Exhibit 10.3

CELL GENESYS, INC.

2005 EQUITY INCENTIVE PLAN

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

 

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

 

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to provide incentives to individuals who perform services to the Company, and

 

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to promote the success of the Company’s business.

The Plan permits the grant of Incentive Stock Options, Nonstatutory Stock
Options, Restricted Stock, SARs, Performance Units, Performance Shares and other
stock awards as the Administrator may determine.

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, Restricted Stock, SARs, Performance Units, Performance Shares and other
stock awards as the Administrator may determine.

(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) “Cash Position” means as to any Performance Period, the Company’ s level of
cash and cash equivalents, including, without limitation, amounts classified for
financial reporting purposes as short-term investments and restricted
investments.

(g) “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

 

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

(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.

(h) “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.

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

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

(k) “Company” means Cell Genesys, Inc., a Delaware corporation, or any successor
thereto.

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

(m) “Determination Date” means the latest possible date that will not jeopardize
the qualification of an Award granted under the Plan as “performance-based
compensation” under Section 162(m) of the Code.

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

(o) “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.

(p) “Earnings Per Share” means as to any Performance Period, the Company’s or a
business unit’s Net Income, divided by a weighted average number of Shares
outstanding and dilutive equivalent Shares deemed outstanding, determined in
accordance with U.S. GAAP;

 

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provided, however, that if Net Income as to any such Performance Period is a
negative amount, then Earnings Per Share means the Company’s or business unit’s
Net Income, divided by a weighted average number of Shares outstanding,
determined in accordance with U.S. GAAP.

(q) “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.

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

(s) “Excluded Items” includes, without limitation, (i) incentive compensation,
(ii) in-process research and development expenses, (iii) acquisition costs,
(iv) compensation expense from equity compensation, (v) operating expenses from
acquired businesses, (vi) amortization of acquired intangible assets, and
(vii) such other unusual or one-time items as may be identified by the
Administrator.

(t) “Fair Market Value” means, unless otherwise determined or provided by the
Administrator in the circumstances, the last price (in regular trading) for a
share of Common Stock as furnished by the National Association of Securities
Dealers, Inc. (the “NASD”) through the NASDAQ Global Market Reporting System
(the “Global Market”) for the date in question or, if no sales of Common Stock
were reported by the NASD on the Global Market on that date, the last price (in
regular trading) for a share of Common Stock as furnished by the NASD through
the Global Market for the next preceding day on which sales of Common Stock were
reported by the NASD. The Administrator may, however, provide with respect to
one or more Awards that the Fair Market Value shall equal the last price for a
share of Common Stock as furnished by the NASD through the Global Market on the
last trading day preceding the date in question or the average of the high and
low trading prices of a share of Common Stock as furnished by the NASD through
the Global Market for the date in question or the most recent trading day. If
the Common Stock is no longer listed or is no longer actively traded on the
Global Market as of the applicable date, the Fair Market Value of the Common
Stock shall be the value as reasonably determined by the Administrator for
purposes of the Award in the circumstances. The Administrator also may adopt a
different methodology for determining Fair Market Value with respect to one or
more Awards if a different methodology is necessary or advisable to secure any
intended favorable tax, legal or other treatment for the particular Award(s)
(for example, and without limitation, the Administrator may provide that Fair
Market Value for purposes of one or more Awards will be based on an average of
closing prices (or the average of high and low daily trading prices) for a
specified period preceding the relevant date).

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

(v) “Incentive Stock Option” means an Option that by its terms qualifies and is
otherwise intended to qualify as an incentive stock option within the meaning of
Section 422 of the Code and the regulations promulgated thereunder.

(w) “Inside Director” means a Director who is an Employee.

 

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(x) “Net Income” means as to any Performance Period, the Company’s or a business
unit’s income after taxes determined in accordance with U.S. GAAP, adjusted for
any Excluded Items approved for exclusion by the Administrator.

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

(z) “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.

(aa) “Operating Cash Flow” means as to any Performance Period, the Company’s or
a business unit’s cash flow generated from operating activities, as reported in
the Company’s cash flow statements and calculated in accordance with U.S. GAAP,
adjusted for any Excluded Items approved for exclusion by the Administrator.

(bb) “Operating Income” means as to any Performance Period, the Company’s or a
business unit’s income from operations determined in accordance with U.S. GAAP,
adjusted for any Excluded Items approved for exclusion by the Administrator.

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

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

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

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

(gg) “Performance Goals” means the goal(s) (or combined goal(s)) determined by
the Administrator (in its discretion) to be applicable to a Participant with
respect to an Award granted under the Plan. As determined by the Administrator,
the Performance Goals applicable to an Award may provide for a targeted level or
levels of achievement using one or more of the following measures: (a) Cash
Position, (b) Earnings Per Share, (c) Net Income, (d) Operating Cash Flow,
(e) Operating Income, (f) Return on Assets, (g) Return on Equity, (h) Return on
Sales, (i) Revenue, (j) Total Shareholder Return, and (k) certain pre-defined
corporate milestones related to product development and other business
activities. The Performance Goals may differ from Participant to Participant and
from Award to Award. Prior to the Determination Date, the Administrator will
determine whether any significant element(s) will be included in or excluded
from the calculation of any Performance Goal with respect to any Participant.

(hh) “Performance Period” means any Fiscal Year of the Company or such other
period as determined by the Administrator in its sole discretion.

(ii) “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 9.

 

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(jj) “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 9.

(kk) “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 lapse
based on the passage of time, the achievement of target levels of performance,
or the occurrence of other events as determined by the Administrator.

(ll) “Plan” means this 2005 Equity Incentive Plan.

(mm) “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.

(nn) “Return on Assets” means as to any Performance Period, the percentage equal
to the Company’s or a business unit’s Operating Income divided by average net
Company or business unit, as applicable, assets, determined in accordance with
U.S. GAAP.

(oo) “Return on Equity” means as to any Performance Period, the percentage equal
to the Company’s Net Income divided by average stockholder’s equity, determined
in accordance with U.S. GAAP.

(pp) “Return on Sales” means as to any Performance Period, the percentage equal
to the Company’s or a business unit’s Operating Income divided by the Company’s
or the business unit’s, as applicable, Revenue.

(qq) “Revenue” means as to any Performance Period, the Company’s or business
unit’s net sales, determined in accordance with U.S. GAAP.

(rr) “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.

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

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

(uu) “Share” means a share of the Common Stock, as adjusted in accordance with
Section 14 of the Plan.

(vv) “Stock Appreciation Right” or “SAR” means an Award, granted alone or in
connection with an Option, that pursuant to Section 8 is designated as a SAR.

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

 

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(xx) “Total Shareholder Return” means as to any Performance Period, the total
return (change in share price plus reinvestment of any dividends) of a Share.

(yy) “U.S. GAAP” means generally accepted accounting principles in the United
States.

3. Stock Subject to the Plan.

(a) Stock Subject to the Plan. Subject to the provisions of Section 14 of the
Plan, the maximum aggregate number of Shares that may be awarded and sold under
the Plan is 1,000,000 plus (a) such number of Shares which have been reserved
but not issued under the Company’s 1998 Stock Plan (the “1998 Plan”) as of the
date the Plan is approved by the stockholders of the Company, plus any Shares
returned to the 1998 Plan thereafter as a result of termination of options or
repurchase of Shares issued under such plan, (b) such number of Shares which
have been reserved but not issued under the Company’s 2001 Nonstatutory Stock
Option Plan (the “2001 Plan”) as of the date the Plan is approved by the
stockholders of the Company, plus any Shares returned to the 2001 Plan
thereafter as a result of termination of options or repurchase of Shares issued
under such plan, and (c) such number of Shares which have been reserved but not
issued under the Company’s 2001 Director Option Plan (the “2001 Director Plan”)
as of the date the Plan is approved by the stockholders of the Company, plus any
Shares returned to the 2001 Director Plan thereafter as a result of termination
of options or repurchase of Shares issued under such plan. The Shares may be
authorized, but unissued, or reacquired Common Stock. Shares shall not be deemed
to have been issued pursuant to the Plan with respect to any portion of an Award
that is settled in cash. Upon payment in Shares pursuant to the exercise of an
SAR, the number of Shares available for issuance under the Plan shall be reduced
only by the number of Shares actually issued in such payment. If the exercise
price of an Option is paid by tender to the Company, or attestation to the
ownership, of Shares owned by the Participant, the number of Shares available
for issuance under the Plan shall be reduced by the gross number of Shares for
which the Option is exercised. The Shares may be authorized, but unissued, or
reacquired Common Stock.

(b) Lapsed Awards. If an Award expires or becomes unexercisable without having
been exercised in full or, with respect to Restricted Stock, Performance Shares
or Performance Units, is forfeited to or repurchased by the Company, the
unpurchased Shares (or for Awards other than Options and 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). 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). However, 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 unvested Shares of Restricted Stock,
Performance Shares or Performance Units are repurchased by the Company or are
forfeited to the Company, such Shares will become available for future grant
under the Plan. To the extent an Award under the Plan is paid out in cash rather
than Shares, such cash payment will not result in reducing the number of Shares
available for issuance under the Plan. Notwithstanding the foregoing and,
subject to adjustment provided in Section 14, 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, to the extent allowable
under Section 422 of the Code, any Shares that become available for issuance
under the Plan under this Section 3(b).

 

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(c) 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.

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 Awards 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 terms and conditions, not inconsistent with the terms of
the Plan, of any Award granted hereunder;

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

(v) to modify or amend each Award (subject to Section 19(c) of the Plan).
Notwithstanding the previous sentence, the Administrator may not modify or amend
an Option or SAR to reduce the exercise price of such Option or SAR after it has
been granted (except for adjustments made pursuant to Section 14), unless
approved by the Company’s stockholders and neither may the Administrator,
without the approval of the Company’s stockholders, cancel any outstanding
Option or SAR and immediately replace it with a new Option or SAR with a lower
exercise price;

 

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

(vii) 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;

(viii) 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;

(ix) 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 pursuant to such procedures as the Administrator may determine;

(x) to grant, in addition to the incentives described in Sections 6, 7, 8 and 9
below, other incentives payable in cash or Shares under the Plan as determined
by the Administrator to be in the best interests of the Company and subject to
any terms and conditions the Administrator deems advisable; and

(xi) 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, Stock Appreciation
Rights, Performance Units, Performance Shares and such stock awards as the
Administrator determines may be granted to Service Providers. Incentive Stock
Options may be granted only to Employees.

6. Stock Options.

(a) Limitations.

(i) 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 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.

(ii) The following limitations will apply to grants of Options:

(1) No Service Provider will be granted, in any Fiscal Year, Options to purchase
more than 500,000 Shares.

 

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(2) In connection with his or her initial service, a Service Provider may be
granted Options to purchase up to an additional 1,500,000 Shares, which will not
count against the limit set forth in Section 6(a)(ii)(1) above.

(3) The foregoing limitations will be adjusted proportionately in connection
with any change in the Company’s capitalization as described in Section 14.

(4) If an Option is cancelled in the same Fiscal Year in which it was granted
(other than in connection with a transaction described in Section 14), the
cancelled Option, as applicable, will not be counted against the limits set
forth in subsections (1) and (2) above. For this purpose, if the exercise price
of an Option is reduced, the transaction will be treated as a cancellation of
the Option and the grant of a new Option and/or Stock Appreciation Right, as
applicable.

(5) The exercise price for an Option may not be reduced without the consent of
the Company’s stockholders. This will include, without limitation, a repricing
of the Option as well as an Option exchange program whereby the Participant
agrees to cancel an existing Option in exchange for an Option, SAR or other
Award.

(b) Term of Option. The Administrator will determine the term of each Option in
its sole discretion. 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.

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

 

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(3) Notwithstanding the foregoing, 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.

(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(s) of consideration for exercising an Option, including the method of
payment, 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 may 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). 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 14 of the Plan.

(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 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.

 

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(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. Notwithstanding the foregoing, during any
Fiscal Year no Participant will receive more than an aggregate of 150,000 Shares
of Restricted Stock; provided, however, that in connection with a Participant’s
initial service as an Employee, an Employee may be granted an aggregate of up to
an additional 250,000 Shares of Restricted Stock. Unless the Administrator
determines otherwise, Shares of Restricted Stock will be held by the Company as
escrow agent 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. 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.

(i) Section 162(m) Performance Restrictions. For purposes of qualifying grants
of Restricted Stock as “performance-based compensation” under Section 162(m) of
the Code, the Administrator, in its discretion, may set restrictions based upon
the achievement of Performance Goals. The Performance Goals will be set by the
Administrator on or before the Determination Date. In granting Restricted Stock
which is intended to qualify under Section 162(m) of the Code, the Administrator
will follow any procedures determined by it from time to time to be necessary or
appropriate to ensure qualification of the Award under Section 162(m) of the
Code (e.g., in determining the Performance Goals).

8. 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.

(b) Number of Shares. The Administrator will have complete discretion to
determine the number of SARs granted to any Participant, provided that during
any Fiscal Year, no Participant will be granted SARs covering more than 500,000
Shares. Notwithstanding the foregoing limitation, in connection with a
Participant’s initial service as an Employee, an Employee may be granted SARs
covering up to an additional 1,500,000 Shares.

(c) Exercise Price and Other Terms. The Administrator, subject to the provisions
of the Plan, will have complete discretion to determine the terms and conditions
of SARs granted under the Plan. In the case of a freestanding SAR, the exercise
price will be not less than 100% of the Fair Market Value of a Share on the date
of grant. The exercise price of a tandem or affiliated SARs will equal the
exercise price of the related Option.

(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.

 

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(e) Expiration of SARs. A 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 a 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.

At the discretion of the Administrator, the payment upon SAR exercise may be in
cash, in Shares of equivalent value, or in some combination thereof.

9. 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/Shares granted to each Participant provided that during any Fiscal Year,
(a) no Participant will receive Performance Units having an initial value
greater than $500,000 and (b) no Participant will receive more than 150,000
Performance Shares. Notwithstanding the foregoing limitation, in connection with
a Participant’s initial service as an Employee, an Employee may be granted up to
an additional 250,000 Performance Shares.

(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 Participant. Each
Award of Performance Units/Shares will be evidenced by an Award Agreement that
will specify the Performance Period, and such other terms and conditions as the
Administrator, in its sole discretion, will determine.

(i) General Performance Objectives. The Administrator may set performance
objectives based upon the achievement of Company-wide, divisional, or individual
goals, or any other basis determined by the Administrator in its discretion.

(ii) Section 162(m) Performance Objectives. For purposes of qualifying grants of
Performance Units/Shares as “performance-based compensation” under
Section 162(m) of the Code, the Administrator, in its discretion, may determine
that the performance objectives applicable to Performance Units/Shares will be
based on the achievement of Performance Goals. The Administrator will set the
Performance Goals on or before the Determination Date. In granting Performance
Units/Shares which are intended to qualify under Section 162(m) of the

 

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Code, the Administrator will follow any procedures determined by it from time to
time to be necessary or appropriate to ensure qualification of the Performance
Units/Shares under Section 162(m) of the Code (e.g., in determining the
Performance Goals).

(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.

10. Other Stock Awards. In addition to the incentives described in Sections 6
through 9 above, the Administrator may grant other incentives payable in Shares
or cash under the Plan as it determines to be in the best interests of the
Company and subject to such other terms and conditions as it deems appropriate.

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.

 

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13. Awards to Outside Directors

(a) General. Outside Directors will be entitled to receive all types of Awards
under this Plan, including discretionary Awards not covered under this
Section 13. All grants of Options to Outside Directors pursuant to this Section
will be automatic and nondiscretionary, except as otherwise provided herein, and
will be made in accordance with the following provisions:

(b) Granting of Awards.

(i) First Option. Each Outside Director who becomes an Outside Director after
the effective date of this Plan will be automatically granted a Nonstatutory
Stock Option to purchase 30,000 Shares (the “First Option”) on the date on which
such person first becomes an Outside Director, whether through election by the
stockholders of the Company or appointment by the Board to fill a vacancy;
provided, however, that an Inside Director who ceases to be an Inside Director
but who remains a Director will not receive a First Option.

(ii) Subsequent Option. Each Outside Director will be automatically granted an
Option to purchase 7,500 Shares (a “Subsequent Option”) on June 30 of each year
provided he or she is then an Outside Director and if, as of such date, he or
she shall have served on the Board as an Outside Director for at least the
preceding twelve (12) months.

(c) Terms of Options. The terms of First Options and Subsequent Options granted
hereunder will be as follows:

(i) the term of each Option will be ten (10) years.

(ii) the exercise price per Share will be 100% of the Fair Market Value per
Share on the date of grant (with the Fair Market Value to be determined in
accordance with the definition of such term in Section 2 hereof).

(iii) 25% of the Shares subject to the First Option will vest twelve (12) months
after the date of grant, and 1/48 of the Shares subject to the First Option will
vest each month thereafter so that 100% of the Shares subject to the First
Option will be vested four (4) years from the grant date, subject to the Outside
Director remaining on through each such vesting date.

(iv) the Subsequent Option shall become exercisable as to 100% of the Shares
subject to the Subsequent Option on date of grant, provided that the Outside
Director continues to serve as a Director on such date.

(d) In the event that any Option granted under the Plan would cause the number
of Shares subject to outstanding Options plus the number of Shares previously
purchased under Awards to exceed the maximum number of shares that may be
awarded and sold under the Plan, then the remaining Shares available for grant
shall be granted under Options to the Outside Directors on a pro rata basis. No
further grants shall be made until such time, if any, as additional Shares
become available for grant under the Plan through action of the Board or the
stockholders to increase the number of Shares which may be issued under the Plan
or through cancellation or expiration of Awards previously granted hereunder.

 

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

(a) Adjustments. Subject to Sections 14(b) and 14(c), upon (or, as may be
necessary to effect the adjustment, immediately prior to): any reclassification,
recapitalization, stock split (including a stock split in the form of a stock
dividend) or reverse stock split; any merger, combination, consolidation, or
other reorganization; any spin-off, split-up, or similar extraordinary dividend
distribution in respect of the Common Stock; or any exchange of Common Stock or
other securities of the Company, or any similar, unusual or extraordinary
corporate transaction in respect of the Common Stock; then the Administrator
shall equitably and proportionately adjust (1) the number and type of shares of
Common Stock (or other securities) that thereafter may be made the subject of
Awards (including the specific share limits, maximums and numbers of shares set
forth elsewhere in the Plan), (2) the number, amount and type of shares of
Common Stock (or other securities or property) subject to any outstanding
Awards, (3) the grant, purchase, or exercise price of any outstanding Awards,
and/or (4) the securities, cash or other property deliverable upon exercise or
payment of any outstanding Awards, in each case to the extent necessary to
preserve (but not increase) the level of incentives intended by the Plan and the
then-outstanding Awards.

Unless otherwise expressly provided in the applicable Award Agreement, upon (or,
as may be necessary to effect the adjustment, immediately prior to) any event or
transaction described in the preceding paragraph or a sale of all or
substantially all of the business or assets of the Company as an entirety, the
Administrator shall equitably and proportionately adjust the performance
standards applicable to any then-outstanding performance-based Awards to the
extent necessary to preserve (but not increase) the level of incentives intended
by the Plan and the then-outstanding performance-based Awards.

It is intended that, if possible, any adjustments contemplated by the preceding
two paragraphs be made in a manner that satisfies applicable U.S. legal, tax
(including, without limitation and as applicable in the circumstances,
Section 424 of the Code, Section 409A of the Code and Section 162(m) of the
Code) and accounting (so as to not trigger any charge to earnings with respect
to such adjustment) requirements.

Without limiting the generality of Section 4(c), any good faith determination by
the Administrator as to whether an adjustment is required in the circumstances
pursuant to this Section 14(a), and the extent and nature of any such
adjustment, shall be conclusive and binding on all persons.

(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 Change in Control, each outstanding
Award will be assumed or an equivalent option or right substituted by the
successor corporation or a Parent or Subsidiary of the successor corporation. In
the event that the successor corporation refuses to 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 Stock Appreciation Rights, including Shares
as

 

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to which such Awards would not otherwise be vested or exercisable, all
restrictions on Restricted Stock will lapse, and, with respect to Performance
Shares and Performance Units, all Performance Goals or other vesting criteria
will be deemed achieved at target levels and all other terms and conditions met.
In addition, if an Option or Stock Appreciation Right becomes fully vested and
exercisable in lieu of assumption or substitution in the event of a Change in
Control, the Administrator will notify the Participant in writing or
electronically that the Option or Stock Appreciation Right will be fully vested
and exercisable for a period of time determined by the Administrator in its sole
discretion, and the Option or Stock Appreciation Right will terminate upon the
expiration of such period.

With respect to Awards granted to Outside Directors 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, then the Participant will fully vest in and have
the right to exercise Options and/or Stock Appreciation Rights as to all of the
Shares subject thereto, including Shares as to which such Awards would not
otherwise be vested or exercisable, all restrictions on Restricted Stock will
lapse, and, with respect to Performance Shares and Performance Units, all
Performance Goals or other vesting criteria will be deemed achieved at target
levels and all other terms and conditions met.

For the purposes of this Section 14(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) or, in the case of a Stock Appreciation Right upon the exercise of
which the Administrator determines to pay cash or a Performance Share or
Performance Unit which the Administrator can determine to pay in cash, the fair
market value of the consideration received in the merger or 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 Stock
Appreciation Right or upon the payout of a Performance Share or Performance
Unit, for each Share subject to such Award (or in the case of Performance Units,
the number of implied shares determined by dividing the value of the Performance
Units by the per share consideration received by holders of Common Stock in the
Change in Control), 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 14(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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15. 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
(without limitation) (a) paying cash, (b) electing to have the Company withhold
otherwise deliverable cash or Shares having a Fair Market Value equal to the
amount required to be withheld, (c) delivering to the Company already-owned
Shares having a Fair Market Value equal to the amount required to be withheld,
or (d) selling a sufficient number of Shares otherwise deliverable to the
Participant through such means as the Administrator may determine in its sole
discretion (whether through a broker or otherwise) equal to the amount required
to be withheld. The amount of the withholding requirement will be deemed to
include any amount which the Administrator agrees may be withheld at the time
the election is made, not to exceed the amount determined by using the maximum
federal, state or local marginal income tax rates applicable to the Participant
with respect to the Award on the date that the amount of tax to be withheld is
to be determined. 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.

16. 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.

17. 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.

18. Term of Plan. Subject to Section 22 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 unless terminated earlier under Section 19 of the Plan.

19. Amendment and Termination of the Plan.

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

(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

 

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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.

20. 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.

21. 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.

22. 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. Such stockholder approval will be obtained in the manner and to the
degree required under Applicable Laws.

 

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