Exhibit 10.3

 

ICOS CORPORATION

 

1999 STOCK OPTION PLAN

 

(as amended and restated on January 21, 2004)

 

SECTION 1. PURPOSE

 

The purpose of the ICOS Corporation 1999 Stock Option Plan (the “Plan”) is to
enhance the long-term stockholder value of ICOS Corporation, a Delaware
corporation (the “Company”), by offering opportunities to selected persons to
participate in the Company’s growth and success, and to encourage them to remain
in the service of the Company and its Related Corporations (as defined in
Section 2) and to acquire and maintain stock ownership in the Company.

 

SECTION 2. DEFINITIONS

 

For purposes of the Plan, the following terms shall be defined as set forth
below:

 

“Board” means the Board of Directors of the Company.

 

“Cause” means dishonesty, fraud, misconduct, unauthorized use or disclosure of
confidential information or trade secrets, or conviction or confession of a
crime punishable by law (except minor violations), in each case as determined by
the Plan Administrator, and its determination shall be conclusive and binding.

 

“Code” means the Internal Revenue Code of 1986, as amended from time to time.

 

“Common Stock” means the common stock, par value $.01 per share, of the Company.

 

“Corporate Transaction” has the meaning set forth in Section 11.2

 

“Disability,” unless otherwise defined by the Plan Administrator, means a mental
or physical impairment of the Participant that is expected to result in death or
that has lasted or is expected to last for a continuous period of 12 months or
more and that causes the Participant to be unable, in the opinion of the
Company, to perform his or her duties for the Company or a Related Corporation
and to be engaged in any substantial gainful activity.

 

“Effective Date” means the date on which the Plan is adopted by the Board, so
long as it is approved by the Company’s stockholders at any time within 12
months of such adoption.

 

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

 

“Fair Market Value” shall be as established in good faith by the Plan
Administrator or (a) if the Common Stock is listed on the Nasdaq National
Market, the closing selling price for the Common Stock as reported by the Nasdaq
National Market for a single trading day or (b) if the Common Stock is listed on
the New York Stock Exchange or the American Stock Exchange, the closing selling
price for the Common Stock as such price is officially quoted in the composite

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tape of transactions on such exchange for a single trading day; provided,
however, that if there is no such reported price for the Common Stock for the
date in question, then such price on the last preceding date for which such
price exists shall be determinative of Fair Market Value.

 

“Good Reason” means the occurrence of any of the following events or conditions:

 

(a) the assignment to the Participant of any duties materially inconsistent with
the Participant’s position, authority, duties or responsibilities as in effect
immediately prior to a Corporate Transaction or any other action by the
successor corporation which results in a material diminution in such position,
authority, duties or responsibilities, excluding for this purpose an isolated
and inadvertent action not taken in bad faith and which is remedied by the
successor corporation promptly after receipt of notice thereof given by the
Participant;

 

(b) a reduction in the Participant’s annual base salary;

 

(c) the successor corporation’s requiring the Participant (without the
Participant’s consent) to be based at any place outside a 35-mile radius of his
or her place of employment prior to a Corporate Transaction, except for
reasonably required travel on the successor corporation’s business that is not
materially greater than such travel requirements prior to the Corporate
Transaction;

 

(d) the successor corporation’s failure to provide the Participant with
compensation and benefits at least equal in the aggregate (in terms of benefit
levels and/or reward opportunities) to those provided for under any employee
benefit plan, program or practice as in effect immediately prior to the
Corporate Transaction, except for changes in general welfare and benefit plans
in a manner consistent with similar plans applicable to the employees of the
successor corporation and its affiliates in general, which changes on the whole
(after consideration of any additional benefits provided after the consummation
of the Corporate Transaction) are not material decreases; or

 

(e) any material breach by the successor corporation of its obligation to
Participant under the Plan.

 

“Grant Date” means the date on which the Plan Administrator completes the
corporate action relating to the grant of an Option and all conditions precedent
to the grant have been satisfied, provided that conditions to the exercisability
or vesting of Options shall not defer the Grant Date.

 

“Incentive Stock Option” means an Option to purchase Common Stock granted under
Section 7 with the intention that it qualify as an “incentive stock option” as
that term is defined in Section 422 of the Code.

 

“Nonqualified Stock Option” means an Option to purchase Common Stock granted
under Section 7 other than an Incentive Stock Option.

 

“Option” means the right to purchase Common Stock granted under Section 7.

 

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“Option Term” has the meaning set forth in Section 7.3.

 

“Parent,” except as otherwise provided in Section 8.4 in connection with
Incentive Stock Options, means any entity, whether now or hereafter existing,
that directly or indirectly controls the Company.

 

“Participant” means (a) the person to whom an Option is granted; (b) for a
Participant who has died, the personal representative of the Participant’s
estate, the person(s) to whom the Participant’s rights under the Option have
passed by will or by the applicable laws of descent and distribution, or the
beneficiary designated in accordance with Section 10; or (c) the person(s) to
whom an Option has been transferred in accordance with Section 10.

 

“Plan Administrator” means the Board or any committee or committees designated
by the Board to administer the Plan under Section 3.1.

 

“Related Corporation” means any Parent or Subsidiary of the Company.

 

“Retirement” means retirement as of the individual’s normal retirement date
under the Company’s 401(k) Plan or other similar successor plan applicable to
salaried employees, unless otherwise defined by the Plan Administrator from time
to time for purposes of the Plan.

 

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

 

“Subsidiary,” except as provided in Section 8.4 in connection with Incentive
Stock Options, means any entity that is directly or indirectly controlled by the
Company.

 

“Termination Date” has the meaning set forth in Section 7.6.

 

SECTION 3. ADMINISTRATION

 

3.1 Plan Administrator

 

The Plan shall be administered by the Board and/or a committee or committees
(which term includes subcommittees) appointed by, and consisting of two or more
members of, the Board (a “Plan Administrator”). If and so long as the Common
Stock is registered under Section 12(b) or 12(g) of the Exchange Act, the Board
shall consider in selecting the members of any committee acting as Plan
Administrator, with respect to any persons subject or likely to become subject
to Section 16 of the Exchange Act, the provisions regarding (a) ”outside
directors” as contemplated by Section 162(m) of the Code and (b) ”nonemployee
directors” as contemplated by Rule 16b-3 under the Exchange Act. Notwithstanding
the foregoing, the Board may delegate the responsibility for administering the
Plan with respect to designated classes of eligible persons to different
committees consisting of one or more members of the Board, subject to such
limitations as the Board deems appropriate. Committee members shall serve for
such term as the Board may determine, subject to removal by the Board at any
time. To the extent consistent with applicable law, the Plan Administrator may
authorize one or more officers of the Company to grant Options to designated
classes of eligible persons, within the limits specifically prescribed by the
Plan Administrator.

 

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3.2 Administration and Interpretation by Plan Administrator

 

Except for the terms and conditions explicitly set forth in the Plan, the Plan
Administrator shall have exclusive authority, in its discretion, to determine
all matters relating to Options under the Plan, including the selection of
individuals to be granted Options, the type of Options, the number of shares of
Common Stock subject to an Option, all terms, conditions, restrictions and
limitations, if any, of an Option and the terms of any instrument that evidences
the Option. The Plan Administrator shall also have exclusive authority to
interpret the Plan and the terms of any instrument evidencing the Option and may
from time to time adopt, and change, rules and regulations of general
application for the Plan’s administration. The Plan Administrator’s
interpretation of the Plan and its rules and regulations, and all actions taken
and determinations made by the Plan Administrator pursuant to the Plan, shall be
conclusive and binding on all parties involved or affected. The Plan
Administrator may delegate administrative duties to such of the Company’s
officers as it so determines.

 

SECTION 4. STOCK SUBJECT TO THE PLAN

 

4.1 Authorized Number of Shares

 

Subject to adjustment from time to time as provided in Section 11.1, the number
of shares of Common Stock that shall be available for issuance under the Plan
shall be 10,000,000 shares.

 

In addition, (a) any authorized shares not issued or subject to outstanding
options under the Company’s 1989 Stock Option Plan or its 1991 Stock Option Plan
for Nonemployee Directors (the “Prior Plans”) on the Effective Date and (b) any
shares subject to outstanding options under the Prior Plans on the Effective
Date that cease to be subject to such options (other than by reason of exercise
of the options to the extent they are exercised for shares), up to an aggregate
maximum of 7,412,048 shares, shall, as of the date of stockholder approval of
the Plan, cease to be available for grant and issuance under the Prior Plans,
but shall be available for issuance under the Plan.

 

Shares issued under the Plan shall be drawn from authorized and unissued shares
or shares now held or subsequently acquired by the Company as treasury shares.

 

4.2 Limitations

 

Subject to adjustment from time to time as provided in Section 11.1, not more
than 2,500,000 shares of Common Stock may be made subject to Options under the
Plan to any individual in the aggregate in any consecutive three year period,
such limitation to be applied in a manner consistent with the requirements of,
and only to the extent required for compliance with, the exclusion from the
limitation on deductibility of compensation under Section 162(m) of the Code.

 

4.3 Reuse of Shares

 

Any shares of Common Stock that have been made subject to an Option that cease
to be subject to the Option (other than by reason of exercise of the Option to
the extent it is exercised

 

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for shares) shall again be available for issuance in connection with future
grants of Options under the Plan; provided, however, that for purposes of
Section 4.2, any such shares shall be counted in accordance with the
requirements of Section 162(m) of the Code.

 

If an optionee pays the exercise price of an Option by surrendering previously
owned shares in accordance with Section 7.5(b) and/or, as permitted by the Plan
Administrator, pays any withholding tax obligation with respect to an Option by
electing to have shares withheld or surrendering previously owned shares, in
accordance with Sections 9(b) or (c), the surrendered shares and the shares
withheld to pay taxes shall be available for issuance under the Plan and shall
not count toward the maximum number of shares that may be issued under the Plan
as set forth in Section 4.1. Notwithstanding the foregoing, the maximum number
of shares of Common Stock that may be granted in the form of Incentive Stock
Options shall not exceed 12,412,048.

 

SECTION 5. ELIGIBILITY

 

Options may be granted under the Plan to those officers, directors and employees
of the Company and its Related Corporations as the Plan Administrator from time
to time selects. Options may also be made to consultants, agents, advisors and
independent contractors who provide services to the Company and its Related
Corporations; provided, however, that such Participants render bona fide
services not in connection with the offer and sale of the Company’s securities
in a capital-raising transaction.

 

SECTION 6. SETTLEMENT OF OPTIONS AND

ACQUIRED COMPANY OPTIONS

 

6.1 Settlement of Options

 

The Company may settle Options through the delivery of shares of Common Stock,
cash payments, the granting of replacement Options or any combination thereof as
the Plan Administrator shall determine. Any Option settlement, including payment
deferrals, may be subject to such conditions, restrictions and contingencies as
the Plan Administrator shall determine. The Plan Administrator may permit or
require the deferral of any Option payment, subject to such rules and procedures
as it may establish, which may include provisions for the payment or crediting
of interest, or dividend equivalents, including converting such credits into
deferred stock equivalents. The Plan Administrator may at any time offer to buy
out, for a payment in cash or Common Stock, an Option previously granted based
on such terms and conditions as the Plan Administrator shall establish and
communicate to the Participant at the time such offer is made.

 

6.2 Acquired Company Options

 

Notwithstanding anything in the Plan to the contrary, the Plan Administrator may
grant Options under the Plan in substitution for options issued under other
plans, or assume under the Plan options issued under other plans, if the other
plans are or were plans of other acquired entities (“Acquired Entities”) (or the
parent of the Acquired Entity) and the new Option is substituted, or the old
option is assumed, by reason of a merger, consolidation, acquisition of property
or of stock, reorganization or liquidation (the “Acquisition Transaction”). In
the event

 

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that a written agreement pursuant to which the Acquisition Transaction is
completed is approved by the Board and said agreement sets forth the terms and
conditions of the substitution for or assumption of outstanding options of the
Acquired Entity, said terms and conditions shall be deemed to be the action of
the Plan Administrator without any further action by the Plan Administrator,
except as may be required for compliance with Rule 16b-3 under the Exchange Act,
and the persons holding such options shall be deemed to be Participants.

 

SECTION 7. TERMS AND CONDITIONS OF OPTIONS

 

7.1 Grant of Options

 

The Plan Administrator is authorized under the Plan, in its sole discretion, to
issue Options as Incentive Stock Options or as Nonqualified Stock Options, which
shall be appropriately designated. Options may be granted singly or in
combination.

 

7.2 Option Exercise Price

 

The exercise price for shares purchased under an Option shall be as determined
by the Plan Administrator, but shall not be less than 100% of the Fair Market
Value of the Common Stock on the Grant Date with respect to Incentive Stock
Options and not less than 85% of the Fair Market Value of the Common Stock on
the Grant Date with respect to Nonqualified Stock Options. For Incentive Stock
Options granted to a more than 10% stockholder, the Option exercise price shall
be as specified in Section 8.2.

 

7.3 Term of Options

 

The term of each Option (the “Option Term”) shall be as established by the Plan
Administrator or, if not so established, shall be ten years from the Grant Date.
For Incentive Stock Options, the maximum Option Term shall be as specified in
Sections 8.2 and 8.5.

 

7.4 Exercise of Options

 

The Plan Administrator shall establish and set forth in each instrument that
evidences an Option the time at which, or the installments in which, the Option
shall vest and become exercisable, which provisions may be waived or modified by
the Plan Administrator at any time. If not so established in the instrument
evidencing the Option, the Option shall vest and become exercisable according to
the following schedule, which may be waived or modified by the Plan
Administrator at any time:

 

Period of Participant’s Continuous

Employment or Service With the Company

or Its Related Corporations From the

Option Grant Date

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Percent of Total Option

That Is Vested and Exercisable

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After 1 month

  1/48th

Each additional one-month period of continuous service completed thereafter

  An additional 1/48th

After 4 years

  100%

 

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Unless the Plan Administrator (or the Company’s Chief Executive Officer in the
case of Participants who are not subject to Section 16 of the Exchange Act)
determines otherwise, the vesting schedule of an Option shall be adjusted
proportionately to the extent a Participant’s hours of employment or service are
reduced after the Grant Date.

 

To the extent that the Option has vested and become exercisable, an Option may
be exercised from time to time by delivery to the Company of a written stock
option exercise agreement or notice, in a form and in accordance with procedures
established by the Plan Administrator, setting forth the number of shares with
respect to which the Option is being exercised, the restrictions imposed on the
shares purchased under such exercise agreement, if any, and such representations
and agreements as may be required by the Plan Administrator, accompanied by
payment in full as described in Section 7.5. An Option may not be exercised as
to less than a reasonable number of shares at any one time, as determined by the
Plan Administrator.

 

7.5 Payment of Exercise Price

 

The exercise price for shares purchased under an Option shall be paid in full to
the Company by delivery of consideration equal to the product of the Option
exercise price and the number of shares purchased. Such consideration must be
paid in cash or by check or, unless the Plan Administrator in its sole
discretion determines otherwise, either at the time the Option is granted or at
any time thereafter, in any combination of

 

(a) cash or check;

 

(b) tendering (either actually or, if and so long as the Common Stock is
registered under Section 12(b) or 12(g) of the Exchange Act, by attestation)
shares of Common Stock already owned by the Participant for at least six months
(or any shorter period necessary to avoid a charge to the Company’s earnings for
financial reporting purposes) having a Fair Market Value on the day prior to the
exercise date equal in amount to the aggregate Option exercise price;

 

(c) if and so long as the Common Stock is registered under Section 12(b) or
12(g) of the Exchange Act, delivery of a properly executed exercise notice,
together with irrevocable instructions, to (i) a brokerage firm designated by
the Company to deliver promptly to the Company the aggregate amount of sale or
loan proceeds to pay the Option exercise price and any withholding tax
obligations that may arise in connection with the exercise and (ii) the Company
to deliver the certificates for such purchased shares directly to such brokerage
firm, all in accordance with the regulations of the Federal Reserve Board; or

 

(d) such other consideration as the Plan Administrator may permit.

 

In addition, to assist a Participant (including a Participant who is an officer
or a director of the Company) in acquiring shares of Common Stock pursuant to an
Option granted under the

 

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Plan, the Plan Administrator, in its sole discretion, may authorize, either at
the Grant Date or at any time before the acquisition of Common Stock pursuant to
the Option, (i) the payment by a Participant of a full-recourse promissory note,
(ii) the payment by the Participant of the purchase price, if any, of the Common
Stock in installments, or (iii) the guarantee by the Company of a loan obtained
by the Participant from a third party. Subject to the foregoing, the Plan
Administrator shall in its sole discretion specify the terms of any loans,
installment payments or loan guarantees, including the interest rate and terms
of and security for repayment.

 

7.6 Post-Termination Exercises

 

The Plan Administrator shall establish and set forth in each instrument that
evidences an Option whether the Option shall continue to be exercisable, and the
terms and conditions of such exercise, if a Participant ceases to be employed
by, or to provide services to, the Company or its Related Corporations, which
provisions may be waived or modified by the Plan Administrator at any time. If
not so established in the instrument evidencing the Option, the Option shall be
exercisable according to the following terms and conditions, which may be waived
or modified by the Plan Administrator at any time:

 

(a) Any portion of an Option that is not vested and exercisable on the date of
termination of the Participant’s employment or service relationship (the
“Termination Date”) shall expire on such date.

 

(b) Any portion of an Option that is vested and exercisable on the Termination
Date shall expire upon the earliest to occur of

 

(i) the last day of the Option Term;

 

(ii) if the Participant’s Termination Date occurs for reasons other than Cause,
death, Disability or Retirement, the three-month anniversary of such Termination
Date;

 

(iii) if the Participant’s Termination Date occurs by reason of death or
Disability, the one-year anniversary of such Termination Date; and

 

(iv) if the Participant’s Termination Date occurs by reason of Retirement, the
three-year anniversary of such Termination Date.

 

Notwithstanding the foregoing, if the Participant dies after the Termination
Date while the Option is otherwise exercisable, the portion of the Option that
is vested and exercisable on such Termination Date shall expire upon the earlier
to occur of (y) the last day of the Option Term and (z) the first anniversary of
the date of death, unless the Plan Administrator determines otherwise.

 

Also notwithstanding the foregoing, in case of termination of the Participant’s
employment or service relationship for Cause, the Option shall automatically
expire upon first notification to the Participant of such termination, unless
the Plan Administrator determines otherwise. If a Participant’s employment or
service relationship with the Company is suspended pending an investigation of
whether the Participant shall be terminated for Cause, all the Participant’s
rights under any Option likewise shall be suspended during the period of
investigation.

 

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A Participant’s transfer of employment or service relationship between or among
the Company and its Related Corporations, or a change in status from an employee
to a consultant that is evidenced by a written agreement between a Participant
and the Company or a Related Corporation, shall not be considered a termination
of employment or service relationship for purposes of this Section 7. Employment
or service relationship shall be deemed to continue while the Participant is on
a bona fide leave of absence, if such leave was approved by the Company or a
Related Corporation in writing and if continued crediting of service for
purposes of this Section 7 is expressly required by the terms of such leave or
by applicable law (as determined by the Company). The effect of a
Company-approved leave of absence on the terms and conditions of an Option shall
be determined by the Plan Administrator, in its sole discretion.

 

SECTION 8. INCENTIVE STOCK OPTION LIMITATIONS

 

To the extent required by Section 422 of the Code, Incentive Stock Options shall
be subject to the following additional terms and conditions:

 

8.1 Dollar Limitation

 

To the extent the aggregate Fair Market Value (determined as of the Grant Date)
of Common Stock with respect to which Incentive Stock Options are exercisable
for the first time during any calendar year (under the Plan and all other stock
option plans of the Company) exceeds $100,000, such portion in excess of
$100,000 shall be treated as a Nonqualified Stock Option. In the event the
Participant holds two or more such Options that become exercisable for the first
time in the same calendar year, such limitation shall be applied on the basis of
the order in which such Options are granted.

 

8.2 More Than 10% Stockholders

 

If an employee owns more than 10% of the total voting power of all classes of
the Company’s stock, then the exercise price per share of an Incentive Stock
Option shall not be less than 110% of the Fair Market Value of the Common Stock
on the Grant Date and the Option Term shall not exceed five years. The
determination of more than 10% ownership shall be made in accordance with
Section 422 of the Code.

 

8.3 Attribution Rule

 

For purposes of Section 8.2, in determining stock ownership, an employee shall
be deemed to own the stock owned, directly or indirectly, by or for his or her
brothers, sisters, spouse, ancestors and lineal descendants. Stock owned,
directly or indirectly, by or for a corporation, partnership, estate or trust
shall be deemed to be owned proportionately by or for its stockholders, partners
or beneficiaries. If an employee or a person related to the employee owns an
unexercised option or warrant to purchase stock of the Company, the stock
subject to that portion of the option or warrant which is unexercised shall not
be counted in determining stock ownership. For purposes of this Section 8, stock
owned by an employee shall include all stock actually issued and outstanding
immediately before the grant of the Incentive Stock Option to the employee.

 

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8.4 Eligible Employees

 

Individuals who are not employees of the Company or one of its parent
corporations or subsidiary corporations may not be granted Incentive Stock
Options. For purposes of this Section 8.4, “parent corporation” and “subsidiary
corporation” shall have the meanings attributed to those terms for purposes of
Section 422 of the Code.

 

8.5 Term

 

Except as provided in Section 8.2, the Option Term shall not exceed 10 years.

 

8.6 Exercisability

 

An Option designated as an Incentive Stock Option shall cease to qualify for
favorable tax treatment as an Incentive Stock Option to the extent it is
exercised (if permitted by the terms of the Option) (a) more than three months
after the Termination Date for reasons other than death or Disability, (b) more
than one year after the Termination Date by reason of Disability, or (c) after
the Participant has been on leave of absence for more than 90 days, unless the
Participant’s reemployment rights are guaranteed by statute or contract.

 

For purposes of this Section 8.6, Disability shall mean “disability” as that
term is defined for purposes of Section 422 of the Code.

 

8.7 Taxation of Incentive Stock Options

 

In order to obtain certain tax benefits afforded to Incentive Stock Options
under Section 422 of the Code, the Participant must hold the shares issued upon
the exercise of an Incentive Stock Option for two years after the Grant Date and
one year from the date of exercise. A Participant may be subject to the
alternative minimum tax at the time of exercise of an Incentive Stock Option.
The Participant shall give the Company prompt notice of any disposition of
shares acquired by the exercise of an Incentive Stock Option prior to the
expiration of such holding periods.

 

8.8 Promissory Notes

 

The amount of any promissory note delivered pursuant to Section 7.5 in
connection with an Incentive Stock Option shall bear interest at a rate
specified by the Plan Administrator, but in no case less than the rate required
to avoid imputation of interest (taking into account any exceptions to the
imputed interest rules) for federal income tax purposes.

 

SECTION 9. WITHHOLDING

 

The Company may require the Participant to pay to the Company the amount of any
withholding taxes that the Company is required to withhold with respect to the
grant, vesting or

 

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exercise of any Option. Subject to the Plan and applicable law, the Plan
Administrator may, in its sole discretion, permit the Participant to satisfy
withholding obligations, in whole or in part, (a) by paying cash, (b) by
electing to have the Company withhold shares of Common Stock (up to the minimum
required federal tax withholding rate) or (c) by transferring to the Company
shares of Common Stock (already owned by the Participant for such period
necessary to avoid a charge to the Company’s earnings for financial reporting
purposes), in such amounts as are equivalent to the Fair Market Value of the
withholding obligation. The Company shall have the right to withhold from any
Option or any shares of Common Stock issuable pursuant to an Option (up to the
minimum required federal tax withholding rate) or from any cash amounts
otherwise due or to become due from the Company to the Participant an amount
equal to such taxes. The Company may also deduct from any Option any other
amounts due from the Participant to the Company or a Related Corporation.

 

SECTION 10. ASSIGNABILITY

 

Options granted under the Plan shall not be transferable, pledgable or
assignable other than (a) by will or the laws of descent and distribution or (b)
to the extent permitted by the Plan Administrator, in its sole discretion, and
by Section 422 of the Code with respect to Incentive Stock Options, by gift or
other transfer to either (i) any trust or partnership in which the original
option recipient or such person’s spouse or other immediate family member has a
substantial beneficial interest or (ii) a spouse or other immediate family
member; provided, however, that any Option so assigned or transferred shall be
subject to all the same terms and conditions contained in the instrument
evidencing the Option. During a Participant’s lifetime, any Options granted
under the Plan are personal to the Participant and are exercisable solely by the
Participant or a permitted assignee or transferee. Notwithstanding the
foregoing, to the extent permitted by Section 422 of the Code with respect to
Incentive Stock Options, the Plan Administrator may permit a Participant, during
the Participant’s lifetime, to designate a person who may exercise an Option
after the Participant’s death by giving written notice of such designation to
the Company (such designation may be changed from time to time by the
Participant by giving written notice to the Company revoking any earlier
designation and making a new designation). Any attempt to transfer, assign,
pledge, hypothecate or otherwise dispose of any Option under the Plan or of any
right or privilege conferred thereby, contrary to the provisions of the Plan, or
the sale or levy or any attachment or similar process upon the rights and
privileges conferred hereby, shall be null and void.

 

SECTION 11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION

 

11.1 Adjustment of Shares

 

The aggregate number and class of shares for which Options may be granted under
the Plan, the number and class of shares covered by each outstanding Option and
the exercise price per share thereof (but not the total price), and the
limitations set forth in Section 4.2, shall all be proportionately adjusted for
any increase or decrease in the number of issued shares of Common Stock of the
Company resulting from a split-up or consolidation of shares or any like capital
adjustment, or the payment of any stock dividend.

 

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11.2 Effect of Liquidation, Reorganization or Change in Control

 

(a) Except as provided in subsection 11.2(b), upon a merger (other than a merger
of the Company in which the holders of Common Stock immediately prior to the
merger have the same proportionate ownership of common stock in the surviving
corporation immediately after the merger), consolidation, acquisition of
property or stock, separation, reorganization (other than a mere reincorporation
or the creation of a holding company) or liquidation of the Company, as a result
of which the stockholders of the Company receive cash, stock or other property
in exchange for or in connection with their shares of Common Stock, any Option
granted hereunder shall terminate, but the Participant shall have the right
immediately prior to any such merger, consolidation, acquisition of property or
stock, separation, reorganization or liquidation to exercise such Participant’s
Option in whole or in part whether or not the vesting requirements set forth in
the Option agreement have been satisfied.

 

(b) If the stockholders of the Company receive capital stock of another
corporation (“Exchange Stock”) in exchange for their shares of Common Stock in
any transaction involving a merger (other than a merger of the Company in which
the holders of Common Stock immediately prior to the merger have the same
proportionate ownership of common stock in the surviving corporation immediately
after the merger), consolidation, acquisition of property or stock, separation
or reorganization (other than a mere reincorporation or the creation of a
holding company) (each a “Corporate Transaction”), all Options granted hereunder
shall be converted into options to purchase shares of Exchange Stock unless the
Company and the corporation issuing the Exchange Stock, in their sole discretion
determine that any or all such Options granted hereunder shall not be converted
into options to purchase shares of Exchange Stock but instead shall terminate in
accordance with the provisions of subsection 11.2(a). The amount and price of
converted options shall be determined by adjusting the amount and price of the
Options granted hereunder in the same proportion as used for determining the
number of shares of Exchange Stock the holders of the Common Stock receive in
such merger, consolidation, acquisition of property or stock, separation or
reorganization.

 

(c) Each converted option shall, immediately following the consummation of the
Corporate Transaction, become fully vested and exercisable in whole or in part
whether or not the vesting requirements set forth in the Option agreement have
been satisfied, except that such acceleration shall not occur if, in the opinion
of the Company’s outside accountants, such acceleration would render unavailable
“pooling of interests” accounting treatment for any Corporate Transaction for
which pooling of interests accounting treatment is sought by the Company. Such
Options shall not so accelerate, however, if and to the extent that: (i) such
Option is, in connection with the Corporate Transaction, either to be assumed by
the successor corporation or parent thereof or to be replaced with a comparable
option for the purchase of shares of the capital stock of the successor
corporation or its parent corporation or (ii) such Option is to be replaced with
a cash incentive program of the successor corporation that preserves the spread
existing at the time of the Corporate Transaction and provides for subsequent
payout in accordance with the same vesting schedule applicable to such Option.
The determination of option comparability under clause (i) above shall be made
by the Plan Administrator, and its determination shall be conclusive and
binding. All such Options shall terminate and cease to remain outstanding
immediately following the consummation of the

 

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Corporate Transaction, except to the extent assumed by the successor corporation
or its parent corporation. Any such Options that are assumed or replaced in the
Corporate Transaction and do not otherwise accelerate at that time shall be
accelerated in the event the Participant’s employment or services should
subsequently terminate within two years following such Corporate Transaction,
unless such employment or services are terminated by the successor corporation
for Cause or by the Participant voluntarily without Good Reason.

 

(d) Upon a merger of the Company in which the holders of Common Stock
immediately prior to the merger have the same proportionate ownership of common
stock in the surviving corporation immediately after the merger, a mere
reincorporation or the creation of a holding company, each Option outstanding
under the Plan shall be assumed or an equivalent option shall be substituted by
the successor corporation or a parent or subsidiary of such corporation, and the
vesting schedule set forth in the instrument evidencing the Option shall
continue to apply to such assumed or equivalent option.

 

11.3 Fractional Shares

 

In the event of any adjustment in the number of shares covered by any Option,
any fractional shares resulting from such adjustment shall be disregarded and
each such Option shall cover only the number of full shares resulting from such
adjustment.

 

11.4 Determination of Board to Be Final

 

All Section 11 adjustments shall be made by the Board, and its determination as
to what adjustments shall be made, and the extent thereof, shall be final,
binding and conclusive.

 

SECTION 12. AMENDMENT AND TERMINATION OF PLAN

 

12.1 Amendment of Plan

 

The Plan may be amended only by the Board in such respects as it shall deem
advisable; provided, however, that to the extent required for compliance with
Section 422 of the Code or any applicable law or regulation, stockholder
approval shall be required for any amendment that would (a) increase the total
number of shares available for issuance under the Plan, (b) modify the class of
persons eligible to receive Options, or (c) otherwise require stockholder
approval under any applicable law or regulation. Any amendment made to the Plan
that would constitute a “modification” to Incentive Stock Options outstanding on
the date of such amendment shall not, without the consent of the Participant, be
applicable to such outstanding Incentive Stock Options but shall have
prospective effect only.

 

12.2 Term and Termination of Plan

 

The Board may suspend or terminate the Plan at any time. Unless earlier
terminated by the Board, the Plan shall expire on May 6, 2009.

 

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12.3 Consent of Participant

 

The amendment or termination of the Plan or the amendment of an outstanding
Option shall not, without the Participant’s consent, impair or diminish any
rights or obligations under any Option theretofore granted to the Participant
under the Plan. Any change or adjustment to an outstanding Incentive Stock
Option shall not, without the consent of the Participant, be made in a manner so
as to constitute a “modification” that would cause such Incentive Stock Option
to fail to continue to qualify as an Incentive Stock Option. Notwithstanding the
foregoing, any adjustments made pursuant to Section 11 shall not be subject to
these restrictions.

 

SECTION 13. GENERAL

 

13.1 Evidence of Options

 

Options granted under the Plan shall be evidenced by a written instrument that
shall contain such terms, conditions, limitations and restrictions as the Plan
Administrator shall deem advisable and that are not inconsistent with the Plan.

 

13.2 No Individual Rights

 

Nothing in the Plan or any Option granted under the Plan shall be deemed to
constitute an employment contract or confer or be deemed to confer on any
Participant any right to continue in the employ of, or to continue any other
relationship with, the Company or any Related Corporation or limit in any way
the right of the Company or any Related Corporation of the Company to terminate
a Participant’s employment or other relationship at any time, with or without
Cause.

 

13.3 Registration

 

Notwithstanding any other provision of the Plan, the Company shall have no
obligation to issue or deliver any shares of Common Stock under the Plan or make
any other distribution of benefits under the Plan unless such issuance, delivery
or distribution would comply with all applicable laws (including, without
limitation, the requirements of the Securities Act), and the applicable
requirements of any securities exchange or similar entity.

 

The Company shall be under no obligation to any Participant to register for
offering or resale or to qualify for exemption under the Securities Act, or to
register or qualify under state securities laws, any shares of Common Stock,
security or interest in a security paid or issued under, or created by, the
Plan, or to continue in effect any such registrations or qualifications if made.
The Company may issue certificates for shares with such legends and subject to
such restrictions on transfer and stop-transfer instructions as counsel for the
Company deems necessary or desirable for compliance by the Company with federal
and state securities laws.

 

To the extent that the Plan or any instrument evidencing an Option provides for
issuance of stock certificates to reflect the issuance of shares of Common
Stock, the issuance may be effected on a noncertificated basis, to the extent
not prohibited by applicable law or the applicable rules of any stock exchange.

 

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13.4 No Rights as a Stockholder

 

No Option shall entitle the Participant to any cash dividend, voting or other
right of a stockholder unless and until the date of issuance under the Plan of
the shares that are the subject of such Option.

 

13.5 Compliance With Laws and Regulations

 

Notwithstanding anything in the Plan to the contrary, the Plan Administrator, in
its sole discretion, may bifurcate the Plan so as to restrict, limit or
condition the use of any provision of the Plan to Participants who are officers
or directors subject to Section 16 of the Exchange Act without so restricting,
limiting or conditioning the Plan with respect to other Participants.
Additionally, in interpreting and applying the provisions of the Plan, any
Option granted as an Incentive Stock Option pursuant to the Plan shall, to the
extent permitted by law, be construed as an “incentive stock option” within the
meaning of Section 422 of the Code.

 

13.6 Participants in Foreign Countries

 

The Plan Administrator shall have the authority to adopt such modifications,
procedures and subplans as may be necessary or desirable to comply with
provisions of the laws of foreign countries in which the Company or its Related
Corporations may operate to assure the viability of the benefits from Options
granted to Participants employed in such countries and to meet the objectives of
the Plan.

 

13.7 No Trust or Fund

 

The Plan is intended to constitute an “unfunded” plan. Nothing contained herein
shall require the Company to segregate any monies or other property, or shares
of Common Stock, or to create any trusts, or to make any special deposits for
any immediate or deferred amounts payable to any Participant, and no Participant
shall have any rights that are greater than those of a general unsecured
creditor of the Company.

 

13.8 Severability

 

If any provision of the Plan or any Option is determined to be invalid, illegal
or unenforceable in any jurisdiction, or as to any person, or would disqualify
the Plan or any Option under any law deemed applicable by the Plan
Administrator, such provision shall be construed or deemed amended to conform to
applicable laws, or, if it cannot be so construed or deemed amended without, in
the Plan Administrator’s determination, materially altering the intent of the
Plan or the Option, such provision shall be stricken as to such jurisdiction,
person or Option, and the remainder of the Plan and any such Option shall remain
in full force and effect.

 

13.9 Choice of Law

 

The Plan and all determinations made and actions taken pursuant hereto, to the
extent not otherwise governed by the laws of the United States, shall be
governed by the laws of the State of Washington without giving effect to
principles of conflicts of laws.

 

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SECTION 14. EFFECTIVE DATE

 

The Effective Date is the date on which the Plan is adopted by the Board, so
long as it is approved by the Company’s stockholders at any time within 12
months of such adoption.

 

Adopted by the Board on March 10, 1999, amended by the Board on May 5, 1999,
approved by the Company’s stockholders on May 6, 1999, amended by the Board on
June 11, 1999, amended by the Board on March, 8, 2001, approved by the Company’s
stockholders on May 4, 2001, amended by the Board on December 12, 2002, and
amended and restated by the Board on January 21, 2004.

 

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PLAN ADOPTION AND AMENDMENTS/ADJUSTMENTS

SUMMARY PAGE

 

Date of Board Action

--------------------------------------------------------------------------------

 

Action

--------------------------------------------------------------------------------

 

Section/Effect of Amendment

--------------------------------------------------------------------------------

 

Date of Stockholder Approval

--------------------------------------------------------------------------------

March 10, 1999

  Initial Plan Adoption       May 6, 1999

May 5, 1999

  Amendment to Section 9 of Plan   Section 9   Not required

June 11, 1999

  Added provision to allow shares surrendered in payment of exercise price to be
counted in option pool.   Section 4.3   Not required

March 8, 2001

  Increased shares reserved from 5,000,000 to 10,000,000   Section 4.1   May 4,
2001

December 12, 2002

  Added provision to allow Plan Administrator to authorize officers to grant
options   Section 3.1   Not required

January 21, 2004

  Added May 6, 2009 expiration date for the Plan   Section 12.2   Not required

 

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