EXHIBIT 10.5
SGX Pharmaceuticals, Inc.
2005 Non-Employee Directors’ Stock Option Plan
Adopted by Board of Directors August 30, 2005
Approved by Stockholders October 31, 2005
Effective Date: January 31, 2006
1. Purposes.
     (a) Eligible Option Recipients. The persons eligible to receive Options are
the Non-Employee Directors of the Company.
     (b) Available Options. The purpose of the Plan is to provide a means by
which Non-Employee Directors may be given an opportunity to benefit from
increases in value of the Common Stock through the granting of Nonstatutory
Stock Options.
     (c) General Purpose. The Company, by means of the Plan, seeks to retain the
services of its current Non-Employee Directors, to secure and retain the
services of new Non-Employee Directors and to provide incentives for such
persons to exert maximum efforts for the success of the Company and its
Affiliates.
2. Definitions.
     (a) “Affiliate” means, at the time of determination, any “parent” or
“subsidiary” as such terms are defined in Rule 405 of the Securities Act. The
Board shall have the authority to determine the time or times at which “parent”
or “subsidiary” status is determined within the foregoing definition.
     (b) “Annual Grant” means an Option granted annually to all Non-Employee
Directors who meet the specified criteria pursuant to Section 6(b).
     (c) “Annual Meeting” means the annual meeting of the stockholders of the
Company.
     (d) “Board” means the Board of Directors of the Company.
     (e) “Capitalization Adjustment” has the meaning ascribed to that term in
Section 11(a).
     (f) “Change in Control” means the occurrence, in a single transaction or in
a series of related transactions, of any one or more of the following events:
          (i) any Exchange Act Person becomes the Owner, directly or indirectly,
of securities of the Company representing more than fifty percent (50%) of the
combined voting power of the Company’s then outstanding securities other than by
virtue of a merger,

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consolidation or similar transaction. Notwithstanding the foregoing, a Change in
Control shall not be deemed to occur (A) on account of the acquisition of
securities of the Company by an investor, any affiliate thereof or any other
Exchange Act Person from the Company in a transaction or series of related
transactions the primary purpose of which is to obtain financing for the Company
through the issuance of equity securities or (B) solely because the level of
Ownership held by any Exchange Act Person (the “Subject Person”) exceeds the
designated percentage threshold of the outstanding voting securities as a result
of a repurchase or other acquisition of voting securities by the Company
reducing the number of shares outstanding, provided that if a Change in Control
would occur (but for the operation of this sentence) as a result of the
acquisition of voting securities by the Company, and after such share
acquisition, the Subject Person becomes the Owner of any additional voting
securities that, assuming the repurchase or other acquisition had not occurred,
increases the percentage of the then outstanding voting securities Owned by the
Subject Person over the designated percentage threshold, then a Change in
Control shall be deemed to occur;
          (ii) there is consummated a merger, consolidation or similar
transaction involving (directly or indirectly) the Company and, immediately
after the consummation of such merger, consolidation or similar transaction, the
stockholders of the Company immediately prior thereto do not Own, directly or
indirectly, either (A) outstanding voting securities representing more than
fifty percent (50%) of the combined outstanding voting power of the surviving
Entity in such merger, consolidation or similar transaction or (B) more than
fifty percent (50%) of the combined outstanding voting power of the parent of
the surviving Entity in such merger, consolidation or similar transaction, in
each case in substantially the same proportions as their Ownership of the
outstanding voting securities of the Company immediately prior to such
transaction;
          (iii) the stockholders of the Company approve or the Board approves a
plan of complete dissolution or liquidation of the Company, or a complete
dissolution or liquidation of the Company shall otherwise occur;
          (iv) there is consummated a sale, lease, exclusive license or other
disposition of all or substantially all of the consolidated assets of the
Company and its Subsidiaries, other than a sale, lease, license or other
disposition of all or substantially all of the consolidated assets of the
Company and its Subsidiaries to an Entity, more than fifty percent (50%) of the
combined voting power of the voting securities of which are Owned by
stockholders of the Company in substantially the same proportions as their
Ownership of the outstanding voting securities of the Company immediately prior
to such sale, lease, license or other disposition; or
          (v) individuals who, on the date this Plan is adopted by the Board,
are members of the Board (the “Incumbent Board”) cease for any reason to
constitute at least a majority of the members of the Board; provided, however,
that if the appointment or election (or nomination for election) of any new
Board member was approved or recommended by a majority vote of the members of
the Incumbent Board then still in office, such new member shall, for purposes of
this Plan, be considered as a member of the Incumbent Board.
     The term Change in Control shall not include a sale of assets, merger or
other transaction effected exclusively for the purpose of changing the domicile
of the Company.

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     Notwithstanding the foregoing or any other provision of this Plan, the
definition of Change in Control (or any analogous term) in an individual written
agreement between the Company or any Affiliate and the Participant shall
supersede the foregoing definition with respect to Stock Awards subject to such
agreement where such agreement provides for acceleration of vesting of such
Stock Awards in the event of a Change in Control; provided, however, that if no
definition of Change in Control or any analogous term is set forth in such an
individual written agreement, the foregoing definition shall apply.
     (g) “Code” means the Internal Revenue Code of 1986, as amended.
     (h) “Committee” means a committee of one (1) or more members of the Board
appointed by the Board in accordance with Section 3(c).
     (i) “Common Stock” means the common stock of the Company.
     (j) “Company” means SGX Pharmaceuticals, Inc., a Delaware corporation.
     (k) “Consultant” means any person, including an advisor, who (i) is engaged
by the Company or an Affiliate to render consulting or advisory services and is
compensated for such services or (ii) is serving as a member of the Board of
Directors of an Affiliate and is compensated for such services. However, service
solely as a Director, or payment of a fee for such services, shall not cause a
Director to be considered a “Consultant” for purposes of the Plan.
     (l) “Continuous Service” means that the Optionholder’s service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. A change in the capacity in which the Optionholder
renders service to the Company or an Affiliate as an Employee, Consultant or
Director or a change in the entity for which the Optionholder renders such
service, provided that there is no interruption or termination of the
Optionholder’s service with the Company or an Affiliate, shall not terminate a
Optionholder’s Continuous Service. For example, a change in status from a
Non-Employee Director of the Company to a consultant to an Affiliate or an
Employee of the Company shall not constitute an interruption of Continuous
Service. To the extent permitted by law, the Board or the chief executive
officer of the Company, in that party’s sole discretion, may determine whether
Continuous Service shall be considered interrupted in the case of any leave of
absence approved by that party, including sick leave, military leave or any
other personal leave. Notwithstanding the foregoing, a leave of absence shall be
treated as Continuous Service for purposes of vesting in an Option only to such
extent as may be provided in the Company’s leave of absence policy, in the
written terms of any leave of absence agreement or policy applicable to the
Optionholder, or as otherwise required by law.
     (m) “Corporate Transaction” means the occurrence, in a single transaction
or in a series of related transactions, of any one or more of the following
events:
          (i) a sale or other disposition of all or substantially all, as
determined by the Board in its sole discretion, of the consolidated assets of
the Company and its Subsidiaries;
          (ii) a sale or other disposition of at least ninety percent (90%) of
the outstanding securities of the Company;

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          (iii) the consummation of a merger, consolidation or similar
transaction following which the Company is not the surviving corporation; or
          (iv) the consummation of a merger, consolidation or similar
transaction following which the Company is the surviving corporation but the
shares of Common Stock outstanding immediately preceding the merger,
consolidation or similar transaction are converted or exchanged by virtue of the
merger, consolidation or similar transaction into other property, whether in the
form of securities, cash or otherwise.
     (n) “Director” means a member of the Board.
     (o) “Disability” means the inability of a person, in the opinion of a
qualified physician acceptable to the Company, to perform the major duties of
that person’s position with the Company or an Affiliate of the Company because
of the sickness or injury of the person.
     (p) “Employee” means any person employed by the Company or an Affiliate.
However, service solely as a Director, or payment of a fee for such services,
shall not cause a Director to be considered an “Employee” for purposes of the
Plan.
     (q) “Entity” means a corporation, partnership or other entity.
     (r) “Exchange Act” means the Securities Exchange Act of 1934, as amended.
     (s) “Exchange Act Person” means any natural person, Entity or “group”
(within the meaning of Section 13(d) or 14(d) of the Exchange Act), except that
“Exchange Act Person” shall not include (i) the Company or any Subsidiary of the
Company, (ii) any employee benefit plan of the Company or any Subsidiary of the
Company or any trustee or other fiduciary holding securities under an employee
benefit plan of the Company or any Subsidiary of the Company, (iii) an
underwriter temporarily holding securities pursuant to an offering of such
securities, (iv) an Entity Owned, directly or indirectly, by the stockholders of
the Company in substantially the same proportions as their Ownership of stock of
the Company; or (v) any natural person, Entity or “group” (within the meaning of
Section 13(d) or 14(d) of the Exchange Act) that, as of the effective date of
the Plan as set forth in Section 14, is the Owner, directly or indirectly, of
securities of the Company representing more than fifty percent (50%) of the
combined voting power of the Company’s then outstanding securities.
     (t) “Fair Market Value” means, as of any date, the value of the Common
Stock determined as follows:
          (i) If the Common Stock is listed on any established stock exchange or
traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair
Market Value of a share of Common Stock shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or market (or the exchange or market with the greatest volume of
trading in the Common Stock) on the last market trading day prior to the date in
question, as reported in The Wall Street Journal or such other source as the
Board deems reliable. Unless otherwise provided by the Board, if there is no
closing sales price (or closing bid if no sales were reported) for the Common
Stock on the date in question, then the Fair Market Value shall be the closing
selling price (or closing bid if no sales were reported) on the last preceding
date for which such quotation exists.

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          (ii) In the absence of such markets for the Common Stock, the Fair
Market Value shall be determined by the Board in good faith.
     (u) “Initial Grant” means an Option granted to a Non-Employee Director who
meets the specified criteria pursuant to Section 6(a).
     (v) “IPO Date” means the date of the underwriting agreement between the
Company and the underwriter(s) managing the initial public offering of the
Common Stock, pursuant to which the Common Stock is priced for the initial
public offering.
     (w) “Non-Employee Director” means a Director who is not an Employee.
     (x) “Nonstatutory Stock Option” means an Option not intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
     (y) “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.
     (z) “Option” means a Nonstatutory Stock Option granted pursuant to the
Plan.
     (aa) “Option Agreement” means a written agreement between the Company and
an Optionholder evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.
     (bb) “Optionholder” means a person to whom an Option is granted pursuant to
the Plan or, if applicable, such other person who holds an outstanding Option.
     (cc) “Own,” “Owned,” “Owner,” “Ownership” A person or Entity shall be
deemed to “Own,” to have “Owned,” to be the “Owner” of, or to have acquired
“Ownership” of securities if such person or Entity, directly or indirectly,
through any contract, arrangement, understanding, relationship or otherwise, has
or shares voting power, which includes the power to vote or to direct the
voting, with respect to such securities.
     (dd) “Plan” means this SGX Pharmaceuticals, Inc. 2005 Non-Employee
Directors’ Stock Option Plan.
     (ee) “Rule 16b-3” means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.
     (ff) “Securities Act” means the Securities Act of 1933, as amended.
     (gg) “Subsidiary” means, with respect to the Company, (i) any corporation
of which more than fifty percent (50%) of the outstanding capital stock having
ordinary voting power to elect a majority of the board of directors of such
corporation (irrespective of whether, at the time, stock of any other class or
classes of such corporation shall have or might have voting power by reason of
the happening of any contingency) is at the time, directly or indirectly, Owned
by the Company, and (ii) any partnership in which the Company has a direct or
indirect interest

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(whether in the form of voting or participation in profits or capital
contribution) of more than fifty percent (50%).
3. Administration.
     (a) Administration by Board. The Board shall administer the Plan unless and
until the Board delegates administration of the Plan to a Committee, as provided
in Section 3(c).
     (b) Powers of Board. The Board shall have the power, subject to, and within
the limitations of, the express provisions of the Plan:
          (i) To determine the provisions of each Option to the extent not
specified in the Plan.
          (ii) To construe and interpret the Plan and Options granted under it,
and to establish, amend and revoke rules and regulations for its administration.
The Board, in the exercise of this power, may correct any defect, omission or
inconsistency in the Plan or in any Option Agreement, in a manner and to the
extent it shall deem necessary or expedient to make the Plan fully effective.
          (iii) To effect, at any time and from time to time, with the consent
of any adversely affected Optionholder, (1) the reduction of the exercise price
of any outstanding Option under the Plan, (2) the cancellation of any
outstanding Option under the Plan and the grant in substitution therefor of
(A) a new Option under the Plan or another equity plan of the Company covering
the same or a different number of shares of Common Stock, (B) cash and/or
(C) other valuable consideration (as determined by the Board, in its sole
discretion), or (3) any other action that is treated as a repricing under
generally accepted accounting principles.
          (iv) To amend the Plan or an Option as provided in Section 12.
          (v) To terminate or suspend the Plan as provided in Section 13.
          (vi) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company and that are not in conflict with the provisions of the Plan.
     (c) Delegation to Committee. The Board may delegate some or all of the
administration of the Plan to a Committee or Committees of one (1) or more
members of the Board, and the term “Committee” shall apply to any person or
persons to whom such authority has been delegated. If administration is
delegated to a Committee, the Committee shall have, in connection with the
administration of the Plan, the powers theretofore possessed by the Board that
have been delegated to the Committee, including the power to delegate to a
subcommittee any of the administrative powers the Committee is authorized to
exercise (and references in this Plan to the Board shall thereafter be to the
Committee or subcommittee), subject, however, to such resolutions, not
inconsistent with the provisions of the Plan, as may be adopted from time to
time by the Board. The Board may retain the authority to concurrently administer
the Plan with the Committee and may, at any time, revest in the Board some or
all of the powers previously delegated.

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     (d) Effect of Board’s Decision. All determinations, interpretations and
constructions made by the Board in good faith shall not be subject to review by
any person and shall be final, binding and conclusive on all persons.
4. Shares Subject to the Plan.
     (a) Share Reserve. Subject to the provisions of Section 11(a) relating to
Capitalization Adjustments, the shares of Common Stock that may be issued
pursuant to Options shall not exceed in the aggregate seventy-five thousand
(75,000) shares of Common Stock plus an annual increase to be added on January
1st of each year commencing in 2007 and ending on (and including) January 1,
2015, equal to the lesser of: (i) the aggregate number of shares of Common Stock
subject to options granted under the Plan as Initial Grants and Annual Grants
during the immediately preceding fiscal year, or (ii) an amount determined by
the Board or a Committee.
     (b) Reversion of Shares to the Share Reserve. If any Option shall for any
reason expire or otherwise terminate, in whole or in part, without having been
exercised in full, the shares of Common Stock not acquired under such Option
shall revert to and again become available for issuance under the Plan. If any
shares subject to an Option are not delivered to an Optionholder because such
shares are withheld for the payment of taxes or the Option is exercised through
a reduction of shares subject to the Option (i.e., “net exercised”), the number
of shares that are not delivered to the Optionholder as a result thereof shall
remain available for issuance under the Plan. If the exercise price of an Option
is satisfied by tendering shares of Common Stock held by the Optionholder
(either by actual delivery or attestation), then the number of shares so
tendered shall remain available for issuance under the Plan.
     (c) Source of Shares. The shares of Common Stock subject to the Plan may be
unissued shares or reacquired shares, bought on the market or otherwise.
5. Eligibility.
     The Options, as set forth in Section 6, automatically shall be granted
under the Plan to all Non-Employee Directors who meet the criteria specified in
Section 6.
6. Non-Discretionary Grants.
     (a) Initial Grants. Without any further action of the Board, each person
who after the IPO Date is elected or appointed for the first time to be a
Non-Employee Director automatically shall, upon the date of his or her initial
election or appointment to be a Non-Employee Director, be granted an Initial
Grant to purchase twelve thousand five hundred (12,500) shares of Common Stock
on the terms and conditions set forth herein.
     (b) Annual Grants. Without any further action of the Board, on the date of
each Annual Meeting, commencing with the Annual Meeting in 2007, each person who
is then a Non-Employee Director automatically shall be granted an Annual Grant
to purchase ten thousand (10,000) shares of Common Stock on the terms and
conditions set forth herein; provided, however, that if a person who is first
elected as a Non-Employee Director after the IPO Date has not been serving as a
Non-Employee Director for the entire period since the preceding Annual Meeting,
then the number of shares subject to such Annual Grant shall be reduced pro rata
for

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each full quarter prior to the date of grant during such period for which such
person did not serve as a Non- Employee Director.
7. Option Provisions.
     Each Option shall be in such form and shall contain such terms and
conditions as required by the Plan. Each Option shall contain such additional
terms and conditions, not inconsistent with the Plan, as the Board shall deem
appropriate. Each Option shall include (through incorporation of provisions
hereof by reference in the Option or otherwise) the substance of each of the
following provisions:
     (a) Term. No Option shall be exercisable after the expiration of ten
(10) years from the date on which it was granted.
     (b) Exercise Price. The exercise price of each Option shall be one hundred
percent (100%) of the Fair Market Value of the Common Stock subject to the
Option on the date the Option is granted.
     (c) Consideration. The purchase price of Common Stock acquired pursuant to
an Option shall be paid, to the extent permitted by applicable law, either
(i) in cash at the time the Option is exercised or (ii) at the discretion of the
Board either at the time of the grant of the Option or subsequent thereto (1) by
delivery to the Company of other Common Stock at the time the Option is
exercised, (2) by a “net exercise” of the Option (as further described below),
(3) pursuant to a program developed under Regulation T as promulgated by the
Federal Reserve Board that, prior to the issuance of Common Stock, results in
either the receipt of cash (or check) by the Company or the receipt of
irrevocable instructions to pay the aggregate exercise price to the Company from
the sales proceeds or (4) in any other form of legal consideration that may be
acceptable to the Board. Unless otherwise specifically provided in the Option,
the purchase price of Common Stock acquired pursuant to an Option that is paid
by delivery to the Company of other Common Stock acquired, directly or
indirectly from the Company, shall be paid only by shares of the Common Stock of
the Company that have been held for more than six (6) months (or such longer or
shorter period of time required to avoid a charge to earnings for financial
accounting purposes).
     In the case of a “net exercise” of an Option, the Company will not require
a payment of the exercise price of the Option from the Optionholder but will
reduce the number of shares of Common Stock issued upon the exercise by the
largest number of whole shares that has a Fair Market Value that does not exceed
the aggregate exercise price. With respect to any remaining balance of the
aggregate exercise price, the Company shall accept a cash payment from the
Optionholder. Shares of Common Stock will no longer be outstanding under an
Option (and will therefore not thereafter be exercisable) following the exercise
of such Option to the extent of (i) shares used to pay the exercise price of an
Option under a “net exercise”, (ii) shares actually delivered to the
Optionholder as a result of such exercise and (iii) shares withheld for purposes
of tax withholding.
     (d) Transferability. An Option is transferable by will or by the laws of
descent and distribution. An Option also may be transferable upon written
consent of the Company if, at the time of transfer, a Form S-8 registration
statement under the Securities Act is available for the exercise of the Option
and the subsequent resale of the underlying securities. In addition, an

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Optionholder may, by delivering written notice to the Company, in a form
provided by or otherwise satisfactory to the Company, designate a third party
who, in the event of the death of the Optionholder, shall thereafter be entitled
to exercise the Option.
     (e) Vesting. Options shall vest as follows:
          (i) Initial Grants: 1/36th of the shares of Common Stock subject to an
Initial Grant shall vest monthly over three (3) years.
          (ii) Annual Grants: 1/12th of the shares of Common Stock subject to an
Annual Grant shall vest monthly over one (1) year.
     (f) Termination of Continuous Service. In the event that an Optionholder’s
Continuous Service terminates for any reason, the Optionholder may exercise his
or her Option (to the extent that the Optionholder was entitled to exercise such
Option as of the date of termination of Continuous Service) but only within such
period of time ending on the expiration of the term of the Option as set forth
in the Option Agreement. If, after termination of Continuous Service, the
Optionholder does not exercise his or her Option within the time specified in
the Option Agreement, the Option shall terminate.
8. Securities Law Compliance.
     The Company shall seek to obtain from each regulatory commission or agency
having jurisdiction over the Plan such authority as may be required to grant
Options and to issue and sell shares of Common Stock upon exercise of the
Options; provided, however, that this undertaking shall not require the Company
to register under the Securities Act the Plan, any Option or any Common Stock
issued or issuable pursuant to any such Option. If, after reasonable efforts,
the Company is unable to obtain from any such regulatory commission or agency
the authority which counsel for the Company deems necessary for the lawful
issuance and sale of Common Stock under the Plan, the Company shall be relieved
from any liability for failure to issue and sell Common Stock upon exercise of
such Options unless and until such authority is obtained.
9. Use of Proceeds from Stock.
     Proceeds from the sale of Common Stock pursuant to Options shall constitute
general funds of the Company.
10. Miscellaneous.
     (a) Acceleration of Exercisability and Vesting. The Board shall have the
power to accelerate the time at which an Option may first be exercised or the
time during which an Option or any part thereof will vest in accordance with the
Plan, notwithstanding the provisions in the Plan or the Option stating the time
at which it may first be exercised or the time during which it will vest.
     (b) Stockholder Rights. No Optionholder shall be deemed to be the holder
of, or to have any of the rights of a holder with respect to, any shares of
Common Stock subject to such Option unless and until such Optionholder has
satisfied all requirements for exercise of the Option pursuant to its terms.

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     (c) No Service Rights. Nothing in the Plan, any Option Agreement or other
instrument executed thereunder or any Option granted pursuant thereto shall
confer upon any Optionholder any right to continue to serve the Company as a
Non-Employee Director or shall affect the right of the Company or an Affiliate
to terminate (i) the employment of an Employee with or without notice and with
or without cause, (ii) the service of a Consultant pursuant to the terms of such
Consultant’s agreement with the Company or an Affiliate or (iii) the service of
a Director pursuant to the Bylaws of the Company or an Affiliate, and any
applicable provisions of the corporate law of the state in which the Company or
the Affiliate is incorporated, as the case may be.
     (d) Investment Assurances. The Company may require an Optionholder, as a
condition of exercising or acquiring Common Stock under any Option, (i) to give
written assurances satisfactory to the Company as to the Optionholder’s
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Option; and (ii) to give
written assurances satisfactory to the Company stating that the Optionholder is
acquiring the Common Stock subject to the Option for the Optionholder’s own
account and not with any present intention of selling or otherwise distributing
the Common Stock. The foregoing requirements, and any assurances given pursuant
to such requirements, shall be inoperative if (1) the issuance of the shares of
Common Stock upon the exercise or acquisition of Common Stock under the Option
has been registered under a then currently effective registration statement
under the Securities Act or (2) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws. The
Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of the Common Stock.
     (e) Withholding Obligations. To the extent provided by the terms of an
Option Agreement, the Company may in its sole discretion, satisfy any federal,
state or local tax withholding obligation relating to an Option by any of the
following means (in addition to the Company’s right to withhold from any
compensation paid to the Optionholder by the Company) or by a combination of
such means: (i) causing the Optionholder to tender a cash payment;
(ii) withholding shares of Common Stock from the shares of Common Stock issued
or otherwise issuable to the Optionholder in connection with the Option; or
(iii) via such other method as may be set forth in the Option Agreement.
11. Adjustments upon Changes in Common Stock.
     (a) Capitalization Adjustments. If any change is made in, or other event
occurs with respect to, the Common Stock subject to the Plan, or subject to any
Option, without the receipt of consideration by the Company (through merger,
consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company (each a “Capitalization Adjustment”)), the Plan will be appropriately
adjusted in the class(es) and

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maximum number of securities subject both to the Plan pursuant to Section 4 and
to the nondiscretionary Options specified in Section 6, and the outstanding
Options will be appropriately adjusted in the class(es) and number of securities
and price per share of Common Stock subject to such outstanding Options. The
Board shall make such adjustments, and its determination shall be final, binding
and conclusive. (Notwithstanding the foregoing, the conversion of any
convertible securities of the Company shall not be treated as a transaction
“without receipt of consideration” by the Company.)
     (b) Dissolution or Liquidation. In the event of a dissolution or
liquidation of the Company, then all outstanding Options shall terminate
immediately prior to the completion of such dissolution or liquidation.
     (c) Corporate Transaction. The following provisions shall apply to Options
in the event of a Corporate Transaction unless otherwise provided in the
instrument evidencing the Option or any other written agreement between the
Company or any Affiliate and the holder of the Option or unless otherwise
expressly provided by the Board at the time of grant of a Option. In the event
of a Corporate Transaction, any surviving corporation or acquiring corporation
may assume or continue any or all Options outstanding under the Plan or may
substitute similar stock options for Options outstanding under the Plan
(including options to acquire the same consideration paid to the stockholders of
the Company, as the case may be, pursuant to the Corporate Transaction). In the
event that any surviving corporation or acquiring corporation does not assume or
continue all such outstanding Options or substitute similar stock options for
all such outstanding Options, then with respect to Options that have been not
assumed, continued or substituted and that are held by Optionholders whose
Continuous Service has not terminated prior to the effective time of the
Corporate Transaction, the vesting of such Options (and, if applicable, the time
at which such Options may be exercised) shall (contingent upon the effectiveness
of the Corporate Transaction) be accelerated in full to a date prior to the
effective time of such Corporate Transaction as the Board shall determine (or,
if the Board shall not determine such a date, to the date that is five (5) days
prior to the effective time of the Corporate Transaction), and such Options
shall terminate on the effective time of the Corporate Transaction if not
exercised (if applicable) at or prior to such effective time. With respect to
any other Options outstanding under the Plan that have not been assumed,
continued or substituted, the vesting of such Options (and, if applicable, the
time at which such Options may be exercised) shall not be accelerated, unless
otherwise provided in a written agreement between the Company or any Affiliate
and the Optionholder, and such Options shall terminate if not exercised (if
applicable) prior to the effective time of the Corporate Transaction.
     (d) Change in Control. An Option may be subject to additional acceleration
of vesting and exercisability upon or after a Change in Control as may be
provided in the Option Agreement for such Option or as may be provided in any
other written agreement between the Company or any Affiliate and the
Optionholder, but in the absence of such provision, no such acceleration shall
occur.
12. Amendment of the Plan and Options.
     (a) Amendment of Plan. Subject to the limitations, if any, of applicable
law, the Board, at any time and from time to time, may amend the Plan. However,
except as provided in Section 11(a) relating to Capitalization Adjustments, no
amendment shall be effective unless

11

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approved by the stockholders of the Company to the extent stockholder approval
is necessary to satisfy applicable law.
     (b) Stockholder Approval. The Board, in its sole discretion, may submit any
other amendment to the Plan for stockholder approval.
     (c) No Impairment of Rights. Rights under any Option granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Optionholder and (ii) the
Optionholder consents in writing.
     (d) Amendment of Options. The Board, at any time, and from time to time,
may amend the terms of any one or more Options, including, but not limited to,
amendments to provide terms more favorable than previously provided in the
agreement evidencing an Option, subject to any specified limits in the Plan that
are not subject to Board discretion; provided, however, that the rights under
any Option shall not be impaired by any such amendment unless (i) the Company
requests the consent of the Optionholder and (ii) the Optionholder consents in
writing.
13. Termination or Suspension of the Plan.
     (a) Plan Term. The Board may suspend or terminate the Plan at any time. No
Options may be granted under the Plan while the Plan is suspended or after it is
terminated.
     (b) No Impairment of Rights. Suspension or termination of the Plan shall
not impair rights and obligations under any Option granted while the Plan is in
effect except with the written consent of the Optionholder.
14. Effective Date of Plan.
     The Plan shall become effective on the IPO Date, but no Option shall be
exercised unless and until the Plan has been approved by the stockholders of the
Company, which approval shall be within twelve (12) months before or after the
date the Plan is adopted by the Board.
15. Choice of Law.
     The law of the state of California shall govern all questions concerning
the construction, validity and interpretation of this Plan, without regard to
such state’s conflict of laws rules.

12

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SGX Pharmaceuticals, Inc.
Stock Option Grant Notice
Initial Grant
(2005 Non-Employee Directors’ Stock Option Plan)
SGX Pharmaceuticals, Inc. (the “Company”), pursuant to its 2005 Non-Employee
Directors’ Stock Option Plan (the “Plan”), hereby grants to Optionholder an
option to purchase the number of shares of the Company’s Common Stock set forth
below. This option is subject to all of the terms and conditions as set forth
herein and in the Stock Option Agreement, the Plan and the Notice of Exercise,
all of which are attached hereto and incorporated herein in their entirety.

         
Optionholder:
       
Date of Grant:
 
 
   
Number of Shares Subject to Option:
 
 
   
Exercise Price (Per Share):
 
 
   
Total Exercise Price:
 
 
   
Expiration Date:
 
 
The day before the 10th anniversary of the Date of Grant    

     
Type of Grant:
  Nonstatutory Stock Option
 
   
Exercise Schedule:
  Same as Vesting Schedule
 
   
Vesting Schedule:
  1/36th of the shares vest each month following the Date of Grant, subject to
accelerated vesting under specified circumstances as provided in the Stock
Option Agreement and Plan.
 
   
Payment:
  By one or a combination of the following items (described in the Plan and/or
Stock Option Agreement):

  o   By cash or check     o   Pursuant to a Regulation T Program if the Shares
are publicly traded     o   By delivery of already-owned shares if the Shares
are publicly traded     o   Net exercise if the Company has adopted FAS 123, as
revised, at the time of such exercise

Additional Terms/Acknowledgements: The undersigned Optionholder acknowledges
receipt of, and understands and agrees to, this Grant Notice, the Stock Option
Agreement and the Plan. Optionholder further acknowledges that as of the Date of
Grant, this Grant Notice, the Stock Option Agreement and the Plan set forth the
entire understanding between Optionholder and the Company regarding the
acquisition of stock in the Company and supersede all prior oral and written
agreements on that subject with the exception of (i) options previously granted
and delivered to Optionholder under the Plan, and (ii) the following agreements
only:

                 
 
  Other Agreements:      
 
   
 
         
 
   

                      SGX Pharmaceuticals, Inc.       Optionholder:    
 
                   
By:
                       
 
Signature      
 
  Signature
   
Title:
          Date:        
 
 
 
         
 
   
Date:
                   
 
 
 
               

     
Attachments:
  Stock Option Agreement, 2005 Non-Employee Directors’ Stock Option Plan and
Notice of Exercise

 

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

 

SGX Pharmaceuticals, Inc.
Stock Option Grant Notice
Annual Grant
(2005 Non-Employee Directors’ Stock Option Plan)
SGX Pharmaceuticals, Inc. (the “Company”), pursuant to its 2005 Non-Employee
Directors’ Stock Option Plan (the “Plan”), hereby grants to Optionholder an
option to purchase the number of shares of the Company’s Common Stock set forth
below. This option is subject to all of the terms and conditions as set forth
herein and in the Stock Option Agreement, the Plan and the Notice of Exercise,
all of which are attached hereto and incorporated herein in their entirety.

         
Optionholder:
       
Date of Grant:
 
 
   
Number of Shares Subject to Option:
 
 
   
Exercise Price (Per Share):
 
 
   
Total Exercise Price:
 
 
   
Expiration Date:
 
 
The day before the 10th anniversary of the Date of Grant    

     
Type of Grant:
  Nonstatutory Stock Option
 
   
Exercise Schedule:
  Same as Vesting Schedule
 
   
Vesting Schedule:
  1/12th of the shares vest at the end of each month following the Date of
Grant, subject to accelerated vesting under specified circumstances as provided
in the Stock Option Agreement and Plan.
 
   
Payment:
  By one or a combination of the following items (described in the Plan and/or
Stock Option Agreement):

  o   By cash or check     o   Pursuant to a Regulation T Program if the Shares
are publicly traded     o   By delivery of already-owned shares if the Shares
are publicly traded     o   Net exercise if the Company has adopted FAS 123, as
revised, at the time of such exercise

Additional Terms/Acknowledgements: The undersigned Optionholder acknowledges
receipt of, and understands and agrees to, this Grant Notice, the Stock Option
Agreement and the Plan. Optionholder further acknowledges that as of the Date of
Grant, this Grant Notice, the Stock Option Agreement and the Plan set forth the
entire understanding between Optionholder and the Company regarding the
acquisition of stock in the Company and supersede all prior oral and written
agreements on that subject with the exception of (i) options previously granted
and delivered to Optionholder under the Plan, and (ii) the following agreements
only:

                 
 
  Other Agreements:      
 
   
 
         
 
   

                      SGX Pharmaceuticals, Inc.       Optionholder:    
 
                   
By:
                       
 
Signature      
 
  Signature
   
Title:
          Date:        
 
 
 
         
 
   
Date:
                   
 
 
 
               

     
Attachments:
  Stock Option Agreement, 2005 Non-Employee Directors’ Stock Option Plan and
Notice of Exercise