Exhibit 10.1

CYGNUS, INC.

1999 STOCK INCENTIVE PLAN

(As Amended and Restated March 22, 2005)

 

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TABLE OF CONTENTS

                      Page  
SECTION 1.
  INTRODUCTION     1  

           
SECTION 2.
  DEFINITIONS     1  

           
SECTION 3.
  ADMINISTRATION     4  

           
 
            (a) Committee Composition     4  

           
 
            (b) Authority of the Committee     5  

           
SECTION 4.
  ELIGIBILITY     5  

           
 
            (a) General Rules     5  

           
 
            (b) Incentive Stock Options     5  

           
SECTION 5.
  SHARES SUBJECT TO PLAN     5  

           
 
            (a) Basic Limitations     5  

           
 
            (b) Additional Shares     5  

           
 
            (c) Dividend Equivalents     6  

           
SECTION 6.
  TERMS AND CONDITIONS FOR AWARDS OF RESTRICTED STOCK AND STOCK UNITS     6  

           
 
            (a) Time, Amount and Form of Awards     6  

           
 
            (b) Payment for Awards     6  

           
 
            (c) Vesting Conditions     6  

           
 
             (d) Form and Time of Settlement of Stock Units     6  

           
 
            (e) Death of Recipient     6  

           
 
            (f) Creditors’ Rights     7  

           
 
            (g) Effect of a Change in Control     7  

           
SECTION 7.
  TERMS AND CONDITIONS OF OPTIONS     7  

           
 
            (a) Stock Option Agreement     7  

           
 
            (b) Number of Shares     7  

           
 
            (c) Exercise Price     7  

           
 
            (d) Exercisability and Term     7  

           
 
            (e) Effect of a Change in Control     8  

           
 
            (f) Modifications or Assumption of Options     8  

           
 
            (g) Transferability of Options     8  

           
 
            (h) No Rights as a Stockholder     8  

           
 
            (i) Restrictions on Transfer     8  

           
 
            (j) Automatic Option Grants to Non-Employee Directors     8  

-i-

 

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TABLE OF CONTENTS
(continued)

                      Page  
SECTION 8.
  PAYMENT FOR OPTION SHARES     9  

           
 
            (a) General Rule     9  

           
 
            (b) Surrender of Stock     10  

           
 
            (c) Promissory Note     10  

           
 
            (d) Cashless Exercise     10  

           
 
            (e) Other Forms of Payment     10  

           
SECTION 9.
  STOCK APPRECIATION RIGHTS     10  

           
 
            (a) SAR Agreement     10  

           
 
            (b) Number of Shares     10  

           
 
            (c) Exercise Price     10  

           
 
            (d) Exercisability and Term     10  

           
 
            (e) Effect of Change in Control     11  

           
 
            (f) Exercise of SARs     11  

           
 
            (g) Modification or Assumption of SARs     11  

           
SECTION 10.
  PROTECTION AGAINST DILUTION     11  

           
 
            (a) Adjustments     11  

           
 
            (b) Reorganizations     12  

           
SECTION 11.
  VOTING AND DIVIDEND RIGHTS     12  

           
 
            (a) Restricted Stock     12  

           
 
            (b) Stock Units     12  

           
SECTION 12.
  AWARDS UNDER OTHER PLANS     12  

           
SECTION 13.
  LIMITATIONS ON RIGHTS     12  

           
 
            (a) Retention Rights     12  

           
 
            (b) Stockholders’ Rights     13  

           
 
            (c) Regulatory Requirements     13  

           
SECTION 14.
  WITHHOLDING TAXES     13  

           
 
            (a) General     13  

           
 
            (b) Share Withholding     13  

           
SECTION 15.
  ASSIGNMENT OR TRANSFER OF AWARDS     13  

           
 
            (a) General     13  

           
 
            (b) Trusts     13  

-ii-

 

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TABLE OF CONTENTS
(continued)

                      Page  
SECTION 16.
  DURATION AND AMENDMENTS     14  

           
 
            (a) Term of the Plan     14  

           
 
            (b) Right to Amend or Terminate the Plan     14  

           
SECTION 17.
  EXECUTION     14  

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CYGNUS, INC.
1999 STOCK INCENTIVE PLAN
As Amended and Restated March 18, 2003

SECTION 1. INTRODUCTION.

     The purpose of the Plan is to promote the long-term success of the Company
and the creation of stockholder value by offering Key Employees an opportunity
to acquire a proprietary interest in the success of the Company, or to increase
such interest, and to encourage such selected persons to continue to provide
services to the Company or its Subsidiaries and to attract new individuals with
outstanding qualifications.

     The Plan seeks to achieve this purpose by providing for Awards in the form
of Restricted Stock, Stock Units, Options (which may constitute Incentive Stock
Options or Nonstatutory Stock Options) or Stock Appreciation Rights.

     The Plan shall be governed by, and construed in accordance with, the laws
of the State of California (except its choice-of-law provisions). Capitalized
terms shall have the meaning provided in Section 2 unless otherwise provided in
this Plan, or in the applicable Stock Award Agreement, SAR Agreement or Stock
Option Agreement.

SECTION 2. DEFINITIONS.

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

(b) “Board” means the Board of Directors of the Company, as constituted from
time to time.

(c) “Change in Control” means a change in control of a nature that would be
required to be reported (assuming such event has not been “previously reported”)
in response to Item 1(a) of the Current Report on Form 8-K, as in effect on the
date hereof, pursuant to Section 13 or 15(d) of the Exchange Act; provided that,
without limitation, such a change in control shall be deemed to have occurred at
such time as (a) any person is or becomes the “beneficial owner” (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of 50% or more of
the combined voting power of the Company’s voting securities; or (b) individuals
who constitute the Board on the date hereof (the “Incumbent Board”) cease for
any reason to constitute at least a majority thereof, provided that any person
becoming a director subsequent to the date hereof whose election, or nomination
for election by the Company’s stockholders, was approved by a vote of at least
three quarters of the directors comprising the Incumbent Board (either by a
specific vote or by approval of the proxy statement of the Company in which such
person is named as a nominee for director, without objection to such nomination)
shall be, for purposes of this clause (b), considered as though such person were
a member of the Incumbent Board.

 

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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.

(d) “Code” means the Internal Revenue Code of 1986, as amended.

(e) “Committee” means a committee consisting of one or more members of the Board
that is appointed by the Board (as described in Section 3) to administer the
Plan.

(f) “Common Stock” means the Company’s common stock.

(g) “Company” means Cygnus, Inc. a Delaware corporation.

(h) “Consultant” means an individual who performs bona fide services to the
Company or a Subsidiary other than as an Employee or Director or Non-Employee
Director.

(i) “Director” means a member of the Board who is also a common-law employee of
the Company or Subsidiary.

(j) “Disability” means that the Key Employee is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment.

(k) “Employee” means any individual who is a common-law employee of the Company
or Subsidiary.

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

(m) “Exercise Price” in the case of an Option, means the amount for which a
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 a Share in determining the amount payable upon
exercise of such SAR.

(n) “Fair Market Value” means the market price of Shares, determined by the
Committee as follows:

     (i) If the Shares were traded over-the-counter on the date in question but
were not classified as a national market issue, then the Fair Market Value shall
be equal to the mean between the last reported representative bid and asked
prices quoted by the NASDAQ system for such date;

     (ii) If the Shares were traded over-the-counter on the date in question and
were classified as a national market issue, then the Fair Market Value shall be
equal to the last-transaction price quoted by the NASDAQ system for such date;

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     (iii) If the Shares were traded on a stock exchange on the date in
question, then the Fair Market Value shall be equal to the closing price
reported by the applicable composite transactions report for such date; and

     (iv) If none of the foregoing provisions is applicable, then the Fair
Market Value shall be determined by the Committee in good faith or by an
independent third party valuation on such basis as it deems appropriate.

Whenever possible, the determination of Fair Market Value by the Committee shall
be based on the prices reported in the Western Edition of The Wall Street
Journal. Such determination shall be conclusive and binding on all persons.

(o) “Grant” means any grant of an Option under the Plan.

(p) “Incentive Stock Option” or “ISO” means an incentive stock option described
in Code section 422(b).

(q) “Key Employee” means an Employee, Director, Non-Employee Director or
Consultant who has been selected by the Committee to receive an Award under the
Plan.

(r) “Non-Employee Director” means a member of the Board who is not a common-law
employee of the Company or Subsidiary.

(s) “Nonstatutory Stock Option” or “NSO” means a stock option that is not an
ISO.

(t) “Option” means an ISO or NSO granted under the Plan entitling the Optionee
to purchase Shares.

(u) “Optionee” means an individual or estate or other entity that holds an
Option or SAR.

(v) “Participant” means an individual or estate or other entity that holds an
Award.

(w) “Plan” means this Cygnus, Inc. 1999 Stock Incentive Plan as it may be
amended from time to time.

(x) “Restricted Stock” means a Share awarded under the Plan.

(y) “SAR Agreement” means the agreement between the Company and an Optionee
which contains the terms, conditions and restrictions pertaining to his or her
SAR.

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

(aa) “Service” means service as an Employee, Director, Non-Employee Director or
Consultant.

(bb) “Share” means one share of Common Stock.

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(cc) “Stock Appreciation Right” or “SAR” means a stock appreciation right
awarded under the Plan.

(dd) “Stock Award Agreement” means the agreement between the Company and the
recipient of a Restricted Stock or Stock Unit award which contains the terms,
conditions and restrictions pertaining to such Restricted Stock or Stock Unit
Award.

(ee) “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.

(ff) “Stock Unit” means a bookkeeping entry representing the equivalent of a
Share, as awarded under the Plan.

(gg) “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
fifty percent (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 Subsidiary on a date after the adoption of the Plan shall be
considered a Subsidiary commencing as of such date.

(hh) “10-Percent Shareholder” means an individual who owns more than ten percent
(10%) of the total combined voting power of all classes of outstanding stock of
the Company, its parent or any of its subsidiaries. In determining stock
ownership, the attribution rules of section 424(d) of the Code shall be applied.

SECTION 3. ADMINISTRATION.

     (a) Committee Composition. The Plan shall be administered by a Committee
appointed by the Board. The Board shall designate one of the members of the
Committee as chairperson. If no Committee has been appointed, the entire Board
shall constitute the Committee. Members of the Committee shall serve for such
period of time as the Board may determine and shall be subject to removal by the
Board at any time. The Board may also at any time terminate the functions of the
Committee and reassume all powers and authority previously delegated to the
Committee.

     The Committee shall consist of two or more directors of the Company who
shall satisfy the requirements of Rule 16b-3 (or its successor) under the
Exchange Act with respect to Awards to Key Employees who are officers or
directors of the Company under section 16 of the Exchange Act.

     The Board may also appoint one or more separate committees of the Board,
each composed of one or more directors of the Company who need not qualify under
Rule 16b-3, who may administer the Plan with respect to Key Employees who are
not considered officers or directors of the Company under Section 16 of the
Exchange Act, may grant Awards under the Plan to such Key Employees and may
determine all terms of such Awards.

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     With respect to any matter, the term “Committee”, when used in this Plan,
shall refer to the Committee that has been delegated authority with respect to
such matter.

     (b) Authority of the Committee. Subject to the provisions of the Plan, the
Committee shall have full authority and discretion to take any actions it deems
necessary or advisable for the administration of the Plan. Such actions shall
include:

     (i) selecting Key Employees who are to receive Awards under the Plan;

     (ii) determining the type, number, vesting requirements and other features
and conditions of such Awards (with the exception of the Section 7(j) Automatic
Option Grants);

     (iii) interpreting the Plan; and

     (iv) making all other decisions relating to the operation of the Plan.

     The Committee may adopt such rules or guidelines as it deems appropriate to
implement the Plan. The Committee’s determinations under the Plan shall be final
and binding on all persons.

SECTION 4. ELIGIBILITY.

     (a) General Rules. Only Employees, Directors, Non-Employee Directors and
Consultants shall be eligible for designation as Key Employees by the Committee.

     (b) Incentive Stock Options. Only Key Employees who are common-law
employees of the Company or a Subsidiary shall be eligible for the grant of
ISOs. In addition, a Key Employee who is a 10-Percent Shareholder shall not be
eligible for the grant of an ISO unless the requirements set forth in section
422(c)(5) of the Code are satisfied.

SECTION 5. SHARES SUBJECT TO PLAN.

     (a) Basic Limitations. The stock issuable under the Plan shall be
authorized but unissued Shares or treasury Shares. The aggregate number of
Shares reserved for Awards under the Plan shall not exceed 11,416,385 Shares on
a fully diluted basis, subject to adjustment pursuant to Section 10. In
addition, the total number of Shares underlying Awards of Restricted Stock,
Stock Appreciation Rights and Stock Units shall not exceed 1,200,000 Shares. For
purposes of determining whether this 1,200,000 Share limit has been reached,
Shares that are withheld from Awards of Restricted Stock, Stock Appreciation
Rights and Stock Units pursuant to Section 14(b) shall not be counted.

     (b) Additional Shares. If Stock Units, Options or SARs are forfeited or if
Options or SARs terminate for any other reason before being exercised, then such
Stock Units, Options or SARs shall again become available for Awards under the
Plan. If SARs are exercised, then only the number of Shares (if any) actually
issued in settlement of such SARs shall reduce the number available under
Section 5(a) and the balance shall again become available for Awards

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under the Plan. If Restricted Stock is forfeited, then such Restricted Stock
shall again become available for Awards under the Plan.

     (c) Dividend Equivalents. Any dividend equivalents distributed under the
Plan shall not be applied against the number of Restricted Stock, Stock Units,
Options or SARs available for Awards, whether or not such dividend equivalents
are converted into Stock Units.

SECTION 6. TERMS AND CONDITIONS FOR AWARDS OF RESTRICTED STOCK AND STOCK UNITS.

     (a) Time, Amount and Form of Awards. Awards under the Plan may be granted
in the form of Restricted Stock, in the form of Stock Units, or in any
combination of both. Restricted Stock or Stock Units may also be awarded in
combination with NSOs or SARs, and such an Award may provide that the Restricted
Stock or Stock Units will be forfeited in the event that the related NSOs or
SARs are exercised.

     (b) Payment for Awards. No cash consideration shall be required of the
recipients of Restricted Stock or Stock Units under this Section 6.

     (c) Vesting Conditions. Each Award of Restricted Stock or Stock Units shall
become vested, in full or in installments, upon satisfaction of the conditions
specified in the Stock Award Agreement. To the extent required by applicable
law, Restricted Stock or Stock Units shall vest at least as rapidly as 20%
annually over a five-year period and any rights to repurchase Shares at their
original purchase price shall also lapse at least as rapidly as 20% annually. A
Stock Award Agreement may provide for accelerated vesting in the event of the
Participant’s death, Disability, retirement, Change in Control or other events.

     (d) Form and Time of Settlement of Stock Units. Settlement of vested Stock
Units may be made in the form of (i) cash, (ii) Shares or (iii) any combination
of both. 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. Methods of converting Stock Units into cash
may include (without limitation) a method based on the average Fair Market Value
of Shares over a series of trading days. Vested Stock Units may be settled in a
lump sum or in installments. The distribution may occur or commence when all
vesting conditions applicable to the Stock Units have been satisfied or have
lapsed, or it may be deferred to any later date. The amount of a deferred
distribution may be increased by an interest factor or by dividend equivalents.
Until an Award of Stock Units is settled, the number of such Stock Units shall
be subject to adjustment pursuant to Section 10.

     (e) Death of Recipient. Any Stock Units Award that becomes payable after
the Award recipient’s death shall be distributed to the recipient’s beneficiary
or beneficiaries. Each recipient of a Stock Units Award under the Plan shall
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 recipient’s death. If no
beneficiary was designated or if no designated beneficiary survives the
recipient, then any Stock Units Award that becomes payable after the recipient’s
death shall be distributed to the recipient’s estate.

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     (f) 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 Award Agreement.

     (g) Effect of a Change in Control. The Committee may determine, at the time
of making an Award or thereafter, that such Award shall become fully vested in
the event that a Change in Control occurs with respect to the Company. If the
Committee finds that there is a reasonable possibility that, within the
succeeding six (6) months, a Change in Control will occur with respect to the
Company, then the Committee at its sole discretion may determine that any or all
outstanding Awards shall become fully exercisable as to all Shares subject to
such Awards.

SECTION 7. TERMS AND CONDITIONS OF OPTIONS.

     (a) Stock Option Agreement. Each Grant 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 and conditions of the Plan and may be subject
to any other terms and conditions that are not inconsistent with the Plan and
that the Committee deems appropriate for inclusion in a Stock Option Agreement.
The provisions of the various Stock Option Agreements entered into under the
Plan need not be identical. A Stock Option Agreement may provide that new
Options will be granted automatically to the Optionee when he or she exercises
the prior Options. The Stock Option Agreement shall also specify whether the
Option is an ISO or an NSO.

     (b) Number of Shares. Each Stock Option Agreement shall specify the number
of Shares that are subject to the Option and shall provide for the adjustment of
such number in accordance with Section 10. Options granted to any Optionee in a
particular calendar year shall in no event exceed 25% of the Shares authorized
for Award under this Plan subject to adjustment in accordance with Section 10.

     (c) Exercise Price. An Option’s Exercise Price shall be established by the
Committee and set forth in a Stock Option Agreement. An Option’s Exercise Price
shall not be less than 100% of the Fair Market Value (110% for 10-Percent
Shareholders) of a Share on the date of Grant. In the case of an NSO, a Stock
Option Agreement may specify an Exercise Price that varies in accordance with a
predetermined formula while the NSO is outstanding.

     (d) Exercisability and Term. Each Stock Option Agreement shall specify the
date when all or any installment of the Option is to become exercisable. The
Stock Option Agreement shall also specify the term of the Option; provided that
the term of an ISO, and to the extent required by applicable law a NSO, shall in
no event exceed ten (10) years from the date of Grant (five (5) years for ISO
Grants to 10-Percent Shareholders). To the extent required by applicable law,
Options shall vest at least as rapidly as 20% annually over a five-year period.
A Stock Option Agreement may provide for accelerated exercisability in the event
of the Optionee’s death, Disability, retirement, Change in Control or other
events and may provide for expiration prior to the end of its term in the event
of the termination of the Optionee’s Service. Options may be awarded in
combination with SARs, and such an Award may provide that the

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Options will not be exercisable unless the related SARs are forfeited. NSOs may
also be awarded in combination with Restricted Stock or Stock Units, and such an
Award may provide that the NSOs will not be exercisable unless the related
Restricted Stock or Stock Units are forfeited. In no event shall the Company be
required to issue fractional Shares upon the exercise of an Option.

     (e) Effect of a Change in Control. The Committee may determine, at the time
of granting an Option or thereafter, that such Option shall become fully
exercisable as to all Shares subject to such Option in the event that a Change
in Control occurs with respect to the Company. If the Committee finds that there
is a reasonable possibility that, within the succeeding six (6) months, a Change
in Control will occur with respect to the Company, then the Committee at its
sole discretion may determine that any or all outstanding Options shall become
fully exercisable as to all Shares subject to such Options.

     (f) Modifications or Assumption of Options. Within the limitations of the
Plan, the Committee may modify, 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. The
foregoing notwithstanding, no modification of an Option shall, without the
consent of the Optionee, alter or impair his or her rights or obligations under
such Option.

     (g) Transferability of Options. Except as otherwise provided in the
applicable Stock Option Agreement and then only to the extent permitted by
applicable law, no Option shall be transferable by the Optionee other than by
will or by the laws of descent and distribution. Except as otherwise provided in
the applicable Stock Option Agreement, an Option may be exercised during the
lifetime of the Optionee only by the Optionee or by the guardian or legal
representative of the Optionee. No Option or interest therein may be assigned,
pledged or hypothecated by the Optionee during his lifetime, whether by
operation of law or otherwise, or be made subject to execution, attachment or
similar process.

     (h) No Rights as a Stockholder. An Optionee, or a transferee of an
Optionee, shall have no rights as a stockholder with respect to any Shares
covered by an Option until such person becomes entitled to receive such Shares
by filing a notice of exercise and paying the Exercise Price pursuant to the
terms of such Option.

     (i) Restrictions on Transfer. Any Shares issued upon exercise of an Option
shall be subject to any restrictions that may apply to holders of Shares
generally and shall also comply to the extent necessary with applicable law
(including to the extent applicable, Rule 260.140.8 of Title 10 of the
California Code of Regulations) and with the Company’s insider trading policy.

     (j) Automatic Option Grants to Non-Employee Directors. The provisions of
this Section 7(j) have been terminated.

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SECTION 8. PAYMENT FOR OPTION SHARES.

     (a) General Rule. The entire Exercise Price of Shares issued upon exercise
of Options shall be payable in cash at the time when such Shares are purchased,
except as follows:

     (i) In the case of an ISO granted under the Plan, payment shall be made
only pursuant to the express provisions of the applicable Stock Option
Agreement. The Stock Option Agreement may specify that payment may be made in
any form(s) described in this Section 8.

     (ii) In the case of an NSO granted under the Plan, the Committee may at any
time accept payment in any form(s) described in this Section 8.

     (b) Surrender of Stock. To the extent that this Section 8(b) is applicable,
payment for all or any part of the Exercise Price may be made with Shares which
have already been owned by the Optionee for such duration as shall be specified
by the Committee. Such Shares shall be valued at their Fair Market Value on the
date when the new Shares are purchased under the Plan.

     (c) Promissory Note. To the extent that this Section 8(c) is applicable,
payment for all or any part of the Exercise Price may be made with a
full-recourse promissory note.

     (d) Cashless Exercise. To the extent that this Section 8(d) is applicable,
payment for all or any part of the Exercise Price may be made by delivery (on a
form prescribed by the Company) of an irrevocable direction to a securities
broker to sell Shares and to deliver all or part of the sale proceeds to the
Company.

     (e) Other Forms of Payment. To the extent that this Section 8(e) is
applicable, and with Committee approval, payment may be made in any other form
that is consistent with applicable laws, regulations and rules.

SECTION 9. STOCK APPRECIATION RIGHTS.

     (a) SAR Agreement. Each Award 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. SARs may be granted in
consideration of a reduction in the Optionee’s other compensation.

     (b) Number of Shares. Each SAR Agreement shall specify the number of Shares
to which the SAR pertains and shall provide for the adjustment of such number in
accordance with Section 10.

     (c) Exercise Price. Each SAR Agreement shall specify the Exercise Price. A
SAR Agreement may specify an Exercise Price that varies in accordance with a
predetermined formula while the SAR is outstanding.

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     (d) Exercisability and Term. Each SAR Agreement shall specify the date when
all or any installment of the SAR is to become exercisable. The SAR Agreement
shall also specify the term of the SAR. To the extent required by applicable
law, SARs shall vest at least as rapidly as 20% annually over a five-year
period. A SAR Agreement may provide for accelerated exercisability in the event
of the Optionee’s death, Disability, retirement, Change in Control or other
events and may provide for expiration prior to the end of its term in the event
of the termination of the Optionee’s Service. SARs may also be awarded in
combination with Options, Restricted Stock or Stock Units, and such an Award may
provide that the SARs will not be exercisable unless the related Options,
Restricted Stock or Stock Units are forfeited. A SAR may be included in an ISO
only at the time of Grant but may be included in an NSO at the time of Grant or
at any subsequent time, but not later than six (6) months before the expiration
of such NSO. A SAR granted under the Plan may provide that it will be
exercisable only in the event of a Change in Control.

     (e) Effect of Change in Control. The Committee may determine, at the time
of awarding a SAR or thereafter, that such SAR shall become fully exercisable as
to all Shares subject to such SAR in the event that a Change in Control occurs
with respect to the Company. If the Committee finds that there is a reasonable
possibility that, within the succeeding six months, a Change in Control will
occur with respect to the Company, then the Committee at its sole discretion may
determine that any or all outstanding SARs shall become fully exercisable as to
all Shares subject to such SARs.

     (f) Exercise of SARs. If, on the date when a SAR expires, the Exercise
Price under such SAR 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
automatically be deemed to be exercised as of such date with respect to such
portion. 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
(i) Shares, (ii) cash or (iii) a combination of Shares and cash, as the
Committee shall determine. The amount of cash and/or the Fair Market Value of
Shares received upon exercise of SARs shall, in the aggregate, be equal to the
amount by which the Fair Market Value (on the date of surrender) of the Shares
subject to the SARs exceeds the Exercise Price.

     (g) Modification or Assumption of SARs. Within the limitations of the Plan,
the Committee may modify, 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 Award of new SARs for the same or a different number
of Shares and at the same or a different Exercise Price. The foregoing
notwithstanding, no modification of a SAR shall, without the consent of the
Optionee, alter or impair his or her rights or obligations under such SAR.

SECTION 10. PROTECTION AGAINST DILUTION.

     (a) Adjustments. In the event of a subdivision of the outstanding Shares, a
declaration of a dividend payable in Shares, a declaration of a dividend payable
in a form other than Shares in an amount that has a material effect on the price
of Shares, a combination or consolidation of the outstanding Shares (by
reclassification or otherwise) into a lesser number of

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Shares, a recapitalization, a spin-off or a similar occurrence, the Committee
shall make such adjustments as it, in its sole discretion, deems appropriate in
one or more of:

     (i) the number of Options, SARs, Restricted Stock and Stock Units available
for future Awards under Section 5;

     (ii) the number of Stock Units included in any prior Award which has not
yet been settled;

     (iii) the number of Shares covered by each outstanding Option and SAR; or

     (iv) the Exercise Price under each outstanding Option and SAR.

Except as provided in this Section 10, a Participant shall have no rights by
reason of any issue 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.

     (b) Reorganizations. In the event that the Company is a party to a merger
or other reorganization, outstanding Options, SARs, Restricted Stock and Stock
Units shall be subject to the agreement of merger or reorganization. Such
agreement may provide, without limitation, for the assumption of outstanding
Awards by the surviving corporation or its parent, for their continuation by the
Company (if the Company is a surviving corporation), for accelerated vesting and
accelerated expiration, or for settlement in cash or for cancellation.

SECTION 11. VOTING AND DIVIDEND RIGHTS.

     (a) Restricted Stock. The holders of Restricted Stock awarded under the
Plan shall have the same voting, dividend and other rights as the Company’s
other stockholders. A Stock Award Agreement, however, may require that the
holders of Restricted Stock invest any cash dividends received in additional
Restricted Stock. Such additional Restricted Stock shall be subject to the same
conditions and restrictions as the Award with respect to which the dividends
were paid. Such additional Restricted Stock shall not reduce the number of
Shares available under Section 5.

     (b) Stock Units. The holders of Stock Units shall have no voting rights.
Prior to settlement or forfeiture, any Stock Unit awarded under the Plan may, at
the Committee’s discretion, carry with it a right to dividend equivalents. Such
right entitles the holder to be credited with an amount equal to all cash
dividends paid on one 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 Shares, or in a
combination of both. Prior to distribution, any dividend equivalents which are
not paid shall be subject to the same conditions and restrictions as the Stock
Units to which they attach.

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SECTION 12. AWARDS UNDER OTHER PLANS.

     The Company may grant awards under other plans or programs. Such awards may
be settled in the form of Shares issued under this Plan. Such Shares shall be
treated for all purposes under the Plan like Shares issued in settlement of
Stock Units and shall, when issued, reduce the number of Shares available under
Section 5.

SECTION 13. LIMITATIONS ON RIGHTS.

     (a) Retention Rights. Neither the Plan nor any Award granted under the Plan
shall be deemed to give any individual a right to remain an employee, consultant
or director of the Company or a Subsidiary. The Company and its Subsidiaries
reserve the right to terminate the Service of any person at any time, and for
any reason, subject to applicable laws, the Company’s certificate of
incorporation and by-laws and a written employment agreement (if any).

     (b) Stockholders’ Rights. A Participant shall have no dividend rights,
voting rights or other rights as a stockholder with respect to any Shares
covered by his or her Award prior to the issuance of a stock certificate for
such Shares. No adjustment shall be made for cash dividends or other rights for
which the record date is prior to the date when such certificate is issued,
except as expressly provided in Sections 6, 10 and 11.

     (c) Regulatory Requirements. Any other provision of the Plan
notwithstanding, the obligation of the Company to issue 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 Shares pursuant to any Award
prior to the satisfaction of all legal requirements relating to the issuance of
such Shares, to their registration, qualification or listing or to an exemption
from registration, qualification or listing.

SECTION 14. WITHHOLDING TAXES.

     (a) General. To the extent required by applicable federal, state, local or
foreign law, a Participant or his or her successor shall make arrangements
satisfactory to the Company for the satisfaction of any withholding tax
obligations that arise in connection with the Plan. The Company shall not be
required to issue any Shares or make any cash payment under the Plan until such
obligations are satisfied.

     (b) Share Withholding. The Committee may permit a Participant to satisfy
all or part of his or her withholding or income tax obligations by having the
Company withhold all or a portion of any Shares that otherwise would be issued
to him or her or by surrendering all or a portion of any Shares that he or she
previously acquired. Such Shares shall be valued at their Fair Market Value on
the date when taxes otherwise would be withheld in cash. Any payment of taxes by
assigning Shares to the Company may be subject to restrictions, including any
restrictions required by rules of the Securities and Exchange Commission.

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SECTION 15. ASSIGNMENT OR TRANSFER OF AWARDS.

     (a) General. Except as provided in Section 14, or in an applicable
agreement, or as required by applicable law, an Award granted under the Plan
shall not be anticipated, assigned, attached, garnished, optioned, transferred
or made subject to any creditor’s process, whether voluntarily, involuntarily or
by operation of law. An Option or SAR may be exercised during the lifetime of
the Optionee only by him or her or by his or her guardian or legal
representative. Any act in violation of this Section 15 shall be void. However,
this Section 15 shall not preclude a Participant from designating a beneficiary
who will receive any outstanding Awards in the event of the Participant’s death,
nor shall it preclude a transfer of Awards by will or by the laws of descent and
distribution.

     (b) Trusts. Neither this Section 15 nor any other provision of the Plan
shall preclude a Participant from transferring or assigning Restricted Stock or
Stock Units to (a) the trustee of a trust that is revocable by such Participant
alone, both at the time of the transfer or assignment and at all times
thereafter prior to such Participant’s death, or (b) the trustee of any other
trust to the extent approved in advance by the Committee in writing. A transfer
or assignment of Restricted Stock or Stock Units from such trustee to any person
other than such Participant shall be permitted only to the extent approved in
advance by the Committee in writing, and Restricted Stock or Stock Units held by
such trustee shall be subject to all of the conditions and restrictions set
forth in the Plan and in the applicable Stock Award Agreement, as if such
trustee were a party to such Agreement.

SECTION 16. DURATION AND AMENDMENTS.

     (a) Term of the Plan. If the Plan, as set forth herein, is approved by
stockholders at the May 2003 annual meeting of stockholders, then the Plan shall
terminate, subject to Section 16(b), no later than March 18, 2013. If the Plan,
as set forth herein, is not approved by stockholders at the May 2003 annual
meeting of stockholders, then the Plan shall terminate, subject to Section
16(b), no later than January 1, 2004.

     (b) Right to Amend or Terminate the Plan. The Board may amend or terminate
the Plan at any time and for any reason. The termination of the Plan, or any
amendment thereof, shall not affect any Award previously granted under the Plan.
No Awards shall be granted under the Plan after the Plan’s termination. The
Board may not, without the approval of the Company’s stockholders (i) materially
increase the number of Shares subject to Awards under the Plan (unless necessary
to effect the adjustments required under Section 10)), (ii) materially modify
the eligibility requirements for Awards under the Plan, or (iii) make any other
change with respect to which the Board determines that Company stockholder
approval is required by applicable law or regulatory standards.

     SECTION 17. EXECUTION.

     To record the adoption of the amended and restated Plan by the Board, the
Company has caused its duly authorized officer to execute this Plan.

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            Cygnus, Inc.
      By   /s/John C Hodgman               Title   Chairman, President and CEO  
           

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