Exhibit 10.1

 

OPTIMER PHARMACEUTICALS, INC.

 

2006 EQUITY INCENTIVE PLAN

 

1.                                       Purposes of the Plan.  The purposes of
this Plan are:

 

·                                          to attract and retain the best
available personnel for positions of substantial responsibility,

 

·                                          to provide additional incentive to
Employees, Directors and Consultants, and

 

·                                          to promote the success of the
Company’s business.

 

The Plan permits the grant of Incentive Stock Options, Nonstatutory Stock
Options, Restricted Stock, Restricted Stock Units, Stock Appreciation Rights,
Performance Units and Performance Shares.

 

2.                                       Definitions.  As used herein, the
following definitions will apply:

 

(a)                                  “Administrator” means the Board or any of
its Committees as will be administering the Plan, in accordance with Section 4
of the Plan.

 

(b)                                 “Applicable Laws” means the requirements
relating to the administration of equity-based awards under U.S. state corporate
laws, U.S. federal and state securities laws, the Code, any stock exchange or
quotation system on which the Common Stock is listed or quoted and the
applicable laws of any foreign country or jurisdiction where Awards are, or will
be, granted under the Plan.

 

(c)                                  “Award” means, individually or
collectively, a grant under the Plan of Options, SARs, Restricted Stock,
Restricted Stock Units, Performance Units or Performance Shares.

 

(d)                                 “Award Agreement” means the written or
electronic agreement setting forth the terms and provisions applicable to each
Award granted under the Plan.  The Award Agreement is subject to the terms and
conditions of the Plan.

 

(e)                                  “Board” means the Board of Directors of the
Company.

 

(f)                                    “Change in Control” means the occurrence
of any of the following events:

 

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

 

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

 

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(iii)                               A change in the composition of the Board
occurring within a two-year period, as a result of which fewer than a majority
of the directors are Incumbent Directors.  “Incumbent Directors” means directors
who either (A) are Directors as of the effective date of the Plan, or (B) are
elected, or nominated for election, to the Board with the affirmative votes of
at least a majority of the Incumbent Directors at the time of such election or
nomination (but will not include an individual whose election or nomination is
in connection with an actual or threatened proxy contest relating to the
election of directors to the Company); or

 

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

 

(g)                                 “Code” means the Internal Revenue Code of
1986, as amended.  Any reference to a section of the Code herein will be a
reference to any successor or amended section of the Code.

 

(h)                                 “Committee” means a committee of Directors
or of other individuals satisfying Applicable Laws appointed by the Board in
accordance with Section 4 hereof.

 

(i)                                     “Common Stock” means the common stock of
the Company.

 

(j)                                     “Company” means Optimer
Pharmaceuticals, Inc., a Delaware corporation, or any successor thereto.

 

(k)                                  “Consultant” means any person, including an
advisor, engaged by the Company or a Parent or Subsidiary to render services to
such entity.

 

(l)                                     “Director” means a member of the Board.

 

(m)                               “Disability” means total and permanent
disability as defined in Section 22(e)(3) of the Code, provided that in the case
of Awards other than Incentive Stock Options, the Administrator in its
discretion may determine whether a permanent and total disability exists in
accordance with uniform and non-discriminatory standards adopted by the
Administrator from time to time.

 

(n)                                 “Employee” means any person, including
Officers and Directors, employed by the Company or any Parent or Subsidiary of
the Company.  Neither service as a Director nor payment of a director’s fee by
the Company will be sufficient to constitute “employment” by the Company.

 

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

 

(p)                                 “Exchange Program” means a program under
which (i) outstanding Awards are surrendered or cancelled in exchange for Awards
of the same type (which may have lower

 

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exercise prices and different terms), Awards of a different type, and/or cash,
(ii) Participants would have the opportunity to transfer any outstanding Awards
to a financial institution or other person or entity selected by the
Administrator, and/or (iii) the exercise price of an outstanding Award is
reduced.  The Administrator will determine the terms and conditions of any
Exchange Program in its sole discretion.

 

(q)                                 “Fair Market Value” means, as of any date,
the value of Common Stock determined as follows:

 

(i)                                     If the Common Stock is listed on any
established stock exchange or a national market system, including without
limitation the Nasdaq Global Market or the Nasdaq Capital Market of The Nasdaq
Stock Market, its Fair Market Value will be the closing sales price for such
stock (or the closing bid, if no sales were reported) as quoted on such exchange
or system on the day of determination, as reported in The Wall Street Journal or
such other source as the Administrator deems reliable;

 

(ii)                                  If the Common Stock is regularly quoted by
a recognized securities dealer but selling prices are not reported, the Fair
Market Value of a Share will be the mean between the high bid and low asked
prices for the Common Stock on the day of determination, as reported in The Wall
Street Journal or such other source as the Administrator deems reliable;

 

(iii)                               For purposes of any Awards granted on the
Registration Date, the Fair Market Value will be the initial price to the public
as set forth in the final prospectus included within the registration statement
in Form S-1 filed with the Securities and Exchange Commission for the initial
public offering of the Company’s Common Stock; or

 

(iv)                              In the absence of an established market for
the Common Stock, the Fair Market Value will be determined in good faith by the
Administrator.

 

(r)                                    “Fiscal Year” means the fiscal year of
the Company.

 

(s)                                  “Incentive Stock Option” means an Option
intended to qualify as an incentive stock option within the meaning of
Section 422 of the Code and the regulations promulgated thereunder.

 

(t)                                    “Inducement Award” means an Award granted
pursuant to Section 3(e) of the Plan.

 

(u)                                 “Nonstatutory Stock Option” means an Option
that by its terms does not qualify or is not intended to qualify as an Incentive
Stock Option.

 

(v)                                 “Officer” means a person who is an officer
of the Company within the meaning of Section 16 of the Exchange Act and the
rules and regulations promulgated thereunder.

 

(w)                               “Option” means a stock option granted pursuant
to the Plan.

 

(x)                                   “Optioned Stock” means the Common Stock
subject to an Award.

 

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(y)                                 “Outside Director” means a Director who is
not an Employee.

 

(z)                                   “Parent” means a “parent corporation,”
whether now or hereafter existing, as defined in Section 424(e) of the Code.

 

(aa)                            “Participant” means the holder of an outstanding
Award.

 

(bb)                          “Performance Share” means an Award denominated in
Shares which may be earned in whole or in part upon attainment of performance
goals or other vesting criteria as the Administrator may determine pursuant to
Section 10.

 

(cc)                            “Performance Unit” means an Award which may be
earned in whole or in part upon attainment of performance goals or other vesting
criteria as the Administrator may determine and which may be settled for cash,
Shares or other securities or a combination of the foregoing pursuant to
Section 10.

 

(dd)                          “Period of Restriction” means the period during
which the transfer of Shares of Restricted Stock are subject to restrictions and
therefore, the Shares are subject to a substantial risk of forfeiture.  Such
restrictions may be based on the passage of time, the achievement of target
levels of performance, or the occurrence of other events as determined by the
Administrator.

 

(ee)                            “Plan” means this 2006 Equity Incentive Plan.

 

(ff)                                “Registration Date” means the effective date
of the first registration statement that is filed by the Company and declared
effective pursuant to Section 12(g) of the Exchange Act, with respect to any
class of the Company’s securities.

 

(gg)                          “Restricted Stock” means Shares issued pursuant to
a Restricted Stock award under Section 7 of the Plan, or issued pursuant to the
early exercise of an Option.

 

(hh)                          “Restricted Stock Unit” means a bookkeeping entry
representing an amount equal to the Fair Market Value of one Share, granted
pursuant to Section 8.  Each Restricted Stock Unit represents an unfunded and
unsecured obligation of the Company.

 

(ii)                                  “Rule 16b-3” means Rule 16b-3 of the
Exchange Act or any successor to Rule 16b-3, as in effect when discretion is
being exercised with respect to the Plan.

 

(jj)                                  “Section 16(b)”  means Section 16(b) of
the Exchange Act.

 

(kk)                            “Service Provider” means an Employee, Director
or Consultant.

 

(ll)                                  “Share” means a share of the Common Stock,
as adjusted in accordance with Section 13 of the Plan.

 

(mm)                      “Stock Appreciation Right” or “SAR” means an Award,
granted alone or in connection with an Option, that pursuant to Section 9 is
designated as a SAR.

 

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(nn)                          “Subsidiary” means a “subsidiary corporation”,
whether now or hereafter existing, as defined in Section 424(f) of the Code.

 

3.                                       Stock Subject to the Plan.

 

(a)                                  Stock Subject to the Plan.  Subject to the
provisions of Section 13 of the Plan, the maximum aggregate number of Shares
that may be issued under the Plan is 2,000,000 (which has been determined after
adjustment to reflect the stock split which will be completed by the Company
prior to the initial registration of the Company’s Common Stock under Section 12
of the Exchange Act), plus the number of Shares reserved for Inducement Awards
under Section 3(e) of the Plan.  The Shares may be authorized, but unissued, or
reacquired Common Stock.

 

(b)                                 Automatic Share Reserve Increase.  The
number of Shares available for issuance under the Plan shall be increased on the
first day of each Fiscal Year beginning with the 2008 Fiscal Year, in an amount
equal to the lesser of (A) 750,000 Shares (which has been determined after
adjustment to reflect the stock split which will be completed by the Company
prior to the initial registration of the Company’s Common Stock under Section 12
of the Exchange Act), (B) five percent (5%) of the outstanding Shares on the
last day of the immediately preceding Fiscal Year or (C) such lesser number of
Shares determined by the Board.

 

(c)                                  Lapsed Awards.  If an Award expires or
becomes unexercisable without having been exercised in full, is surrendered
pursuant to an Exchange Program, or, with respect to Restricted Stock,
Restricted Stock Units, Performance Units or Performance Shares, is forfeited to
or repurchased by the Company due to failure to vest, the unpurchased Shares (or
for Awards other than Options or SARs the forfeited or repurchased Shares) which
were subject thereto will become available for future grant or sale under the
Plan (unless the Plan has terminated); provided, however that, if the Award is
an Inducement Award, then the unpurchased Shares (or, for Inducement Awards
other than Options or SARs, the forfeited or repurchased Shares) which are
subject thereto will become available for future gran or sale under the Plan
only as Inducement Awards.  With respect to SARs, only Shares actually issued
pursuant to an SAR will cease to be available under the Plan; all remaining
Shares under SARs will remain available for future grant or sale under the Plan
(unless the Plan has terminated).  Shares that have actually been issued under
the Plan under any Award will not be returned to the Plan and will not become
available for future distribution under the Plan; provided, however, that if
Shares issued pursuant to Awards of Restricted Stock, Performance Units or
Performance Shares are repurchased by the Company or are forfeited to the
Company, such Shares will become available for future grant under the Plan. 
Shares used to pay the exercise price of an Award or to satisfy the minimum
statutory withholding obligations related to an Award will become available for
future grant or sale under the Plan.  Notwithstanding the foregoing and, subject
to adjustment as provided in Section 13, the maximum number of Shares that may
be issued upon the exercise of Incentive Stock Options shall equal the aggregate
Share number stated in Section 3(a), plus, by that portion of each automatic
increase specified in Section 3(b) that does not exceed 750,000 Shares.

 

(d)                                 Share Reserve.  The Company, during the term
of this Plan, will at all times reserve and keep available such number of Shares
as will be sufficient to satisfy the requirements of the Plan.

 

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(e)                                  Inducement Shares.  This Section 3(e) shall
apply with respect to the 1,750,000 Shares reserved under this Plan by action of
the Board (or a committee thereof) to be used exclusively for the grant of
Inducement Awards.  The persons who are eligible for Inducement Awards shall
consist of Employees and whose potential contribution, in the judgment of the
Committee, will benefit the future success of the Company and/or an affiliated
corporation.   Notwithstanding anything to the contrary in this Plan, an
Inducement Award may be granted only to an Employee who has not previously been
an Employee or a non-Employee Director of the Company, or following a bona fide
period of non-employment, as an inducement material to the individual’s entering
into employment with the Company within the meaning of Rule 5635(c)(4) of the
NASDAQ Listing Rules.  In addition, notwithstanding any other provision of the
Plan to the contrary, all such Inducement Awards must be granted either by a
majority of the Company’s independent directors or a committee comprised of a
majority of independent directors.

 

4.                                       Administration of the Plan.

 

(a)                                  Procedure.

 

(i)                                     Multiple Administrative Bodies. 
Different Committees with respect to different groups of Service Providers may
administer the Plan.

 

(ii)                                  Section 162(m).  To the extent that the
Administrator determines it to be desirable to qualify Options granted hereunder
as “performance-based compensation” within the meaning of Section 162(m) of the
Code, the Plan will be administered by a Committee of two or more “outside
directors” within the meaning of Section 162(m) of the Code.

 

(iii)                               Rule 16b-3.  To the extent desirable to
qualify transactions hereunder as exempt under Rule 16b-3, the transactions
contemplated hereunder will be structured to satisfy the requirements for
exemption under Rule 16b-3.

 

(iv)                              Other Administration.  Other than as provided
above, the Plan will be administered by (A) the Board or (B) a Committee, which
committee will be constituted to satisfy Applicable Laws.

 

(b)                                 Powers of the Administrator.  Subject to the
provisions of the Plan, and in the case of a Committee, subject to the specific
duties delegated by the Board to such Committee, the Administrator will have the
authority, in its discretion:

 

(i)                                     to determine the Fair Market Value;

 

(ii)                                  to select the Service Providers to whom
Awards may be granted hereunder;

 

(iii)                               to determine the number of Shares to be
covered by each Award granted hereunder;

 

(iv)                              to approve forms of Award Agreements for use
under the Plan;

 

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(v)                                 to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any Award granted hereunder.  Such
terms and conditions include, but are not limited to, the exercise price, the
time or times when Awards may be exercised (which may be based on performance
criteria), any vesting acceleration or waiver of forfeiture restrictions, and
any restriction or limitation regarding any Award or the Shares relating
thereto, based in each case on such factors as the Administrator will determine;

 

(vi)                              to determine the terms and conditions of any,
and to institute any Exchange Program;

 

(vii)                           to construe and interpret the terms of the Plan
and Awards granted pursuant to the Plan;

 

(viii)                        to prescribe, amend and rescind rules and
regulations relating to the Plan, including rules and regulations relating to
sub-plans established for the purpose of satisfying applicable foreign laws;

 

(ix)                                to modify or amend each Award (subject to
Section 18(c) of the Plan), including the discretionary authority to extend the
post-termination exercisability period of Awards;

 

(x)                                   to allow Participants to satisfy
withholding tax obligations in such manner as prescribed in Section 14;

 

(xi)                                to authorize any person to execute on behalf
of the Company any instrument required to effect the grant of an Award
previously granted by the Administrator;

 

(xii)                             to allow a Participant to defer the receipt of
the payment of cash or the delivery of Shares that would otherwise be due to
such Participant under an Award

 

(xiii)                          to make all other determinations deemed
necessary or advisable for administering the Plan.

 

(c)                                  Effect of Administrator’s Decision.  The
Administrator’s decisions, determinations and interpretations will be final and
binding on all Participants and any other holders of Awards.

 

5.                                       Eligibility.  Nonstatutory Stock
Options, Restricted Stock, Restricted Stock Units, SARs, Performance Units and
Performance Shares may be granted to Service Providers.  Incentive Stock Options
may be granted only to Employees.  Notwithstanding the foregoing, Inducement
Awards may be granted only to Service Providers as provided in Section 3(e).

 

6.                                       Stock Options.

 

(a)                                  Limitations.  Each Option will be
designated in the Award Agreement as either an Incentive Stock Option or a
Nonstatutory Stock Option.  However, notwithstanding such designation, to the
extent that the aggregate Fair Market Value of the Shares with respect to which
Incentive Stock Options are exercisable for the first time by the Participant
during any calendar year (under all plans of the Company and any Parent or
Subsidiary) exceeds $100,000, such Options will

 

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be treated as Nonstatutory Stock Options.  For purposes of this
Section 6(a), Incentive Stock Options will be taken into account in the order in
which they were granted.  The Fair Market Value of the Shares will be determined
as of the time the Option with respect to such Shares is granted.

 

(b)                                 Term of Option.  The term of each Option
will be stated in the Award Agreement.  In the case of an Incentive Stock
Option, the term will be ten (10) years from the date of grant or such shorter
term as may be provided in the Award Agreement.  Moreover, in the case of an
Incentive Stock Option granted to a Participant who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or any
Parent or Subsidiary, the term of the Incentive Stock Option will be five
(5) years from the date of grant or such shorter term as may be provided in the
Award Agreement.

 

(c)                                  Option Exercise Price and Consideration.

 

(i)                                     Exercise Price.  The per share exercise
price for the Shares to be issued pursuant to exercise of an Option will be
determined by the Administrator, subject to the following:

 

(1)                                  In the case of an Incentive Stock Option

 

a)                                      granted to an Employee who, at the time
the Incentive Stock Option is granted, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the per Share exercise price will be no less than 110% of
the Fair Market Value per Share on the date of grant.

 

b)                                     granted to any Employee other than an
Employee described in paragraph (A) immediately above, the per Share exercise
price will be no less than 100% of the Fair Market Value per Share on the date
of grant.

 

c)                                      Notwithstanding the foregoing, Incentive
Stock Options may be granted with a per Share exercise price of less than 100%
of the Fair Market Value per Share on the date of grant pursuant to a
transaction described in, and in a manner consistent with, Section 424(a) of the
Code.

 

(2)                                  In the case of a Nonstatutory Stock Option,
the per Share exercise price will be no less than 100% of the Fair Market Value
per Share on the date of grant.

 

(ii)                                  Waiting Period and Exercise Dates.  At the
time an Option is granted, the Administrator will fix the period within which
the Option may be exercised and will determine any conditions that must be
satisfied before the Option may be exercised.

 

(iii)                               Form of Consideration.  The Administrator
will determine the acceptable form of consideration for exercising an Option,
including the method of payment.  In the case of an Incentive Stock Option, the
Administrator will determine the acceptable form of consideration at the time of
grant.  Such consideration may consist entirely of: (1) cash; (2) check;
(3) other Shares, provided Shares acquired directly or indirectly from the
Company, (A) have been owned by the Participant and not subject to substantial
risk of forfeiture for more than six months on the date of surrender, and
(B) have a Fair Market Value on the date of surrender equal to the

 

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aggregate exercise price of the Shares as to which said Option will be
exercised; (4) consideration received by the Company under a broker-assisted
cashless exercise program; (5) any combination of the foregoing methods of
payment; or (6) such other consideration and method of payment for the issuance
of Shares to the extent permitted by Applicable Laws.

 

(d)                                 Exercise of Option.

 

(i)                                     Procedure for Exercise; Rights as a
Stockholder.  Any Option granted hereunder will be exercisable according to the
terms of the Plan and at such times and under such conditions as determined by
the Administrator and set forth in the Award Agreement.  An Option may not be
exercised for a fraction of a Share.

 

An Option will be deemed exercised when the Company receives: (i) notice of
exercise (in such form as the Administrator specify from time to time) from the
person entitled to exercise the Option, and (ii) full payment for the Shares
with respect to which the Option is exercised (together with an applicable
withholding taxes).  Full payment may consist of any consideration and method of
payment authorized by the Administrator and permitted by the Award Agreement and
the Plan.  Shares issued upon exercise of an Option will be issued in the name
of the Participant or, if requested by the Participant, in the name of the
Participant and his or her spouse.  Until the Shares are issued (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company), no right to vote or receive dividends or any
other rights as a stockholder will exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option.  The Company will issue (or cause to
be issued) such Shares promptly after the Option is exercised.  No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Shares are issued, except as provided in Section 13 of the Plan.

 

Exercising an Option in any manner will decrease the number of Shares thereafter
available, both for purposes of the Plan and for sale under the Option, by the
number of Shares as to which the Option is exercised.

 

(ii)                                  Termination of Relationship as a Service
Provider.  If a Participant ceases to be a Service Provider, other than upon the
Participant’s death or Disability, the Participant may exercise his or her
Option within such period of time as is specified in the Award Agreement to the
extent that the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Award
Agreement).  In the absence of a specified time in the Award Agreement, the
Option will remain exercisable for three (3) months following the Participant’s
termination.  Unless otherwise provided by the Administrator, if on the date of
termination the Participant is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option will revert to the Plan. 
If after termination the Participant does not exercise his or her Option within
the time specified by the Administrator, the Option will terminate, and the
Shares covered by such Option will revert to the Plan.

 

(iii)                               Disability of Participant.  If a Participant
ceases to be a Service Provider as a result of the Participant’s Disability, the
Participant may exercise his or her Option within such period of time as is
specified in the Award Agreement to the extent the Option is vested on the date
of termination (but in no event later than the expiration of the term of such
Option as set forth in the Award Agreement).  In the absence of a specified time
in the Award Agreement, the

 

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Option will remain exercisable for twelve (12) months following the
Participant’s termination.  Unless otherwise provided by the Administrator, if
on the date of termination the Participant is not vested as to his or her entire
Option, the Shares covered by the unvested portion of the Option will revert to
the Plan.  If after termination the Participant does not exercise his or her
Option within the time specified herein, the Option will terminate, and the
Shares covered by such Option will revert to the Plan.

 

(iv)                              Death of Participant.  If a Participant dies
while a Service Provider, the Option may be exercised following the
Participant’s death within such period of time as is specified in the Award
Agreement to the extent that the Option is vested on the date of death (but in
no event may the option be exercised later than the expiration of the term of
such Option as set forth in the Award Agreement), by the Participant’s
designated beneficiary, provided such beneficiary has been designated prior to
Participant’s death in a form acceptable to the Administrator.  If no such
beneficiary has been designated by the Participant, then such Option may be
exercised by the personal representative of the Participant’s estate or by the
person(s) to whom the Option is transferred pursuant to the Participant’s will
or in accordance with the laws of descent and distribution.  In the absence of a
specified time in the Award Agreement, the Option will remain exercisable for
twelve (12) months following Participant’s death.  Unless otherwise provided by
the Administrator, if at the time of death Participant is not vested as to his
or her entire Option, the Shares covered by the unvested portion of the Option
will immediately revert to the Plan.  If the Option is not so exercised within
the time specified herein, the Option will terminate, and the Shares covered by
such Option will revert to the Plan.

 

7.                                       Restricted Stock.

 

(a)                                  Grant of Restricted Stock.  Subject to the
terms and provisions of the Plan, the Administrator, at any time and from time
to time, may grant Shares of Restricted Stock to Service Providers in such
amounts as the Administrator, in its sole discretion, will determine.

 

(b)                                 Restricted Stock Agreement.  Each Award of
Restricted Stock will be evidenced by an Award Agreement that will specify the
Period of Restriction, the number of Shares granted, and such other terms and
conditions as the Administrator, in its sole discretion, will determine.  Unless
the Administrator determines otherwise, the Company as escrow agent will hold
Shares of Restricted Stock until the restrictions on such Shares have lapsed.

 

(c)                                  Transferability.  Except as provided in
this Section 7, Shares of Restricted Stock may not be sold, transferred,
pledged, assigned, or otherwise alienated or hypothecated until the end of the
applicable Period of Restriction.

 

(d)                                 Other Restrictions.  The Administrator, in
its sole discretion, may impose such other restrictions on Shares of Restricted
Stock as it may deem advisable or appropriate.

 

(e)                                  Removal of Restrictions.  Except as
otherwise provided in this Section 7, Shares of Restricted Stock covered by each
Restricted Stock grant made under the Plan will be released from escrow as soon
as practicable after the last day of the Period of Restriction or at such other
time as the Administrator may determine.  The Administrator, in its discretion,
may accelerate the time at which any restrictions will lapse or be removed.

 

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(f)                                    Voting Rights.  During the Period of
Restriction, Service Providers holding Shares of Restricted Stock granted
hereunder may exercise full voting rights with respect to those Shares, unless
the Administrator determines otherwise.

 

(g)                                 Dividends and Other Distributions.  During
the Period of Restriction, Service Providers holding Shares of Restricted Stock
will be entitled to receive all dividends and other distributions paid with
respect to such Shares unless otherwise provided in the Award Agreement.  If any
such dividends or distributions are paid in Shares, the Shares will be subject
to the same restrictions on transferability and forfeitability as the Shares of
Restricted Stock with respect to which they were paid.

 

(h)                                 Return of Restricted Stock to Company.  On
the date set forth in the Award Agreement, the Restricted Stock for which
restrictions have not lapsed will revert to the Company and again will become
available for grant under the Plan.

 

8.                                       Restricted Stock Units.

 

(a)                                  Grant.  Restricted Stock Units may be
granted at any time and from time to time as determined by the Administrator. 
After the Administrator determines that it will grant Restricted Stock Units
under the Plan, it shall advise the Participant in an Award Agreement of the
terms, conditions, and restrictions related to the grant, including the number
of Restricted Stock Units.

 

(b)                                 Vesting Criteria and Other Terms.  The
Administrator shall set vesting criteria in its discretion, which, depending on
the extent to which the criteria are met, will determine the number of
Restricted Stock Units that will be paid out to the Participant.  The
Administrator may set vesting criteria based upon the achievement of
Company-wide, business unit, or individual goals (including, but not limited to,
continued employment), or any other basis determined by the Administrator in its
discretion.

 

(c)                                  Earning Restricted Stock Units.  Upon
meeting the applicable vesting criteria, the Participant shall be entitled to
receive a payout as specified in the Restricted Stock Unit Award Agreement. 
Notwithstanding the foregoing, at any time after the grant of Restricted Stock
Units, the Administrator, in its sole discretion, may reduce or waive any
vesting criteria that must be met to receive a payout.

 

(d)                                 Form and Timing of Payment.  Payment of
earned Restricted Stock Units shall be made as soon as practicable after the
date(s) set forth in the Restricted Stock Unit Award Agreement.  The
Administrator may only settle earned Restricted Stock Units in Shares.

 

(e)                                  Cancellation.  On the date set forth in the
Restricted Stock Unit Award Agreement, all unearned Restricted Stock Units shall
be forfeited to the Company.

 

9.                                       Stock Appreciation Rights.

 

(a)                                  Grant of SARs.  Subject to the terms and
conditions of the Plan, a SAR may be granted to Service Providers at any time
and from time to time as will be determined by the Administrator, in its sole
discretion.

 

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(b)                                 Number of Shares.  The Administrator will
have complete discretion to determine the number of SARs granted to any Service
Provider.

 

(c)                                  Exercise Price and Other Terms.  The per
share exercise price for the Shares to be issued pursuant to exercise of an SAR
shall be determined by the Administrator and shall be no less than 100% of the
Fair Market Value per share on the date of grant.  Otherwise, subject to
Section 6(a) of the Plan, the Administrator, subject to the provisions of the
Plan, shall have complete discretion to determine the terms and conditions of
SARs granted under the Plan; provided, however, that no SAR may have a term of
more than ten (10) years from the date of grant.

 

(d)                                 SAR Agreement.  Each SAR grant will be
evidenced by an Award Agreement that will specify the exercise price, the term
of the SAR, the conditions of exercise, and such other terms and conditions as
the Administrator, in its sole discretion, will determine.

 

(e)                                  Expiration of SARs.  An SAR granted under
the Plan will expire upon the date determined by the Administrator, in its sole
discretion, and set forth in the Award Agreement.  Notwithstanding the
foregoing, the rules of Section 6(d) also will apply to SARs.

 

(f)                                    Payment of SAR Amount.  Upon exercise of
an SAR, a Participant will be entitled to receive payment from the Company in an
amount determined by multiplying:

 

(i)                                     The difference between the Fair Market
Value of a Share on the date of exercise over the exercise price; times

 

(ii)                                  The number of Shares with respect to which
the SAR is exercised.

 

The payment upon SAR exercise may only be in Shares of equivalent value (rounded
down to the nearest whole Share).

 

10.         Performance Units and Performance Shares.

 

(a)                                  Grant of Performance Units/Shares. 
Performance Units and Performance Shares may be granted to Service Providers at
any time and from time to time, as will be determined by the Administrator, in
its sole discretion.  The Administrator will have complete discretion in
determining the number of Performance Units and Performance Shares granted to
each Participant.

 

(b)                                 Value of Performance Units/Shares.  Each
Performance Unit will have an initial value that is established by the
Administrator on or before the date of grant.  Each Performance Share will have
an initial value equal to the Fair Market Value of a Share on the date of grant.

 

(c)                                  Performance Objectives and Other Terms. 
The Administrator will set performance objectives or other vesting provisions
(including, without limitation, continued status as a Service Provider) in its
discretion which, depending on the extent to which they are met, will determine
the number or value of Performance Units/Shares that will be paid out to the
Service Providers.  The time period during which the performance objectives or
other vesting provisions must be met will be called the “Performance Period.” 
Each Award of Performance Units/Shares will be evidenced by an Award Agreement
that will specify the Performance Period, and such other

 

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terms and conditions as the Administrator, in its sole discretion, will
determine.  The Administrator may set performance objectives based upon the
achievement of Company-wide, divisional, or individual goals, applicable federal
or state securities laws, or any other basis determined by the Administrator in
its discretion.

 

(d)                                 Earning of Performance Units/Shares.  After
the applicable Performance Period has ended, the holder of Performance
Units/Shares will be entitled to receive a payout of the number of Performance
Units/Shares earned by the Participant over the Performance Period, to be
determined as a function of the extent to which the corresponding performance
objectives or other vesting provisions have been achieved.  After the grant of a
Performance Unit/Share, the Administrator, in its sole discretion, may reduce or
waive any performance objectives or other vesting provisions for such
Performance Unit/Share.

 

(e)                                  Form and Timing of Payment of Performance
Units/Shares.  Payment of earned Performance Units/Shares will be made as soon
as practicable after the expiration of the applicable Performance Period.  The
Administrator, in its sole discretion, may pay earned Performance Units/Shares
in the form of cash, in Shares (which have an aggregate Fair Market Value equal
to the value of the earned Performance Units/Shares at the close of the
applicable Performance Period) or in a combination thereof.

 

(f)                                    Cancellation of Performance
Units/Shares.  On the date set forth in the Award Agreement, all unearned or
unvested Performance Units/Shares will be forfeited to the Company, and again
will be available for grant under the Plan.

 

11.                                 Leaves of Absence.  Unless the Administrator
provides otherwise, vesting of Awards granted hereunder will be suspended during
any unpaid leave of absence.  A Service Provider will not cease to be an
Employee in the case of (i) any leave of absence approved by the Company or
(ii) transfers between locations of the Company or between the Company, its
Parent, or any Subsidiary.  For purposes of Incentive Stock Options, no such
leave may exceed ninety (90) days, unless reemployment upon expiration of such
leave is guaranteed by statute or contract.  If reemployment upon expiration of
a leave of absence approved by the Company is not so guaranteed, then three
(3) months following the 91st day of such leave any Incentive Stock Option held
by the Participant will cease to be treated as an Incentive Stock Option and
will be treated for tax purposes as a Nonstatutory Stock Option.

 

12.                                 Transferability of Awards.  Unless
determined otherwise by the Administrator, an Award may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Participant, only by the Participant.  If the Administrator
makes an Award transferable, such Award will contain such additional terms and
conditions as the Administrator deems appropriate.

 

13.                                 Adjustments; Dissolution or Liquidation;
Merger or Change in Control.

 

(a)                                  Adjustments.  In the event that any
dividend or other distribution (whether in the form of cash, Shares, other
securities, or other property), recapitalization, stock split, reverse stock
split, reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, or exchange of Shares or other securities of the Company, or other
change in the corporate structure of

 

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the Company affecting the Shares occurs, the Administrator shall adjust the
number and class of Shares that may be delivered under the Plan and/or the
number, class, and price of Shares covered by each outstanding Award and the
numerical Share limits in Section 3 of the Plan.

 

(b)                                 Dissolution or Liquidation.  In the event of
the proposed dissolution or liquidation of the Company, the Administrator will
notify each Participant as soon as practicable prior to the effective date of
such proposed transaction.  To the extent it has not been previously exercised,
an Award will terminate immediately prior to the consummation of such proposed
action.

 

(c)                                  Change in Control.  In the event of a
merger or Change in Control, each outstanding Award will be treated as the
Administrator determines, including, without limitation, that each Award be
assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation.  The
Administrator shall not be required to treat all Awards similarly in the
transaction.

 

In the event that the successor corporation does not assume or substitute for
the Award, the Participant will fully vest in and have the right to exercise all
of his or her outstanding Options and SARs, including Shares as to which such
Awards would not otherwise be vested or exercisable, all restrictions on
Restricted Stock and Restricted Stock Units will lapse, and, with respect to
Awards with performance-based vesting, all performance goals or other vesting
criteria will be deemed achieved at 100% on-target levels and all other terms
and conditions met.  In addition, if an Option or SAR is not assumed or
substituted in the event of a Change in Control, the Administrator will notify
the Participant in writing or electronically that the Option or SAR will be
exercisable for a period of time determined by the Administrator in its sole
discretion, and the Option or SAR will terminate upon the expiration of such
period.

 

For the purposes of this subsection (c), an Award will be considered assumed if,
following the Change in Control, the Award confers the right to purchase or
receive, for each Share subject to the Award immediately prior to the Change in
Control, the consideration (whether stock, cash, or other securities or
property) received in the Change in Control by holders of Common Stock for each
Share held on the effective date of the transaction (and if holders were offered
a choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding Shares); provided, however, that if such
consideration received in the Change in Control is not solely common stock of
the successor corporation or its Parent, the Administrator may, with the consent
of the successor corporation, provide for the consideration to be received upon
the exercise of an Option or SAR or upon the payout of a Restricted Stock Unit,
Performance Unit or Performance Share, for each Share subject to such Award, to
be solely common stock of the successor corporation or its Parent equal in fair
market value to the per share consideration received by holders of Common Stock
in the Change in Control.

 

Notwithstanding anything in this Section 13(c) to the contrary, an Award that
vests, is earned or paid-out upon the satisfaction of one or more performance
goals will not be considered assumed if the Company or its successor modifies
any of such performance goals without the Participant’s consent; provided,
however, a modification to such performance goals only to reflect the successor
corporation’s post-Change in Control corporate structure will not be deemed to
invalidate an otherwise valid Award assumption.

 

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(d)                                 Outside Director Awards.  With respect to
Awards granted to an Outside Director that are assumed or substituted for, if on
the date of or following such assumption or substitution the Participant’s
status as a Director or a director of the successor corporation, as applicable,
is terminated other than upon a voluntary resignation by the Participant (unless
such resignation is at the request of the acquirer), then the Participant will
fully vest in and have the right to exercise Options and/or SARs as to all of
the Shares underlying such Award, including those Shares which would not
otherwise be vested or exercisable, all restrictions on Restricted Stock and
Restricted Stock Units will lapse, and, with respect to Performance Units and
Performance Shares, all performance goals or other vesting criteria will be
deemed achieved at 100% on-target levels and all other terms and conditions met.

 

14.                                 Tax Withholding.

 

(a)                                  Withholding Requirements.  Prior to the
delivery of any Shares or cash pursuant to an Award (or exercise thereof), the
Company will have the power and the right to deduct or withhold, or require a
Participant to remit to the Company, an amount sufficient to satisfy federal,
state, local, foreign or other taxes (including the Participant’s FICA
obligation) required to be withheld with respect to such Award (or exercise
thereof).

 

(b)                                 Withholding Arrangements.  The
Administrator, in its sole discretion and pursuant to such procedures as it may
specify from time to time, may permit a Participant to satisfy such tax
withholding obligation, in whole or in part by (a) paying cash, (b) electing to
have the Company withhold otherwise deliverable cash or Shares having a Fair
Market Value equal to the minimum statutory amount required to be withheld, or
(c) delivering to the Company already-owned Shares having a Fair Market Value
equal to the minimum statutory amount required to be withheld.  The Fair Market
Value of the Shares to be withheld or delivered will be determined as of the
date that the taxes are required to be withheld.

 

15.                                 No Effect on Employment or Service.  Neither
the Plan nor any Award will confer upon a Participant any right with respect to
continuing the Participant’s relationship as a Service Provider with the
Company, nor will they interfere in any way with the Participant’s right or the
Company’s right to terminate such relationship at any time, with or without
cause, to the extent permitted by Applicable Laws.

 

16.                                 Date of Grant.  The date of grant of an
Award will be, for all purposes, the date on which the Administrator makes the
determination granting such Award, or such other later date as is determined by
the Administrator.  Notice of the determination will be provided to each
Participant within a reasonable time after the date of such grant.

 

17.                                 Term of Plan.  Subject to Section 21 of the
Plan, the Plan will become effective upon its adoption by the Board.  It will
continue in effect for a term of ten (10) years from the date adopted by the
Board unless terminated earlier under Section 18 of the Plan.

 

18.                                 Amendment and Termination of the Plan.

 

(a)                                  Amendment and Termination.  The Board may
at any time amend, alter, suspend or terminate the Plan.

 

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(b)                                 Stockholder Approval.  The Company will
obtain stockholder approval of any Plan amendment to the extent necessary and
desirable to comply with Applicable Laws.

 

(c)                                  Effect of Amendment or Termination.  No
amendment, alteration, suspension or termination of the Plan will impair the
rights of any Participant, unless mutually agreed otherwise between the
Participant and the Administrator, which agreement must be in writing and signed
by the Participant and the Company.  Termination of the Plan will not affect the
Administrator’s ability to exercise the powers granted to it hereunder with
respect to Awards granted under the Plan prior to the date of such termination.

 

19.                                 Conditions Upon Issuance of Shares.

 

(a)                                  Legal Compliance.  Shares will not be
issued pursuant to the exercise of an Award unless the exercise of such Award
and the issuance and delivery of such Shares will comply with Applicable Laws
and will be further subject to the approval of counsel for the Company with
respect to such compliance.

 

(b)                                 Investment Representations.  As a condition
to the exercise of an Award, the Company may require the person exercising such
Award to represent and warrant at the time of any such exercise that the Shares
are being purchased only for investment and without any present intention to
sell or distribute such Shares if, in the opinion of counsel for the Company,
such a representation is required.

 

20.                                 Inability to Obtain Authority.  The
inability of the Company to obtain authority from any regulatory body having
jurisdiction, which authority is deemed by the Company’s counsel to be necessary
to the lawful issuance and sale of any Shares hereunder, will relieve the
Company of any liability in respect of the failure to issue or sell such Shares
as to which such requisite authority will not have been obtained.

 

21.                                 Stockholder Approval.  The Plan will be
subject to approval by the stockholders of the Company within twelve (12) months
after the date the Plan is adopted by the Board.  Such stockholder approval will
be obtained in the manner and to the degree required under Applicable Laws.

 

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