-alone Stock Awards or in tandem with other Stock Awards. The
terms and conditions of Stock Appreciation Right Agreements may change from time
to time, and the terms and conditions of separate Stock Appreciation Right
Agreements need not be identical; provided, however, that each Stock
Appreciation Right Agreement shall include (through incorporation of the
provisions hereof by reference in the Agreement or otherwise) the substance of
each of the following provisions:

 

(i)        Term.    No Stock Appreciation Right shall be exercisable after the
expiration of ten (10) years from the date of its grant.

 

(ii)        Strike Price.    Each Stock Appreciation Right will be denominated
in shares of Common Stock equivalents. The strike price of each Stock
Appreciation Right granted as a stand-alone or tandem Stock Award shall not be
less than one hundred percent (100%) of the Fair Market Value of the Common
Stock equivalents subject to the Stock Appreciation Right on the date of grant.

 

(iii)        Calculation of Appreciation.    The appreciation distribution
payable on the exercise of a Stock Appreciation Right will be not greater than
an amount equal to the excess of (A) the aggregate Fair Market Value (on the
date of the exercise of the Stock Appreciation Right) of a number of shares of
Common Stock equal to the number of share of Common Stock equivalents in which
the Participant is vested under such Stock Appreciation Right, and with respect
to which the Participant is exercising the Stock Appreciation Right on such
date, over (B) the strike price that will be determined by the Board at the time
of grant of the Stock Appreciation Right.

 

(iv)        Vesting.    At the time of the grant of a Stock Appreciation Right,
the Board may impose such restrictions or conditions to the vesting of such
Stock Appreciation Right as it, in its sole discretion, deems appropriate.

 

(v)        Exercise.    To exercise any outstanding Stock Appreciation Right,
the Participant must provide written notice of exercise to the Company in
compliance with the provisions of the Stock Appreciation Right Agreement
evidencing such Stock Appreciation Right.

 

(vi)        Payment.    The appreciation distribution in respect to a Stock
Appreciation Right may be paid in Common Stock, in cash, in any combination of
the two or in any other form of consideration, as determined by the Board and
contained in the Stock Appreciation Right Agreement evidencing such Stock
Appreciation Right.

 

(vii)        Termination of Continuous Service.    In the event that a
Participant’s Continuous Service terminates (other than for Cause or as of or
within twelve (12) months following a Change in Control), the Participant may
exercise his or her Stock Appreciation Right (to the extent that the Participant
was entitled to exercise such Stock Appreciation Right as of the date of
termination) but only within such period of time ending on the earlier of (A)
the date three (3) months following the termination of the Participant’s
Continuous Service (or such longer or shorter period specified in the Stock
Appreciation Right Agreement), or (B) the expiration of the term of the Stock
Appreciation Right as set forth in the Stock Appreciation Right Agreement. If,
after termination, the Participant does not exercise his or her Stock
Appreciation Right within the time specified herein or in the Stock Appreciation
Right Agreement (as applicable), the Stock Appreciation Right shall terminate.

 

(viii)        Termination for Cause.    Except as explicitly provided otherwise
in an Participant’s Stock Appreciation Right Agreement, in the event that a
Participant’s Continuous Service is terminated for Cause, the Stock Appreciation
Right shall terminate upon the termination date of such Participant’s Continuous
Service, and the Participant shall be prohibited from exercising his or her
Stock Appreciation Right from and after the time of such termination of
Continuous Service.

 

(ix)        Termination Upon Change in Control.    In the event that a
Participant’s Continuous Service terminates as of, or within twelve (12) months
following a Change in Control, the Participant may

 

13.

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exercise his or her Stock Appreciation Right (to the extent that the Participant
was entitled to exercise such Stock Appreciation Right as of the date of
termination of Continuous Service) within such period of time ending on the
earlier of (i) the date twelve (12) months following the effective date of the
Change in Control (or such longer or shorter period specified in the Stock
Appreciation Right Agreement), or (ii) the expiration of the term of the Stock
Appreciation Right as set forth in the Stock Appreciation Right Agreement. If,
after termination of Continuous Service, the Participant does not exercise his
or her Stock Appreciation Right within the time specified herein or in the Stock
Appreciation Right Agreement (as applicable), the Stock Appreciation Right shall
terminate.

 

(x)        Compliance with Section 409A of the Code.    Notwithstanding anything
to the contrary set forth herein, any Stock Appreciation Rights granted under
the Plan that are not exempt from the requirements of Section 409A of the Code
shall contain such provisions so that such Stock Appreciation Rights will comply
with the requirements of Section 409A of the Code. Such restrictions, if any,
shall be determined by the Board and contained in the Stock Appreciation Right
Agreement evidencing such Stock Appreciation Right. For example, such
restrictions may include, without limitation, a requirement that a Stock
Appreciation Right that is to be paid wholly or partly in cash must be exercised
and paid in accordance with a fixed pre-determined schedule.

 

(e)        Other Stock Awards.    Other forms of Stock Awards valued in whole or
in part by reference to, or otherwise based on, Common Stock may be granted
either alone or in addition to Stock Awards provided for under Section 6 and the
preceding provisions of this Section 7. Subject to the provisions of the Plan,
the Board shall have sole and complete authority to determine the persons to
whom and the time or times at which such Other Stock Awards will be granted, the
number of shares of Common Stock (or the cash equivalent thereof) to be granted
pursuant to such Other Stock Awards and all other terms and conditions of such
Other Stock Awards.

 

8. COVENANTS OF THE COMPANY.

 

(a)        Availability of Shares.    During the terms of the Stock Awards, the
Company shall keep available at all times the number of shares of Common Stock
required to satisfy such Stock Awards.

 

(b)        Securities Law Compliance.    The Company shall seek to obtain from
each regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to grant Stock Awards and to issue and sell shares
of Common Stock upon exercise of the Stock Awards; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
the Plan, any Stock Award or any Common Stock issued or issuable pursuant to any
such Stock Award. If, after reasonable efforts, the Company is unable to obtain
from any such regulatory commission or agency the authority that counsel for the
Company deems necessary for the lawful issuance and sale of Common Stock under
the Plan, the Company shall be relieved from any liability for failure to issue
and sell Common Stock upon exercise of such Stock Awards unless and until such
authority is obtained.

 

9. USE OF PROCEEDS FROM SALES OF COMMON STOCK.

 

Proceeds from the sale of shares of Common Stock pursuant to Stock Awards shall
constitute general funds of the Company.

 

10. MISCELLANEOUS.

 

(a)        Corporate Action Constituting Grant of Stock Awards.    Corporate
action constituting an offer by the Company of Common Stock to any Participant
under the terms of a Stock Award shall be deemed completed as of the date of
such corporate action, unless otherwise determined by the Board, regardless of
when the instrument, certificate, or letter evidencing the Stock Award is
actually received or accepted by the Participant.

 

14.

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(b)        Stockholder Rights.    No Participant shall be deemed to be the
holder of, or to have any of the rights of a holder with respect to, any shares
of Common Stock subject to such Stock Award unless and until such Participant
has satisfied all requirements for exercise of the Stock Award pursuant to its
terms.

 

(c)        No Service Rights.    Nothing in the Plan, any instrument executed,
or Stock Award granted pursuant thereto shall confer upon any Participant any
right to continue to serve the Company as a Non-Employee Director or shall
affect the right of the Company or an Affiliate to terminate the service of a
Director pursuant to the Bylaws of the Company or an Affiliate, and any
applicable provisions of the corporate law of the state in which the Company or
the Affiliate is incorporated, as the case may be.

 

(d)        Investment Assurances.    The Company may require a Participant, as a
condition of exercising or acquiring Common Stock under any Stock Award, (i) to
give written assurances satisfactory to the Company as to the Participant’s
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Stock Award; and (ii) to
give written assurances satisfactory to the Company stating that the Participant
is acquiring Common Stock subject to the Stock Award for the Participant’s own
account and not with any present intention of selling or otherwise distributing
the Common Stock. The foregoing requirements, and any assurances given pursuant
to such requirements, shall be inoperative if (x) the issuance of the shares
upon the exercise or acquisition of Common Stock under the Stock Award has been
registered under a then currently effective registration statement under the
Securities Act, or (y) as to any particular requirement, a determination is made
by counsel for the Company that such requirement need not be met in the
circumstances under the then applicable securities laws. The Company may, upon
advice of counsel to the Company, place legends on stock certificates issued
under the Plan as such counsel deems necessary or appropriate in order to comply
with applicable securities laws, including, but not limited to, legends
restricting the transfer of the Common Stock.

 

(e)        Withholding Obligations.    To the extent provided by the terms of a
Stock Award Agreement, the Company may, in its sole discretion, satisfy any
federal, state or local tax withholding obligation relating to a Stock Award by
any of the following means (in addition to the Company’s right to withhold from
any compensation paid to the Participant by the Company) or by a combination of
such means: (i) causing the Participant to tender a cash payment; (ii)
withholding shares of Common Stock from the shares of Common Stock issued or
otherwise issuable to the Participant in connection with the Stock Award; or
(iii) by such other method as may be set forth in the Stock Award Agreement.

 

(f)        Electronic Delivery.    Any reference herein to a “written” agreement
or document shall include any agreement or document delivered electronically or
posted on the Company’s intranet.

 

11. ADJUSTMENTS UPON CHANGES IN COMMON STOCK; OTHER CORPORATE EVENTS.

 

(a)        Capitalization Adjustments.    If any change is made in, or other
events occur with respect to, the Common Stock subject to the Plan or subject to
any Stock Award after the Effective Date without the receipt of consideration by
the Company (through merger, consolidation, reorganization, recapitalization,
reincorporation, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or other transaction not involving the receipt of
consideration by the Company (each a “Capitalization Adjustment”)), the Board
shall appropriately adjust: (i) the class(es) and maximum number of securities
subject to the Plan pursuant to Section 4(a), (ii) the class(es) and maximum
number of securities by which the share reserve is to increase automatically
each year pursuant to Section 4(a), (iii) the class(es) and number of securities
subject to each outstanding stock award under the Prior Plan that are added from
time to time to the share reserve under the Plan pursuant to Section 4(a), and
(iv) the class(es) and number of securities and price per share of stock subject
to outstanding Stock Awards. The Board shall make such adjustments, and its
determination shall be final, binding and conclusive. (Notwithstanding the
foregoing, the conversion of any convertible securities of the Company shall not
be treated as a transaction “without receipt of consideration” by the Company.)

 

15.

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(b)        Dissolution or Liquidation.    In the event of a dissolution or
liquidation of the Company, all outstanding Stock Awards (other than Stock
Awards consisting of vested and outstanding shares of Common Stock not subject
to the Company’s right of repurchase) shall terminate immediately prior to the
completion of such dissolution or liquidation, and the shares of Common Stock
subject to the Company’s repurchase option may be repurchased by the Company
notwithstanding the fact that the holder of such Stock Award is providing
Continuous Service, provided, however, that the Board may, in its sole
discretion, cause some or all Stock Awards to become fully vested, exercisable
and/or no longer subject to repurchase or forfeiture (to the extent such Stock
Awards have not previously expired or terminated) before the dissolution or
liquidation is completed but contingent on its completion.

 

(c)        Corporate Transaction.    The following provisions shall apply to
Stock Awards in the event of a Corporate Transaction unless otherwise provided
in the instrument evidencing the Stock Award or any other written agreement
between the Company or any Affiliate and the holder of the Stock Award or unless
otherwise expressly provided by the Board at the time of grant of a Stock Award.

 

(i)        Stock Awards May Be Assumed.    In the event of a Corporate
Transaction, any surviving corporation or acquiring corporation (or the
surviving or acquiring corporation’s parent company) may assume or continue any
or all Stock Awards outstanding under the Plan or may substitute similar stock
awards for Stock Awards outstanding under the Plan (including but not limited
to, awards to acquire the same consideration paid to the stockholders of the
Company pursuant to the Corporate Transaction), and any reacquisition or
repurchase rights held by the Company in respect of Common Stock issued pursuant
to Stock Awards may be assigned by the Company to the successor of the Company
(or the successor’s parent company, if any), in connection with such Corporate
Transaction. A surviving corporation or acquiring corporation (or its parent)
may choose to assume or continue only a portion of a Stock Award or substitute a
similar stock award for only a portion of a Stock Award. The terms of any
assumption, continuation or substitution shall be set by the Board in accordance
with the provisions of Section 3.

 

(ii)        Stock Awards Held by Current Participants.    In the event of a
Corporate Transaction in which the surviving corporation or acquiring
corporation (or its parent company) does not assume or continue such outstanding
Stock Awards or substitute similar stock awards for such outstanding Stock
Awards, then with respect to Stock Awards that have not been assumed, continued
or substituted and that are held by Participants whose Continuous Service has
not terminated prior to the effective time of the Corporate Transaction
(referred to as the “Current Participants”), the vesting of such Stock Awards
(and, if applicable, the time at which such Stock Awards may be exercised) shall
(contingent upon the effectiveness of the Corporate Transaction) be accelerated
in full to a date prior to the effective time of such Corporate Transaction as
the Board shall determine (or, if the Board shall not determine such a date, to
the date that is five (5) days prior to the effective time of the Corporate
Transaction), and such Stock Awards shall terminate if not exercised (if
applicable) at or prior to the effective time of the Corporate Transaction, and
any reacquisition or repurchase rights held by the Company with respect to such
Stock Awards shall lapse (contingent upon the effectiveness of the Corporate
Transaction).

 

(iii)        Stock Awards Held by Persons other than Current Participants.    In
the event of a Corporate Transaction in which the surviving corporation or
acquiring corporation (or its parent company) does not assume or continue such
outstanding Stock Awards or substitute similar stock awards for such outstanding
Stock Awards, then with respect to Stock Awards that have not been assumed,
continued or substituted and that are held by persons other than Current
Participants, the vesting of such Stock Awards (and, if applicable, the time at
which such Stock Award may be exercised) shall not be accelerated and such Stock
Awards (other than a Stock Award consisting of vested and outstanding shares of
Common Stock not subject to the Company’s right of repurchase) shall terminate
if not exercised (if applicable) prior to the effective time of the Corporate
Transaction; provided, however, that any reacquisition or repurchase rights held
by the Company with respect to such Stock Awards shall not terminate and may
continue to be exercised notwithstanding the Corporate Transaction.

 

16.

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(iv)        Payment for Stock Awards in Lieu of Exercise.    Notwithstanding the
foregoing, in the event a Stock Award will terminate if not exercised prior to
the effective time of a Corporate Transaction, the Board may provide, in its
sole discretion, that the holder of such Stock Award may not exercise such Stock
Award but will receive a payment, in such form as may be determined by the
Board, equal in value to the excess, if any, of (A) the value of the property
the holder of the Stock Award would have received upon the exercise of the Stock
Award, over (B) any exercise price payable by such holder in connection with
such exercise.

 

(d)        Change in Control.    In the event that a Non-Employee Director is
required to resign his or her position as a Non-Employee Director as a condition
of a Change in Control, the outstanding Stock Awards of such Participant shall
become fully vested and exercisable immediately prior to the effectiveness of
such resignation (and contingent upon the effectiveness of the Change in
Control. In addition, upon a Change in Control event described in Section
2(e)(i), 2(e)(iii) or 2(e)(iv), each Stock Award held by a Participant whose
Continuous Service has not terminated as of the date immediately prior to the
effective date of such Change in Control shall automatically become fully vested
(and any reacquisition or repurchase rights held by the Company with respect to
the shares of Common Stock subject to such acceleration shall lapse in full, as
appropriate) and, if applicable, each such Stock Award shall become immediately
exercisable in full. A Stock Award may be subject to additional acceleration of
vesting and exercisability upon or after a Change in Control described in
Section 2(e)(ii) or 2(e)(v) as may be provided in the Stock Award Agreement for
such Stock Award or as may be provided in any other written agreement between
the Company or any Affiliate and the Participant, but in the absence of such
provision, no such acceleration shall occur.

 

(e)        Parachute Payments.

 

(i)        If the acceleration of the vesting and exercisability of Stock Awards
provided for in Sections 12(c) and 12(d), together with payments and other
benefits of a Participant (collectively, the “Payment”) (i) constitute a
“parachute payment” within the meaning of Section 280G of the Code, or any
comparable successor provisions, and (ii) but for this Section 12(e) would be
subject to the excise tax imposed by Section 4999 of the Code, or any comparable
successor provisions (the “Excise Tax”), then such Payment shall be either (1)
provided to such Participant in full, or (2) provided to such Participant as to
such lesser extent that would result in no portion of such Payment being subject
to the Excise Tax, whichever of the foregoing amounts, when taking into account
applicable federal, state, local and foreign income and employment taxes, the
Excise Tax, and any other applicable taxes, results in the receipt by such
Participant, on an after-tax basis, of the greatest amount of the Payment,
notwithstanding that all or some portion of the Payment may be subject to the
Excise Tax.

 

(ii)        The Company shall appoint a nationally recognized independent
accounting firm (the “Accountant”) to make the determinations required
hereunder, which accounting firm shall not then be serving as accountant or
auditor for the individual, entity or group that effected the Change in Control.
The Company shall bear all costs and expenses with respect to the determinations
the Accountant may reasonably incur in connection with any calculations
contemplated by this Section 12(e).

 

(iii)        Unless the Company and such Participant otherwise agree in writing,
any determination required under this Section 12(e) shall be made in writing in
good faith by the Accountant. If a reduction in the Payment is to be made as
provided above, reductions shall occur in the following order unless the
Participant elects in writing a different order (provided, however, that such
election shall be subject to Company approval if made on or after the date that
triggers the Payment or a portion thereof):(A) reduction of cash payments; (B)
cancellation of accelerated vesting of Options and other Stock Awards; and (C)
reduction of other benefits paid to the Participant. If acceleration of vesting
of Stock Awards is to be reduced, such acceleration of vesting shall be
cancelled in the reverse order of date of grant of the Stock Awards (i.e., the
earliest granted Stock Award cancelled last) unless the Participant elects in
writing a different order for cancellation.

 

(iv)        For purposes of making the calculations required by this Section
12(e), the Accountant may make reasonable assumptions and approximations
concerning applicable taxes and may rely on reasonable, good

 

17.

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faith interpretations concerning the application of the Code and other
applicable legal authority. The Company and the Participant shall furnish to the
Accountant such information and documents as the Accountant may reasonably
request in order to make such a determination.

 

(v)        If, notwithstanding any reduction described above, the Internal
Revenue Service (the “IRS”) determines that the Participant is liable for the
Excise Tax as a result of the Payment, then the Participant shall be obligated
to pay back to the Company, within thirty (30) days after a final IRS
determination or, in the event that the Participant challenges the final IRS
determination, a final judicial determination, a portion of the Payment (the
“Repayment Amount”). The Repayment Amount with respect to the Payment shall be
the smallest such amount, if any, as shall be required to be paid to the Company
so that the Participant’s net after-tax proceeds with respect to the Payment
(after taking into account the payment of the Excise Tax and all other
applicable taxes imposed on the Payment) shall be maximized. The Repayment
Amount with respect to the Payment shall be zero if a Repayment Amount of more
than zero would not result in the Participant’s net after-tax proceeds with
respect to the Payment being maximized. If the Excise Tax is not eliminated
pursuant to this paragraph, the Optionholder shall pay the Excise Tax.

 

(vi)        Notwithstanding any other provision of this Section 12(e), if (A)
there is a reduction in the Payment as described above, (B) the IRS later
determines that the Participant is liable for the Excise Tax, the payment of
which would result in the maximization of the Participant’s net after-tax
proceeds of the Payment (calculated as if the Payment had not previously been
reduced), and (C) the Participant the Excise Tax, then the Company shall pay or
otherwise provide to the Participant that portion of the Payment that was
reduced pursuant to this Section 12(e) contemporaneously or as soon as
administratively possible after the Optionholder pays the Excise Tax so that the
Participant’s net after-tax proceeds with respect to the Payment are maximized.

 

(vii)        If the Participant either (A) brings any action to enforce rights
pursuant to this Section 12(e), or (B) defends any legal challenge to his or her
rights under this Section 12(e), the Participant shall be entitled to recover
attorneys’ fees and costs incurred in connection with such action, regardless of
the outcome of such action; provided, however, that if such action is commenced
by the Participant, the court finds that the action was brought in good faith.

 

12. TERMINATION OR SUSPENSION OF THE PLAN.

 

(a)        Plan Term.    The Board may suspend or terminate the Plan at any
time. No Stock Awards may be granted under the Plan while the Plan is suspended
or after it is terminated.

 

(b)        No Impairment of Rights.    Termination of the Plan shall not impair
rights and obligations under any Stock Award granted while the Plan is in effect
except with the written consent of the affected Participant.

 

13. EFFECTIVE DATE OF PLAN.

 

This Plan shall become effective on the Effective Date.

 

14. CHOICE OF LAW.

 

The law of the State of California shall govern all questions concerning the
construction, validity and interpretation of this Plan, without regard to such
state’s conflict of laws rules.

 

18.