EXHIBIT 10.7

 

TAPESTRY PHARMACEUTICALS, INC.

2006 EQUITY INCENTIVE PLAN

 

STOCK OPTION AGREEMENT
(INCENTIVE STOCK OPTION OR NONSTATUTORY STOCK OPTION)

 

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

 

The details of your option are as follows:

 

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

 

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

 

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

 

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

 

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

 

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

 

(d)           if your option is an Incentive Stock Option, then, to the extent
that the aggregate Fair Market Value (determined at the time of grant) of the
shares of Common Stock with respect to which your option plus all other
Incentive Stock Options you hold are exercisable

 

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for the first time by you during any calendar year (under all plans of the
Company and its Affiliates) exceeds one hundred thousand dollars ($100,000),
your option(s) or portions thereof that exceed such limit (according to the
order in which they were granted) shall be treated as Nonstatutory Stock
Options.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(a)           For Eligible Directors. In the event that an Eligible Director’s
Continuous Service terminates (other than upon the Eligible Director’s removal
for cause), the Eligible Director may exercise his or her Option (to the extent
that the Eligible Director was entitled to exercise such Option as of the date
of termination or with respect to such greater number of shares as determined by
the Board) but only within such period of time ending on the earlier of (i) the
date three (3) years following the termination of the Eligible Director’s

 

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Continuous Service (or such longer or shorter period specified in the Option
Agreement) or (ii) the expiration of the term of the Option as set forth in the
Option Agreement. If, after termination, the Eligible Director does not exercise
his or her Option within the time specified herein or in the Option Agreement
(as applicable), the Option shall terminate. In the event that an Eligible
Director’s Continuous Service terminates upon his or her removal for cause, all
Options held by that Eligible Director shall immediately terminate;

 

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

 

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

 

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

 

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

 

8.             EXERCISE.

 

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

 

(b)           By exercising your option you agree that, as a condition to any
exercise of your option, the Company may require you to enter into an
arrangement providing for the payment by you to the Company of any tax
withholding obligation of the Company arising by

 

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reason of (1) the exercise of your option, (2) the lapse of any substantial risk
of forfeiture to which the shares of Common Stock are subject at the time of
exercise, or (3) the disposition of shares of Common Stock acquired upon such
exercise.

 

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

 

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

 

10.          CHANGE IN CONTROL – ELIGIBLE DIRECTORS. If a Change in Control
occurs and an Eligible Director’s Continuous Service with the Company has not
terminated as of, or immediately prior to, the effective time of the Change in
Control, then, as of the effective time of such Change in Control (and
contingent upon the effectiveness of the Change in Control), the vesting and
exercisability of the Eligible Director’s Option shall be accelerated in full.
In the event that an Eligible Director is required to resign his or her position
as a Non-Employee Director as a condition of a Change in Control, the
outstanding Options of such Eligible Director shall become fully vested and
exercisable immediately prior to the effectiveness of such resignation (and
contingent upon the effectiveness of the Change in Control).

 

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

 

12.          WITHHOLDING OBLIGATIONS.

 

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

 

(b)           Upon your request and subject to approval by the Company, in its
sole discretion, and compliance with any applicable legal conditions or
restrictions, the Company may withhold from fully vested shares of Common Stock
otherwise issuable to you upon the

 

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

 

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

 

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

 

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

 

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