Exhibit 10.6

 

TAPESTRY PHARMACEUTICALS, INC.

2006 EQUITY INCENTIVE PLAN

 

STOCK OPTION AGREEMENT

(INCENTIVE STOCK OPTION OR NONSTATUTORY STOCK OPTION)

 

Pursuant to your Stock Option Grant Notice (“Grant Notice”) and this Stock
Option Agreement, Tapestry Pharmaceuticals, Inc. (the “Company”) has granted you
an option under its 2006 Equity Incentive Plan (the “Plan”) to purchase the
number of shares of the Company’s Common Stock indicated in your Grant Notice at
the exercise price indicated in your Grant Notice. Defined terms not explicitly
defined in this Stock Option Agreement but defined in the Plan shall have the
same definitions as in the Plan.

 

The details of your option are as follows:

 

1.                                      VESTING. Subject to the limitations
contained herein, your option will vest as provided in your Grant Notice,
provided that vesting will cease upon the termination of your Continuous
Service.

 

2.                                      NUMBER OF SHARES AND EXERCISE PRICE. The
number of shares of Common Stock subject to your option and your exercise price
per share referenced in your Grant Notice may be adjusted from time to time for
Capitalization Adjustments.

 

3.                                      EXERCISE PRIOR TO VESTING (“EARLY
EXERCISE”). If permitted in your Grant Notice (i.e., the “Exercise Schedule”
indicates that “Early Exercise” of your option is permitted) and subject to the
provisions of your option, you may elect at any time that is both (i) during the
period of your Continuous Service and (ii) during the term of your option, to
exercise all or part of your option, including the nonvested portion of your
option; provided, however, that:

 

(a)                                  a partial exercise of your option shall be
deemed to cover first vested shares of Common Stock and then the earliest
vesting installment of unvested shares of Common Stock;

 

(b)                                  any shares of Common Stock so purchased
from installments that have not vested as of the date of exercise shall be
subject to the purchase option in favor of the Company as described in the
Company’s form of Early Exercise Stock Purchase Agreement;

 

(c)                                  you shall enter into the Company’s form of
Early Exercise Stock Purchase Agreement with a vesting schedule that will result
in the same vesting as if no early exercise had occurred; and

 

(d)                                  if your option is an Incentive Stock
Option, then, to the extent that the aggregate Fair Market Value (determined at
the time of grant) of the shares of Common Stock with respect to which your
option plus all other Incentive Stock Options you hold are exercisable for the
first time by you during any calendar year (under all plans of the Company and
its Affiliates) exceeds one hundred thousand dollars ($100,000), your option(s)
or portions thereof

 

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that exceed such limit (according to the order in which they were granted) shall
be treated as Nonstatutory Stock Options.

 

4.                                      METHOD OF PAYMENT. Payment of the
exercise price is due in full upon exercise of all or any part of your option.
You may elect to make payment of the exercise price in cash or by check or in
any other manner permitted by your Grant Notice, which may include one or more
of the following:

 

(a)                                  In the Company’s sole discretion at the
time your option is granted (or subsequently in the case of a Nonstatutory Stock
Option) and provided that at the time of exercise the Common Stock is publicly
traded and quoted regularly in The Wall Street Journal, pursuant to a program
developed under Regulation T as promulgated by the Federal Reserve Board that,
prior to the issuance of Common Stock, results in either the receipt of cash (or
check) by the Company or the receipt of irrevocable instructions to pay the
aggregate exercise price to the Company from the sales proceeds.

 

(b)                                  In the Company’s sole discretion at the
time your option is granted (or subsequently in the case of a Nonstatutory Stock
Option) and provided that at the time of exercise the Common Stock is publicly
traded and quoted regularly in The Wall Street Journal, by delivery of
already-owned shares of Common Stock either that you have held for the period
required to avoid a charge to the Company’s reported earnings (generally six
(6) months) or that you did not acquire, directly or indirectly from the
Company, that are owned free and clear of any liens, claims, encumbrances or
security interests, and that are valued at Fair Market Value on the date of
exercise. “Delivery” for these purposes, in the sole discretion of the Company
at the time you exercise your option, shall include delivery to the Company of
your attestation of ownership of such shares of Common Stock in a form approved
by the Company. Notwithstanding the foregoing, you may not exercise your option
by tender to the Company of Common Stock to the extent such tender would violate
the provisions of any law, regulation or agreement restricting the redemption of
the Company’s stock.

 

(c)                                  In the Company’s sole discretion at the
time your option is granted (or subsequently in the case of a Nonstatutory Stock
Option) and provided that at the time of exercise the Common Stock is publicly
traded and quoted regularly in The Wall Street Journal, through a “net exercise”
of your option, pursuant to which the Company will not require payment of the
exercise price of your option but will reduce the number of shares of Common
Stock issued to you upon the exercise by the largest number of whole shares that
has a Fair Market Value that does not exceed the aggregate exercise price. With
respect to any remaining balance of the aggregate exercise price, you shall make
a cash payment to the Company. The shares of Common Stock so used to pay the
exercise price of your option under a “net exercise” will be considered to have
resulted from the exercise of the option, and accordingly, the option will not
again be exercisable with respect to such shares, the shares actually delivered
to you, and any shares withheld for purposes of tax withholding.

 

(d)                                  In the Company’s sole discretion at the
time your option is granted (or subsequently in the case of a Nonstatutory Stock
Option), pursuant to the following deferred payment alternative:

 

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(i)                                    Not less than one hundred percent (100%)
of the aggregate exercise price, plus accrued interest, shall be due four
(4) years from date of exercise or, at the Company’s election, upon termination
of your Continuous Service.

 

(ii)                                Interest shall be compounded at least
annually and shall be charged at the minimum rate of interest necessary to avoid
(1) the treatment as interest, under any applicable provisions of the Code, of
any amounts other than amounts stated to be interest under the deferred payment
arrangement and (2) the treatment of the Option as a variable award for
financial accounting purposes.

 

(iii)                            At any time that the Company is incorporated in
Delaware, payment of the Common Stock’s “par value,” as defined in the Delaware
General Corporation Law, shall be made in cash and not by deferred payment.

 

(iv)                               In order to elect the deferred payment
alternative, you must, as a part of your written notice of exercise, give notice
of the election of this payment alternative and, in order to secure the payment
of the deferred exercise price to the Company hereunder, if the Company so
requests, you must tender to the Company a promissory note and a pledge
agreement covering the purchased shares of Common Stock, both in form and
substance satisfactory to the Company, or such other or additional documentation
as the Company may request.

 

5.                                      WHOLE SHARES. You may exercise your
option only for whole shares of Common Stock.

 

6.                                      SECURITIES LAW COMPLIANCE.
Notwithstanding anything to the contrary contained herein, you may not exercise
your option unless the shares of Common Stock issuable upon such exercise are
then registered under the Securities Act or, if such shares of Common Stock are
not then so registered, the Company has determined that such exercise and
issuance would be exempt from the registration requirements of the Securities
Act. The exercise of your option also must comply with other applicable laws and
regulations governing your option, and you may not exercise your option if the
Company determines that such exercise would not be in material compliance with
such laws and regulations.

 

7.                                      TERM. You may not exercise your option
before the commencement or after the expiration of its term. The term of your
option commences on the Date of Grant and expires upon the earliest of the
following:

 

(a)                                  For Eligible Directors. In the event that
an Eligible Director’s Continuous Service terminates (other than upon the
Eligible Director’s removal for cause), the Eligible Director may exercise his
or her Option (to the extent that the Eligible Director was entitled to exercise
such Option as of the date of termination or with respect to such greater number
of shares as determined by the Board) but only within such period of time ending
on the earlier of (i) the date three (3) years following the termination of the
Eligible Director’s Continuous Service (or such longer or shorter period
specified in the Option Agreement) or (ii) the expiration of the term of the
Option as set forth in the Option Agreement. If, after termination, the Eligible
Director does not exercise his or her Option within the time specified

 

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herein or in the Option Agreement (as applicable), the Option shall terminate.
In the event that an Eligible Director’s Continuous Service terminates upon his
or her removal for cause, all Options held by that Eligible Director shall
immediately terminate;

 

(b)                                  For Others. In the event that an
Optionholder’s Continuous Service terminates (other than upon the Optionholder’s
death or Disability), the Optionholder may exercise his or her Option (to the
extent that the Optionholder was entitled to exercise such Option as of the date
of termination) but only within such period of time ending on the earlier of
(i) the expiration of the term of the Option as set forth in the Option
Agreement or (ii) the date one hundred eighty (180) days (ninety (90) days in
the case of Incentive Stock Options) following the termination of the
Optionholder’s Continuous Service (or such longer or shorter period specified in
the Option Agreement). If, after termination of Continuous Service, the
Optionholder does not exercise his or her Option within the time specified
herein or in the Option Agreement (as applicable), the Option shall terminate;

 

(c)                                  in accordance with the provisions of
Section 12 of the Plan; or

 

(d)                                  the day before the tenth (10th) anniversary
of the Date of Grant (as defined in your Grant Notice).

 

If your option is an Incentive Stock Option, note that to obtain the federal
income tax advantages associated with an Incentive Stock Option, the Code
requires that at all times beginning on the date of grant of your option and
ending on the day three (3) months before the date of your option’s exercise,
you must be an employee of the Company or an Affiliate, except in the event of
your death or your permanent and total disability, as defined in
Section 22(e) of the Code. (The definition of disability in Section 22(e) of the
Code is different from the definition of the Disability under the Plan). The
Company has provided for extended exercisability of your option under certain
circumstances for your benefit but cannot guarantee that your option will
necessarily be treated as an Incentive Stock Option if you continue to provide
services to the Company or an Affiliate as a Consultant or Director after your
employment terminates or if you otherwise exercise your option more than three
(3) months after the date your employment with the Company or an Affiliate
terminates.

 

8.                                      EXERCISE.

 

(a)                                  You may exercise the vested portion of your
option (and the unvested portion of your option if your Grant Notice so permits)
during its term by delivering a Notice of Exercise (in a form designated by the
Company) together with the exercise price to the Secretary of the Company, or to
such other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require.

 

(b)                                  By exercising your option you agree that,
as a condition to any exercise of your option, the Company may require you to
enter into an arrangement providing for the payment by you to the Company of any
tax withholding obligation of the Company arising by reason of (1) the exercise
of your option, (2) the lapse of any substantial risk of forfeiture to which the
shares of Common Stock are subject at the time of exercise, or (3) the
disposition of shares of Common Stock acquired upon such exercise.

 

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(c)                                  If your option is an Incentive Stock
Option, by exercising your option you agree that you will notify the Company in
writing within fifteen (15) days after the date of any disposition of any of the
shares of the Common Stock issued upon exercise of your option that occurs
within two (2) years after the date of your option grant or within one (1) year
after such shares of Common Stock are transferred upon exercise of your option.

 

9.                                      TRANSFERABILITY. Your option is not
transferable, except by will or by the laws of descent and distribution, and is
exercisable during your life only by you. Notwithstanding the foregoing, by
delivering written notice to the Company, in a form satisfactory to the Company,
you may designate a third party who, in the event of your death, shall
thereafter be entitled to exercise your option.

 

10.                               OPTION NOT A SERVICE CONTRACT. Your option is
not an employment or service contract, and nothing in your option shall be
deemed to create in any way whatsoever any obligation on your part to continue
in the employ of the Company or an Affiliate, or of the Company or an Affiliate
to continue your employment. In addition, nothing in your option shall obligate
the Company or an Affiliate, their respective stockholders, Boards of Directors,
Officers or Employees to continue any relationship that you might have as a
Director or Consultant for the Company or an Affiliate.

 

11.                               WITHHOLDING OBLIGATIONS.

 

(a)                                  At the time you exercise your option, in
whole or in part, or at any time thereafter as requested by the Company, you
hereby authorize withholding from payroll and any other amounts payable to you,
and otherwise agree to make adequate provision for (including by means of a
“cashless exercise” pursuant to a program developed under Regulation T as
promulgated by the Federal Reserve Board to the extent permitted by the
Company), any sums required to satisfy the federal, state, local and foreign tax
withholding obligations of the Company or an Affiliate, if any, which arise in
connection with the exercise of your option.

 

(b)                                  Upon your request and subject to approval
by the Company, in its sole discretion, and compliance with any applicable legal
conditions or restrictions, the Company may withhold from fully vested shares of
Common Stock otherwise issuable to you upon the exercise of your option a number
of whole shares of Common Stock having a Fair Market Value, determined by the
Company as of the date of exercise, not in excess of the minimum amount of tax
required to be withheld by law (or such lower amount as may be necessary to
avoid variable award accounting). If the date of determination of any tax
withholding obligation is deferred to a date later than the date of exercise of
your option, share withholding pursuant to the preceding sentence shall not be
permitted unless you make a proper and timely election under Section 83(b) of
the Code, covering the aggregate number of shares of Common Stock acquired upon
such exercise with respect to which such determination is otherwise deferred, to
accelerate the determination of such tax withholding obligation to the date of
exercise of your option. Notwithstanding the filing of such election, shares of
Common Stock shall be withheld solely from fully vested shares of Common Stock
determined as of the date of exercise of your option that are otherwise issuable
to you upon such exercise. Any adverse consequences to you arising in connection
with such share withholding procedure shall be your sole responsibility.

 

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(c)                                  You may not exercise your option unless the
tax withholding obligations of the Company and/or any Affiliate are satisfied.
Accordingly, you may not be able to exercise your option when desired even
though your option is vested, and the Company shall have no obligation to issue
a certificate for such shares of Common Stock or release such shares of Common
Stock from any escrow provided for herein unless such obligations are satisfied.

 

12.                               NOTICES. Any notices provided for in your
option or the Plan shall be given in writing and shall be deemed effectively
given upon receipt or, in the case of notices delivered by mail by the Company
to you, five (5) days after deposit in the United States mail, postage prepaid,
addressed to you at the last address you provided to the Company.

 

13.                               GOVERNING PLAN DOCUMENT. Your option is
subject to all the provisions of the Plan, the provisions of which are hereby
made a part of your option, and is further subject to all interpretations,
amendments, rules and regulations, which may from time to time be promulgated
and adopted pursuant to the Plan. In the event of any conflict between the
provisions of your option and those of the Plan, the provisions of the Plan
shall control.

 

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