Exhibit 10.1

 

PDL BIOPHARMA, INC.

STOCK OPTION AGREEMENT

 

PDL BioPharma, Inc. has granted to the Participant named in the Notice of Grant
of Stock Option (the “Grant Notice”) to which this Stock Option Agreement (the
“Option Agreement”) is attached an option (the “Option”) to purchase certain
shares of Stock upon the terms and conditions set forth in the Grant Notice and
this Option Agreement.  The Option has been granted pursuant to and shall in all
respects be subject to the terms and conditions of the PDL BioPharma, Inc. 2005
Equity Incentive Plan (the “Plan”), as amended to the Date of Grant, the
provisions of which are incorporated herein by reference.  By signing the Grant
Notice, the Participant: (a) acknowledges receipt of and represents that the
Participant has read and is familiar with the Grant Notice, this Option
Agreement, the Plan and a prospectus for the Plan in the form most recently
registered with the Securities and Exchange Commission (the “Plan Prospectus”),
(b) accepts the Option subject to all of the terms and conditions of the Grant
Notice, this Option Agreement and the Plan and (c) agrees to accept as binding,
conclusive and final all decisions or interpretations of the Committee upon any
questions arising under the Grant Notice, this Option Agreement or the Plan.

 

1.             DEFINITIONS AND CONSTRUCTION.

 

1.1           DEFINITIONS.  UNLESS OTHERWISE DEFINED HEREIN, CAPITALIZED TERMS
SHALL HAVE THE MEANINGS ASSIGNED TO SUCH TERMS IN THE GRANT NOTICE OR THE PLAN.

 

1.2           CONSTRUCTION.  CAPTIONS AND TITLES CONTAINED HEREIN ARE FOR
CONVENIENCE ONLY AND SHALL NOT AFFECT THE MEANING OR INTERPRETATION OF ANY
PROVISION OF THIS OPTION AGREEMENT.  EXCEPT WHEN OTHERWISE INDICATED BY THE
CONTEXT, THE SINGULAR SHALL INCLUDE THE PLURAL AND THE PLURAL SHALL INCLUDE THE
SINGULAR.  USE OF THE TERM “OR” IS NOT INTENDED TO BE EXCLUSIVE, UNLESS THE
CONTEXT CLEARLY REQUIRES OTHERWISE.

 

2.             TAX STATUS OF OPTION.

 

This Option is intended to be a Nonstatutory Stock Option and shall not be
treated as an Incentive Stock Option within the meaning of Section 422(b) of the
Code.

 

3.             ADMINISTRATION.

 

All questions of interpretation concerning this Option Agreement shall be
determined by the Committee.  All determinations by the Committee shall be final
and binding upon all persons having an interest in the Option.  Any Officer
shall have the authority to act on behalf of the Company with respect to any
matter, right, obligation, or election which is the responsibility of or which
is allocated to the Company herein, provided the Officer has apparent authority
with respect to such matter, right, obligation, or election.

 

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4.             EXERCISE OF THE OPTION.

 

4.1           RIGHT TO EXERCISE.  EXCEPT AS OTHERWISE PROVIDED HEREIN, THE
OPTION SHALL BE EXERCISABLE ON AND AFTER THE INITIAL VESTING DATE AND PRIOR TO
THE TERMINATION OF THE OPTION (AS PROVIDED IN SECTION 6) IN AN AMOUNT NOT TO
EXCEED THE NUMBER OF VESTED SHARES LESS THE NUMBER OF SHARES PREVIOUSLY ACQUIRED
UPON EXERCISE OF THE OPTION.  IN NO EVENT SHALL THE OPTION BE EXERCISABLE FOR
MORE SHARES THAN THE NUMBER OF OPTION SHARES, AS ADJUSTED PURSUANT TO SECTION 9.

 

4.2           METHOD OF EXERCISE.  EXERCISE OF THE OPTION SHALL BE BY MEANS OF
ELECTRONIC OR WRITTEN NOTICE (THE “EXERCISE NOTICE”) IN A FORM AUTHORIZED BY THE
COMPANY.  AN ELECTRONIC EXERCISE NOTICE MUST BE DIGITALLY SIGNED OR
AUTHENTICATED BY THE PARTICIPANT IN SUCH MANNER AS REQUIRED BY THE NOTICE AND
TRANSMITTED TO THE COMPANY OR AN AUTHORIZED REPRESENTATIVE OF THE COMPANY
(INCLUDING A THIRD-PARTY ADMINISTRATOR DESIGNATED BY THE COMPANY).  IN THE EVENT
THAT THE PARTICIPANT IS NOT AUTHORIZED OR IS UNABLE TO PROVIDE AN ELECTRONIC
EXERCISE NOTICE, THE OPTION SHALL BE EXERCISED BY A WRITTEN EXERCISE NOTICE
ADDRESSED TO THE COMPANY, WHICH SHALL BE SIGNED BY THE PARTICIPANT AND DELIVERED
IN PERSON, BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, BY
CONFIRMED FACSIMILE TRANSMISSION, OR BY SUCH OTHER MEANS AS THE COMPANY MAY
PERMIT, TO THE COMPANY, OR AN AUTHORIZED REPRESENTATIVE OF THE COMPANY
(INCLUDING A THIRD-PARTY ADMINISTRATOR DESIGNATED BY THE COMPANY).  EACH
EXERCISE NOTICE, WHETHER ELECTRONIC OR WRITTEN, MUST STATE THE PARTICIPANT’S
ELECTION TO EXERCISE THE OPTION, THE NUMBER OF WHOLE SHARES OF STOCK FOR WHICH
THE OPTION IS BEING EXERCISED AND SUCH OTHER REPRESENTATIONS AND AGREEMENTS AS
TO THE PARTICIPANT’S INVESTMENT INTENT WITH RESPECT TO SUCH SHARES AS MAY BE
REQUIRED PURSUANT TO THE PROVISIONS OF THIS OPTION AGREEMENT.  FURTHER, EACH
EXERCISE NOTICE MUST BE RECEIVED BY THE COMPANY PRIOR TO THE TERMINATION OF THE
OPTION AS SET FORTH IN SECTION 6 AND MUST BE ACCOMPANIED BY FULL PAYMENT OF THE
AGGREGATE EXERCISE PRICE FOR THE NUMBER OF SHARES OF STOCK BEING PURCHASED.  THE
OPTION SHALL BE DEEMED TO BE EXERCISED UPON RECEIPT BY THE COMPANY OF SUCH
ELECTRONIC OR WRITTEN EXERCISE NOTICE AND THE AGGREGATE EXERCISE PRICE.

 

4.3           PAYMENT OF EXERCISE PRICE.

 

(A)           FORMS OF CONSIDERATION AUTHORIZED.  EXCEPT AS OTHERWISE PROVIDED
BELOW, PAYMENT OF THE AGGREGATE EXERCISE PRICE FOR THE NUMBER OF SHARES OF STOCK
FOR WHICH THE OPTION IS BEING EXERCISED SHALL BE MADE (I) IN CASH OR BY CHECK OR
CASH EQUIVALENT, (II) IF PERMITTED BY THE COMPANY, BY TENDER TO THE COMPANY, OR
ATTESTATION TO THE OWNERSHIP, OF WHOLE SHARES OF STOCK OWNED BY THE PARTICIPANT
HAVING A FAIR MARKET VALUE NOT LESS THAN THE AGGREGATE EXERCISE PRICE, (III) BY
MEANS OF A CASHLESS EXERCISE, AS DEFINED IN SECTION 4.3(B), OR (IV) BY ANY
COMBINATION OF THE FOREGOING.

 

(B)           LIMITATIONS ON FORMS OF CONSIDERATION.

 

(I)            TENDER OF STOCK.  NOTWITHSTANDING THE FOREGOING, THE OPTION MAY
NOT BE EXERCISED BY TENDER TO THE COMPANY, OR ATTESTATION TO THE OWNERSHIP, OF
SHARES OF STOCK TO THE EXTENT SUCH TENDER OR ATTESTATION WOULD CONSTITUTE A
VIOLATION OF THE PROVISIONS OF ANY LAW, REGULATION OR AGREEMENT RESTRICTING THE
REDEMPTION OF THE COMPANY’S STOCK.  IF REQUIRED BY THE COMPANY, THE OPTION MAY
NOT BE EXERCISED BY TENDER TO THE COMPANY, OR ATTESTATION TO THE OWNERSHIP, OF
SHARES OF STOCK UNLESS SUCH SHARES EITHER HAVE BEEN OWNED BY THE PARTICIPANT FOR
MORE THAN SIX (6) MONTHS OR SUCH OTHER PERIOD, IF ANY, REQUIRED BY THE COMPANY
(AND NOT USED FOR ANOTHER OPTION EXERCISE BY ATTESTATION DURING SUCH PERIOD) OR
WERE NOT ACQUIRED, DIRECTLY OR INDIRECTLY, FROM THE COMPANY.

 

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(II)           CASHLESS EXERCISE.  A “CASHLESS EXERCISE” MEANS THE DELIVERY OF A
PROPERLY EXECUTED NOTICE TOGETHER WITH IRREVOCABLE INSTRUCTIONS TO A BROKER IN A
FORM ACCEPTABLE TO THE COMPANY PROVIDING FOR THE ASSIGNMENT TO THE COMPANY OF
THE PROCEEDS OF A SALE OR LOAN WITH RESPECT TO SOME OR ALL OF THE SHARES OF
STOCK ACQUIRED UPON THE EXERCISE OF THE OPTION PURSUANT TO A PROGRAM OR
PROCEDURE APPROVED BY THE COMPANY (INCLUDING, WITHOUT LIMITATION, THROUGH AN
EXERCISE COMPLYING WITH THE PROVISIONS OF REGULATION T AS PROMULGATED FROM TIME
TO TIME BY THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM).  THE COMPANY
RESERVES, AT ANY AND ALL TIMES, THE RIGHT, IN THE COMPANY’S SOLE AND ABSOLUTE
DISCRETION, TO ESTABLISH, DECLINE TO APPROVE OR TERMINATE ANY SUCH PROGRAM OR
PROCEDURE, INCLUDING WITH RESPECT TO THE PARTICIPANT NOTWITHSTANDING THAT SUCH
PROGRAM OR PROCEDURES MAY BE AVAILABLE TO OTHERS.

 

4.4           TAX WITHHOLDING.  AT THE TIME THE OPTION IS EXERCISED, IN WHOLE OR
IN PART, OR AT ANY TIME THEREAFTER AS REQUESTED BY THE COMPANY, THE PARTICIPANT
HEREBY AUTHORIZES WITHHOLDING FROM PAYROLL AND ANY OTHER AMOUNTS PAYABLE TO THE
PARTICIPANT, AND OTHERWISE AGREES TO MAKE ADEQUATE PROVISION FOR (INCLUDING BY
MEANS OF A CASHLESS EXERCISE TO THE EXTENT PERMITTED BY THE COMPANY), ANY SUMS
REQUIRED TO SATISFY THE FEDERAL, STATE, LOCAL AND FOREIGN TAX WITHHOLDING
OBLIGATIONS OF THE PARTICIPATING COMPANY GROUP, IF ANY, WHICH ARISE IN
CONNECTION WITH THE OPTION.  THE COMPANY SHALL HAVE NO OBLIGATION TO DELIVER
SHARES OF STOCK UNTIL THE TAX WITHHOLDING OBLIGATIONS OF THE PARTICIPATING
COMPANY GROUP HAVE BEEN SATISFIED BY THE PARTICIPANT.

 

4.5           BENEFICIAL OWNERSHIP OF SHARES; CERTIFICATE REGISTRATION.  THE
PARTICIPANT HEREBY AUTHORIZES THE COMPANY, IN ITS SOLE DISCRETION, TO DEPOSIT
FOR THE BENEFIT OF THE PARTICIPANT WITH ANY BROKER WITH WHICH THE PARTICIPANT
HAS AN ACCOUNT RELATIONSHIP OF WHICH THE COMPANY HAS NOTICE ANY OR ALL SHARES
ACQUIRED BY THE PARTICIPANT PURSUANT TO THE EXERCISE OF THE OPTION.  EXCEPT AS
PROVIDED BY THE PRECEDING SENTENCE, A CERTIFICATE FOR THE SHARES AS TO WHICH THE
OPTION IS EXERCISED SHALL BE REGISTERED IN THE NAME OF THE PARTICIPANT, OR, IF
APPLICABLE, IN THE NAMES OF THE HEIRS OF THE PARTICIPANT.

 

4.6           RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF SHARES.  THE
GRANT OF THE OPTION AND THE ISSUANCE OF SHARES OF STOCK UPON EXERCISE OF THE
OPTION SHALL BE SUBJECT TO COMPLIANCE WITH ALL APPLICABLE REQUIREMENTS OF
FEDERAL, STATE OR FOREIGN LAW WITH RESPECT TO SUCH SECURITIES.  THE OPTION MAY
NOT BE EXERCISED IF THE ISSUANCE OF SHARES OF STOCK UPON EXERCISE WOULD
CONSTITUTE A VIOLATION OF ANY APPLICABLE FEDERAL, STATE OR FOREIGN SECURITIES
LAWS OR OTHER LAW OR REGULATIONS OR THE REQUIREMENTS OF ANY STOCK EXCHANGE OR
MARKET SYSTEM UPON WHICH THE STOCK MAY THEN BE LISTED.  IN ADDITION, THE OPTION
MAY NOT BE EXERCISED UNLESS (I) A REGISTRATION STATEMENT UNDER THE SECURITIES
ACT SHALL AT THE TIME OF EXERCISE OF THE OPTION BE IN EFFECT WITH RESPECT TO THE
SHARES ISSUABLE UPON EXERCISE OF THE OPTION OR (II) IN THE OPINION OF LEGAL
COUNSEL TO THE COMPANY, THE SHARES ISSUABLE UPON EXERCISE OF THE OPTION MAY BE
ISSUED IN ACCORDANCE WITH THE TERMS OF AN APPLICABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.  THE PARTICIPANT IS CAUTIONED
THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS ARE
SATISFIED.  ACCORDINGLY, THE PARTICIPANT MAY NOT BE ABLE TO EXERCISE THE OPTION
WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED.  THE INABILITY OF THE COMPANY TO
OBTAIN FROM ANY REGULATORY BODY HAVING JURISDICTION THE AUTHORITY, IF ANY,
DEEMED BY THE COMPANY’S LEGAL COUNSEL TO BE NECESSARY TO THE LAWFUL ISSUANCE AND
SALE OF ANY SHARES SUBJECT TO THE OPTION SHALL RELIEVE THE COMPANY OF ANY
LIABILITY IN RESPECT OF THE FAILURE TO ISSUE OR SELL SUCH SHARES AS TO WHICH
SUCH

 

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REQUISITE AUTHORITY SHALL NOT HAVE BEEN OBTAINED.  AS A CONDITION TO THE
EXERCISE OF THE OPTION, THE COMPANY MAY REQUIRE THE PARTICIPANT TO SATISFY ANY
QUALIFICATIONS THAT MAY BE NECESSARY OR APPROPRIATE, TO EVIDENCE COMPLIANCE WITH
ANY APPLICABLE LAW OR REGULATION AND TO MAKE ANY REPRESENTATION OR WARRANTY WITH
RESPECT THERETO AS MAY BE REQUESTED BY THE COMPANY.

 

4.7           FRACTIONAL SHARES.  THE COMPANY SHALL NOT BE REQUIRED TO ISSUE
FRACTIONAL SHARES UPON THE EXERCISE OF THE OPTION.

 

5.             NONTRANSFERABILITY OF THE OPTION.

 

During the lifetime of the Participant, the Option shall be exercisable only by
the Participant or the Participant’s guardian or legal representative.  The
Option shall not be subject in any manner to anticipation, alienation, sale,
exchange, transfer, assignment, pledge, encumbrance, or garnishment by creditors
of the Participant or the Participant’s beneficiary, except transfer by will or
by the laws of descent and distribution.  Following the death of the
Participant, the Option, to the extent provided in Section 7, may be exercised
by the Participant’s legal representative or by any person empowered to do so
under the deceased Participant’s will or under the then applicable laws of
descent and distribution.

 

6.             TERMINATION OF THE OPTION.

 

The Option shall terminate and may no longer be exercised after the first to
occur of (a) the close of business on the Option Expiration Date, (b) the close
of business on the last date for exercising the Option following termination of
the Participant’s Service as described in Section 7, or (c) a Change in Control
to the extent provided in Section 8.

 

7.             EFFECT OF TERMINATION OF SERVICE.

 

7.1           OPTION EXERCISABILITY.  THE OPTION SHALL TERMINATE IMMEDIATELY
UPON THE PARTICIPANT’S TERMINATION OF SERVICE TO THE EXTENT THAT IT IS THEN
UNVESTED AND SHALL BE EXERCISABLE AFTER THE PARTICIPANT’S TERMINATION OF SERVICE
TO THE EXTENT IT IS THEN VESTED ONLY DURING THE APPLICABLE TIME PERIOD AS
DETERMINED BELOW AND THEREAFTER SHALL TERMINATE.

 

(A)           DISABILITY.  IF THE PARTICIPANT’S SERVICE TERMINATES BECAUSE OF
THE DISABILITY OF THE PARTICIPANT, THE OPTION, TO THE EXTENT UNEXERCISED AND
EXERCISABLE FOR VESTED SHARES ON THE DATE ON WHICH THE PARTICIPANT’S SERVICE
TERMINATED, MAY BE EXERCISED BY THE PARTICIPANT (OR THE PARTICIPANT’S GUARDIAN
OR LEGAL REPRESENTATIVE) AT ANY TIME PRIOR TO THE EXPIRATION OF TWELVE (12)
MONTHS AFTER THE DATE ON WHICH THE PARTICIPANT’S SERVICE TERMINATED, BUT IN ANY
EVENT NO LATER THAN THE OPTION EXPIRATION DATE.

 

(B)           DEATH.  IF THE PARTICIPANT’S SERVICE TERMINATES BECAUSE OF THE
DEATH OF THE PARTICIPANT, THE OPTION, TO THE EXTENT UNEXERCISED AND EXERCISABLE
FOR VESTED SHARES ON THE DATE ON WHICH THE PARTICIPANT’S SERVICE TERMINATED, MAY
BE EXERCISED BY THE PARTICIPANT’S LEGAL REPRESENTATIVE OR OTHER PERSON WHO
ACQUIRED THE RIGHT TO EXERCISE THE OPTION BY REASON OF THE PARTICIPANT’S DEATH
AT ANY TIME PRIOR TO THE EXPIRATION OF TWELVE (12) MONTHS AFTER THE DATE ON
WHICH THE PARTICIPANT’S SERVICE TERMINATED, BUT IN ANY EVENT NO LATER THAN THE
OPTION EXPIRATION DATE.  THE PARTICIPANT’S SERVICE SHALL BE DEEMED TO HAVE
TERMINATED ON ACCOUNT OF DEATH IF THE PARTICIPANT DIES WITHIN THREE (3) MONTHS
AFTER THE PARTICIPANT’S TERMINATION OF SERVICE.

 

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(C)           TERMINATION AFTER CHANGE IN CONTROL.  IF THE PARTICIPANT’S SERVICE
CEASES AS A RESULT OF A TERMINATION AFTER CHANGE IN CONTROL (AS DEFINED BELOW),
THEN (I) THE OPTION, TO THE EXTENT UNEXERCISED AND EXERCISABLE FOR VESTED SHARES
ON THE DATE ON WHICH THE PARTICIPANT’S SERVICE TERMINATED, MAY BE EXERCISED BY
THE PARTICIPANT (OR THE PARTICIPANT’S GUARDIAN OR LEGAL REPRESENTATIVE) AT ANY
TIME PRIOR TO THE EXPIRATION OF SIX (6) MONTHS AFTER THE DATE ON WHICH THE
PARTICIPANT’S SERVICE TERMINATED, BUT IN ANY EVENT NO LATER THAN THE OPTION
EXPIRATION DATE.

 

(D)           TERMINATION AFTER AGREEMENT TO RESIGN EMPLOYMENT.  IF THE
PARTICIPANT’S SERVICE AS AN EMPLOYEE CEASES AS A RESULT OF AN AGREEMENT TO
RESIGN EMPLOYMENT (AS DEFINED BELOW) AND AS OF THE EFFECTIVE DATE OF THE
TERMINATION OF PARTICIPANT’S SERVICE AS AN EMPLOYEE, THE PARTICIPANT CONTINUES
HIS SERVICE AS A MEMBER OF THE BOARD, THEN THE NUMBER OF VESTED SHARES SHALL BE
INCREASED BY AN AMOUNT EQUAL TO FIFTY PERCENT (50%) OF THE NUMBER OF OPTION
SHARES (BUT IN NO EVENT TO A NUMBER IN EXCESS OF 100% OF THE NUMBER OF OPTION
SHARES) EFFECTIVE AS OF THE DATE ON WHICH THE PARTICIPANT’S SERVICE AS AN
EMPLOYEE TERMINATED.

 

(E)           OTHER TERMINATION OF SERVICE.  IF THE PARTICIPANT’S SERVICE
TERMINATES FOR ANY REASON, EXCEPT DISABILITY, DEATH OR TERMINATION AFTER CHANGE
IN CONTROL, THE OPTION, TO THE EXTENT UNEXERCISED AND EXERCISABLE FOR VESTED
SHARES BY THE PARTICIPANT ON THE DATE ON WHICH THE PARTICIPANT’S SERVICE
TERMINATED, MAY BE EXERCISED BY THE PARTICIPANT WITHIN THREE (3) MONTHS AFTER
THE DATE ON WHICH THE PARTICIPANT’S SERVICE TERMINATED, BUT IN ANY EVENT NO
LATER THAN THE OPTION EXPIRATION DATE.

 

7.2           EXTENSION IF EXERCISE PREVENTED BY LAW.  NOTWITHSTANDING THE
FOREGOING, IF THE EXERCISE OF THE OPTION WITHIN THE APPLICABLE TIME PERIODS SET
FORTH IN SECTION 7.1 IS PREVENTED BY THE PROVISIONS OF SECTION 4.6, THE OPTION
SHALL REMAIN EXERCISABLE UNTIL THIRTY (30) DAYS AFTER THE DATE SUCH EXERCISE
WOULD NO LONGER BE PREVENTED BY SUCH PROVISIONS, BUT IN ANY EVENT NO LATER THAN
THE OPTION EXPIRATION DATE.

 

7.3           CERTAIN DEFINITIONS.

 

(A)           “AGREEMENT TO RESIGN EMPLOYMENT” MEANS THE TERMINATION BY
PARTICIPANT OF HIS SERVICE AS AN EMPLOYEE UPON THE MUTUAL AGREEMENT OF
PARTICIPANT AND THE BOARD THAT PARTICIPANT SHOULD RESIGN AS AN EMPLOYEE, WHICH
AGREEMENT BY THE BOARD SHALL OCCUR AT THE TIME A MAJORITY OF THE MEMBERS OF THE
BOARD OTHER THAN PARTICIPANT ADOPT A RESOLUTION THAT PARTICIPANT SHOULD RESIGN
AS AN EMPLOYEE.

 

(B)           “TERMINATION AFTER A CHANGE IN CONTROL” SHALL MEAN EITHER OF THE
FOLLOWING EVENTS OCCURRING UPON OR WITHIN TWELVE (12) MONTHS AFTER A CHANGE IN
CONTROL:

 

(I)            TERMINATION BY THE PARTICIPATING COMPANY GROUP OF THE
PARTICIPANT’S SERVICE FOR ANY REASON OTHER THAN FOR CAUSE (AS DEFINED IN THE
PLAN); OR

 

(II)           THE PARTICIPANT’S RESIGNATION FROM ALL CAPACITIES IN WHICH THE
PARTICIPANT IS THEN RENDERING SERVICE WITHIN A REASONABLE PERIOD OF TIME
FOLLOWING THE EVENT CONSTITUTING A CONSTRUCTIVE TERMINATION (AS DEFINED BELOW).

 

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Notwithstanding any provision herein to the contrary, Termination After a Change
in Control shall not include any termination of the Participant’s Service which
(1) is for Cause (as defined in the Plan); (2) is a result of the Participant’s
death or disability; (3) is a result of the Participant’s voluntary termination
of Service other than upon a Constructive Termination; or (4) occurs prior to
the effectiveness of a Change in Control.

 

(C)           “CONSTRUCTIVE TERMINATION” SHALL MEAN ANY ONE OR MORE OF THE
FOLLOWING:

 

(I)            WITHOUT THE PARTICIPANT’S EXPRESS WRITTEN CONSENT, THE ASSIGNMENT
TO THE PARTICIPANT OF ANY DUTIES, OR ANY LIMITATION OF THE PARTICIPANT’S
RESPONSIBILITIES, SUBSTANTIALLY INCONSISTENT WITH THE PARTICIPANT’S POSITIONS,
DUTIES, RESPONSIBILITIES AND STATUS WITH A PARTICIPATING COMPANY IMMEDIATELY
PRIOR TO THE DATE OF THE CHANGE IN CONTROL;

 

(II)           WITHOUT THE PARTICIPANT’S EXPRESS WRITTEN CONSENT, THE RELOCATION
OF THE PRINCIPAL PLACE OF THE PARTICIPANT’S SERVICE TO A LOCATION THAT IS MORE
THAN FIFTY (50) MILES FROM THE PARTICIPANT’S PRINCIPAL PLACE OF SERVICE
IMMEDIATELY PRIOR TO THE DATE OF THE CHANGE IN CONTROL, OR THE IMPOSITION OF
TRAVEL REQUIREMENTS SUBSTANTIALLY MORE DEMANDING OF THE PARTICIPANT THAN SUCH
TRAVEL REQUIREMENTS EXISTING IMMEDIATELY PRIOR TO THE DATE OF THE CHANGE IN
CONTROL;

 

(III)          ANY FAILURE BY A PARTICIPATING COMPANY TO PAY, OR ANY MATERIAL
REDUCTION BY A PARTICIPATING COMPANY OF, (1) THE PARTICIPANT’S BASE SALARY IN
EFFECT IMMEDIATELY PRIOR TO THE DATE OF THE CHANGE IN CONTROL, OR (2) THE
PARTICIPANT’S BONUS COMPENSATION, IF ANY, IN EFFECT IMMEDIATELY PRIOR TO THE
DATE OF THE CHANGE IN CONTROL (SUBJECT TO APPLICABLE PERFORMANCE REQUIREMENTS
WITH RESPECT TO THE ACTUAL AMOUNT OF BONUS COMPENSATION EARNED BY THE
PARTICIPANT); OR

 

(IV)          ANY FAILURE BY A PARTICIPATING COMPANY TO (1) CONTINUE TO PROVIDE
THE PARTICIPANT WITH THE OPPORTUNITY TO PARTICIPATE, ON TERMS NO LESS FAVORABLE
THAN THOSE IN EFFECT FOR THE BENEFIT OF ANY EMPLOYEE GROUP WHICH CUSTOMARILY
INCLUDES A PERSON HOLDING THE EMPLOYMENT POSITION OR A COMPARABLE POSITION WITH
THE PARTICIPATING COMPANY THEN HELD BY THE PARTICIPANT, IN ANY BENEFIT OR
COMPENSATION PLANS AND PROGRAMS, INCLUDING, BUT NOT LIMITED TO, THE
PARTICIPATING COMPANY’S LIFE, DISABILITY, HEALTH, DENTAL, MEDICAL, SAVINGS,
PROFIT SHARING, STOCK PURCHASE AND RETIREMENT PLANS, IF ANY, IN WHICH THE
PARTICIPANT WAS PARTICIPATING IMMEDIATELY PRIOR TO THE DATE OF THE CHANGE IN
CONTROL, OR THEIR EQUIVALENT, OR (2) PROVIDE THE PARTICIPANT WITH ALL OTHER
FRINGE BENEFITS (OR THEIR EQUIVALENT) FROM TIME TO TIME IN EFFECT FOR THE
BENEFIT OF ANY EMPLOYEE GROUP WHICH CUSTOMARILY INCLUDES A PERSON HOLDING THE
EMPLOYMENT POSITION OR A COMPARABLE POSITION WITH THE PARTICIPATING COMPANY THEN
HELD BY THE PARTICIPANT.

 

8.             EFFECT OF CHANGE IN CONTROL.

 

In the event of a Change in Control, the surviving, continuing, successor, or
purchasing entity or parent thereof, as the case may be (the “Acquiror”), may,
without the consent of the Participant, assume or continue in full force and
effect the Company’s rights and obligations under the Option or substitute for
the Option a substantially equivalent option for the Acquiror’s stock.  In the
event of a Change in Control, and provided that the Participant’s

 

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Service has not terminated prior to the date of the Change in Control, any
shares subject to the Option which are not Vested Shares shall become Vested
Shares effective as of the date of the Change in Control.  Any exercise of the
Option that was permissible solely by reason of this Section shall be
conditioned upon the consummation of the Change in Control.  The Option shall
terminate and cease to be outstanding effective as of the time of consummation
of the Change in Control to the extent that the Option is neither assumed or
continued by the Acquiror in connection with the Change in Control nor exercised
as of the date of the Change in Control.

 

9.             ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE.

 

Subject to any required action by the stockholders of the Company, in the event
of any change in the Stock effected without receipt of consideration by the
Company, whether through merger, consolidation, reorganization, reincorporation,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split, split-up, split-off, spin-off, combination of shares, exchange of shares,
or similar change in the capital structure of the Company, or in the event of
payment of a dividend or distribution to the stockholders of the Company in a
form other than Stock (excepting normal cash dividends) that has a material
effect on the Fair Market Value of shares of Stock, appropriate adjustments
shall be made in the number, Exercise Price and kind of shares subject to the
Option, in order to prevent dilution or enlargement of the Participant’s rights
under the Option.  For purposes of the foregoing, conversion of any convertible
securities of the Company shall not be treated as “effected without receipt of
consideration by the Company.”  Any fractional share resulting from an
adjustment pursuant to this Section shall be rounded down to the nearest whole
number, and in no event may the Exercise Price be decreased to an amount less
than the par value, if any, of the stock subject to the Option.  The Committee
in its sole discretion, may also make such adjustments in the terms of the
Option to reflect, or related to, such changes in the capital structure of the
Company or distributions as it deems appropriate.  The adjustments determined by
the Committee pursuant to this Section shall be final, binding and conclusive.

 

10.           RIGHTS AS A STOCKHOLDER, DIRECTOR, EMPLOYEE OR CONSULTANT.

 

The Participant shall have no rights as a stockholder with respect to any shares
covered by the Option until the date of the issuance of the shares for which the
Option has been exercised (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company).  No
adjustment shall be made for dividends, distributions or other rights for which
the record date is prior to the date the shares are issued, except as provided
in Section 9.  If the Participant is an Employee, the Participant understands
and acknowledges that, except as otherwise provided in a separate, written
employment agreement between a Participating Company and the Participant, the
Participant’s employment is “at will” and is for no specified term.  Nothing in
this Option Agreement shall confer upon the Participant any right to continue in
the Service of a Participating Company or interfere in any way with any right of
the Participating Company Group to terminate the Participant’s Service as a
Director, an Employee or Consultant, as the case may be, at any time.

 

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11.           LEGENDS.

 

The Company may at any time place legends referencing any applicable federal,
state or foreign securities law restrictions on all certificates representing
shares of stock subject to the provisions of this Option Agreement.  The
Participant shall, at the request of the Company, promptly present to the
Company any and all certificates representing shares acquired pursuant to the
Option in the possession of the Participant in order to carry out the provisions
of this Section.

 

12.           ARBITRATION.

 

In the event a dispute between the parties to this Option Agreement arises out
of, in connection with, or with respect to this Option Agreement, or any breach
of this Option Agreement, such dispute will, on the written request of one
(1) party delivered to the other party, be submitted and settled by arbitration
in Redwood City, California in accordance with the rules of the American
Arbitration Association then in effect and will comply with the California
Arbitration Act, except as otherwise specifically stated in this Section 12. 
Judgment upon the award rendered by the arbitrators may be entered in any court
having jurisdiction.  The parties submit to the in personam jurisdiction of the
Supreme Court of the State of California for the purpose of confirming any such
award and entering judgment upon the award.  Notwithstanding anything to the
contrary that may now or in the future be contained in the rules of the American
Arbitration Association, the parties agree as follows:

 

12.1         EACH PARTY WILL APPOINT ONE INDIVIDUAL APPROVED BY THE AMERICAN
ARBITRATION ASSOCIATION TO HEAR AND DETERMINE THE DISPUTE WITHIN TWENTY (20)
DAYS AFTER RECEIPT OF NOTICE OF ARBITRATION FROM THE NOTICING PARTY.  THE TWO
(2) INDIVIDUALS SO CHOSEN WILL SELECT A THIRD IMPARTIAL ARBITRATOR.  THE
MAJORITY DECISION OF THE ARBITRATORS WILL BE FINAL AND BINDING UPON THE PARTIES
TO THE ARBITRATION.  IF EITHER PARTY FAILS TO DESIGNATE ITS ARBITRATOR WITHIN
TWENTY (20) DAYS AFTER DELIVERY OF THE NOTICE PROVIDED FOR IN THIS SECTION 12.1,
THEN THE ARBITRATOR DESIGNATED BY THE ONE (1) PARTY WILL ACT AS THE SOLE
ARBITRATOR AND WILL BE CONSIDERED THE SINGLE, MUTUALLY APPROVED ARBITRATOR TO
RESOLVE THE CONTROVERSY.  IN THE EVENT THE PARTIES ARE UNABLE TO AGREE UPON A
RATE OF COMPENSATION FOR THE ARBITRATORS, THEY WILL BE COMPENSATED FOR THEIR
SERVICES AT A RATE TO BE DETERMINED BY THE AMERICAN ARBITRATION ASSOCIATION.

 

12.2         THE PARTIES WILL ENJOY, BUT ARE NOT LIMITED TO, THE SAME RIGHTS TO
DISCOVERY AS THEY WOULD HAVE IN THE UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF CALIFORNIA.

 

12.3         THE ARBITRATORS WILL, UPON THE REQUEST OF EITHER PARTY, ISSUE A
WRITTEN OPINION OF THEIR FINDINGS OF FACT AND CONCLUSIONS OF LAW.

 

12.4         UPON RECEIPT BY THE REQUESTING PARTY OF SAID WRITTEN OPINION, SAID
PARTY WILL HAVE THE RIGHT WITHIN TEN (10) DAYS TO FILE WITH THE ARBITRATORS A
MOTION TO RECONSIDER, AND UPON RECEIPT OF A TIMELY REQUEST THE ARBITRATORS WILL
RECONSIDER THE ISSUES RAISED BY SAID MOTION AND EITHER CONFIRM OR CHANGE THEIR
MAJORITY DECISION WHICH WILL THEN BE FINAL AND BINDING UPON THE PARTIES TO THE
ARBITRATION.

 

12.5         THE ARBITRATORS WILL AWARD TO THE PREVAILING PARTY IN ANY SUCH
ARBITRATION REASONABLE EXPENSES, INCLUDING ATTORNEYS’ FEES AND COSTS, INCURRED
IN CONNECTION WITH THE DISPUTE.

 

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13.           MISCELLANEOUS PROVISIONS.

 

13.1         TERMINATION OR AMENDMENT.  THE COMMITTEE MAY TERMINATE OR AMEND THE
PLAN OR THE OPTION AT ANY TIME; PROVIDED, HOWEVER, THAT EXCEPT AS PROVIDED IN
SECTION 8 IN CONNECTION WITH A CHANGE IN CONTROL, NO SUCH TERMINATION OR
AMENDMENT MAY ADVERSELY AFFECT THE OPTION OR ANY UNEXERCISED PORTION HEREOF
WITHOUT THE CONSENT OF THE PARTICIPANT UNLESS SUCH TERMINATION OR AMENDMENT IS
NECESSARY TO COMPLY WITH ANY APPLICABLE LAW OR GOVERNMENT REGULATION.  NO
AMENDMENT OR ADDITION TO THIS OPTION AGREEMENT SHALL BE EFFECTIVE UNLESS IN
WRITING.

 

13.2         COMPLIANCE WITH SECTION 409A.  THE COMPANY INTENDS THAT INCOME
REALIZED BY THE PARTICIPANT PURSUANT TO THE PLAN AND THIS AGREEMENT WILL NOT BE
SUBJECT TO TAXATION UNDER SECTION 409A.  THE PROVISIONS OF THE PLAN AND THIS
AGREEMENT SHALL BE INTERPRETED AND CONSTRUED IN FAVOR OF SATISFYING ANY
APPLICABLE REQUIREMENTS OF SECTION 409A.  THE COMPANY, IN ITS REASONABLE
DISCRETION, MAY AMEND (INCLUDING RETROACTIVELY) THE PLAN AND THIS AGREEMENT IN
ORDER TO CONFORM TO THE APPLICABLE REQUIREMENTS OF SECTION 409A, INCLUDING
AMENDMENTS TO FACILITATE THE PARTICIPANT’S ABILITY TO AVOID TAXATION UNDER
SECTION 409A.  HOWEVER, THE PRECEDING PROVISIONS SHALL NOT BE CONSTRUED AS A
GUARANTEE BY THE COMPANY OF ANY PARTICULAR TAX RESULT FOR INCOME REALIZED BY THE
PARTICIPANT PURSUANT TO THE PLAN OR THIS AGREEMENT.  IN ANY EVENT, AND EXCEPT
FOR THE RESPONSIBILITIES OF THE COMPANY SET FORTH IN SECTION 4.4, NO
PARTICIPATING COMPANY SHALL BE RESPONSIBLE FOR THE PAYMENT OF ANY APPLICABLE
TAXES ON INCOME REALIZED BY THE PARTICIPANT PURSUANT TO THE PLAN OR THIS
AGREEMENT.

 

13.3         FURTHER INSTRUMENTS.  THE PARTIES HERETO AGREE TO EXECUTE SUCH
FURTHER INSTRUMENTS AND TO TAKE SUCH FURTHER ACTION AS MAY REASONABLY BE
NECESSARY TO CARRY OUT THE INTENT OF THIS OPTION AGREEMENT.

 

13.4         BINDING EFFECT.  SUBJECT TO THE RESTRICTIONS ON TRANSFER SET FORTH
HEREIN, THIS OPTION AGREEMENT SHALL INURE TO THE BENEFIT OF AND BE BINDING UPON
THE PARTIES HERETO AND THEIR RESPECTIVE HEIRS, EXECUTORS, ADMINISTRATORS,
SUCCESSORS AND ASSIGNS.

 

13.5         DELIVERY OF DOCUMENTS AND NOTICES.  ANY DOCUMENT RELATING TO
PARTICIPATION IN THE PLAN OR ANY NOTICE REQUIRED OR PERMITTED HEREUNDER SHALL BE
GIVEN IN WRITING AND SHALL BE DEEMED EFFECTIVELY GIVEN (EXCEPT TO THE EXTENT
THAT THIS OPTION AGREEMENT PROVIDES FOR EFFECTIVENESS ONLY UPON ACTUAL RECEIPT
OF SUCH NOTICE) UPON PERSONAL DELIVERY, ELECTRONIC DELIVERY AT THE E-MAIL
ADDRESS, IF ANY, PROVIDED FOR THE PARTICIPANT BY A PARTICIPATING COMPANY, OR
UPON DEPOSIT IN THE U.S. POST OFFICE OR FOREIGN POSTAL SERVICE, BY REGISTERED OR
CERTIFIED MAIL, OR WITH A NATIONALLY RECOGNIZED OVERNIGHT COURIER SERVICE, WITH
POSTAGE AND FEES PREPAID, ADDRESSED TO THE OTHER PARTY AT THE ADDRESS OF SUCH
PARTY SET FORTH IN THE GRANT NOTICE OR AT SUCH OTHER ADDRESS AS SUCH PARTY MAY
DESIGNATE IN WRITING FROM TIME TO TIME TO THE OTHER PARTY.

 

(A)           DESCRIPTION OF ELECTRONIC DELIVERY.  THE PLAN DOCUMENTS, WHICH MAY
INCLUDE BUT DO NOT NECESSARILY INCLUDE: THE PLAN, THE GRANT NOTICE, THIS OPTION
AGREEMENT, THE PLAN PROSPECTUS, AND ANY REPORTS OF THE COMPANY PROVIDED
GENERALLY TO THE COMPANY’S STOCKHOLDERS, MAY BE DELIVERED TO THE PARTICIPANT
ELECTRONICALLY.  IN ADDITION, THE PARTICIPANT MAY DELIVER ELECTRONICALLY THE
GRANT NOTICE AND EXERCISE NOTICE CALLED FOR BY SECTION 4.2 TO THE COMPANY OR TO
SUCH THIRD PARTY INVOLVED IN ADMINISTERING THE PLAN AS THE COMPANY MAY

 

9

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DESIGNATE FROM TIME TO TIME.  SUCH MEANS OF ELECTRONIC DELIVERY MAY INCLUDE BUT
DO NOT NECESSARILY INCLUDE THE DELIVERY OF A LINK TO A COMPANY INTRANET OR THE
INTERNET SITE OF A THIRD PARTY INVOLVED IN ADMINISTERING THE PLAN, THE DELIVERY
OF THE DOCUMENT VIA E-MAIL OR SUCH OTHER MEANS OF ELECTRONIC DELIVERY SPECIFIED
BY THE COMPANY.

 

(B)           CONSENT TO ELECTRONIC DELIVERY.  THE PARTICIPANT ACKNOWLEDGES THAT
THE PARTICIPANT HAS READ SECTION 13.5(A) OF THIS OPTION AGREEMENT AND CONSENTS
TO THE ELECTRONIC DELIVERY OF THE PLAN DOCUMENTS AND THE DELIVERY OF THE GRANT
NOTICE AND EXERCISE NOTICE, AS DESCRIBED IN SECTION 13.5(A).  THE PARTICIPANT
ACKNOWLEDGES THAT HE OR SHE MAY RECEIVE FROM THE COMPANY A PAPER COPY OF ANY
DOCUMENTS DELIVERED ELECTRONICALLY AT NO COST TO THE PARTICIPANT BY CONTACTING
THE COMPANY BY TELEPHONE OR IN WRITING.  THE PARTICIPANT FURTHER ACKNOWLEDGES
THAT THE PARTICIPANT WILL BE PROVIDED WITH A PAPER COPY OF ANY DOCUMENTS IF THE
ATTEMPTED ELECTRONIC DELIVERY OF SUCH DOCUMENTS FAILS.  SIMILARLY, THE
PARTICIPANT UNDERSTANDS THAT THE PARTICIPANT MUST PROVIDE THE COMPANY OR ANY
DESIGNATED THIRD PARTY ADMINISTRATOR WITH A PAPER COPY OF ANY DOCUMENTS IF THE
ATTEMPTED ELECTRONIC DELIVERY OF SUCH DOCUMENTS FAILS.  THE PARTICIPANT MAY
REVOKE HIS OR HER CONSENT TO THE ELECTRONIC DELIVERY OF DOCUMENTS DESCRIBED IN
SECTION 13.5(A) OR MAY CHANGE THE ELECTRONIC MAIL ADDRESS TO WHICH SUCH
DOCUMENTS ARE TO BE DELIVERED (IF PARTICIPANT HAS PROVIDED AN ELECTRONIC MAIL
ADDRESS) AT ANY TIME BY NOTIFYING THE COMPANY OF SUCH REVOKED CONSENT OR REVISED
E-MAIL ADDRESS BY TELEPHONE, POSTAL SERVICE OR ELECTRONIC MAIL.  FINALLY, THE
PARTICIPANT UNDERSTANDS THAT HE OR SHE IS NOT REQUIRED TO CONSENT TO ELECTRONIC
DELIVERY OF DOCUMENTS DESCRIBED IN SECTION 13.5(A).

 

13.6         INTEGRATED AGREEMENT.  THE GRANT NOTICE, THIS OPTION AGREEMENT AND
THE PLAN, TOGETHER WITH ANY EMPLOYMENT, SERVICE OR OTHER AGREEMENT BETWEEN THE
PARTICIPANT AND A PARTICIPATING COMPANY REFERRING TO THE OPTION, SHALL
CONSTITUTE THE ENTIRE UNDERSTANDING AND AGREEMENT OF THE PARTICIPANT AND THE
PARTICIPATING COMPANY GROUP WITH RESPECT TO THE SUBJECT MATTER CONTAINED HEREIN
AND SUPERSEDE ANY PRIOR AGREEMENTS, UNDERSTANDINGS, RESTRICTIONS,
REPRESENTATIONS, OR WARRANTIES AMONG THE PARTICIPANT AND THE PARTICIPATING
COMPANY GROUP WITH RESPECT TO SUCH SUBJECT MATTER.  TO THE EXTENT CONTEMPLATED
HEREIN, THE PROVISIONS OF THE GRANT NOTICE, THE OPTION AGREEMENT AND THE PLAN
SHALL SURVIVE ANY EXERCISE OF THE OPTION AND SHALL REMAIN IN FULL FORCE AND
EFFECT.

 

13.7         APPLICABLE LAW.  THIS OPTION AGREEMENT SHALL BE GOVERNED BY THE
LAWS OF THE STATE OF CALIFORNIA AS SUCH LAWS ARE APPLIED TO AGREEMENTS BETWEEN
CALIFORNIA RESIDENTS ENTERED INTO AND TO BE PERFORMED ENTIRELY WITHIN THE STATE
OF CALIFORNIA.

 

13.8         COUNTERPARTS.  THE GRANT NOTICE MAY BE EXECUTED IN COUNTERPARTS,
EACH OF WHICH SHALL BE DEEMED AN ORIGINAL, BUT ALL OF WHICH TOGETHER SHALL
CONSTITUTE ONE AND THE SAME INSTRUMENT.

 

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Participant:

 

 

 

 

 

            Date:

 

 

 

STOCK OPTION EXERCISE NOTICE

 

PDL BioPharma, Inc.

Stock Administrator

1400 Seaport Boulevard

Redwood City, CA 94063

 

Ladies and Gentlemen:

 

1.             Option.  I was granted a nonstatutory stock option (the “Option”)
to purchase shares of the common stock (the “Shares”) of PDL BioPharma, Inc.
(the “Company”) pursuant to the Company’s 2005 Equity Incentive Plan (the
“Plan”), my Notice of Grant of Stock Option (the “Grant Notice”) and my Stock
Option Agreement (the “Option Agreement”) as follows:

 

Date of Grant:

 

 

 

 

Number of Option Shares:

 

 

 

 

Exercise Price per Share:

$

 

 

2.             Exercise of Option.  I hereby elect to exercise the Option to
purchase the following number of Shares, all of which are Vested Shares in
accordance with the Grant Notice and the Option Agreement:

 

Total Shares Purchased:

 

 

 

 

Total Exercise Price (Total Shares X Price per Share)

$

 

 

3.             Payments.  I enclose payment in full of the total exercise price
for the Shares in the following form(s), as authorized by my Option Agreement:

 

o Cash:

$

 

 

 

 

o Check:

$

 

 

 

 

o Tender of Company Stock:

Contact Plan Administrator

 

4.             Tax Withholding.  I authorize payroll withholding and otherwise
will make adequate provision for the federal, state, local and foreign tax
withholding obligations of the Company, if any, in connection with the Option.

 

5.             Participant Information.

 

My address is:

 

 

My Social Security Number is:

 

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6.             Binding Effect.  I agree that the Shares are being acquired in
accordance with and subject to the terms, provisions and conditions of the Grant
Notice, the Option Agreement and the Plan, to all of which I hereby expressly
assent.  This Agreement shall inure to the benefit of and be binding upon my
heirs, executors, administrators, successors and assigns.

 

 

 

 

Very truly yours,

 

 

 

 

 

 

 

 

(Signature)

 

 

Receipt of the above is hereby acknowledged.

 

PDL BioPharma, Inc.

 

 

By:

 

 

 

 

 

Title:

 

 

 

 

 

Dated:

 

 

 

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