Exhibit 10.37

 

TITAN PHARMACEUTICALS, INC.

 

2002 STOCK OPTION PLAN

1.             PURPOSE.  TITAN PHARMACEUTICALS, INC., A DELAWARE CORPORATION
(“TITAN”), DESIRES TO ATTRACT AND RETAIN THE BEST AVAILABLE TALENT AND TO
ENCOURAGE THE HIGHEST LEVEL OF PERFORMANCE.  THE TITAN PHARMACEUTICALS, INC.
2002 STOCK OPTION PLAN (THE “PLAN”) IS INTENDED TO CONTRIBUTE SIGNIFICANTLY TO
THE ATTAINMENT OF THESE OBJECTIVES BY AFFORDING ELIGIBLE EMPLOYEES AND
INDEPENDENT CONTRACTORS OF TITAN AND ITS AFFILIATES (AS DEFINED IN SECTION 23)
(COLLECTIVELY, WITH TITAN, THE “COMPANY”) THE OPPORTUNITY TO ACQUIRE A
PROPRIETARY INTEREST IN TITAN THROUGH THE GRANT OF STOCK OPTIONS (“OPTIONS”) TO
PURCHASE SHARES OF COMMON STOCK, $.001 PAR VALUE PER SHARE, OF TITAN (THE
“COMMON STOCK”).

2.             ADMINISTRATION.

(A)           THE PLAN SHALL BE ADMINISTERED BY A COMMITTEE (THE “COMMITTEE”) OF
NOT FEWER THAN TWO MEMBERS OF THE BOARD OF DIRECTORS OF TITAN (THE “BOARD”) WHO
SHALL BE APPOINTED BY AND SERVE AT THE PLEASURE OF THE BOARD. TO THE EXTENT
NECESSARY TO COMPLY WITH RULE 16B-3 UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED (THE “EXCHANGE ACT”) WITH RESPECT TO OPTION GRANTS TO OFFICERS AND
DIRECTORS, EACH MEMBER OF THE COMMITTEE SHALL BE A “NON-EMPLOYEE DIRECTOR”
WITHIN THE MEANING OF RULE 16B-3 AND, TO THE EXTENT NECESSARY TO EXCLUDE OPTIONS
GRANTED UNDER THE PLAN FROM THE CALCULATION OF THE INCOME TAX DEDUCTION LIMIT
UNDER SECTION 162(M) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE
“CODE”), EACH MEMBER OF THE COMMITTEE SHALL BE AN “OUTSIDE DIRECTOR” WITHIN THE
MEANING OF SECTION 162(M) OF THE CODE AND TREASURY REGULATIONS PROMULGATED
THEREUNDER. A MAJORITY OF THE COMMITTEE SHALL CONSTITUTE A QUORUM.

(B)           THE COMMITTEE SHALL HAVE AND MAY EXERCISE ALL OF THE POWERS OF THE
BOARD UNDER THE PLAN, OTHER THAN THE POWER TO APPOINT A DIRECTOR TO COMMITTEE
MEMBERSHIP. THE COMMITTEE SHALL HAVE PLENARY AUTHORITY IN ITS DISCRETION,
SUBJECT TO AND CONSISTENT WITH THE EXPRESS PROVISIONS OF THE PLAN, TO DIRECT THE
GRANTS OF OPTIONS; TO DETERMINE THE NUMBERS OF SHARES OF COMMON STOCK COVERED BY
EACH OPTION OR AWARD, THE PURCHASE PRICE OF THE COMMON STOCK COVERED BY EACH
OPTION, THE INDIVIDUALS TO WHOM (“OPTIONEES”) AND THE TIME OR TIMES AT WHICH
OPTIONS SHALL BE GRANTED OR MAY BE EXERCISED; TO PRESCRIBE, AMEND AND RESCIND
RULES AND REGULATIONS RELATING TO THE PLAN, INCLUDING, WITHOUT LIMITATION, SUCH
RULES AND REGULATIONS AS IT SHALL DEEM ADVISABLE SO THAT TRANSACTIONS INVOLVING
OPTIONS OR AWARDS MAY QUALIFY FOR EXEMPTION UNDER SUCH RULES AND REGULATIONS AS
THE SECURITIES AND EXCHANGE COMMISSION MAY PROMULGATE FROM TIME TO TIME
EXEMPTING TRANSACTIONS FROM SECTION 16(B) OF THE EXCHANGE ACT; TO DETERMINE THE
TERMS AND PROVISIONS OF, AND TO CAUSE THE COMPANY TO ENTER INTO, AGREEMENTS WITH
OPTIONEES IN CONNECTION WITH OPTION GRANTS UNDER THE PLAN (“OPTION AGREEMENTS”),
WHICH OPTION AGREEMENTS MAY VARY FROM ONE ANOTHER, AS THE COMMITTEE SHALL DEEM
APPROPRIATE; TO AMEND ANY OPTION AGREEMENT FROM TIME TO TIME  WITH THE CONSENT
OF THE OPTIONEE; AND TO MAKE ALL OTHER DETERMINATIONS THE COMMITTEE MAY DEEM
NECESSARY OR ADVISABLE FOR THE ADMINISTRATION OF THE PLAN. EVERY ACTION,
DECISION, INTERPRETATION OR DETERMINATION MADE BY THE COMMITTEE OR THE BOARD
WITH RESPECT TO THE APPLICATION OR ADMINISTRATION OF THE PLAN SHALL BE
CONCLUSIVE AND BINDING UPON THE COMPANY AND ANY PERSON HAVING OR CLAIMING ANY
INTEREST PURSUANT TO ANY OPTION GRANTED UNDER THE PLAN.

(C)           EXCEPT AS OTHERWISE REQUIRED BY LAW, NO MEMBER OF THE BOARD OR THE
COMMITTEE SHALL BE LIABLE FOR ANYTHING WHATSOEVER IN CONNECTION WITH THE
ADMINISTRATION OF THE PLAN OTHER THAN SUCH MEMBER’S OWN WILLFUL MISCONDUCT. 
UNDER NO CIRCUMSTANCES SHALL ANY MEMBER OF THE BOARD OR THE COMMITTEE BE LIABLE
FOR ANY ACT OR OMISSION OF ANY OTHER MEMBER OF THE BOARD OR THE COMMITTEE. THE
BOARD AND THE COMMITTEE SHALL BE ENTITLED TO RELY, IN THE PERFORMANCE OF ITS
FUNCTIONS WITH RESPECT TO THE PLAN, UPON INFORMATION AND ADVICE FURNISHED BY
TITAN’S OFFICERS, TITAN’S ACCOUNTANTS, TITAN’S LEGAL

 

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

 

counsel and any other party the Board and Committee deems necessary. No member
of the Board or Committee shall be liable for any action taken or not taken in
reliance upon any such advice.

(D)           EACH OPTION UNDER THE PLAN SHALL BE DEEMED TO HAVE BEEN GRANTED
WHEN THE DETERMINATION OF THE COMMITTEE WITH RESPECT TO SUCH OPTION IS MADE.
ONCE AN OPTION HAS BEEN GRANTED, ALL CONDITIONS AND REQUIREMENTS OF THE PLAN
WITH RESPECT TO SUCH OPTION SHALL BE DEEMED CONDITIONS ON EXERCISE, NOT GRANT.

3.             TYPE OF OPTIONS.  OPTIONS GRANTED UNDER THE PLAN MAY BE EITHER
INCENTIVE STOCK OPTIONS (“ISOS”) INTENDED TO MEET THE REQUIREMENTS OF CODE
SECTION 422 OR NONQUALIFIED STOCK OPTIONS (“NSOS”) WHICH ARE NOT INTENDED TO
MEET SUCH CODE REQUIREMENTS.

4.             ELIGIBLE PERSONS.  SUBJECT IN THE CASE OF ISOS TO SECTION 16(A),
OPTIONS MAY BE GRANTED TO EMPLOYEES, OFFICERS AND DIRECTORS OF, AND CONSULTANTS
AND ADVISORS TO, THE COMPANY. IN DETERMINING THE PERSONS TO WHOM AWARDS SHALL BE
MADE AND THE NUMBER OF SHARES TO BE COVERED BY EACH OPTION, THE COMMITTEE SHALL
TAKE INTO ACCOUNT THE DUTIES OF THE RESPECTIVE PERSONS, THEIR PRESENT AND
POTENTIAL CONTRIBUTIONS TO THE SUCCESS OF THE COMPANY AND OTHER FACTORS DEEMED
RELEVANT BY THE COMMITTEE IN CONNECTION WITH ACCOMPLISHING THE PURPOSES OF THE
PLAN.

5.             SHARE LIMITATIONS UNDER THE PLAN.

(A)           SUBJECT TO ADJUSTMENT AS PROVIDED IN SECTION 15 AND THE PROVISIONS
OF THIS SECTION 5, A MAXIMUM OF TWO MILLION (2,000,000) SHARES OF COMMON STOCK
SHALL BE RESERVED FOR ISSUANCE PURSUANT TO THE EXERCISE OF OPTIONS GRANTED UNDER
THE PLAN. THIS AMOUNT SHALL BE INCREASED BY THE RESIDUAL SHARES REMAINING IN ALL
PREDECESSOR PLANS, REGARDLESS OF WHETHER THOSE SHARES (I) WERE AVAILABLE FOR
TRANSFER TO THIS PLAN UPON THE EFFECTIVE DATE, OR (II) SUBSEQUENTLY BECOME
AVAILABLE (E.G., BY REASON OF FORFEITURE OF A GRANT).  IT IS INTENDED THAT NO
NEW GRANTS SHALL BE MADE UNDER THE PREDECESSOR PLANS.  IF AN OPTION IS FORFEITED
OR EXPIRES WITHOUT BEING EXERCISED, THE SHARES OF COMMON STOCK SUBJECT TO THE
OPTION SHALL BE AVAILABLE FOR ADDITIONAL OPTION GRANTS UNDER THE PLAN.  IF AN
OPTION IS EXERCISED IN WHOLE OR IN PART BY AN OPTIONEE TENDERING PREVIOUSLY
OWNED SHARES OF COMMON STOCK, OR IF ANY SHARES ARE WITHHELD IN CONNECTION WITH
THE EXERCISE OF ITS OPTION TO SATISFY THE OPTIONEE’S TAX LIABILITY, THE FULL
NUMBER OF SHARES IN RESPECT OF WHICH THE OPTION HAS BEEN EXERCISED SHALL BE
APPLIED AGAINST THE LIMIT SET FORTH IN THIS SECTION 5(A).

(B)           TITAN MAY GRANT OPTIONS UNDER THE PLAN IN SUBSTITUTION FOR OPTIONS
HELD BY EMPLOYEES OF ANOTHER CORPORATION WHO BECOME EMPLOYEES OF TITAN OR AN
AFFILIATE AS THE RESULT OF A MERGER OR CONSOLIDATION OF THE EMPLOYING
CORPORATION WITH TITAN OR AN AFFILIATE, OR AS A RESULT OF THE ACQUISITION BY
TITAN OR AN AFFILIATE OF PROPERTY OR STOCK OF THE EMPLOYING CORPORATION. 
SUBSTITUTE OPTIONS BE GRANTED ON SUCH TERMS AS THE COMMITTEE CONSIDERS
APPROPRIATE IN THE CIRCUMSTANCES. SUBSTITUTE OPTIONS SHALL BE IN ADDITION TO THE
LIMIT SET FORTH IN SECTION 5(A).

(C)           THE MAXIMUM AGGREGATE NUMBER OF SHARES OF COMMON STOCK FOR WHICH
OPTIONS MAY BE GRANTED TO ANY ONE INDIVIDUAL WITHIN ONE FISCAL YEAR OF TITAN
SHALL BE FIVE HUNDRED THOUSAND (500,000).

(D)           THE AGGREGATE NUMBERS SET FORTH IN THIS SECTION 5 SHALL BE SUBJECT
TO ADJUSTMENT AS PROVIDED IN SECTION 15.

6.             TERM OF OPTIONS.  THE TERM OF EACH OPTION SHALL BE FIXED BY THE
COMMITTEE AND SPECIFIED IN THE APPLICABLE OPTION AGREEMENT, BUT IN NO EVENT
SHALL IT BE MORE THAN TEN YEARS FROM THE DATE OF GRANT, SUBJECT TO EARLIER
TERMINATION AS PROVIDED IN SECTION 8.  SUBJECT IN THE CASE OF ISOS TO SECTION
16, THE TERM

 

2

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

 

of an Option may be extended from time to time by the Committee, provided that
no extension shall extend the term beyond ten years from the date of grant.

7.             VESTING.  THE COMMITTEE SHALL DETERMINE THE VESTING SCHEDULE
APPLICABLE TO A PARTICULAR OPTION GRANT AND SPECIFY THE VESTING SCHEDULE IN THE
APPLICABLE OPTION AGREEMENT.  NOTWITHSTANDING THE FOREGOING THE COMMITTEE MAY
ACCELERATE THE VESTING OF AN OPTION AT ANY TIME.

8.             TERMINATION OF RELATIONSHIP TO THE COMPANY.

(A)           WITH RESPECT TO AN OPTION GRANTED TO AN INDIVIDUAL WHO IS AN
EMPLOYEE OF THE COMPANY AT THE TIME OF OPTION GRANT, UNLESS THE OPTION AGREEMENT
EXPRESSLY PROVIDES TO THE CONTRARY, (I) THE OPTION SHALL TERMINATE IMMEDIATELY
UPON THE OPTIONEE’S TERMINATION OF EMPLOYMENT FOR CAUSE (AS DEFINED IN SECTION
23); (II) SUBJECT IN THE CASE OF ISOS TO SECTION 16, THE OPTION SHALL TERMINATE
TWO YEARS FOLLOWING THE OPTIONEE’S TERMINATION OF EMPLOYMENT BY REASON OF DEATH
OR DISABILITY (AS DEFINED IN SECTION 23); (III) SUBJECT IN THE CASE OF ISOS TO
SECTION 16, THE OPTION SHALL TERMINATE TWO YEARS AFTER RETIREMENT (AS DEFINED IN
SECTION 23); (IV) THE OPTION SHALL TERMINATE THREE MONTHS AFTER THE OPTIONEE’S
TERMINATION OF EMPLOYMENT FOR ANY OTHER REASON; AND (V) VESTING OF AN OPTION
WILL TERMINATE IN ALL CASES IMMEDIATELY UPON TERMINATION OF EMPLOYMENT.  IN NO
EVENT SHALL AN OPTION REMAIN EXERCISABLE BEYOND THE EXPIRATION DATE SPECIFIED IN
THE APPLICABLE OPTION AGREEMENT.  AN OPTION AGREEMENT MAY CONTAIN SUCH
PROVISIONS AS THE BOARD SHALL APPROVE WITH REFERENCE TO THE DETERMINATION OF THE
DATE EMPLOYMENT TERMINATES FOR PURPOSES OF THE PLAN AND THE EFFECT OF LEAVES OF
ABSENCE, WHICH PROVISIONS MAY VARY FROM ONE ANOTHER.

(B)           WITH RESPECT TO AN OPTION GRANTED TO AN INDIVIDUAL WHO IS NOT AN
EMPLOYEE OF THE COMPANY AT THE TIME OF OPTION GRANT, THE BOARD SHALL DETERMINE
AND SPECIFY IN THE APPLICABLE OPTION AGREEMENT THE CONSEQUENCES, IF ANY, OF THE
TERMINATION OF THE OPTIONEE’S RELATIONSHIP WITH THE COMPANY.

9.             OPTION PRICE.  SUBJECT IN THE CASE OF ISOS TO SECTION 16, THE
EXERCISE PRICE PER SHARE OF COMMON STOCK COVERED BY AN OPTION SHALL BE
ESTABLISHED BY THE COMMITTEE; PROVIDED, HOWEVER, THAT (A) THE EXERCISE PRICE PER
SHARE FOR ANY OPTION SHALL NOT BE LESS THAN ONE-HUNDRED-PERCENT (100%) OF THE
FAIR MARKET VALUE OF A SHARE OF COMMON STOCK ON THE DATE THE OPTION IS GRANTED
AND (B) NO ISO GRANTED TO A 10% SHAREHOLDER (AS DEFINED IN SECTION 16) SHALL
HAVE A EXERCISE PRICE PER SHARE LESS THAN ONE HUNDRED TEN PERCENT (110%) OF THE
FAIR MARKET VALUE OF A SHARE OF COMMON STOCK ON THE DATE THE OPTION IS GRANTED. 
NOTWITHSTANDING THE FOREGOING, AN OPTION (WHETHER AN ISO OR NSO) MAY BE GRANTED
WITH AN EXERCISE PRICE LOWER THAN THE MINIMUM EXERCISE PRICE SET FORTH ABOVE IF
SUCH OPTION IS GRANTED PURSUANT TO AN ASSUMPTION OR SUBSTITUTION FOR ANOTHER
OPTION IN A MANNER QUALIFYING UNDER THE PROVISION OF SECTION 424(A) OF THE CODE.

10.           EXERCISE OF OPTIONS.

(A)           AN OPTION MAY BE EXERCISED AT ANY TIME AND FROM TIME TO TIME, IN
WHOLE OR IN PART, AS TO ANY OR ALL FULL SHARES AS TO WHICH THE OPTION IS THEN
EXERCISABLE.  AN OPTION MAY NOT BE EXERCISED WITH RESPECT TO A FRACTIONAL SHARE.
AN OPTIONEE (OR OTHER PERSON WHO, PURSUANT TO SECTION 13, MAY EXERCISE THE
OPTION) SHALL EXERCISE THE OPTION BY DELIVERING TO TITAN AT THE ADDRESS PROVIDED
IN THE OPTION AGREEMENT A WRITTEN, SIGNED NOTICE OF EXERCISE, STATING THE NUMBER
OF SHARES OF COMMON STOCK WITH RESPECT TO WHICH THE OPTION EXERCISE IS BEING
MADE, AND SATISFY THE REQUIREMENTS OF PARAGRAPH (B) OF THIS SECTION 10.  UPON
RECEIPT BY TITAN OF ANY NOTICE OF EXERCISE, THE EXERCISE OF THE OPTION AS SET
FORTH IN THAT NOTICE SHALL BE IRREVOCABLE.

(B)           UPON EXERCISE OF AN OPTION, THE OPTIONEE SHALL PAY TO TITAN THE
OPTION EXERCISE PRICE PER SHARE OF COMMON STOCK MULTIPLIED BY THE NUMBER OF FULL
SHARES AS TO WHICH THE OPTION IS THEN

 

3

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

 

exercised.  An Optionee may pay the Option exercise price by tendering or
causing to be tendered to Titan cash, by delivery or deemed delivery of shares
of Common Stock owned by the Optionee for at least six months preceding the date
of exercise of the Option (or such shorter or longer period as the Committee may
approve or require from time to time) having a Fair Market Value equal to the
exercise price or other property permitted by law and acceptable to the Board or
Committee, or by any other means which the Board or Committee determines are
consistent with the purpose of the Plan and with applicable laws and regulations
(including, without limitation, the provisions of Rule 16b-3 and Regulation T
promulgated by the Federal Reserve Board).

(C)           AN OPTIONEE SHALL, UPON NOTIFICATION OF THE AMOUNT DUE AND PRIOR
TO OR CONCURRENTLY WITH DELIVERY OF THE CERTIFICATE REPRESENTING THE SHARES AS
TO WHICH THE OPTION HAS BEEN EXERCISED, PROMPTLY PAY OR CAUSE TO BE PAID THE
AMOUNT DETERMINED BY THE COMPANY AS NECESSARY TO SATISFY ALL APPLICABLE TAX
WITHHOLDING REQUIREMENTS.  AN OPTIONEE MAY SATISFY HIS OR HER TAX WITHHOLDING
REQUIREMENT IN ANY MANNER SATISFACTORY TO THE COMPANY.

(D)           THE CERTIFICATE REPRESENTING THE SHARES AS TO WHICH AN OPTION HAS
BEEN EXERCISED SHALL BEAR AN APPROPRIATE LEGEND SETTING FORTH THE RESTRICTIONS
APPLICABLE TO SUCH SHARES.

11.           OPTION AGREEMENT.  THE TERMS AND CONDITIONS OF EACH OPTION SHALL
BE SET FORTH IN AN OPTION AGREEMENT IN THE FORM APPROVED BY THE COMMITTEE. EACH
OPTION AGREEMENT SHALL, AT A MINIMUM, SPECIFY (I) THE NUMBER OF SHARES OF COMMON
STOCK SUBJECT TO THE OPTION, (II) WHETHER THE OPTION IS INTENDED TO BE AN ISO OR
NSO, (III) THE PROVISIONS RELATED TO VESTING AND EXERCISABILITY OF THE OPTION,
INCLUDING THE OPTION EXERCISE PRICE, AND (IV) THAT THE OPTION IS SUBJECT TO THE
TERMS AND PROVISIONS OF THE PLAN. OPTION AGREEMENTS MAY DIFFER FROM ONE ANOTHER.

12.           NO STOCKHOLDER RIGHTS.  NO OPTIONEE SHALL HAVE THE RIGHTS OF A
STOCKHOLDER WITH RESPECT TO SHARES COVERED BY AN OPTION UNTIL SUCH PERSON
BECOMES THE HOLDER OF RECORD OF SUCH SHARES.

13.           NONTRANSFERABILITY.

(A)           EXCEPT AS PROVIDED IN PARAGRAPH (B), OPTIONS GRANTED UNDER THE
PLAN SHALL NOT BE ASSIGNABLE OR TRANSFERABLE OTHER THAN BY WILL OR THE LAWS OF
DESCENT AND DISTRIBUTION AND OPTIONS MAY BE EXERCISED DURING THE LIFETIME OF THE
OPTIONEE ONLY BY THE OPTIONEE OR BY THE OPTIONEE’S GUARDIAN OR LEGAL
REPRESENTATIVE.  IN THE EVENT OF ANY ATTEMPT BY AN OPTIONEE TO TRANSFER, ASSIGN,
PLEDGE, HYPOTHECATE OR OTHERWISE DISPOSE OF AN OPTION OR ANY RIGHT THEREUNDER,
EXCEPT AS PROVIDED FOR HEREIN, OR IN THE EVENT OF THE LEVY OF ANY ATTACHMENT,
EXECUTION OR SIMILAR PROCESS UPON THE RIGHTS OR INTEREST HEREBY CONFERRED, TITAN
MAY TERMINATE THE OPTION BY NOTICE TO THE OPTIONEE AND IT SHALL THEREUPON BECOME
NULL AND VOID.

(B)           NOTWITHSTANDING PARAGRAPH (A), IF (AND ON THE TERMS) SO PROVIDED
IN THE APPLICABLE OPTION AGREEMENT, AN OPTIONEE MAY TRANSFER A NSO, BY GIFT OR A
DOMESTIC RELATIONS ORDER, TO A FAMILY MEMBER OF THE OPTIONEE (AS DEFINED IN
SECTION 23).  IF A NSO IS TRANSFERRED IN ACCORDANCE WITH THIS SUBPARAGRAPH, THE
OPTION SHALL BE EXERCISABLE SOLELY BY THE TRANSFEREE, BUT THE DETERMINATION OF
THE EXERCISABILITY OF THE OPTION SHALL BE BASED SOLELY ON THE ACTIVITIES AND
STATE OF AFFAIRS OF THE OPTIONEE.  THUS, FOR EXAMPLE, IF AFTER A TRANSFER THE
OPTIONEE CEASES TO BE AN EMPLOYEE OF THE COMPANY, SUCH TERMINATION SHALL TRIGGER
THE PROVISIONS OF SECTION 8 HEREOF.  CONVERSELY, IF AFTER A TRANSFER THE
TRANSFEREE CEASES TO BE AN EMPLOYEE OF THE COMPANY, SUCH TERMINATION SHALL NOT
TRIGGER THE PROVISIONS OF SECTION 8 HEREOF.

14.           COMPLIANCE WITH LAW; REGISTRATION OF SHARES.

 

4

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

 

(A)           THE PLAN AND ANY GRANT HEREUNDER SHALL BE SUBJECT TO ALL
APPLICABLE LAWS, RULES, AND REGULATIONS OF ANY APPLICABLE JURISDICTION OR
AUTHORITY OR AGENCY THEREOF AND TO SUCH APPROVALS BY ANY REGULATORY OR
GOVERNMENTAL AGENCY WHICH, IN THE OPINION OF COMPANY’S COUNSEL, MAY BE REQUIRED
OR APPROPRIATE.

(B)           NOTWITHSTANDING ANY OTHER PROVISION OF THE PLAN OR OPTION
AGREEMENTS MADE PURSUANT HERETO, THE COMPANY SHALL NOT BE REQUIRED TO ISSUE OR
DELIVER ANY CERTIFICATE OR CERTIFICATES FOR SHARES OF COMMON STOCK UNDER THE
PLAN PRIOR TO FULFILLMENT OF ALL OF THE FOLLOWING CONDITIONS:

I.              EFFECTIVENESS OF ANY REGISTRATION OR OTHER QUALIFICATION OF SUCH
SHARES OF THE COMPANY UNDER ANY LAW OR REGULATION OF ANY APPLICABLE JURISDICTION
OR AUTHORITY OR AGENCY THEREOF WHICH THE BOARD SHALL, IN ITS ABSOLUTE DISCRETION
OR UPON THE ADVICE OF COUNSEL, DEEM NECESSARY OR ADVISABLE; AND

II.             GRANT OF ANY OTHER CONSENT, APPROVAL OR PERMIT FROM ANY
APPLICABLE JURISDICTION OR AUTHORITY OR AGENCY THEREOF OR SECURITIES EXCHANGE OR
QUOTATION SYSTEM WHICH THE BOARD SHALL, IN ITS ABSOLUTE DISCRETION OR UPON THE
ADVICE OF COUNSEL, DEEM NECESSARY OR ADVISABLE.

The Company shall use all reasonable efforts to obtain any consent, approval or
permit described above; provided, however, that except to the extent as may be
specified in an Option Agreement with respect to any particular Option grant,
the Company shall be under no obligation to register or qualify any shares
subject to an Option under any federal or state securities law or on any
exchange.

15.           ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.

(A)           IN THE EVENT THAT TITAN OR THE DIVISION, SUBSIDIARY OR OTHER
AFFILIATE FOR WHICH AN OPTIONEE PERFORMS SERVICES IS SOLD (INCLUDING A STOCK OR
AN ASSET SALE), SPUN OFF, MERGED, CONSOLIDATED, REORGANIZED OR LIQUIDATED, THE
BOARD MAY DETERMINE THAT (I) THE OPTION SHALL BE ASSUMED, OR A SUBSTANTIALLY
EQUIVALENT OPTION SHALL BE SUBSTITUTED, BY AN ACQUIRING OR SUCCEEDING ENTITY (OR
AN AFFILIATE THEREOF) ON SUCH TERMS AS THE BOARD DETERMINES TO BE APPROPRIATE; 
(II) UPON WRITTEN NOTICE TO THE OPTIONEE, PROVIDE THAT THE OPTION SHALL
TERMINATE IMMEDIATELY PRIOR TO THE CONSUMMATION OF THE TRANSACTION UNLESS
EXERCISED BY THE OPTIONEE WITHIN A SPECIFIED PERIOD FOLLOWING THE DATE OF THE
NOTICE;  (III) IN THE EVENT OF A SALE OR SIMILAR TRANSACTION UNDER THE TERMS OF
WHICH HOLDERS OF COMMON STOCK RECEIVE A PAYMENT FOR EACH SHARE OF COMMON STOCK
SURRENDERED IN THE TRANSACTION (THE “SALES PRICE”), MAKE OR PROVIDE FOR A
PAYMENT TO EACH OPTIONEE EQUAL TO THE AMOUNT BY WHICH (A) THE SALES PRICE TIMES
THE NUMBER OF SHARES OF COMMON STOCK SUBJECT TO THE OPTION (TO THE EXTENT SUCH
OPTION IS THEN EXERCISABLE) EXCEEDS (B) THE AGGREGATE EXERCISE PRICE FOR ALL
SUCH SHARES OF COMMON STOCK;  OR (IV) MAY MAKE SUCH OTHER EQUITABLE ADJUSTMENTS
AS THE BOARD DEEMS APPROPRIATE.

(B)           IN THE EVENT OF ANY STOCK DIVIDEND OR SPLIT, RECAPITALIZATION,
COMBINATION, EXCHANGE OR SIMILAR CHANGE AFFECTING THE COMMON STOCK, OR ANY OTHER
INCREASE OR DECREASE IN THE NUMBER OF ISSUED SHARES OF COMMON STOCK EFFECTED
WITHOUT RECEIPT OF CONSIDERATION BY THE COMPANY, THE COMMITTEE SHALL MAKE ANY OR
ALL OF THE FOLLOWING ADJUSTMENTS AS IT DEEMS APPROPRIATE TO EQUITABLY REFLECT
SUCH EVENT:  (I) ADJUST THE AGGREGATE NUMBER OF SHARES (OR SUCH OTHER SECURITY
AS IS DESIGNATED BY THE BOARD) WHICH MAY BE ACQUIRED PURSUANT TO THE PLAN,
(II) ADJUST THE PURCHASE PRICE TO BE PAID FOR ANY OR ALL SUCH SHARES SUBJECT TO
THE THEN OUTSTANDING OPTIONS, (III) ADJUST THE NUMBER OF SHARES OF COMMON STOCK
(OR SUCH OTHER SECURITY AS IS DESIGNATED BY THE BOARD) SUBJECT TO ANY OR ALL OF
THE THEN OUTSTANDING OPTIONS AND (IV) MAKE ANY OTHER EQUITABLE ADJUSTMENTS OR
TAKE SUCH OTHER EQUITABLE ACTION AS THE BOARD, IN ITS DISCRETION, SHALL DEEM
APPROPRIATE.  FOR PURPOSES HEREOF, THE CONVERSION OF ANY CONVERTIBLE SECURITIES
OF THE COMPANY SHALL NOT BE DEEMED TO HAVE BEEN “EFFECTED WITHOUT RECEIPT OF
CONSIDERATION.”

 

5

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

 

(C)           ANY AND ALL ADJUSTMENTS OR ACTIONS TAKEN BY THE BOARD PURSUANT TO
THIS SECTION 15 SHALL BE CONCLUSIVE AND BINDING FOR ALL PURPOSES.

16.           ISO PROVISIONS.

(A)           EMPLOYMENT REQUIREMENT; TERMINATION OF EMPLOYMENT, DEATH OR
DISABILITY.  ISOS MAY ONLY BE AWARDED TO EMPLOYEES OF TITAN OR A CORPORATION
WHICH, WITH RESPECT TO TITAN, IS A “PARENT CORPORATION” OR “SUBSIDIARY
CORPORATION” WITHIN THE MEANING OF CODE SECTIONS 424(E) AND (F).  NO ISO MAY BE
EXERCISED UNLESS, AT THE TIME OF SUCH EXERCISE, THE OPTIONEE IS, AND HAS BEEN
CONTINUOUSLY SINCE THE DATE OF GRANT OF HIS OR HER OPTION, EMPLOYED BY THE
COMPANY, EXCEPT THAT:

I.              AN ISO MAY BE EXERCISED WITHIN THE PERIOD OF THREE MONTHS AFTER
THE DATE THE OPTIONEE CEASES TO BE AN EMPLOYEE OF THE COMPANY (OR WITHIN SUCH
LESSER PERIOD AS MAY BE SPECIFIED IN THE APPLICABLE OPTION AGREEMENT), PROVIDED,
THAT THE OPTION AGREEMENT MAY DESIGNATE A LONGER EXERCISE PERIOD AND THAT THE
EXERCISE AFTER SUCH THREE-MONTH PERIOD SHALL BE TREATED AS THE EXERCISE OF A NSO
UNDER THE PLAN;

II.             IF THE OPTIONEE DIES WHILE IN THE EMPLOY OF THE COMPANY, OR
WITHIN THREE MONTHS AFTER THE OPTIONEE CEASES TO BE SUCH AN EMPLOYEE, THE ISO
MAY BE EXERCISED BY THE PERSON TO WHOM IT IS TRANSFERRED BY WILL OR THE LAWS OF
DESCENT AND DISTRIBUTION WITHIN THE PERIOD OF ONE YEAR AFTER THE DATE OF DEATH
(OR WITHIN SUCH LESSER PERIOD AS MAY BE SPECIFIED IN THE APPLICABLE OPTION
AGREEMENT); PROVIDED, THAT THE OPTION AGREEMENT MAY DESIGNATE A LONGER EXERCISE
PERIOD AND THAT THE EXERCISE AFTER SUCH ONE-YEAR PERIOD SHALL BE TREATED AS THE
EXERCISE OF A NSO UNDER THE PLAN; AND

III.            IF WHILE IN THE EMPLOY OF THE COMPANY THE OPTIONEE BECOMES
DISABLED WITHIN THE MEANING OF SECTION 22(E)(3) OF THE CODE OR ANY SUCCESSOR
PROVISIONS THERETO, THE ISO MAY BE EXERCISED WITHIN THE PERIOD OF ONE YEAR AFTER
THE DATE THE OPTIONEE CEASES TO BE SUCH AN EMPLOYEE BECAUSE OF SUCH DISABILITY
(OR WITHIN SUCH LESSER PERIOD AS MAY BE SPECIFIED IN THE APPLICABLE OPTION
AGREEMENT) PROVIDED, THAT THE OPTION AGREEMENT MAY DESIGNATE A LONGER EXERCISE
PERIOD AND THAT THE EXERCISE AFTER SUCH ONE-YEAR PERIOD SHALL BE TREATED AS THE
EXERCISE OF A NSO UNDER THE PLAN.

For all purposes of the Plan and any Option granted hereunder, “employment”
shall be defined in accordance with the provisions of Section 1.421-7(h) of the
Income Tax Regulations (or any successor regulations).  Notwithstanding the
foregoing provisions, no ISO may be exercised after its expiration date.

(B)           10% SHAREHOLDERS.  IN THE CASE OF AN INDIVIDUAL WHO AT THE TIME
THE OPTION IS GRANTED OWNS STOCK POSSESSING MORE THAN 10% OF THE TOTAL COMBINED
VOTING POWER OF ALL CLASSES OF THE STOCK OF TITAN OR OF A PARENT OR SUBSIDIARY
CORPORATION OF TITAN (A “10% SHAREHOLDER”), (I) THE OPTION EXERCISE PRICE OF ANY
ISO GRANTED TO SUCH PERSON SHALL IN NO EVENT BE LESS THAN 110% OF THE FAIR
MARKET VALUE OF THE COMMON STOCK ON THE DATE THE ISO IS GRANTED AND (II) THE
TERM OF AN ISO GRANTED TO SUCH PERSON MAY NOT EXCEED FIVE YEARS FROM THE DATE OF
GRANT.

(C)           $100,000 LIMIT.  THE AGGREGATE FAIR MARKET VALUE (DETERMINED AT
THE TIME AN ISO IS GRANTED) OF THE COMMON STOCK COVERED BY ISOS EXERCISABLE FOR
THE FIRST TIME BY AN EMPLOYEE DURING ANY CALENDAR YEAR (UNDER ALL PLANS OF THE
COMPANY) MAY NOT EXCEED $100,000.

(D)           OPTIONS WHICH DO NOT SATISFY ISO REQUIREMENTS.  TO THE EXTENT THAT
ANY OPTION WHICH IS ISSUED UNDER THE PLAN EXCEEDS THE LIMIT SET FORTH IN
PARAGRAPH (C) OR OTHERWISE DOES NOT COMPLY WITH THE REQUIREMENTS OF CODE SECTION
422, IT SHALL BE TREATED AS A NSO.

 

6

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

 

17.           NO RIGHT TO CONTINUED EMPLOYMENT.  NEITHER THE PLAN NOR ANY ACTION
TAKEN HEREUNDER SHALL BE CONSTRUED AS GIVING ANY EMPLOYEE OR ANY INDEPENDENT
CONTRACTOR ANY RIGHT TO CONTINUE IN THE EMPLOY OF OR TO BE ENGAGED AS AN
INDEPENDENT CONTRACTOR BY THE COMPANY OR AFFECT THE RIGHT OF THE COMPANY TO
TERMINATE SUCH PERSON’S EMPLOYMENT OR OTHER RELATIONSHIP WITH THE COMPANY AT ANY
TIME.

18.           AMENDMENT; EARLY TERMINATION.  SUBJECT TO SECTION 22, THE BOARD
MAY AT ANY TIME AND FROM TIME TO TIME ALTER, AMEND, SUSPEND OR TERMINATE THE
PLAN IN WHOLE OR IN PART; PROVIDED, HOWEVER, THAT NO AMENDMENT REQUIRING
STOCKHOLDER APPROVAL BY LAW OR BY THE RULES OF ANY STOCK EXCHANGE, INTER-DEALER
QUOTATION SYSTEM, OR OTHER MARKET IN WHICH SHARES OF COMMON STOCK ARE TRADED,
SHALL BE EFFECTIVE UNLESS AND UNTIL SUCH STOCKHOLDER APPROVAL HAS BEEN OBTAINED
IN COMPLIANCE WITH SUCH RULE OR LAW; AND PROVIDED, FURTHER, THAT NO SUCH
AMENDMENT SHALL MATERIALLY ADVERSELY AFFECT THE RIGHTS OF AN OPTIONEE IN ANY
OPTION PREVIOUSLY GRANTED UNDER THE PLAN WITHOUT THE OPTIONEE’S WRITTEN CONSENT.

19.           EFFECTIVE DATE.  THE PLAN SHALL BE EFFECTIVE AS OF THE DATE OF ITS
ADOPTION BY THE BOARD (THE “EFFECTIVE DATE”), SUBJECT TO THE APPROVAL THEREOF BY
THE STOCKHOLDERS OF TITAN ENTITLED TO VOTE THEREON WITHIN 12 MONTHS OF SUCH
DATE.  IN THE EVENT THAT SUCH STOCKHOLDER APPROVAL IS NOT OBTAINED WITHIN SUCH
TIME PERIOD, THE PLAN AND ANY OPTIONS GRANTED UNDER THE PLAN ON OR PRIOR TO THE
EXPIRATION OF SUCH 12 MONTH PERIOD SHALL BE VOID AND OF NO FURTHER FORCE AND
EFFECT.

20.           TERMINATION OF PLAN.  UNLESS TERMINATED EARLIER BY THE BOARD IN
ACCORDANCE WITH SECTION 18 ABOVE, THE PLAN SHALL TERMINATE ON, AND NO FURTHER
OPTIONS MAY BE GRANTED AFTER, THE TENTH ANNIVERSARY OF THE EFFECTIVE DATE.

21.           SEVERABILITY.  IN THE EVENT THAT ANY ONE OR MORE PROVISIONS OF THE
PLAN OR AN OPTION AGREEMENT, OR ANY ACTION TAKEN PURSUANT TO THE PLAN OR AN
OPTION AGREEMENT, SHOULD, FOR ANY REASON, BE UNENFORCEABLE OR INVALID IN ANY
RESPECT UNDER THE LAWS OF THE UNITED STATES, ANY STATE OF THE UNITED STATES OR
ANY OTHER JURISDICTION, SUCH UNENFORCEABILITY OR INVALIDITY SHALL NOT AFFECT ANY
OTHER PROVISION OF THE PLAN OR OPTION AGREEMENT, BUT IN SUCH PARTICULAR
JURISDICTION AND INSTANCE THE PLAN AND/OR OPTION AGREEMENT, AS APPLICABLE, SHALL
BE CONSTRUED AS IF SUCH UNENFORCEABLE OR INVALID PROVISION HAD NOT BEEN
CONTAINED THEREIN OR IF THE ACTION IN QUESTION HAD NOT BEEN TAKEN THEREUNDER.

22.           CANCELLATION AND NEW GRANT OF OPTIONS, ETC. THE COMMITTEE SHALL
HAVE THE AUTHORITY TO EFFECT, AT ANY TIME AND FROM TIME TO TIME, WITH THE
CONSENT OF THE AFFECTED OPTIONEES, (I) THE CANCELLATION OF ANY OR ALL
OUTSTANDING OPTIONS UNDER THE PLAN AND THE GRANT IN SUBSTITUTION THEREFOR OF NEW
OPTIONS UNDER THE PLAN COVERING THE SAME OR DIFFERENT NUMBERS OF SHARES OF
COMMON STOCK AND HAVING AN OPTION EXERCISE PRICE PER SHARE WHICH MAY BE LOWER OR
HIGHER THAN THE EXERCISE PRICE PER SHARE OF THE CANCELLED OPTIONS OR (II) THE
AMENDMENT OF THE TERMS OF ANY AND ALL OUTSTANDING OPTIONS UNDER THE PLAN TO
PROVIDE AN OPTION EXERCISE PRICE PER SHARE WHICH IS HIGHER OR LOWER THAN THE
THEN-CURRENT EXERCISE PRICE PER SHARE OF SUCH OUTSTANDING OPTIONS; PROVIDED,
HOWEVER, THAT THE COMMITTEE SHALL NOT TAKE ANY OF THE ACTIONS DESCRIBED IN (I)
OR (II) HEREOF WITHOUT RECEIVING THE APPROVAL OF TITAN’S STOCKHOLDERS. THE
PROVISIONS OF THIS SECTION 22 MAY NOT BE ALTERED OR AMENDED WITHOUT STOCKHOLDER
APPROVAL.

23.           DEFINITIONS.

(A)           AFFILIATE.  THE TERM “AFFILIATE” MEANS ANY ENTITY, WHETHER OR NOT
INCORPORATED, THAT DIRECTLY OR THROUGH ONE OR MORE INTERMEDIARIES IS CONTROLLED
BY TITAN.

(B)           CAUSE.  THE TERM “CAUSE” WHEN USED HEREIN IN CONJUNCTION WITH
TERMINATION OF EMPLOYMENT (OR OTHER SERVICE RELATIONSHIP) MEANS (I) IF THE
OPTIONEE IS A PARTY TO AN EMPLOYMENT OR SIMILAR AGREEMENT WITH THE COMPANY WHICH
DEFINES “CAUSE” (OR A SIMILAR TERM), THE MEANING SET FORTH IN SUCH AGREEMENT
(OTHER THAN DEATH OR DISABILITY), OR (II) OTHERWISE, TERMINATION BY THE COMPANY
OF THE

 

7

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

 

employment (or other service relationship) of the Optionee by reason of the
Optionee’s (1) intentional failure to perform reasonably assigned duties, (2)
dishonesty or willful misconduct in the performance of his duties, (3)
involvement in a transaction which is materially adverse to the Company, (4)
breach of fiduciary duty involving personal profit, (5) willful violation of any
law, rule, regulation or court order (other than misdemeanor traffic violations
and misdemeanors not involving misuse or misappropriation of money or property),
(6) commission of an act of fraud or intentional misappropriation or conversion
of any asset or opportunity of the Company, or (7) material breach of any
provision of the Company’s Stock Option Plan, the Optionee’s Option Agreement or
any other written agreement between the Optionee and the Company, in each case
as determined in good faith by the Board, whose determination shall be final,
conclusive and binding on all parties.

(C)           DISABILITY. EXCEPT AS OTHERWISE SPECIFIED IN THE APPLICABLE OPTION
AGREEMENT OR IN THE OPTIONEE’S EMPLOYMENT AGREEMENT WITH THE COMPANY, THE
OPTIONEE SHALL BE DEEMED TO HAVE A “DISABILITY” IF THE OPTIONEE IS UNABLE TO
ENGAGE IN ANY SUBSTANTIAL GAINFUL ACTIVITY BY REASON OF ANY MEDICALLY DETERMINED
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
TWELVE (12) MONTHS, AS REASONABLY DETERMINED BY THE BOARD IN GOOD FAITH AND IN
ITS DISCRETION.

(D)           FAIR MARKET VALUE.  AS USED HEREIN, THE TERM “FAIR MARKET VALUE”
OF A SHARE OF COMMON STOCK OF THE COMPANY AS OF A SPECIFIED DATE FOR THE
PURPOSES OF THE PLAN SHALL MEAN THE LOWER OF (I) THE AVERAGE OF THE CLOSING
PRICES (AS DEFINED BELOW) FOR THE FIVE (5) TRADING DAYS IMMEDIATELY PRECEDING
THE DATE OF GRANT OR (II) THE CLOSING PRICE ON THE DATE OF GRANT. “CLOSING
PRICE” FOR PURPOSES OF THE PLAN SHALL MEAN THE CLOSING PRICE OF A SHARE OF THE
COMMON STOCK ON THE PRINCIPAL SECURITIES EXCHANGE (INCLUDING THE NASDAQ NATIONAL
MARKET) ON WHICH SUCH SHARES ARE TRADED ON THE RELEVANT DATE FOR WHICH FAIR
MARKET VALUE IS BEING DETERMINED, OR ON THE NEXT PRECEDING DATE ON WHICH SUCH
SHARES ARE TRADED IF NO SHARES WERE TRADED ON SUCH DATE, OR IF THE SHARES ARE
NOT TRADED ON A SECURITIES EXCHANGE, FAIR MARKET VALUE SHALL BE DEEMED TO BE THE
AVERAGE OF THE HIGH BID AND LOW ASKED PRICES OF THE SHARES IN THE
OVER-THE-COUNTER MARKET ON THE RELEVANT DATE FOR WHICH FAIR MARKET VALUE IS
BEING DETERMINED OR ON THE NEXT PRECEDING DATE ON WHICH SUCH HIGH BID AND LOW
ASKED PRICES WERE RECORDED.  IF THE SHARES ARE NOT PUBLICLY TRADED, FAIR MARKET
VALUE OF A SHARE OF COMMON STOCK (INCLUDING, IN THE CASE OF ANY REPURCHASE OF
SHARES, ANY DISTRIBUTIONS WITH RESPECT THERETO WHICH WOULD BE REPURCHASED WITH
THE SHARES) SHALL BE DETERMINED IN GOOD FAITH BY THE BOARD OR THE COMMITTEE.  IN
NO CASE SHALL FAIR MARKET VALUE BE DETERMINED WITH REGARD TO RESTRICTIONS OTHER
THAN RESTRICTIONS WHICH, BY THEIR TERMS, WILL NEVER LAPSE.

(E)           FAMILY MEMBER OF THE OPTIONEE.  AS USED HEREIN, “FAMILY MEMBER OF
THE OPTIONEE” MEANS THE OPTIONEE’S CHILD, STEPCHILD, GRANDCHILD, PARENT,
STEPPARENT, GRANDPARENT, SPOUSE, FORMER SPOUSE, SIBLING, NIECE, NEPHEW,
MOTHER-IN-LAW, FATHER-IN-LAW, SON-IN-LAW, DAUGHTER-IN-LAW, BROTHER-IN-LAW, OR
SISTER-IN-LAW, INCLUDING ADOPTIVE RELATIONSHIPS, ANY PERSON SHARING THE
OPTIONEE’S HOUSEHOLD (OTHER THAN A TENANT OR EMPLOYEE), A TRUST IN WHICH THESE
PERSONS HAVE MORE THAN 50% OF THE BENEFICIAL INTEREST, A FOUNDATION IN WHICH
THESE PERSONS (OR THE OPTIONEE) CONTROL THE MANAGEMENT OF ASSETS, AND ANY OTHER
ENTITY IN WHICH THESE PERSONS (OR THE OPTIONEE) OWN MORE THAN 50% OF THE VOTING
INTERESTS.

(F)            PREDECESSOR PLANS.  AS USED HEREIN, “PREDECESSOR PLANS” MEANS
TITAN’S 1993 STOCK OPTION PLAN, 1995 STOCK OPTION PLAN AND 1998 STOCK OPTION
PLAN, EACH AS MAY HAVE BEEN AMENDED THROUGH AND INCLUDING THE EFFECTIVE DATE.

(G)           RETIREMENT. AS USED HEREIN, “RETIREMENT” MEANS THE TERMINATION OF
EMPLOYMENT OF AN OPTIONEE OVER THE AGE OF 62 WITH AT LEAST 10 YEARS OF
CONTINUOUS SERVICE TO THE COMPANY.

 

 

 

8

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