Exhibit 10.5

 

VITAE PHARMACEUTICALS, INC.

 

2014 EQUITY INCENTIVE PLAN

 

(AS ADOPTED ON JULY 23, 2014)

 

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VITAE PHARMACEUTICALS, INC.
2014 EQUITY INCENTIVE PLAN

 

ARTICLE 1.   INTRODUCTION.

 

The Board adopted the Plan to become effective immediately, although no Awards
may be granted prior to the IPO Date.  The purpose of the Plan is to promote the
long-term success of the Company and the creation of stockholder value by
(a) encouraging Service Providers to focus on critical long-range corporate
objectives, (b) encouraging the attraction and retention of Service Providers
with exceptional qualifications and (c) linking Service Providers directly to
stockholder interests through increased stock ownership.  The Plan seeks to
achieve this purpose by providing for Awards in the form of Options (which may
constitute ISOs or NSOs), SARs, Restricted Shares, Stock Units and Performance
Cash Awards.

 

ARTICLE 2.   ADMINISTRATION.

 

2.1                               General.  The Plan may be administered by the
Board or one or more Committees.  Each Committee shall have the authority and be
responsible for such functions as have been assigned to it.

 

2.2                               Section 162(m).  To the extent an Award is
intended to qualify as “performance-based compensation” within the meaning of
Code Section 162(m), the Plan will be administered by a Committee of two or more
“outside directors” within the meaning of Code Section 162(m).

 

2.3                               Section 16.  To the extent desirable to
qualify transactions hereunder as exempt under Exchange Act Rule 16b-3, the
transactions contemplated hereunder will be approved by the entire Board or a
Committee of two or more “non-employee directors” within the meaning of Exchange
Act Rule 16b-3.

 

2.4                               Powers of Administrator.  Subject to the terms
of the Plan, and in the case of a Committee, subject to the specific duties
delegated to the Committee, the Administrator shall have the authority to
(a) select the Service Providers who are to receive Awards under the Plan,
(b) determine the type, number, vesting requirements and other features and
conditions of such Awards, (c) determine whether and to what extent any
Performance Goals have been attained, (d) interpret the Plan and Awards granted
under the Plan, (e) make, amend and rescind rules relating to the Plan and
Awards granted under the Plan, including rules relating to sub-plans established
for the purposes of satisfying applicable foreign laws or for qualifying for
favorable tax treatment under applicable foreign laws, (f) impose such
restrictions, conditions or limitations as it determines appropriate as to the
timing and manner of any resales by a Participant of any Common Shares issued
pursuant to an Award, including restrictions under an insider trading policy and
restrictions as to the use of a specified brokerage firm for such resales, and
(g) make all other decisions relating to the operation of the Plan and Awards
granted under the Plan.

 

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2.5                               Effect of Administrator’s Decisions.  The
Administrator’s decisions, determinations and interpretations shall be final and
binding on all Participants and any other holders of Awards.

 

2.6                               Governing Law.  The Plan shall be governed by,
and construed in accordance with, the laws of the State of Delaware (except its
choice-of-law provisions).

 

ARTICLE 3.   SHARES AVAILABLE FOR GRANTS.

 

3.1                               Basic Limitation.  Common Shares issued
pursuant to the Plan may be authorized but unissued shares or treasury shares. 
The aggregate number of Common Shares issued under the Plan shall not exceed the
sum of (a) 1,782,500 Common Shares, (b) the number of Common Shares reserved
under the Predecessor Plans that are not issued or subject to outstanding awards
under the Predecessor Plans on the IPO Date, (c) any Common Shares subject to
outstanding options under the Predecessor Plans on the IPO Date that
subsequently expire or lapse unexercised and Common Shares issued pursuant to
awards granted under the Predecessor Plans that are outstanding on the IPO Date
and that are subsequently forfeited to or repurchased by the Company and (d) the
additional Common Shares described in Articles 3.2 and 3.3; provided, however,
that no more than 1,070,687 Common Shares, in the aggregate, shall be added to
the Plan pursuant to clauses (b) and (c).  The number of Common Shares that are
subject to Stock Awards outstanding at any time under the Plan may not exceed
the number of Common Shares that then remain available for issuance under the
Plan.  The numerical limitations in this Article 3.1 shall be subject to
adjustment pursuant to Article 9.

 

3.2                               Annual Increase in Shares.  As of the first
business day of each fiscal year of the Company during the term of the Plan,
commencing in 2015, the aggregate number of Common Shares that may be issued
under the Plan shall automatically increase by a number equal to the least of
(a) 4% of the total number of Common Shares outstanding on the last business day
of the prior fiscal year, (b) subject to adjustment pursuant to Article 9,
1,426,000 Common Shares, or (c) a number of Common Shares determined by the
Board.

 

3.3                               Shares Returned to Reserve.  To the extent
that Options, SARs or Stock Units are forfeited or expire for any other reason
before being exercised or settled in full, the Common Shares subject to such
Options, SARs or Stock Units shall again become available for issuance under the
Plan.  If SARs are exercised or Stock Units are settled, then only the number of
Common Shares (if any) actually issued to the Participant upon exercise of such
SARs or settlement of such Stock Units, as applicable, shall reduce the number
available under Article 3.1 and the balance shall again become available for
issuance under the Plan.  If Restricted Shares or Common Shares issued upon the
exercise of Options are reacquired by the Company pursuant to a forfeiture
provision, repurchase right or for any other reason, then such Common Shares
shall again become available for issuance under the Plan.  Common Shares applied
to pay the Exercise Price of Options or to satisfy tax withholding obligations
related to any Award shall again become available for issuance under the Plan. 
To the extent that an Award is settled in cash rather than Common Shares, the
cash settlement shall not reduce the number of Shares available for issuance
under the Plan.

 

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3.4                               Awards Not Reducing Share Reserve in
Article 3.1.  Any dividend equivalents paid or credited under the Plan with
respect to Stock Units shall not be applied against the number of Common Shares
that may be issued under the Plan, whether or not such dividend equivalents are
converted into Stock Units.  In addition, Common Shares subject to Substitute
Awards granted by the Company shall not reduce the number of Common Shares that
may be issued under Article 3.1, nor shall shares subject to Substitute Awards
again be available for Awards under the Plan in the event of any forfeiture,
expiration or cash settlement of such Substitute Awards.

 

3.5                               Code Section 162(m) and 422 Limits.  Subject
to adjustment in accordance with Article 9:

 

(a)                                 The aggregate number of Common Shares
subject to Options and SARs that may be granted under this Plan during any
fiscal year to any one Participant shall not exceed 500,000, except that the
Company may grant to a new Employee in the fiscal year in which his or her
Service as an Employee first commences Options and/or SARs that cover (in the
aggregate) up to an additional 1,000,000 Common Shares;

 

(b)                                 The aggregate number of Common Shares
subject to Restricted Share awards and Stock Units that may be granted under
this Plan during any fiscal year to any one Participant shall not exceed
500,000, except that the Company may grant to a new Employee in the fiscal year
in which his or her Service as an Employee first commences Restricted Shares
and/or Stock Units that cover (in the aggregate) up to an additional 1,000,000
Common Shares;

 

(c)                                  No Participant shall be paid more than
$5,000,000 in cash in any fiscal year pursuant to Performance Cash Awards
granted under the Plan; and

 

(d)                                 No more than 2,853,187 Common Shares plus
the additional Common Shares described in Article 3.2 may be issued under the
Plan upon the exercise of ISOs.

 

ARTICLE 4.   ELIGIBILITY.

 

4.1                               Incentive Stock Options.  Only Employees who
are common-law employees of the Company, a Parent or a Subsidiary shall be
eligible for the grant of ISOs.  In addition, an Employee who owns more than 10%
of the total combined voting power of all classes of outstanding stock of the
Company or any of its Parents or Subsidiaries shall not be eligible for the
grant of an ISO unless the additional requirements set forth in Code
Section 422(c)(5) are satisfied.

 

4.2                               Other Awards.  Awards other than ISOs may only
be granted to Service Providers.

 

ARTICLE 5.   OPTIONS.

 

5.1                               Stock Option Agreement.  Each grant of an
Option under the Plan shall be evidenced by a Stock Option Agreement between the
Optionee and the Company.  Such Option shall be subject to all applicable terms
of the Plan and may be subject to any other terms that are not inconsistent with
the Plan.  The Stock Option Agreement shall specify whether the Option is

 

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intended to be an ISO or an NSO.  The provisions of the various Stock Option
Agreements entered into under the Plan need not be identical.

 

5.2                               Number of Shares.  Each Stock Option Agreement
shall specify the number of Common Shares subject to the Option, which number
shall adjust in accordance with Article 9.

 

5.3                               Exercise Price.  Each Stock Option Agreement
shall specify the Exercise Price, which shall not be less than 100% of the Fair
Market Value of a Common Share on the date of grant.  The preceding sentence
shall not apply to an Option that is a Substitute Award granted in a manner that
would satisfy the requirements of Code Section 409A and, if applicable, Code
Section 424(a).

 

5.4                               Exercisability and Term.  Each Stock Option
Agreement shall specify the date or event when all or any installment of the
Option is to become vested and/or exercisable.  The Stock Option Agreement shall
also specify the term of the Option; provided that, except to the extent
necessary to comply with applicable foreign law, the term of an Option shall in
no event exceed 10 years from the date of grant.  A Stock Option Agreement may
provide for accelerated vesting and/or exercisability upon certain specified
events and may provide for expiration prior to the end of its term in the event
of the termination of the Optionee’s Service.

 

5.5                               Death of Optionee.  After an Optionee’s death,
any vested and exercisable Options held by such Optionee may be exercised by his
or her beneficiary or beneficiaries.  Each Optionee may designate one or more
beneficiaries for this purpose by filing the prescribed form with the Company. 
A beneficiary designation may be changed by filing the prescribed form with the
Company at any time before the Optionee’s death.  If no beneficiary was
designated or if no designated beneficiary survives the Optionee, then any
vested and exercisable Options held by the Optionee may be exercised by his or
her estate.

 

5.6                               Modification or Assumption of Options.  Within
the limitations of the Plan, the Administrator may modify, reprice, extend or
assume outstanding options or may accept the cancellation of outstanding options
(whether granted by the Company or by another issuer) in return for the grant of
new Options for the same or a different number of shares and at the same or a
different exercise price or in return for the grant of a different type of
Award.  The foregoing notwithstanding, no modification of an Option shall,
without the consent of the Optionee, impair his or her rights or obligations
under such Option.

 

5.7                               Buyout Provisions.  The Administrator may at
any time (a) offer to buy out for a payment in cash or cash equivalents an
Option previously granted or (b) authorize an Optionee to elect to cash out an
Option previously granted, in either case at such time and based upon such terms
and conditions as the Administrator shall establish.

 

5.8                               Payment for Option Shares.  The entire
Exercise Price of Common Shares issued upon exercise of Options shall be payable
in cash or cash equivalents at the time when such Common Shares are purchased. 
In addition, the Administrator may, in its sole discretion and to the extent
permitted by applicable law, accept payment of all or a portion of the Exercise
Price through any one or a combination of the following forms or methods:

 

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(a)                                 Subject to any conditions or limitations
established by the Administrator, by surrendering, or attesting to the ownership
of, Common Shares that are already owned by the Optionee with a Fair Market
Value on the date of surrender equal to the aggregate exercise price of the
Common Shares as to which such Option will be exercised;

 

(b)                                 By delivering (on a form prescribed by the
Company) an irrevocable direction to a securities broker approved by the Company
to sell all or part of the Common Shares being purchased under the Plan and to
deliver all or part of the sales proceeds to the Company;

 

(c)                                  Subject to such conditions and requirements
as the Administrator may impose from time to time, through a net exercise
procedure; or

 

(d)                                 Through any other form or method consistent
with applicable laws, regulations and rules.

 

ARTICLE 6.   STOCK APPRECIATION RIGHTS.

 

6.1                               SAR Agreement.  Each grant of a SAR under the
Plan shall be evidenced by a SAR Agreement between the Optionee and the
Company.  Such SAR shall be subject to all applicable terms of the Plan and may
be subject to any other terms that are not inconsistent with the Plan.  The
provisions of the various SAR Agreements entered into under the Plan need not be
identical.

 

6.2                               Number of Shares.  Each SAR Agreement shall
specify the number of Common Shares to which the SAR pertains, which number
shall adjust in accordance with Article 9.

 

6.3                               Exercise Price.  Each SAR Agreement shall
specify the Exercise Price, which shall in no event be less than 100% of the
Fair Market Value of a Common Share on the date of grant.  The preceding
sentence shall not apply to a SAR that is a Substitute Award granted in a manner
that would satisfy the requirements of Code Section 409A.

 

6.4                               Exercisability and Term.  Each SAR Agreement
shall specify the date when all or any installment of the SAR is to become
vested and exercisable.  The SAR Agreement shall also specify the term of the
SAR; provided that except to the extent necessary to comply with applicable
foreign law, the term of a SAR shall not exceed 10 years from the date of
grant.  A SAR Agreement may provide for accelerated vesting and exercisability
upon certain specified events and may provide for expiration prior to the end of
its term in the event of the termination of the Optionee’s Service.

 

6.5                               Exercise of SARs.  Upon exercise of a SAR, the
Optionee (or any person having the right to exercise the SAR after his or her
death) shall receive from the Company (a) Common Shares, (b) cash or (c) a
combination of Common Shares and cash, as the Administrator shall determine. 
The amount of cash and/or the Fair Market Value of Common Shares received upon
exercise of SARs shall, in the aggregate, not exceed the amount by which the
Fair Market Value (on the date of surrender) of the Common Shares subject to the
SARs exceeds the Exercise Price.  If, on the date when a SAR expires, the
Exercise Price is less than the Fair Market Value on such date but any portion
of such SAR has not been exercised or surrendered, then such SAR shall

 

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automatically be deemed to be exercised as of such date with respect to such
portion.  A SAR Agreement may also provide for an automatic exercise of the SAR
on an earlier date.

 

6.6                               Death of Optionee.  After an Optionee’s death,
any vested and exercisable SARs held by such Optionee may be exercised by his or
her beneficiary or beneficiaries.  Each Optionee may designate one or more
beneficiaries for this purpose by filing the prescribed form with the Company. 
A beneficiary designation may be changed by filing the prescribed form with the
Company at any time before the Optionee’s death.  If no beneficiary was
designated or if no designated beneficiary survives the Optionee, then any
vested and exercisable SARs held by the Optionee at the time of his or her death
may be exercised by his or her estate.

 

6.7                               Modification or Assumption of SARs.  Within
the limitations of the Plan, the Administrator may modify, reprice, extend or
assume outstanding SARs or may accept the cancellation of outstanding SARs
(whether granted by the Company or by another issuer) in return for the grant of
new SARs for the same or a different number of shares and at the same or a
different exercise price or in return for the grant of a different type of
Award.  The foregoing notwithstanding, no modification of a SAR shall, without
the consent of the Optionee, impair his or her rights or obligations under such
SAR.

 

ARTICLE 7.   RESTRICTED SHARES.

 

7.1                               Restricted Stock Agreement.  Each grant of
Restricted Shares under the Plan shall be evidenced by a Restricted Stock
Agreement between the recipient and the Company.  Such Restricted Shares shall
be subject to all applicable terms of the Plan and may be subject to any other
terms that are not inconsistent with the Plan.  The provisions of the various
Restricted Stock Agreements entered into under the Plan need not be identical.

 

7.2                               Payment for Awards.  Restricted Shares may be
sold or awarded under the Plan for such consideration as the Administrator may
determine, including (without limitation) cash, cash equivalents, property,
cancellation of other equity awards, full-recourse promissory notes, past
services and future services, and such other methods of payment as are permitted
by applicable law.

 

7.3                               Vesting Conditions.  Each Award of Restricted
Shares may or may not be subject to vesting and/or other conditions as the
Administrator may determine.  Vesting shall occur, in full or in installments,
upon satisfaction of the conditions specified in the Restricted Stock
Agreement.  Such conditions, at the Administrator’s discretion, may include one
or more Performance Goals.  A Restricted Stock Agreement may provide for
accelerated vesting upon certain specified events.

 

7.4                               Voting and Dividend Rights.  The holders of
Restricted Shares awarded under the Plan shall have the same voting, dividend
and other rights as the Company’s other stockholders, unless the Administrator
otherwise provides.  A Restricted Stock Agreement, however, may require that any
cash dividends paid on Restricted Shares (a) be accumulated and paid when such
Restricted Shares vest, or (b) be invested in additional Restricted Shares. 
Such additional Restricted Shares shall be subject to the same conditions and
restrictions as the shares subject to the Stock Award with respect to which the
dividends were paid.  In addition, unless

 

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the Administrator provides otherwise, if any dividends or other distributions
are paid in Common Shares, such Common Shares shall be subject to the same
restrictions on transferability and forfeitability as the Restricted Shares with
respect to which they were paid.

 

ARTICLE 8.   STOCK UNITS.

 

8.1                               Stock Unit Agreement.  Each grant of Stock
Units under the Plan shall be evidenced by a Stock Unit Agreement between the
recipient and the Company.  Such Stock Units shall be subject to all applicable
terms of the Plan and may be subject to any other terms that are not
inconsistent with the Plan.  The provisions of the various Stock Unit Agreements
entered into under the Plan need not be identical.

 

8.2                               Payment for Awards.  To the extent that an
Award is granted in the form of Stock Units, no cash consideration shall be
required of the Award recipients.

 

8.3                               Vesting Conditions.  Each Award of Stock Units
may or may not be subject to vesting, as determined by the Administrator. 
Vesting shall occur, in full or in installments, upon satisfaction of the
conditions specified in the Stock Unit Agreement.  Such conditions, at the
Administrator’s discretion, may include one or more Performance Goals.  A Stock
Unit Agreement may provide for accelerated vesting upon certain specified
events.

 

8.4                               Voting and Dividend Rights.  The holders of
Stock Units shall have no voting rights.  Prior to settlement or forfeiture,
Stock Units awarded under the Plan may, at the Administrator’s discretion,
provide for a right to dividend equivalents.  Such right entitles the holder to
be credited with an amount equal to all cash dividends paid on one Common Share
while the Stock Unit is outstanding.  Dividend equivalents may be converted into
additional Stock Units.  Settlement of dividend equivalents may be made in the
form of cash, in the form of Common Shares, or in a combination of both.  Prior
to distribution, any dividend equivalents shall be subject to the same
conditions and restrictions as the Stock Units to which they attach.

 

8.5                               Form and Time of Settlement of Stock Units. 
Settlement of vested Stock Units may be made in the form of (a) cash, (b) Common
Shares or (c) any combination of both, as determined by the Administrator.  The
actual number of Stock Units eligible for settlement may be larger or smaller
than the number included in the original Award, based on predetermined
performance factors, including Performance Goals.  Methods of converting Stock
Units into cash may include (without limitation) a method based on the average
Fair Market Value of Common Shares over a series of trading days.  Vested Stock
Units shall be settled in such manner and at such time(s) as specified in the
Stock Unit Agreement.  Until an Award of Stock Units is settled, the number of
such Stock Units shall be subject to adjustment pursuant to Article 9.

 

8.6                               Death of Recipient.  Any Stock Units that
become payable after the recipient’s death shall be distributed to the
recipient’s beneficiary or beneficiaries.  Each recipient of Stock Units under
the Plan may designate one or more beneficiaries for this purpose by filing the
prescribed form with the Company.  A beneficiary designation may be changed by
filing the prescribed form with the Company at any time before the Award
recipient’s death.  If no beneficiary was designated or if no designated
beneficiary survives the Award recipient, then any

 

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Stock Units that become payable after the recipient’s death shall be distributed
to the recipient’s estate.

 

8.7                               Modification or Assumption of Stock Units. 
Within the limitations of the Plan, the Administrator may modify or assume
outstanding stock units or may accept the cancellation of outstanding stock
units (whether granted by the Company or by another issuer) in return for the
grant of new Stock Units for the same or a different number of shares or in
return for the grant of a different type of Award.  The foregoing
notwithstanding, no modification of a Stock Unit shall, without the consent of
the Participant, impair his or her rights or obligations under such Stock Unit.

 

8.8                               Creditors’ Rights.  A holder of Stock Units
shall have no rights other than those of a general creditor of the Company. 
Stock Units represent an unfunded and unsecured obligation of the Company,
subject to the terms and conditions of the applicable Stock Unit Agreement.

 

ARTICLE 9.   ADJUSTMENTS; DISSOLUTIONS AND LIQUIDATIONS; CORPORATE TRANSACTIONS.

 

9.1                               Adjustments.  In the event of a subdivision of
the outstanding Common Shares, a declaration of a dividend payable in Common
Shares, a combination or consolidation of the outstanding Common Shares (by
reclassification or otherwise) into a lesser number of Common Shares or any
other increase or decrease in the number of issued Common Shares effected
without receipt of consideration by the Company, proportionate adjustments shall
automatically be made to the following:

 

(a)                                 The number and kind of shares available for
issuance under Article 3, including the numerical share limits in Articles 3.1,
3.2 and 3.5;

 

(b)                                 The number and kind of shares covered by
each outstanding Option, SAR and Stock Unit; or

 

(c)                                  The Exercise Price applicable to each
outstanding Option and SAR, and the repurchase price, if any, applicable to
Restricted Shares.

 

In the event of a declaration of an extraordinary dividend payable in a form
other than Common Shares in an amount that has a material effect on the price of
Common Shares, a recapitalization, a spin-off or a similar occurrence, the
Administrator may make such adjustments as it, in its sole discretion, deems
appropriate to the foregoing.  Any adjustment in the number of shares subject to
an Award under this Article 9.1 shall be rounded down to the nearest whole
share, although the Administrator in its sole discretion may make a cash payment
in lieu of a fractional share.  Except as provided in this Article 9, a
Participant shall have no rights by reason of any issuance by the Company of
stock of any class or securities convertible into stock of any class, any
subdivision or consolidation of shares of stock of any class, the payment of any
stock dividend or any other increase or decrease in the number of shares of
stock of any class.

 

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9.2                               Dissolution or Liquidation.  To the extent not
previously exercised or settled, Options, SARs and Stock Units shall terminate
immediately prior to the dissolution or liquidation of the Company.

 

9.3                               Corporate Transactions. In the event that the
Company is a party to a merger, consolidation, or a Change in Control (other
than one described in Article 14.6(d)), all Common Shares acquired under the
Plan and all Awards outstanding on the effective date of the transaction shall
be treated in the manner described in the definitive transaction agreement (or,
in the event the transaction does not entail a definitive agreement to which the
Company is party, in the manner determined by the Administrator, with such
determination having final and binding effect on all parties), which agreement
or determination need not treat all Awards (or portions thereof) in an identical
manner. Unless an Award Agreement provides otherwise, the treatment specified in
the transaction agreement or by the Administrator shall include one or more of
the following with respect to each outstanding Award:

 

(a)                                 The continuation of such outstanding Award
by the Company (if the Company is the surviving entity);

 

(b)                                 The assumption of such outstanding Award by
the surviving entity or its parent, provided that the assumption of an Option or
a SAR shall comply with applicable tax requirements;

 

(c)                                  The substitution by the surviving entity or
its parent of an equivalent award for such outstanding Award (including, but not
limited to, an award to acquire the same consideration paid to the holders of
Common Shares in the transaction), provided that the substitution of an Option
or a SAR shall comply with applicable tax requirements;

 

(d)                                 The cancellation of such Award and a payment
to the Participant with respect to each share subject to the Award equal to the
excess of (A) the value, as determined by the Administrator in its absolute
discretion, of the property (including cash) received by the holder of a Common
Share as a result of the transaction, over (if applicable) (B) the per-share
Exercise Price or Purchase Price of such Award (such excess, if any, the
“Spread”).  Subject to Section 409A of the Code, such payment may be made in
installments and may be deferred until the date or dates when the Award would
have become exercisable or vested, as applicable.  The Spread initially shall be
calculated without regard to whether or not the Award is then exercisable or
vested.  However, such payment may be subject to vesting based on the
Participant’s continuing service, provided that the vesting schedule shall not
be less favorable to the Participant than the schedule under which the Award
would have vested.  Such payment shall be made in the form of cash, cash
equivalents, or securities of the surviving entity or its parent having a value
equal to the Spread.  In addition, any escrow, holdback, earn-out or similar
provisions in the transaction agreement may apply to such payment to the same
extent and in the same manner as such provisions apply to the holders of Common
Shares, but only to the extent the application of such provisions does not
adversely affect the status of the Award as exempt from Code Section 409A.  If
the Spread applicable to an Award (whether or not vested) is zero or a negative
number, then the Award may be

 

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cancelled without making a payment to the Participant. In the event that a Stock
Unit is subject to Code Section 409A, the payment described in this clause
(d) shall be made on the settlement date specified in the applicable Stock Unit
Agreement, provided that settlement may be accelerated in accordance with
Treasury Regulation Section 1.409A-3(j)(4); or

 

(e)                                  The assignment of any reacquisition or
repurchase rights held by the Company in respect of an Award of Restricted
Shares to the surviving entity or its parent, with corresponding proportionate
adjustments made to the price per share to be paid upon exercise of any such
reacquisition or repurchase rights.

 

For avoidance of doubt, the Administrator shall have the discretion, exercisable
either at the time an Award is granted or at any time while the Award remains
outstanding, to provide for the acceleration of vesting upon the occurrence of a
Change in Control, whether or not the Award is to be assumed or replaced in the
transaction, or in connection with a termination of the Participant’s Service
following a transaction.

 

Any action taken under this Article 9.3 shall either preserve an Award’s status
as exempt from Code Section 409A or comply with Code Section 409A.

 

ARTICLE 10.   OTHER AWARDS.

 

10.1                        Performance Cash Awards.  A Performance Cash Award
is a cash award that may be granted subject to the attainment of specified
Performance Goals during a Performance Period.  A Performance Cash Award may
also require the completion of a specified period of continuous Service.  The
length of the Performance Period, the Performance Goals to be attained during
the Performance Period, and the degree to which the Performance Goals have been
attained shall be determined conclusively by the Administrator.  Each
Performance Cash Award shall be set forth in a written agreement or in a
resolution duly adopted by the Administrator which shall contain provisions
determined by the Administrator and not inconsistent with the Plan.  The terms
of various Performance Cash Awards need not be identical.

 

10.2                        Awards Under Other Plans.  The Company may grant
awards under other plans or programs.  Such awards may be settled in the form of
Common Shares issued under this Plan.  Such Common Shares shall be treated for
all purposes under the Plan like Common Shares issued in settlement of Stock
Units and shall, when issued, reduce the number of Common Shares available under
Article 3.

 

ARTICLE 11.   LIMITATION ON RIGHTS.

 

11.1                        Retention Rights.  Neither the Plan nor any Award
granted under the Plan shall be deemed to give any individual a right to remain
a Service Provider.  The Company and its Parents, Subsidiaries and Affiliates
reserve the right to terminate the Service of any Service Provider at any time,
with or without cause, subject to applicable laws, the Company’s certificate of
incorporation and by-laws and a written employment agreement (if any).

 

11.2                        Stockholders’ Rights.  Except as set forth in
Article 7.4 or 8.4 above, a Participant shall have no dividend rights, voting
rights or other rights as a stockholder with

 

10

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respect to any Common Shares covered by his or her Award prior to the time when
a stock certificate for such Common Shares is issued or, if applicable, the time
when he or she becomes entitled to receive such Common Shares by filing any
required notice of exercise and paying any required Exercise Price.  No
adjustment shall be made for cash dividends or other rights for which the record
date is prior to such time, except as expressly provided in the Plan.

 

11.3                        Regulatory Requirements.  Any other provision of the
Plan notwithstanding, the obligation of the Company to issue Common Shares under
the Plan shall be subject to all applicable laws, rules and regulations and such
approval by any regulatory body as may be required.  The Company reserves the
right to restrict, in whole or in part, the delivery of Common Shares pursuant
to any Award prior to the satisfaction of all legal requirements relating to the
issuance of such Common Shares, to their registration, qualification or listing
or to an exemption from registration, qualification or listing.  The inability
of the Company to obtain authority from any regulatory body having jurisdiction,
which authority is deemed necessary by the Company’s counsel to be necessary to
the lawful issuance and sale of any Common Shares hereunder, will relieve the
Company of any liability in respect of the failure to issue or sell such Common
Shares as to which such requisite authority will not have been obtained.

 

11.4                        Transferability of Awards.  The Administrator may,
in its sole discretion, permit transfer of an Award in a manner consistent with
applicable law.  Unless otherwise determined by the Administrator, Awards shall
be transferable by a Participant only by (a) beneficiary designation, (b) a will
or (c) the laws of descent and distribution; provided that, in any event, an ISO
may only be transferred by will or by the laws of descent and distribution and
may be exercised during the lifetime of the Optionee only by the Optionee or by
the Optionee’s guardian or legal representative.

 

11.5                        Other Conditions and Restrictions on Common Shares. 
Any Common Shares issued under the Plan shall be subject to such forfeiture
conditions, rights of repurchase, rights of first refusal, other transfer
restrictions and such other terms and conditions as the Administrator may
determine.  Such conditions and restrictions shall be set forth in the
applicable Award Agreement and shall apply in addition to any restrictions that
may apply to holders of Common Shares generally.  In addition, Common Shares
issued under the Plan shall be subject to such conditions and restrictions
imposed either by applicable law or by Company policy, as adopted from time to
time, designed to ensure compliance with applicable law or laws with which the
Company determines in its sole discretion to comply including in order to
maintain any statutory, regulatory or tax advantage.

 

ARTICLE 12.   TAXES.

 

12.1                        General.  It is a condition to each Award under the
Plan that a Participant or his or her successor shall make arrangements
satisfactory to the Company for the satisfaction of any federal, state, local or
foreign withholding tax obligations that arise in connection with any Award
granted under the Plan.  The Company shall not be required to issue any Common
Shares or make any cash payment under the Plan unless such obligations are
satisfied.

 

12.2                        Share Withholding.  To the extent that applicable
law subjects a Participant to tax withholding obligations, the Administrator may
permit such Participant to satisfy all or part

 

11

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of such obligations by having the Company withhold all or a portion of any
Common Shares that otherwise would be issued to him or her or by surrendering
all or a portion of any Common Shares that he or she previously acquired.  Such
Common Shares shall be valued on the date when they are withheld or
surrendered.  Any payment of taxes by assigning Common Shares to the Company may
be subject to restrictions including any restrictions required by SEC,
accounting or other rules.

 

12.3                        Section 162(m) Matters  The Administrator, in its
sole discretion, may determine whether an Award is intended to qualify as
“performance-based compensation” within the meaning of Code Section 162(m).  The
Administrator may grant Awards that are based on Performance Goals but that are
not intended to qualify as performance-based compensation.  With respect to any
Award that is intended to qualify as performance-based compensation, the
Administrator shall designate the Performance Goal(s) applicable to, and the
formula for calculating the amount payable under, an Award within 90 days
following commencement of the applicable Performance Period (or such earlier
time as may be required under Code Section 162(m)), and in any event at a time
when achievement of the applicable Performance Goal(s) remains substantially
uncertain.  Prior to the payment of any Award that is intended to constitute
performance-based compensation, the Administrator shall certify in writing
whether and the extent to which the Performance Goal(s) were achieved for such
Performance Period.  The Administrator shall have the right to reduce or
eliminate (but not to increase) the amount payable under an Award that is
intended to constitute performance-based compensation.

 

12.4                        Section 409A Matters.  Except as otherwise expressly
set forth in an Award Agreement, it is intended that Awards granted under the
Plan either be exempt from, or comply with, the requirements of Code
Section 409A.  To the extent an Award is subject to Code Section 409A (a “409A
Award”), the terms of the Plan, the Award and any written agreement governing
the Award shall be interpreted to comply with the requirements of Code
Section 409A so that the Award is not subject to additional tax or interest
under Code Section 409A, unless the Administrator expressly provides otherwise. 
A 409A Award shall be subject to such additional rules and requirements as
specified by the Administrator from time to time in order for it to comply with
the requirements of Code Section 409A.  In this regard, if any amount under a
409A Award is payable upon a “separation from service” to an individual who is
considered a “specified employee” (as each term is defined under Code
Section 409A), then no such payment shall be made prior to the date that is the
earlier of (i) six months and one day after the Participant’s separation from
service or (ii) the Participant’s death, but only to the extent such delay is
necessary to prevent such payment from being subject to Code Section 409A(a)(1).

 

12.5                        Limitation on Liability.  Neither the Company nor
any person serving as Administrator shall have any liability to a Participant in
the event an Award held by the Participant fails to achieve its intended
characterization under applicable tax law.

 

ARTICLE 13.   FUTURE OF THE PLAN.

 

13.1                        Term of the Plan.  The Plan, as set forth herein,
shall become effective on the date of its adoption by the Board, subject to
approval of the Company’s stockholders under Article 13.3 below.  The Plan shall
terminate automatically 10 years after the later of (a) the date when the Board
adopted the Plan or (b) the date when the Board approved the most recent

 

12

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increase in the number of Common Shares reserved under Article 3 that was also
approved by the Company’s stockholders.

 

13.2                        Amendment or Termination.  The Board may, at any
time and for any reason, amend or terminate the Plan.  No Awards shall be
granted under the Plan after the termination thereof.  The termination of the
Plan, or any amendment thereof, shall not affect any Award previously granted
under the Plan.

 

13.3                        Stockholder Approval.  To the extent required by
applicable law, the Plan will be subject to the approval of the Company’s
stockholders within 12 months of its adoption date.  An amendment of the Plan
shall be subject to the approval of the Company’s stockholders only to the
extent required by applicable laws, regulations or rules.

 

ARTICLE 14.   DEFINITIONS.

 

14.1                        “Administrator” means the Board or any Committee
administering the Plan in accordance with Article 2.

 

14.2                        “Affiliate” means any entity other than a
Subsidiary, if the Company and/or one or more Subsidiaries own not less than 50%
of such entity.

 

14.3                        “Award” means any award granted under the Plan,
including as an Option, a SAR, a Restricted Share, a Stock Unit or a Performance
Cash Award.

 

14.4                        “Award Agreement” means a Stock Option Agreement, an
SAR Agreement, a Restricted Stock Agreement, a Stock Unit Agreement or such
other agreement evidencing an Award granted under the Plan.

 

14.5                        “Board” means the Company’s Board of Directors, as
constituted from time to time.

 

14.6                        “Change in Control” means:

 

(a)                                 Any “person” (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act) becomes the “beneficial owner” (as
defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of
securities of the Company representing more than fifty percent (50%) of the
total voting power represented by the Company’s then-outstanding voting
securities;

 

(b)                                 The consummation of the sale or disposition
by the Company of all or substantially all of the Company’s assets;

 

(c)                                  The consummation of a merger or
consolidation of the Company with or into any other entity, other than a merger
or consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity or its parent) more than fifty percent (50%) of the total
voting power represented by the voting securities of the Company or such
surviving entity or its parent outstanding immediately after such merger or
consolidation; or

 

13

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(d)                                 Individuals who are members of the Board
(the “Incumbent Board”) cease for any reason to constitute at least a majority
of the members of the Board over a period of 12 months; 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.

 

A transaction shall not constitute a Change in Control if its sole purpose is to
change the state of the Company’s incorporation or to create a holding company
that will be owned in substantially the same proportions by the persons who held
the Company’s securities immediately before such transaction.  In addition, if a
Change in Control constitutes a payment event with respect to any Award which
provides for a deferral of compensation and is subject to Code Section 409A,
then notwithstanding anything to the contrary in the Plan or applicable Award
Agreement the transaction with respect to such Award must also constitute a
“change in control event” as defined in Treasury Regulation
Section 1.409A-3(i)(5) to the extent required by Code Section 409A.

 

14.7                        “Code” means the Internal Revenue Code of 1986, as
amended.

 

14.8                        “Committee” means a committee of one or more members
of the Board, or of other individuals satisfying applicable laws, appointed by
the Board to administer the Plan.

 

14.9                        “Common Share” means one share of the common stock
of the Company.

 

14.10                 “Company” means Vitae Pharmaceuticals, Inc., a Delaware
corporation.

 

14.11                 “Consultant” means a consultant or adviser who provides
bona fide services to the Company, a Parent, a Subsidiary or an Affiliate as an
independent contractor and who qualifies as a consultant or advisor under
Instruction A.1.(a)(1) of Form S-8 under the Securities Act.

 

14.12                 “Employee” means a common-law employee of the Company, a
Parent, a Subsidiary or an Affiliate.

 

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

 

14.14                 “Exercise Price,” in the case of an Option, means the
amount for which one Common Share may be purchased upon exercise of such Option,
as specified in the applicable Stock Option Agreement.  “Exercise Price,” in the
case of a SAR, means an amount, as specified in the applicable SAR Agreement,
which is subtracted from the Fair Market Value of one Common Share in
determining the amount payable upon exercise of such SAR.

 

14.15                 “Fair Market Value” means the closing price of a Common
Share on any established stock exchange or a national market system on the
applicable date or, if the applicable date is not a trading day, on the last
trading day prior to the applicable date, as reported in a source that the
Administrator deems reliable.  If Common Shares are not traded on an established
stock exchange or a national market system, the Fair Market Value shall be

 

14

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

 

determined by the Administrator in good faith on such basis as it deems
appropriate.  The Administrator’s determination shall be conclusive and binding
on all persons.

 

14.16                 “IPO Date” means the effective date of the registration
statement filed by the Company with the Securities and Exchange Commission for
its initial offering of Common Stock to the public.

 

14.17                 “ISO” means an incentive stock option described in Code
Section 422(b).

 

14.18                 “NSO” means a stock option not described in Code
Sections 422 or 423.

 

14.19                 “Option” means an ISO or NSO granted under the Plan and
entitling the holder to purchase Common Shares.

 

14.20                 “Optionee” means an individual or estate holding an Option
or SAR.

 

14.21                 “Outside Director” means a member of the Board who is not
an Employee.

 

14.22                 “Parent” means any corporation (other than the Company) in
an unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.  A corporation that attains the status of a Parent
on a date after the adoption of the Plan shall be considered a Parent commencing
as of such date.

 

14.23                 “Participant” means an individual or estate holding an
Award.

 

14.24                 “Performance Cash Award” means an award of cash granted
under Article 10.1 of the Plan.

 

14.25                 “Performance Goal” means a goal established by the
Administrator for the applicable Performance Period based on one or more of the
performance criteria set forth in Appendix A.  Depending on the performance
criteria used, a Performance Goal may be expressed in terms of overall Company
performance or the performance of a business unit, division, Subsidiary,
Affiliate or an individual.  A Performance Goal may be measured either in
absolute terms or relative to the performance of one or more comparable
companies or one or more relevant indices.  The Administrator may adjust the
results under any performance criterion to exclude any of the following events
that occurs during a Performance Period: (a) asset write-downs, (b) litigation,
claims, judgments or settlements, (c) the effect of changes in tax laws,
accounting principles or other laws or provisions affecting reported results,
(d) accruals for reorganization and restructuring programs, (e) extraordinary,
unusual or non-recurring items, (f) exchange rate effects for non-U.S. dollar
denominated net sales and operating earnings, or (g) statutory adjustments to
corporate tax rates; provided, however, that if an Award is intended to qualify
as “performance-based compensation” within the meaning of Code Section 162(m),
such adjustment(s) shall only be made to the extent consistent with Code
Section 162(m).

 

15

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14.26                 “Performance Period” means a period of time selected by
the Administrator over which the attainment of one or more Performance Goals
will be measured for the purpose of determining a Participant’s right to a
Performance Cash Award or an Award of Restricted Shares or Stock Units that
vests based on the achievement of Performance Goals.  Performance Periods may be
of varying and overlapping duration, at the discretion of the Administrator.

 

14.27                 “Plan” means this Vitae Pharmaceuticals, Inc. 2014 Equity
Incentive Plan, as amended from time to time.

 

14.28                 “Predecessor Plans” means the Company’s 2013 Stock Plan,
2004 Stock Plan and the 2001 Stock Plan, each, as amended from time to time.

 

14.29                 “Restricted Share” means a Common Share awarded under the
Plan.

 

14.30                 “Restricted Stock Agreement” means the agreement between
the Company and the recipient of a Restricted Share that contains the terms,
conditions and restrictions pertaining to such Restricted Share.

 

14.31                 “SAR” means a stock appreciation right granted under the
Plan.

 

14.32                 “SAR Agreement” means the agreement between the Company
and an Optionee that contains the terms, conditions and restrictions pertaining
to his or her SAR.

 

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

 

14.34                 “Service” means service as an Employee, Outside Director
or Consultant.

 

14.35                 “Service Provider” means any individual who is an
Employee, Outside Director or Consultant.

 

14.36                 “Stock Award” means any award of an Option, a SAR, a
Restricted Share or a Stock Unit under the Plan.

 

14.37                 “Stock Option Agreement” means the agreement between the
Company and an Optionee that contains the terms, conditions and restrictions
pertaining to his or her Option.

 

14.38                 “Stock Unit” means a bookkeeping entry representing the
equivalent of one Common Share, as awarded under the Plan.

 

14.39                 “Stock Unit Agreement” means the agreement between the
Company and the recipient of a Stock Unit that contains the terms, conditions
and restrictions pertaining to such Stock Unit.

 

14.40                 “Subsidiary” means any corporation (other than the
Company) in an unbroken chain of corporations beginning with the Company, if
each of the corporations other than the last corporation in the unbroken chain
owns stock possessing 50% or more of the total

 

16

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

 

combined voting power of all classes of stock in one of the other corporations
in such chain.  A corporation that attains the status of a Subsidiary on a date
after the adoption of the Plan shall be considered a Subsidiary commencing as of
such date

 

14.41                 “Substitute Awards” means Awards or Common Shares issued
by the Company in assumption of, or substitution or exchange for, Awards
previously granted, or the right or obligation to make future awards, in each
case by a corporation acquired by the Company or any Affiliate or with which the
Company or any Affiliate combines to the extent permitted by NASDAQ Marketplace
Rule 5635 or any successor thereto.

 

17

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APPENDIX A

 

PERFORMANCE CRITERIA

 

The Administrator may establish Performance Goals derived from one or more of
the following criteria when it makes Awards of Restricted Shares or Stock Units
that vest entirely or in part on the basis of performance or when it makes
Performance Cash Awards:

 

·                              Achievement of strategic corporate or product
goals

 

·                              Backlog

 

·                              Bookings (including annual or total contract
value bookings)

 

·                              Cash

 

·                              Cash and short-term investments

 

·                              Cash flow return on investment

 

·                              Comparisons with various stock market indices

 

·                              Deferred revenue

 

·                              Earnings or earnings per share (including
earnings before taxes, earnings before interest and taxes or earnings before
interest, taxes, depreciation and amortization)

 

·                              Expenses or expense reductions

 

·                              Free cash flow or free cash flow per share

 

·                              Gross profits

 

·                              Headcount

 

·                              Implementation, completion or attainment of
measurable objectives with respect to research, development, products, projects
or recruiting and maintaining personnel

 

·                              Market share

 

·                              Net income (before or after taxes)

 

·                             Operating margin or cash margin

 

·                              Operating profit/loss (on a GAAP or non-GAAP
basis)

 

·                              Partnership milestone achievement

 

·                              Pre- or after-tax income (before or after
allocation of corporate overhead and bonus)

 

·                              Reductions in costs

 

·                              Return on equity

 

·                              Revenue

 

·                              Stock price

 

·                              Total expenses

 

·                              Total stockholder return

 

·                              Working capital

 

·                              Increases or growth in any of the foregoing

 

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

 

·                              To the extent that an Award is not intended to
comply with Code Section 162(m), other measures of performance selected by the
Administrator.

 

2

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

 

VITAE PHARMACEUTICALS, INC.

2014 EQUITY INCENTIVE PLAN

NOTICE OF STOCK OPTION GRANT

 

You have been granted the following option to purchase shares of the common
stock of Vitae Pharmaceuticals, Inc. (the “Company”):

 

Name of Optionee:

 

«Name»

 

 

 

Total Number of Shares:

 

«TotalShares»

 

 

 

Type of Option:

 

«ISO» Incentive Stock Option

 

 

 

 

 

«NSO»Nonstatutory Stock Option

 

 

 

Exercise Price per Share:

 

$«PricePerShare»

 

 

 

Date of Grant:

 

«DateGrant»

 

 

 

Vesting Commencement Date:

 

«VestDay»

 

 

 

Vesting Schedule:

 

This option vests and becomes exercisable with respect to the first
«CliffPercent»% of the shares subject to this option when you complete
«CliffPeriod» months of continuous “Service” (as defined in the Stock Option
Agreement to which this Notice of Stock Option Grant is attached) from the
Vesting Commencement Date. Thereafter, this option vests and becomes exercisable
with respect to an additional «Percent»% of the shares subject to this option
when you complete each additional «IncrementPeriod» month of continuous Service.

 

 

 

Expiration Date:

 

«ExpDate». This option expires earlier if your Service terminates earlier, as
described in the Stock Option Agreement, and may terminate earlier in connection
with certain corporate transactions as described in Article 9 of the Plan.

 

You and the Company agree that this option is granted under and governed by the
terms and conditions of the Company’s 2014 Equity Incentive Plan (the “Plan”)
and the Stock Option Agreement, both of which are attached to, and made a part
of, this document.

 

You further agree to accept by email all documents relating to the Plan or this
option (including, without limitation, prospectuses required by the Securities
and Exchange Commission) and all other documents that the Company is required to
deliver to its security holders (including, without limitation, annual reports
and proxy statements).  You also agree that the Company may deliver these
documents by posting them on a website maintained by the Company or by a third
party under contract with the Company.  If the Company posts these documents on
a website, it will notify you by email.

 

You further agree to comply with the Company’s Insider Trading Policy when
selling shares of the Company’s common stock.

 

OPTIONEE

 

VITAE PHARMACEUTICALS, INC.

 

 

 

 

 

By:

 

 

 

Title:

 

 

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

 

VITAE PHARMACEUTICALS, INC.

2014 EQUITY INCENTIVE PLAN

 

STOCK OPTION AGREEMENT

 

Grant of Option

 

Subject to all of the terms and conditions set forth in the Notice of Stock
Option Grant, this Stock Option Agreement (the “Agreement”) and the Plan, the
Company has granted you an option to purchase up to the total number of shares
specified in the Notice of Stock Option Grant at the exercise price indicated in
the Notice of Stock Option Grant.

 

All capitalized terms used in this Agreement shall have the meanings assigned to
them in this Agreement, the Notice of Stock Option Grant or the Plan.

 

For all purposes applicable to this option, “Service” means your continuous
service as an Employee, Consultant or Outside Director.

 

 

 

Tax Treatment

 

This option is intended to be an incentive stock option under Section 422 of the
Code or a nonstatutory stock option, as provided in the Notice of Stock Option
Grant. However, even if this option is designated as an incentive stock option
in the Notice of Stock Option Grant, it shall be deemed to be a nonstatutory
stock option to the extent it does not qualify as an incentive stock option
under federal tax law, including under the $100,000 annual limitation under
Section 422(d) of the Code.

 

 

 

Vesting

 

This option vests and becomes exercisable in accordance with the vesting
schedule set forth in the Notice of Stock Option Grant.

 

In no event will this option vest or become exercisable for additional shares
after your Service has terminated for any reason.

 

 

 

Term

 

This option expires in any event at the close of business at Company
headquarters on the day before the 10th anniversary of the Date of Grant, as
shown in the Notice of Stock Option Grant. (This option will expire earlier if
your Service terminates, as described below, and this option may be terminated
earlier as provided in Article 9 of the Plan.)

 

 

 

Termination of Service

 

If your Service terminates for any reason, this option will expire immediately
to the extent the option is unvested as of your termination date and does not
vest as a result of your termination of Service. The Company determines when
your Service terminates for all purposes of this option.

 

 

 

Regular Termination

 

If your Service terminates for any reason except death or total and permanent
disability, then this option, to the extent vested as of your termination date,
will expire at the close of business at Company

 

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

 

 

 

headquarters on the date three months after your termination date.

 

 

 

Death

 

If you die before your Service terminates, then this option will expire at the
close of business at Company headquarters on the date 12 months after the date
of death.

 

 

 

Disability

 

If your Service terminates because of your total and permanent disability, then
this option will expire at the close of business at Company headquarters on the
date 12 months after your termination date.

 

For all purposes under this Agreement, “total and permanent disability” means
that you are unable to engage in any substantial gainful activity by reason of
any medically determinable physical or mental impairment which can be expected
to result in death or which has lasted, or can be expected to last, for a
continuous period of not less than one year.

 

 

 

Leaves of Absence and Part-Time Work

 

For purposes of this option, your Service does not terminate when you go on a
military leave, a sick leave or another bona fide leave of absence, if the leave
was approved by the Company in writing and if continued crediting of Service is
required by applicable law, the Company’s leave of absence policy, or the terms
of your leave. However, your Service terminates when the approved leave ends,
unless you immediately return to active work.

 

If you go on a leave of absence, then the vesting schedule specified in the
Notice of Stock Option Grant may be adjusted in accordance with the Company’s
leave of absence policy or the terms of your leave. If you commence working on a
part-time basis, the Company may adjust the vesting schedule so that the rate of
vesting is commensurate with your reduced work schedule.

 

 

 

Notice Concerning Incentive Stock Option Treatment

 

Even if this option is designated as an incentive stock option in the Notice of
Stock Option Grant, it ceases to qualify for favorable tax treatment as an
incentive stock option to the extent that it is exercised: (a) more than three
months after the date when you cease to be an Employee for any reason other than
death or permanent and total disability (as defined in Section 22(e)(3) of the
Code), (b) more than 12 months after the date when you cease to be an Employee
by reason of permanent and total disability (as defined in Section 22(e)(3) of
the Code) or (c) more than three months after the date when you have been on a
leave of absence for three months, unless your reemployment rights following
such leave were guaranteed by statute or by contract.

 

 

 

Restrictions on Exercise

 

The Company will not permit you to exercise this option if the issuance of
shares at that time would violate any law or regulation.

 

2

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

 

 

 

 

Notice of Exercise

 

When you wish to exercise this option, you must notify the Company by filing the
proper “Notice of Exercise” form at the address given on the form or, if the
Company has designated a brokerage firm to administer the Plan, you must notify
such brokerage firm in the manner such brokerage firm requires. Your notice must
specify how many shares you wish to purchase. The notice will be effective when
the Company receives it.

 

However, if you wish to exercise this option by executing a same-day sale (as
described below), you must follow the instructions of the Company and the broker
who will execute the sale.

 

If someone else wants to exercise this option after your death, that person must
prove to the Company’s satisfaction that he or she is entitled to do so.

 

You may only exercise your option for whole shares.

 

 

 

Form of Payment

 

When you submit your notice of exercise, you must include payment of the option
exercise price for the shares that you are purchasing. To the extent permitted
by applicable law, payment may be made in one (or a combination of two or more)
of the following forms:

 

·                                          By delivering to the Company your
personal check, a cashier’s check or a money order, or arranging for a wire
transfer.

 

·                                          By delivering to the Company
certificates for shares of Company stock that you own, along with any forms
needed to effect a transfer of those shares to the Company. The value of the
shares, determined as of the effective date of the option exercise, will be
applied to the option exercise price. Instead of surrendering shares of Company
stock, you may attest to the ownership of those shares on a form provided by the
Company and have the same number of shares subtracted from the option shares
issued to you.

 

·                                          By giving to a securities broker
approved by the Company irrevocable directions to sell all or part of your
option shares and to deliver to the Company, from the sale proceeds, an amount
sufficient to pay the option exercise price and any withholding taxes. (The
balance of the sale proceeds, if any, will be delivered to you.) The directions
must be given in accordance with the instructions of the Company and the broker.
This exercise method is sometimes called a “same-day sale.”

 

 

 

Withholding Taxes

 

You will not be allowed to exercise this option unless you make arrangements
acceptable to the Company to pay any withholding taxes that may be due as a
result of the option exercise. These arrangements include payment in cash. With
the Company’s consent, these arrangements may also include (a) payment from the
proceeds of the sale of shares through a Company-approved broker,
(b) withholding shares of

 

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Company stock that otherwise would be issued to you when you exercise this
option with a fair market value no greater than the minimum amount required to
be withheld by law, (c) surrendering shares that you previously acquired with a
fair market value no greater than the minimum amount required to be withheld by
law, or (d) withholding cash from other compensation. The fair market value of
withheld or surrendered shares, determined as of the date when taxes otherwise
would have been withheld in cash, will be applied to the withholding taxes.

 

 

 

Restrictions on Resale

 

You agree not to sell any option shares at a time when applicable laws, Company
policies or an agreement between the Company and its underwriters prohibit a
sale. This restriction will apply as long as your Service continues and for such
period of time after the termination of your Service as the Company may specify.

 

 

 

Transfer of Option

 

Prior to your death, only you may exercise this option. You cannot transfer or
assign this option. For instance, you may not sell this option or use it as
security for a loan. If you attempt to do any of these things, this option will
immediately become invalid. You may, however, dispose of this option in your
will or by means of a written beneficiary designation; provided, however, that
your beneficiary or a representative of your estate acknowledges and agrees in
writing in a form reasonably acceptable to the Company, to be bound by the
provisions of this Agreement and the Plan as if such beneficiary of the estate
were you.

 

Regardless of any marital property settlement agreement, the Company is not
obligated to honor a notice of exercise from your former spouse, nor is the
Company obligated to recognize your former spouse’s interest in your option in
any other way.

 

 

 

Retention Rights

 

Your option or this Agreement does not give you the right to be retained by the
Company, a Parent, Subsidiary, or an Affiliate in any capacity. The Company and
its Parents, Subsidiaries, and Affiliates reserve the right to terminate your
Service at any time, with or without cause.

 

 

 

Stockholder Rights

 

You, or your estate or heirs, have no rights as a stockholder of the Company
until you have exercised this option by giving the required notice to the
Company, paying the exercise price, and satisfying any applicable withholding
taxes. No adjustments are made for dividends or other rights if the applicable
record date occurs before you exercise this option, except as described in the
Plan.

 

 

 

Recoupment Policy

 

This option, and the shares acquired upon exercise of this option, shall be
subject to any Company recoupment policy in effect from time to time.

 

 

 

Adjustments

 

In the event of a stock split, a stock dividend or a similar change in Company
stock, the number of shares covered by this option and the exercise price per
share will be adjusted pursuant to the Plan.

 

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Effect of Significant Corporate Transactions

 

If the Company is a party to a merger, consolidation, or certain change in
control transactions, then this option will be subject to the applicable
provisions of Article 9 of the Plan.

 

 

 

Applicable Law

 

This Agreement will be interpreted and enforced under the laws of the State of
Delaware (without regard to its choice-of-law provisions).

 

 

 

The Plan and Other Agreements

 

The text of the Plan is incorporated in this Agreement by reference.

 

This Plan, this Agreement and the Notice of Stock Option Grant constitute the
entire understanding between you and the Company regarding this option. Any
prior agreements, commitments or negotiations concerning this option are
superseded. This Agreement may be amended only by another written agreement
between the parties.

 

BY SIGNING THE COVER SHEET OF THIS AGREEMENT, YOU AGREE TO ALL OF THE TERMS AND
CONDITIONS DESCRIBED ABOVE AND IN THE PLAN.

 

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