Exhibit 10.3

CEMPRA, INC.

2011 EQUITY INCENTIVE PLAN

Approved by the Board:  October 11, 2011

Approved by the Stockholders: February 2, 2012

Amended by the Stockholders (Section 3(a)): May 23, 2013

Termination Date:  October 11, 2021

 

1. GENERAL.

(a)        Establishment.  Cempra, Inc., a Delaware corporation, hereby
establishes the Cempra, Inc. 2011 Equity Incentive Plan (as may be amended from
time to time, the “Plan”) effective as of February 2, 2012, the date of its
approval by the stockholders of the Company (the “Effective Date”).

(b)        Successor to Prior Plan.  This Plan is intended as the successor to
the Company’s Sixth Amended and Restated 2006 Stock Plan (the “Prior Plan”).
Following the Effective Date, no additional stock awards shall be granted under
the Prior Plan. Any shares remaining available for issuance pursuant to the
exercise of options or settlement of stock awards under the Prior Plan shall
become available for issuance pursuant to Stock Awards granted hereunder, as
provided in Section 3(a) hereof. Any shares subject to outstanding stock awards
granted under the Prior Plan that expire or terminate for any reason prior to
exercise or settlement shall become available for issuance pursuant to Stock
Awards granted hereunder, as provided in Section 3(b) hereof. All outstanding
stock awards granted under the Prior Plan shall remain subject to the terms of
the Prior Plan with respect to which they were originally granted.

(c)        Eligible Award Recipients.  The persons eligible to receive Stock
Awards are Employees, Directors and Consultants.

(d)        Available Awards.  The Plan provides for the grant of the following
Stock Awards: (i) Incentive Stock Options, (ii) Nonstatutory Stock Options,
(iii) Restricted Stock Awards, (iv) Restricted Stock Unit Awards, (v) Stock
Appreciation Rights, (vi) Performance Stock Awards and (vii) Other Stock Awards.

(e)        Purpose.  The purpose of the Plan is to advance the interests of the
Company and its stockholders by providing an incentive to attract, retain and
reward persons eligible to receive Stock Awards as set forth in Section 1(c),
and by motivating such persons to contribute to the growth and profitability of
the Company.

 

2. ADMINISTRATION.

(a)        Administration by Board.  The Board shall administer the Plan unless
and until the Board delegates administration of the Plan to a Committee or
Committees, as provided in Section 2(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 from time to time (A) which of the persons eligible
under the Plan shall be granted Stock Awards; (B) when and how each Stock Award
shall be granted; (C) what type or combination of types of Stock Awards shall be
granted; (D) the provisions of each Stock Award granted (which need not be
identical), including the time or times when a person shall be permitted to
receive cash or Common Stock pursuant to a Stock Award; and (E) the number of
shares of Common Stock with respect to which a Stock Award shall be granted to
each such person.

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(ii)         To determine the provisions of each Stock Award granted (which need
not be identical), including without limitation, (A) the exercise or purchase
price of shares of Common Stock purchased pursuant to any Stock Award, (B) the
method of payment for shares of Common Stock purchased pursuant to any Stock
Award, (C) the method for satisfaction of any tax withholding obligation arising
in connection with Stock Award, including by the withholding or delivery of
shares of Common Stock, (D) the timing, terms and conditions of the
exercisability or vesting of any Stock Award or any shares acquired pursuant
thereto, (E) the Performance Criteria necessary to satisfy Performance Goals
applicable to any Stock Award and the extent to which such Performance Goals
have been attained, (F) the time of the expiration of any Stock Award, (G) the
effect of the Participant’s termination of Continuous Service on any of the
foregoing, and (H) all other terms, conditions and restrictions applicable to
any Stock Award or shares acquired pursuant thereto not inconsistent with the
terms of the Plan.

(iii)        To construe and interpret the Plan and Stock Awards 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 Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan or Stock Award fully effective.

(iv)        To settle all controversies regarding the Plan and Stock Awards
granted under it.

(v)         To accelerate, continue, extend or defer the time at which a Stock
Award may first be exercised or the time during which a Stock Award or any part
thereof will vest in accordance with the Plan, notwithstanding the provisions in
the Stock Award stating the time at which it may first be exercised or the time
during which it will vest.

(vi)        To suspend or terminate the Plan at any time. Suspension or
termination of the Plan shall not impair rights and obligations under any Stock
Award granted while the Plan is in effect except with the written consent of the
affected Participant.

(vii)       To amend the Plan in any respect the Board deems necessary or
advisable, including, without limitation, relating to Incentive Stock Options
and certain nonqualified deferred compensation under Section 409A of the Code
and/or to bring the Plan or Stock Awards granted under the Plan into compliance
therewith, subject to the limitations, if any, of applicable law. However,
except as provided in Section 9(a) relating to Capitalization Adjustments,
stockholder approval shall be required for any amendment of the Plan that either
(A) materially increases the number of shares of Common Stock available for
issuance under the Plan, (B) materially expands the class of individuals
eligible to receive Stock Awards under the Plan, (C) materially increases the
benefits accruing to Participants under the Plan or materially reduces the price
at which shares of Common Stock may be issued or purchased under the Plan,
(D) materially extends the term of the Plan, or (E) expands the types of Stock
Awards available for issuance under the Plan, but in each of (A) through
(E) only to the extent required by applicable law or listing requirements.
Except as provided above, rights under any Stock Award granted before amendment
of the Plan shall not be impaired by any amendment of the Plan unless (1) the
Company requests the consent of the affected Participant, and (2) such
Participant consents in writing.

(viii)       To submit any amendment to the Plan for stockholder approval,
including, but not limited to, amendments to the Plan intended to satisfy the
requirements of (A) Section 162(m) of the Code and the regulations thereunder
regarding the exclusion of performance-based compensation from the limit on
corporate deductibility of compensation paid to Covered Employees,
(B) Section 422 of the Code regarding Incentive Stock Options, or
(C) Rule 16b-3.

 

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(ix)       To approve forms of Stock Award Agreements for use under the Plan and
to amend the terms of any one or more Stock Awards, including, but not limited
to, amendments to provide terms more favorable than previously provided in the
Stock Award Agreement, subject to any specified limits in the Plan that are not
subject to Board discretion; provided however, that a Participant’s rights under
any Stock Award shall not be impaired by any such amendment unless (A) the
Company requests the consent of the affected Participant, and (B) such
Participant consents in writing. Notwithstanding the foregoing, subject to the
limitations of applicable law, if any, the Board may amend the terms of any one
or more Stock Awards without the affected Participant’s consent if necessary to
maintain the qualified status of the Stock Award as an Incentive Stock Option or
to bring the Stock Award into compliance with Section 409A of the Code and the
related guidance thereunder.

(x)        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 or Stock Awards.

(xi)       To adopt such procedures and sub-plans as are necessary or
appropriate to permit participation in the Plan by Employees, Directors or
Consultants who are foreign nationals or employed outside the United States.

(xii)      To effect, at any time and from time to time, with the consent of any
adversely affected Participant, (A) the reduction of the exercise price (or
strike price) of any outstanding Option or Stock Appreciation Right under the
Plan; (B) the cancellation of any outstanding Option or Stock Appreciation Right
under the Plan and the grant in substitution therefor of (1) a new Option or
Stock Appreciation Right under the Plan or another equity plan of the Company
covering the same or a different number of shares of Common Stock, (2) a
Restricted Stock Award, (3) a Restricted Stock Unit Award, (4) an Other Stock
Award, (5) cash and/or (6) other valuable consideration (as determined by the
Board, in its sole discretion); or (C) any other action that is treated as a
repricing under generally accepted accounting principles.

(c)         Delegation to Committee.

(i)         General.  The Board may delegate some or all of the administration
of the Plan to a Committee or Committees. 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 of the
Committee any of the administrative powers the Committee is authorized to
exercise (and references in the 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.

(ii)        Section 162(m) and Rule 16b-3 Compliance.  In the sole discretion of
the Board, the Committee may consist solely of two or more Outside Directors, in
accordance with Section 162(m) of the Code, or solely of two or more
Non-Employee Directors, in accordance with Rule 16b-3. In addition, the Board or
the Committee, in its sole discretion, may (A) delegate to a Committee who need
not be Outside Directors the authority to grant Stock Awards to eligible persons
who are either (I) not then Covered Employees and are not expected to be Covered
Employees at the time of recognition of income resulting from such Stock Award,
or (II) not persons with respect to whom the

 

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Company wishes to comply with Section 162(m) of the Code, or (B) delegate to a
Committee who need not be Non-Employee Directors the authority to grant Stock
Awards to eligible persons who are not then subject to Section 16 of the
Exchange Act.

(d)        Delegation to Officers.  The Board may delegate to one or more
Officers the authority to do one or both of the following (i) designate
Employees of the Company or any of its Subsidiaries to be recipients of Options
(and, to the extent permitted by Delaware law, other Stock Awards) and the terms
thereof, and (ii) determine the number of shares of Common Stock to be subject
to such Stock Awards granted to such Employees; provided, however, that the
Board resolutions regarding such delegation shall specify the total number of
shares of Common Stock that may be subject to the Stock Awards granted by such
Officer and that such Officer may not grant a Stock Award to himself or herself.
Notwithstanding anything to the contrary in this Section 2(d), the Board may not
delegate to an Officer authority to determine the Fair Market Value of the
Common Stock pursuant to Section 12(u)(ii) below.

(e)        Repricing.  The Board shall not approve a program providing for
either (a) the cancellation of outstanding Stock Awards and the grant in
substitution therefor of new Stock Awards having a lower exercise or purchase
price or (b) the amendment of outstanding Stock Awards to reduce the exercise
price thereof, unless the stockholders of the Company have approved such an
action within twelve (12) months prior to such an event. This paragraph shall
not be construed to apply to “issuing or assuming a stock option in a
transaction to which section 424(a) applies,” within the meaning of Section 424
of the Code.

(f)         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.

(g)        Indemnification.  In addition to such other rights of indemnification
as they may have as members of the Board or the Committee or as officers or
employees of the Company, members of the Board or the Committee and any officers
or employees of the Company to whom authority to act for the Board, the
Committee or the Company is delegated shall be indemnified by the Company
against all reasonable expenses, including attorneys’ fees, actually and
necessarily incurred in connection with the defense of any action, suit or
proceeding, or in connection with any appeal therein, to which they or any of
them may be a party by reason of any action taken or failure to act under or in
connection with the Plan, or any right granted hereunder, and against all
amounts paid by them in settlement thereof (provided such settlement is approved
by independent legal counsel selected by the Company) or paid by them in
satisfaction of a judgment in any such action, suit or proceeding, except in
relation to matters as to which it shall be adjudged in such action, suit or
proceeding that such person is liable for gross negligence, bad faith or
intentional misconduct in duties; provided, however, that within sixty (60) days
after the institution of such action, suit or proceeding, such person shall
offer to the Company, in writing, the opportunity at its own expense to handle
and defend the same.

 

3. SHARES SUBJECT TO THE PLAN.

(a)        Share Reserve.  Subject to the provisions of Section 9(a) relating to
Capitalization Adjustments, the aggregate number of shares of Common Stock that
may be issued pursuant to Stock Awards under the Plan is equal to Three Million
One Hundred Thirty-One Thousand Five Hundred Seventy-Nine (3,131,579) shares
(the “Share Reserve”). In addition, the number of shares of Common Stock
available for issuance under the Plan shall automatically increase on
January 1st of each year for a period of nine (9) years commencing on January 1,
2013 and ending on (and including) January 1, 2021, in an amount equal to the
lesser of (i) four percent (4%) of the total number of shares of Common Stock
outstanding on December 31st of the preceding calendar year, or (ii) One Hundred
Five Thousand Two

 

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Hundred Sixty-Three (105,263) shares. Notwithstanding the foregoing, the Board
may act prior to the first day of any calendar year, to provide that there shall
be no increase in the share reserve for such calendar year or that the increase
in the share reserve for such calendar year shall be a lesser number of shares
of Common Stock than would otherwise occur pursuant to the preceding sentence.
For clarity, the limitation in this Section 3(a) is a limitation in the number
of shares of Common Stock that may be issued pursuant to the Plan. Accordingly,
this Section 3(a) does not limit the granting of Stock Awards except as provided
in Section 7(a). Shares may be issued in connection with a merger or acquisition
as permitted by, as applicable, NASDAQ Marketplace Rule 4350(i)(1)(A)(iii), NYSE
Listed Company Manual Section 303A.08, AMEX Company Guide Section 711 or other
applicable stock exchange rules, and such issuance shall not reduce the number
of shares available for issuance under the Plan. If an outstanding Stock Award
for any reason expires or is terminated or canceled without having been
exercised or settled in full, or if shares of Common Stock acquired pursuant to
a Stock Award subject to forfeiture or repurchase are forfeited or repurchased
by the Company at the Participant’s purchase price to effect a forfeiture of
unvested shares upon termination of Continuous Service, the shares of Common
Stock allocable to the terminated portion of such Stock Award or such forfeited
or repurchased shares of Common Stock shall be added back to the Share Reserve
and again be available for issuance under the Plan. Shares of Common Stock shall
not be deemed to have been issued pursuant to the Plan with respect to any
portion of a Stock Award (other than a Stock Appreciation Right that may be
settled in shares of Common Stock and/or cash) that is settled in cash. Shares
withheld in satisfaction of tax withholding obligations pursuant to Section 8(g)
shall not again become available for issuance under the Plan. Upon exercise of a
Stock Appreciation Right, whether in cash or shares of Common Stock, the number
of shares available for issuance under the Plan shall be reduced by the gross
number of shares for which the Stock Appreciation Right is exercised. If the
exercise price of an Option is paid by “net exercise” (as described in
Section 5(c)(iv)) or tender to the Company, or attestation to the ownership, of
shares of Common Stock 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.

(b)        Additions to the Share Reserve.  The Share Reserve also shall be
increased from time to time by a number of shares equal to the number of shares
of Common Stock that (i) are issuable pursuant to awards outstanding under the
Prior Plan as of the Effective Date and (ii) but for the termination of the
Prior Plan as of the Effective Date, would otherwise have reverted to the share
reserve of the Prior Plan pursuant to the provisions thereof.

(c)        Incentive Stock Option Limit.  Notwithstanding anything to the
contrary in this Section 3(c), subject to the provisions of Section 9(a)
relating to Capitalization Adjustments, the aggregate maximum number of shares
of Common Stock that may be issued pursuant to the exercise of Incentive Stock
Options shall be One Million Five Hundred Twenty-Six Thousand Three Hundred
Sixteen (1,526,316) shares of Common Stock.

(d)        Source of Shares.  The stock issuable under the Plan shall be shares
of authorized but unissued or reacquired Common Stock, including shares
repurchased by the Company on the open market.

 

4. ELIGIBILITY.

(a)        Eligibility for Specific Stock Awards.  Incentive Stock Options may
be granted only to Employees. Stock Awards other than Incentive Stock Options
may be granted to Employees, Directors and Consultants.

 

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(b)        Ten Percent Stockholders.  A Ten Percent Stockholder shall not be
granted an Incentive Stock Option unless the exercise price of such Option is at
least one hundred ten percent (110%) of the Fair Market Value of the Common
Stock on the date of grant and the Option is not exercisable after the
expiration of five (5) years from the date of grant.

(c)        Section 162(m) Limitation.  Subject to the provisions of Section 9(a)
relating to Capitalization Adjustments, at such time as the Company may be
subject to the applicable provisions of Section 162(m) of the Code, no Employee
shall be eligible to be granted during any calendar year Stock Awards whose
value is determined by reference to an increase over an exercise or strike price
of at least one hundred percent (100%) of the Fair Market Value of the Common
Stock on the date the Stock Award is granted covering more than Seven Hundred
Sixty-Three Thousand One Hundred Fifty-Eight (763,158) shares of Common Stock.

(d)        Consultants.  A Consultant shall be eligible for the grant of a Stock
Award only if, at the time of grant, a Form S-8 Registration Statement under the
Securities Act (“Form S-8”) is available to register either the offer or the
sale of the Company’s securities to such Consultant.

 

5. OPTION PROVISIONS.

Each Option shall be in such form and shall contain such terms and conditions as
the Board shall deem appropriate. All Options shall be separately designated
Incentive Stock Options or Nonstatutory Stock Options at the time of grant, and,
if certificates are issued, a separate certificate or certificates shall be
issued for shares of Common Stock purchased on exercise of each type of Option.
If an Option is not specifically designated as an Incentive Stock Option, then
the Option shall be a Nonstatutory Stock Option. The provisions of separate
Options need not be identical; provided, however, that each Option Agreement
shall conform to (through incorporation of provisions hereof by reference in the
Option Agreement or otherwise) the substance of each of the following
provisions:

(a)        Term.  Subject to the provisions of Section 4(b) regarding Ten
Percent Stockholders, no Option shall be exercisable after the expiration of ten
(10) years from the date of its grant or such shorter period specified in the
Option Agreement.

(b)        Exercise Price.  Subject to the provisions of Section 4(b) regarding
Ten Percent Stockholders, the exercise price of each Option shall be not less
than one hundred percent (100%) of the Fair Market Value of the Common Stock
subject to the Option on the date the Option is granted. Notwithstanding the
foregoing, an Option may be granted with an exercise price lower than one
hundred percent (100%) of the Fair Market Value of the Common Stock subject to
the Option if such Option is granted pursuant to an assumption or substitution
for another option in a manner consistent with the provisions of Section 409A
and Section 424(a) of the Code (whether or not such options are Incentive Stock
Options).

(c)        Consideration.  The purchase price of Common Stock acquired pursuant
to the exercise of an Option shall be paid, to the extent permitted by
applicable law and as determined by the Board in its sole discretion, by any
combination of the methods of payment set forth below. The Board shall have the
authority to grant Options that do not permit all of the following methods of
payment (or otherwise restrict the ability to use certain methods) and to grant
Options that require the consent of the Company to utilize a particular method
of payment. The methods of payment permitted by this Section 5(c) are:

(i)        by cash, check, bank draft or money order payable to the Company;

 

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(ii)        pursuant to a program developed under Regulation T as promulgated by
the Federal Reserve Board that, prior to the issuance of the stock subject to
the Option, 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;

(iii)       by delivery to the Company (either by actual delivery or
attestation) of shares of Common Stock;

(iv)       by a “net exercise” arrangement pursuant to which the Company will
reduce the number of shares of Common Stock issuable upon exercise by the
largest whole number of shares with a Fair Market Value that does not exceed the
aggregate exercise price; provided, however, that the Company shall accept a
cash or other payment from the Participant to the extent of any remaining
balance of the aggregate exercise price not satisfied by such reduction in the
number of whole shares to be issued; provided, further, that shares of Common
Stock will no longer be subject to an Option and will not be exercisable
thereafter to the extent that (A) shares issuable upon exercise are reduced to
pay the exercise price pursuant to the “net exercise,” (B) shares are delivered
to the Participant as a result of such exercise, and (C) shares are withheld to
satisfy tax withholding obligations; or

(v)         in any other form of legal consideration that may be acceptable to
the Board in its sole discretion and permissible under applicable law.

(d)        Transferability of Options.  The Board may, in its sole discretion,
impose such limitations on the transferability of Options as the Board shall
determine. In the absence of such a determination by the Board to the contrary,
the following restrictions on the transferability of Options shall apply:

(i)         Restrictions on Transfer.  An Option shall not be transferable
except by will or by the laws of descent and distribution and shall be
exercisable during the lifetime of the Optionholder only by the Optionholder;
provided, however, that the Board may, in its sole discretion, permit transfer
of the Option in a manner that is not prohibited by applicable tax and
securities laws upon the Optionholder’s request.

(ii)        Domestic Relations Orders.  Notwithstanding the foregoing, an Option
may be transferred pursuant to a domestic relations order, provided, however,
that if an Option is an Incentive Stock Option, such Option may be deemed to be
a Nonstatutory Stock Option as a result of such transfer.

(iii)       Beneficiary Designation.  Notwithstanding the foregoing, the
Optionholder may, by delivering written notice to the Company, in a form
provided by or otherwise satisfactory to the Company and any broker designated
by the Company to effect Option exercises, designate a third party who, in the
event of the death of the Optionholder, shall thereafter be entitled to exercise
the Option. In the absence of such a designation, the executor or administrator
of the Optionholder’s estate shall be entitled to exercise the Option.

(e)        Vesting of Options Generally.  The total number of shares of Common
Stock subject to an Option may vest and therefore become exercisable in periodic
installments that may or may not be equal. The Option may be subject to such
other terms and conditions on the time or times when it may or may not be
exercised (which may be based on the satisfaction of Performance Goals or other
criteria) as the Board may deem appropriate. The vesting provisions of
individual Options may vary. The provisions of this Section 5(e) are subject to
any Option provisions governing the minimum number of shares of Common Stock as
to which an Option may be exercised.

 

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(f)        Termination of Continuous Service.  In the event that an
Optionholder’s Continuous Service terminates (other than for Cause or 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 of Continuous Service) but only within such period
of time ending on the earlier of (i) the date three (3) months following the
termination of the Optionholder’s 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 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.

(g)       Extension of Termination Date.  An Optionholder’s Option Agreement may
provide that if the exercise of the Option following the termination of the
Optionholder’s Continuous Service (other than for Cause or upon the
Optionholder’s death or Disability) would be prohibited at any time solely
because the issuance of shares of Common Stock would violate the registration
requirements under the Securities Act, then the Option shall terminate on the
earlier of (i) the expiration of a period of three (3) months after the
termination of the Optionholder’s Continuous Service during which the exercise
of the Option would not be in violation of such registration requirements, or
(ii) the expiration of the term of the Option as set forth in the Option
Agreement. In addition, unless otherwise provided in an Optionholder’s Option
Agreement, if the sale of the Common Stock received upon exercise of an Option
following the termination of the Optionholder’s Continuous Service (other than
for Cause) would violate the Company’s Insider Trading Policy, then the Option
shall terminate on the earlier of (i) the expiration of a period equal to the
post-termination exercise period described in Section 5(f) above or Sections
5(h) or 5(i) below after the termination of the Optionholder’s Continuous
Service during which the exercise of the Option would not be in violation of the
Company’s Insider Trading Policy; or (ii) the expiration of the term of the
Option as set forth in the Option Agreement.

(h)       Disability of Optionholder.  In the event that an Optionholder’s
Continuous Service terminates as a result of the Optionholder’s 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 of Continuous
Service), but only within such period of time ending on the earlier of (i) the
date twelve (12) months following such termination of 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 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.

(i)        Death of Optionholder.  In the event that (i) an Optionholder’s
Continuous Service terminates as a result of the Optionholder’s death, or
(ii) the Optionholder dies within the period (if any) specified in the Option
Agreement after the termination of the Optionholder’s Continuous Service for a
reason other than death, then the Option may be exercised (to the extent the
Optionholder was entitled to exercise such Option as of the date of death) by
the Optionholder’s estate, by a person who acquired the right to exercise the
Option by bequest or inheritance or by a person designated to exercise the
option upon the Optionholder’s death, but only within the period ending on the
earlier of (A) the date twelve (12) months following the date of death (or such
longer or shorter period specified in the Option Agreement), or (B) the
expiration of the term of such Option as set forth in the Option Agreement. If,
after the Optionholder’s death, the Option is not exercised within the time
specified herein or in the Option Agreement (as applicable), the Option shall
terminate.

(j)        Termination for Cause.  Except as explicitly provided otherwise in an
Optionholder’s Option Agreement, in the event that an Optionholder’s Continuous
Service is terminated for Cause, the Option shall terminate upon the termination
date of such Optionholder’s Continuous Service, and the Optionholder shall be
prohibited from exercising his or her Option from and after the time of such
termination of Continuous Service.

 

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(k)        Non-Exempt Employees.  No Option granted to an Employee who is a
non-exempt employee for purposes of the Fair Labor Standards Act shall be first
exercisable for any shares of Common Stock until at least six months following
the date of grant of the Option. The foregoing provision is intended to operate
so that any income derived by a non-exempt employee in connection with the
exercise or vesting of an Option will be exempt from his or her regular rate of
pay.

 

6. PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS.

(a)    Restricted Stock Awards.  Each Restricted Stock Award Agreement shall be
in such form and shall contain such terms and conditions as the Board shall deem
appropriate. To the extent consistent with the Company’s Bylaws, at the Board’s
election, shares of Common Stock may be (x) held in book entry form subject to
the Company’s instructions until any restrictions relating to the Restricted
Stock Award lapse; or (y) evidenced by a certificate, which certificate shall be
held in such form and manner as determined by the Board. The terms and
conditions of Restricted Stock Award Agreements may change from time to time,
and the terms and conditions of separate Restricted Stock Award Agreements need
not be identical, provided, however, that each Restricted Stock Award Agreement
shall conform to (through incorporation of the provisions hereof by reference in
the agreement or otherwise) the substance of each of the following provisions:

(i)        Consideration.  A Restricted Stock Award may be awarded in
consideration for (A) cash, check, bank draft or money order payable to the
Company; (B) past or future services actually or to be rendered to the Company
or an Affiliate; or (C) any other form of legal consideration that may be
acceptable to the Board in its sole discretion and permissible under applicable
law.

(ii)       Vesting.  Shares of Common Stock awarded under a Restricted Stock
Award Agreement may be subject to forfeiture to the Company in accordance with a
vesting schedule to be determined by the Board.

(iii)      Termination of Participant’s Continuous Service.  In the event a
Participant’s Continuous Service terminates, the Company may receive via a
forfeiture condition or a repurchase right, any or all of the shares of Common
Stock held by the Participant which have not vested as of the date of
termination of Continuous Service under the terms of the Restricted Stock Award
Agreement.

(iv)       Transferability.  Rights to acquire shares of Common Stock under the
Restricted Stock Award Agreement shall be transferable by the Participant only
upon such terms and conditions as are set forth in the Restricted Stock Award
Agreement, as the Board shall determine in its sole discretion, so long as
Common Stock awarded under the Restricted Stock Award Agreement remains subject
to the terms of the Restricted Stock Award Agreement.

(b)        Restricted Stock Unit Awards.  Each Restricted Stock Unit Award
Agreement shall be in such form and shall contain such terms and conditions as
the Board shall deem appropriate. The terms and conditions of Restricted Stock
Unit Award Agreements may change from time to time, and the terms and conditions
of separate Restricted Stock Unit Award Agreements need not be identical,
provided, however, that each Restricted Stock Unit Award Agreement shall conform
to (through incorporation of the provisions hereof by reference in the agreement
or otherwise) the substance of each of the following provisions:

(i)        Consideration.  At the time of grant of a Restricted Stock Unit
Award, the Board will determine the consideration, if any, to be paid by the
Participant upon delivery of each share of Common Stock subject to the
Restricted Stock Unit Award. The consideration to be paid (if any) by the
Participant for each share of Common Stock subject to a Restricted Stock Unit
Award may be paid in any form of legal consideration that may be acceptable to
the Board in its sole discretion and permissible under applicable law.

 

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(ii)        Vesting.  At the time of the grant of a Restricted Stock Unit Award,
the Board may impose such restrictions or conditions to the vesting of the
Restricted Stock Unit Award as it, in its sole discretion, deems appropriate.

(iii)       Payment.  A Restricted Stock Unit Award may be settled by the
delivery of shares of Common Stock, their cash equivalent, any combination
thereof or in any other form of consideration, as determined by the Board and
contained in the Restricted Stock Unit Award Agreement.

(iv)        Additional Restrictions.  At the time of the grant of a Restricted
Stock Unit Award, the Board, as it deems appropriate, may impose such
restrictions or conditions that delay the delivery of the shares of Common Stock
(or their cash equivalent) subject to a Restricted Stock Unit Award to a time
after the vesting of such Restricted Stock Unit Award.

(v)         Dividend Equivalents.  Dividend equivalents may be credited in
respect of shares of Common Stock covered by a Restricted Stock Unit Award, as
determined by the Board and contained in the Restricted Stock Unit Award
Agreement. At the sole discretion of the Board, such dividend equivalents may be
converted into additional shares of Common Stock covered by the Restricted Stock
Unit Award in such manner as determined by the Board. Any additional shares
covered by the Restricted Stock Unit Award credited by reason of such dividend
equivalents will be subject to all the terms and conditions of the underlying
Restricted Stock Unit Award Agreement to which they relate.

(vi)        Termination of Participant’s Continuous Service.  Except as
otherwise provided in the applicable Restricted Stock Unit Award Agreement, such
portion of the Restricted Stock Unit Award that has not vested will be forfeited
upon the Participant’s termination of Continuous Service.

(vii)      Compliance with Section 409A of the Code.  Notwithstanding anything
to the contrary set forth herein, any Restricted Stock Unit Award granted under
the Plan that is not exempt from the requirements of Section 409A of the Code
shall incorporate terms and conditions necessary to avoid the consequences of
Section 409A(a)(1) of the Code. Such restrictions, if any, shall be determined
by the Board and contained in the Restricted Stock Unit Award Agreement
evidencing such Restricted Stock Unit Award.

(c)         Stock Appreciation Rights.  Each Stock Appreciation Right Agreement
shall be in such form and shall contain such terms and conditions as the Board
shall deem appropriate. Stock Appreciation Rights may be granted as stand-alone
Stock Awards or in tandem with other Stock Awards. The terms and conditions of
Stock Appreciation Right Agreements may change from time to time, and the terms
and conditions of separate Stock Appreciation Right Agreements need not be
identical; provided, however, that each Stock Appreciation Right Agreement shall
conform to (through incorporation of the provisions hereof by reference in the
agreement or otherwise) the substance of each of the following provisions:

(i)         Term.  No Stock Appreciation Right shall be exercisable after the
expiration of ten (10) years from the date of its grant or such shorter period
specified in the Stock Appreciation Right Agreement.

 

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(ii)       Strike Price.  Each Stock Appreciation Right will be denominated in
shares of Common Stock equivalents. The strike price of each Stock Appreciation
Right shall not be less than one hundred percent (100%) of the Fair Market Value
of the Common Stock equivalents subject to the Stock Appreciation Right on the
date of grant.

(iii)      Calculation of Appreciation.  The appreciation distribution payable
on the exercise of a Stock Appreciation Right will be not greater than an amount
equal to the excess of (A) the aggregate Fair Market Value (on the date of the
exercise of the Stock Appreciation Right) of a number of shares of Common Stock
equal to the number of shares of Common Stock equivalents in which the
Participant is vested under such Stock Appreciation Right, and with respect to
which the Participant is exercising the Stock Appreciation Right on such date,
over (B) the strike price.

(iv)       Vesting.  At the time of the grant of a Stock Appreciation Right, the
Board may impose such restrictions or conditions to the vesting of such Stock
Appreciation Right as it, in its sole discretion, deems appropriate.

(v)        Exercise.  To exercise any outstanding Stock Appreciation Right, the
Participant must provide written notice of exercise to the Company in compliance
with the provisions of the Stock Appreciation Right Agreement evidencing such
Stock Appreciation Right.

(vi)       Payment.  The appreciation distribution in respect of a Stock
Appreciation Right may be paid in Common Stock, in cash, in any combination of
the two or in any other form of consideration, as determined by the Board and
set forth in the Stock Appreciation Right Agreement evidencing such Stock
Appreciation Right.

(vii)     Termination of Continuous Service.  In the event that a Participant’s
Continuous Service terminates (other than for Cause), the Participant may
exercise his or her Stock Appreciation Right (to the extent that the Participant
was entitled to exercise such Stock Appreciation Right as of the date of
termination of Continuous Service) but only within such period of time ending on
the earlier of (A) the date three (3) months following the termination of the
Participant’s Continuous Service (or such longer or shorter period specified in
the Stock Appreciation Right Agreement), or (B) the expiration of the term of
the Stock Appreciation Right as set forth in the Stock Appreciation Right
Agreement. If, after termination of Continuous Service, the Participant does not
exercise his or her Stock Appreciation Right within the time specified herein or
in the Stock Appreciation Right Agreement (as applicable), the Stock
Appreciation Right shall terminate.

(viii)     Termination for Cause.  Except as explicitly provided otherwise in an
Participant’s Stock Appreciation Right Agreement, in the event that a
Participant’s Continuous Service is terminated for Cause, the Stock Appreciation
Right shall terminate upon the termination date of such Participant’s Continuous
Service, and the Participant shall be prohibited from exercising his or her
Stock Appreciation Right from and after the time of such termination of
Continuous Service.

(ix)       Compliance with Section 409A of the Code.  Notwithstanding anything
to the contrary set forth herein, any Stock Appreciation Rights granted under
the Plan that are not exempt from the requirements of Section 409A of the Code
shall incorporate terms and conditions necessary to avoid the consequences
described in Section 409A(a)(1) of the Code. Such restrictions, if any, shall be
determined by the Board and contained in the Stock Appreciation Right Agreement
evidencing such Stock Appreciation Right.

 

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(d)        Performance Stock Awards.  A Performance Stock Award is either a
Restricted Stock Award or Restricted Stock Unit Award that may be granted or may
vest based upon the attainment during a Performance Period of certain
Performance Goals. A Performance Stock Award may, but need not, require the
completion of a specified period of Continuous Service. The length of any
Performance Period, the Performance Goals to be achieved during the Performance
Period, and the measure of whether and to what degree such Performance Goals
have been attained shall be conclusively determined by the Committee in its sole
discretion. Subject to the provisions of Section 9(a) relating to Capitalization
Adjustments, the maximum number of shares that may be granted to any Participant
in a calendar year attributable to Performance Stock Awards described in this
Section 6(d)(i) shall not exceed Seven Hundred Sixty-Three Thousand One Hundred
Fifty-Eight (763,158) shares of Common Stock. In addition, to the extent
permitted by applicable law and the applicable Stock Award Agreement, the Board
may determine that cash may be used in payment of Performance Stock Awards.

(e)        Other Stock Awards.  Other forms of Stock Awards valued in whole or
in part by reference to, or otherwise based on, Common Stock may be granted
either alone or in addition to Stock Awards provided for under Section 5 and the
preceding provisions of this Section 6. Subject to the provisions of the Plan,
the Board shall have sole and complete authority to determine the persons to
whom and the time or times at which such Other Stock Awards will be granted, the
number of shares of Common Stock (or the cash equivalent thereof) to be granted
pursuant to such Other Stock Awards and all other terms and conditions of such
Other Stock Awards.

 

7. COVENANTS OF THE COMPANY.

(a)        Availability of Shares.  During the terms of the Stock Awards, the
Company shall keep available at all times the number of shares of Common Stock
required to satisfy such Stock Awards.

(b)        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 Stock Awards and to issue and sell shares
of Common Stock upon exercise of the Stock Awards; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
the Plan, any Stock Award or any Common Stock issued or issuable pursuant to any
such Stock Award. If, after reasonable efforts, the Company is unable to obtain
from any such regulatory commission or agency the authority that 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 Stock Awards unless and until such
authority is obtained.

(c)        No Obligation to Notify.  The Company shall have no duty or
obligation to any holder of a Stock Award to advise such holder as to the time
or manner of exercising such Stock Award. Furthermore, the Company shall have no
duty or obligation to warn or otherwise advise such holder of a pending
termination or expiration of a Stock Award or a possible period in which the
Stock Award may not be exercised. The Company has no duty or obligation to
minimize the tax consequences of a Stock Award to the holder of such Stock
Award.

 

8. MISCELLANEOUS.

(a)        Use of Proceeds.  Proceeds from the sale of shares of Common Stock
pursuant to Stock Awards shall constitute general funds of the Company.

(b)        Corporate Action Constituting Grant of Stock Awards.  Corporate
action constituting a grant by the Company of a Stock Award to any Participant
shall be deemed completed as of the date of such corporate action, unless
otherwise determined by the Board, regardless of when the instrument,
certificate, or letter evidencing the Stock Award is communicated to, or
actually received or accepted by, the Participant.

 

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(c)        Stockholder Rights.  No Participant 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 Stock Award unless and until (i) such Participant
has satisfied all requirements for exercise of the Stock Award pursuant to its
terms, and (ii) the issuance of the Common Stock pursuant to such exercise has
been entered into the books and records of the Company.

(d)        No Employment or Other Service Rights.  Nothing in the Plan, any
Stock Award Agreement or other instrument executed thereunder or in connection
with any Stock Award granted pursuant to the Plan shall confer upon any
Participant any right to continue to serve the Company or an Affiliate in the
capacity in effect at the time the Stock Award was granted 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.

(e)        Incentive Stock Option $100,000 Limitation.  To the extent that the
aggregate Fair Market Value (determined at the time of grant) of Common Stock
with respect to which Incentive Stock Options are exercisable for the first time
by any Optionholder during any calendar year (under all plans of the Company and
any Affiliates) exceeds one hundred thousand dollars ($100,000), the Options or
portions thereof that exceed such limit (according to the order in which they
were granted) shall be treated as Nonstatutory Stock Options, notwithstanding
any contrary provision of the applicable Option Agreement(s).

(f)         Investment Assurances.  The Company may require a Participant, as a
condition of exercising or acquiring Common Stock under any Stock Award, (i) to
give written assurances satisfactory to the Company as to the Participant’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 Stock Award; and (ii) to
give written assurances satisfactory to the Company stating that the Participant
is acquiring Common Stock subject to the Stock Award for the Participant’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 (x) the issuance of the shares
upon the exercise or acquisition of Common Stock under the Stock Award has been
registered under a then currently effective registration statement under the
Securities Act, or (y) 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.

(g)        Withholding Obligations.  Unless prohibited by the terms of a Stock
Award Agreement, the Company may, in its sole discretion, satisfy any federal,
state or local tax withholding obligation relating to a Stock Award by any of
the following means (in addition to the Company’s right to withhold from any
compensation paid to the Participant by the Company) or by a combination of such
means: (i) causing the Participant to tender a cash payment; (ii) withholding
shares of Common Stock from the shares of Common Stock issued or otherwise
issuable to the Participant in connection with the Stock

 

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Award; provided, however, that no shares of Common Stock are withheld with a
value exceeding the minimum amount of tax required to be withheld by law (or
such lower amount as may be necessary to avoid classification of the Stock Award
as a liability for financial accounting purposes); (iii) withholding cash from a
Stock Award settled in cash; (iv) withholding payment from any amounts otherwise
payable to the Participant; or (v) by such other method as may be set forth in
the Stock Award Agreement.

(h)        Electronic Delivery.  Any reference herein to a “written” agreement
or document shall include any agreement or document delivered electronically or
posted on the Company’s intranet.

(i)         Deferrals.  To the extent permitted by applicable law, the Board, in
its sole discretion, may determine that the delivery of Common Stock or the
payment of cash, upon the exercise, vesting or settlement of all or a portion of
any Stock Award may be deferred and may establish programs and procedures for
deferral elections to be made by Participants. Deferrals by Participants will be
made in accordance with Section 409A of the Code. Consistent with Section 409A
of the Code, the Board may provide for distributions while a Participant is
still an employee. The Board is authorized to make deferrals of Stock Awards and
determine when, and in what annual percentages, Participants may receive
payments, including lump sum payments, following the Participant’s termination
of employment or retirement, and implement such other terms and conditions
consistent with the provisions of the Plan and in accordance with applicable
law.

(j)         Compliance with Section 409A.  To the extent that the Board
determines that any Stock Award granted under the Plan is subject to
Section 409A of the Code, the Stock Award Agreement evidencing such Stock Award
shall incorporate the terms and conditions necessary to avoid the consequences
described in Section 409A(a)(1) of the Code. To the extent applicable, the Plan
and Stock Award Agreements shall be interpreted in accordance with Section 409A
of the Code and Department of Treasury regulations and other interpretive
guidance issued thereunder, including without limitation any such regulations or
other guidance that may be issued or amended after the Effective Date.
Notwithstanding any provision of the Plan to the contrary, in the event that
following the Effective Date the Board determines that any Stock Award may be
subject to Section 409A of the Code and related Department of Treasury guidance
(including such Department of Treasury guidance as may be issued after the
Effective Date), the Board may adopt such amendments to the Plan and the
applicable Stock Award Agreement or adopt other policies and procedures
(including amendments, policies and procedures with retroactive effect), or take
any other actions, that the Board determines are necessary or appropriate to
(1) exempt the Stock Award from Section 409A of the Code and/or preserve the
intended tax treatment of the benefits provided with respect to the Stock Award,
or (2) comply with the requirements of Section 409A of the Code and related
Department of Treasury guidance.

 

9. ADJUSTMENTS UPON CHANGES IN COMMON STOCK; OTHER CORPORATE EVENTS.

(a)        Capitalization Adjustments.  In the event of a Capitalization
Adjustment, the Board shall appropriately and proportionately adjust: (i) the
class(es) and maximum number of securities subject to the Plan pursuant to
Section 3(a); (ii) the class(es) and maximum number of securities that may be
issued pursuant to the exercise of Incentive Stock Options pursuant to
Section 3(d); (iii) the class(es) and maximum number of securities that may be
awarded to any person pursuant to Section 4(c) and 6(d); and (iv) the class(es)
and number of securities and price per share of stock subject to outstanding
Stock Awards. The Board shall make such adjustments, and its determination shall
be final, binding and conclusive.

(b)        Dissolution or Liquidation.  Except as otherwise provided in a Stock
Award Agreement, in the event of a dissolution or liquidation of the Company,
all outstanding Stock Awards (other than

 

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Stock Awards consisting of vested and outstanding shares of Common Stock not
subject to a forfeiture condition or the Company’s right of repurchase) shall
terminate immediately prior to the completion of such dissolution or
liquidation, and the shares of Common Stock subject to the Company’s repurchase
rights may be repurchased by the Company notwithstanding the fact that the
holder of such Stock Award is providing Continuous Service, provided, however,
that the Board may, in its sole discretion, cause some or all Stock Awards to
become fully vested, exercisable and/or no longer subject to repurchase or
forfeiture (to the extent such Stock Awards have not previously expired or
terminated) before the dissolution or liquidation is completed but contingent on
its completion.

(c)         Corporate Transaction.  The following provisions shall apply to
Stock Awards in the event of a Corporate Transaction unless otherwise provided
in the instrument evidencing the Stock Award or any other written agreement
between the Company or any Affiliate and the holder of the Stock Award.

(i)        Stock Awards May Be Assumed.  Except as otherwise stated in the Stock
Award Agreement, in the event of a Corporate Transaction, any surviving
corporation or acquiring corporation (or the surviving or acquiring
corporation’s parent company) may assume or continue any or all Stock Awards
outstanding under the Plan or may substitute similar stock awards for Stock
Awards outstanding under the Plan (including but not limited to, awards to
acquire the same consideration paid to the stockholders of the Company pursuant
to the Corporate Transaction), and any reacquisition or repurchase rights held
by the Company in respect of Common Stock issued pursuant to Stock Awards may be
assigned by the Company to the successor of the Company (or the successor’s
parent company, if any), in connection with such Corporate Transaction. A
surviving corporation or acquiring corporation (or its parent) may choose to
assume or continue only a portion of a Stock Award or substitute a similar stock
award for only a portion of a Stock Award. The terms of any assumption,
continuation or substitution shall be set by the Board in accordance with the
provisions of Section 2 hereof. Notwithstanding the foregoing, if such Stock
Awards are so assumed, continued or substituted as set forth above, in the event
of a termination of a grantee’s employment or consulting relationship by the
Company or its successor other than for Cause in connection with the Corporate
Transaction or within one year after the effective time of the Corporate
Transaction, then the greater of (i) fifty percent (50%) of the shares subject
to such grantee’s Stock Awards which remain unvested at the effective time of
such Corporate Transaction and (ii) the shares subject to such grantee’s Stock
Awards which remain unvested at the effective time of such Corporate Transaction
which are scheduled to otherwise vest over the twelve (12) month period after
the effective time of such Corporate Transaction shall vest on the date of such
termination and become immediately exercisable, any reacquisition rights or
repurchase rights held by the Company with respect to the Stock Awards shall
lapse and any of such grantee’s additional remaining unvested Stock Awards that
remain outstanding after the effective time of such Corporate Transaction shall
be deemed to vest ratably over the remaining scheduled vesting period, subject
to all other terms of the Plan and the applicable Stock Award Agreement.

(ii)        Stock Awards Held by Current Participants.  Except as otherwise
stated in the Stock Award Agreement, in the event of a Corporate Transaction in
which the surviving corporation or acquiring corporation (or its parent company)
does not assume or continue such outstanding Stock Awards or substitute similar
stock awards for such outstanding Stock Awards in accordance with subsection
(i) above, then with respect to Stock Awards that have not been assumed,
continued or substituted and that are held by Participants whose Continuous
Service has not terminated (except for such purposes, a termination in
connection with a Corporate Transaction) prior to the effective time of the
Corporate Transaction (referred to as the “Current Participants”), the vesting
of such Stock Awards (and, with

 

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respect to Options and Stock Appreciation Rights, the time at which such Stock
Awards may be exercised) shall (contingent upon the effectiveness of the
Corporate Transaction), unless otherwise provided by the Board, in its sole
discretion, 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 Stock Awards shall terminate if not
exercised (if applicable) at or prior to the effective time of the Corporate
Transaction, and any reacquisition or repurchase rights held by the Company with
respect to such Stock Awards shall lapse (contingent upon the effectiveness of
the Corporate Transaction). Notwithstanding the foregoing, if the Board
determines in its sole discretion not to vest in full the unvested Stock Awards
at the effective time of the Corporate Transaction and a grantee is terminated
other than for Cause at the effective time of the Corporate Transaction or in
connection with the Corporate Transaction, then, taking into account for such
purpose any partial vesting of unvested Stock Awards provided by the Board, and
subject to the effectiveness of the Corporate Transaction, a minimum of
(i) fifty percent (50%) of the shares subject to such grantee’s Stock Awards
which remain unvested at the effective time of such Corporate Transaction and
(ii) the shares subject to such grantee’s Stock Awards which remain unvested at
the effective time of such Corporate Transaction and are scheduled to otherwise
vest over the twelve (12) month period after the effective time of such
Corporate Transaction shall vest and become immediately exercisable as of 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 such Corporate Transaction), any
reacquisition rights or repurchase rights held by the Company with respect to
the Stock Awards shall lapse, and such Stock Awards not exercised at the
effective time of such Corporate Transaction shall terminate, subject to all
other terms of the Plan and the applicable Stock Award Agreement.

(iii)       Stock Awards Held by Persons other than Current
Participants.  Except as otherwise stated in the Stock Award Agreement, in the
event of a Corporate Transaction in which the surviving corporation or acquiring
corporation (or its parent company) does not assume or continue such outstanding
Stock Awards or substitute similar stock awards for such outstanding Stock
Awards in accordance with subsections (i) or (ii) above, respectively, then with
respect to Stock Awards that have not been assumed, continued or substituted and
that are held by persons other than Current Participants, the vesting of such
Stock Awards (and, if applicable, the time at which such Stock Award may be
exercised) shall not be accelerated and such Stock Awards (other than a Stock
Award consisting of vested and outstanding shares of Common Stock not subject to
a forfeiture condition or the Company’s right of repurchase) shall terminate if
not exercised (if applicable) prior to the effective time of the Corporate
Transaction; provided, however, that any reacquisition or repurchase rights held
by the Company with respect to such Stock Awards shall not terminate and may
continue to be exercised notwithstanding the Corporate Transaction.

(iv)       Payment for Stock Awards in Lieu of Exercise.  Notwithstanding the
foregoing, in the event a Stock Award will terminate if not exercised prior to
the effective time of a Corporate Transaction, the Board may provide, in its
sole discretion, that the holder of such Stock Award may not exercise such Stock
Award but will receive a payment, in such form as may be determined by the
Board, equal in value to the excess, if any, of (A) the value of the property
the holder of the Stock Award would have received upon the exercise of the Stock
Award (including, at the discretion of the Board, any unvested portion of such
Stock Award), over (B) any exercise price payable by such holder in connection
with such exercise.

 

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(d)        Change in Control.  A Stock Award may be subject to additional
acceleration of vesting and exercisability upon or after a Change in Control as
may be provided in the Stock Award Agreement for such Stock Award or as may be
provided in any other written agreement between the Company or any Affiliate and
the Participant. A Stock Award may vest as to all or any portion of the shares
subject to the Stock Award (i) immediately upon the occurrence of a Change in
Control, whether or not such Stock Award is assumed, continued, or substituted
by a surviving or acquiring entity in the Change in Control, or (ii) in the
event a Participant’s Continuous Service is terminated, actually or
constructively, within a designated period before or after the occurrence of a
Change in Control. In the absence of such provisions, no such acceleration shall
occur.

 

10. TERMINATION OR SUSPENSION OF THE PLAN.

(a)        Plan Term.  The Board may suspend or terminate the Plan at any time.
Unless terminated sooner, the Plan shall terminate on the day before the tenth
(10th) anniversary of the earlier of (i) the date the Plan is adopted by the
Board, or (ii) the date the Plan is approved by the stockholders of the Company.
No Stock Awards 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 Stock Award granted while the Plan
is in effect except with the written consent of the affected Participant.

 

11. CHOICE OF LAW.

The law of the State of Delaware shall govern all questions concerning the
construction, validity and interpretation of this Plan, without regard to that
state’s conflict of laws rules.

 

12. DEFINITIONS.

As used in the Plan, the following definitions shall apply to the capitalized
terms indicated below:

(a)     “Affiliate” means, at the time of determination, any “parent” or
“subsidiary” of the Company 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)     “Board” means the Board of Directors of the Company.

(c)     “Capitalization Adjustment” means any change that is made in, or other
events that occur with respect to, the Common Stock subject to the Plan or
subject to any Stock Award after the Effective Date 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). Notwithstanding the foregoing, the
conversion of any convertible securities of the Company shall not be treated as
a transaction “without the receipt of consideration” by the Company.

(d)     “Cause” means with respect to a Participant, the occurrence of any of
the following events: (i) such Participant’s conviction of, or a plea of nolo
contendere to, a felony; (ii) such Participant’s theft or embezzlement, or
attempted theft or embezzlement, of money or property or assets of the Company;
(iii) such Participant’s violation of the Company’s drug policy; or (iv) such
Participant’s intentional and willful engagement in misconduct which is
materially injurious to the Company.

 

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(e)    “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, 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, except for a liquidation into
a parent corporation;

(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 relative to each other 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 the 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 the Plan, be
considered as a member of the Incumbent Board.

 

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For avoidance of doubt, 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.

Notwithstanding the foregoing or any other provision of the 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;
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.

The Board may, in its sole discretion and without a Participant’s consent, amend
the definition of “Change in Control” to conform to the definition of “Change in
Control” under Section 409A of the Code, and the regulations thereunder.

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

(g)       “Committee” means a committee of one (1) or more Directors to whom
authority has been delegated by the Board in accordance with Section 2(c).

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

(i)        “Company” means Cempra, Inc., a Delaware corporation.

(j)        “Consultant” means any person, including an advisor, who is
(i) engaged by the Company or an Affiliate to render consulting or advisory
services and is compensated for such services, or (ii) 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 service,
shall not cause a Director to be considered a “Consultant” for purposes of the
Plan.

(k)       “Continuous Service” means that the Participant’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 Participant
renders service to the Company or an Affiliate as an Employee, Consultant or
Director or a change in the entity for which the Participant renders such
service, provided that there is no interruption or termination of the
Participant’s service with the Company or an Affiliate, shall not terminate a
Participant’s Continuous Service; provided, however, if the Entity for which a
Participant is rendering services ceases to qualify as an “Affiliate,” as
determined by the Board in its sole discretion, such Participant’s Continuous
Service shall be considered to have terminated on the date such Entity ceases to
qualify as an Affiliate. 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:
(i) any leave of absence approved by the Board or the chief executive officer of
the Company, including sick leave, military leave or any other personal leave;
or (ii) transfers between the Company, an Affiliate, or their successors.
Notwithstanding the foregoing, a leave of absence shall be treated as Continuous
Service for purposes of vesting in a Stock Award 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 Participant, or as
otherwise required by law.

(l)        “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;

 

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(ii)   a sale or other disposition of at least ninety percent (90%) of the
outstanding securities of the Company;

(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.

(m)       “Covered Employee” shall have the meaning provided in
Section 162(m)(3) of the Code.

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

(o)        “Disability” means, with respect to a Participant, the inability of
such Participant to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which can be expected to
result in death or can be expected to last for a continuous period of not less
than 12 months, as provided in Section 22(e)(3) and 409A(a)(2)(c)(i) of the
Code.

(p)        “Effective Date” means the date the Plan is approved by the
stockholders of the Company, as set forth in Section 1(a) hereof.

(q)        “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.

(r)        “Entity” means a corporation, partnership, limited liability company
or other entity.

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

(t)         “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, 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.

(u)        “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 Global Select Market or the Nasdaq Global Market, the Fair Market
Value of a share of Common Stock shall be the closing sales price for such stock
as quoted on such exchange (or the exchange or market with the greatest volume
of trading in the Common Stock) on the date of determination, as reported in The
Wall Street Journal or such other source as the Board deems reliable.

 

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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 and in a manner that
complies with Section 409A of the Code.

(v)        “Incentive Stock Option” means an Option which qualifies as an
“incentive stock option” within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.

(w)       “Non-Employee Director” means a Director who either (i) is not a
current employee or officer of the Company or an Affiliate, does not receive
compensation, either directly or indirectly, from the Company or an Affiliate
for services rendered as a consultant or in any capacity other than as a
Director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act
(“Regulation S-K”)), does not possess an interest in any other transaction for
which disclosure would be required under Item 404(a) of Regulation S-K, and is
not engaged in a business relationship for which disclosure would be required
pursuant to Item 404(b) of Regulation S-K; or (ii) is otherwise considered a
“non-employee director” for purposes of Rule 16b-3.

(x)        “Nonstatutory Stock Option” means an Option that does not qualify as
an Incentive Stock Option.

(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 an Incentive Stock Option or a Nonstatutory Stock
Option to purchase shares of Common Stock 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 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)      “Other Stock Award” means an award based in whole or in part by
reference to the Common Stock which is granted pursuant to the terms and
conditions of Section 6(e).

(dd)     “Outside Director” means a Director who either (i) is not a current
employee of the Company or an “affiliated corporation” (within the meaning of
Treasury Regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an “affiliated corporation” who receives
compensation for prior services (other than benefits under a tax-qualified
retirement plan) during the taxable year, has not been an officer of the Company
or an “affiliated corporation,” and does not receive remuneration from the
Company or an “affiliated corporation,” either directly or indirectly, in any
capacity other than as a Director, or (ii) is otherwise considered an “outside
director” for purposes of Section 162(m) of the Code.

(ee)      “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.

 

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(ff)       “Participant” means a person to whom a Stock Award is granted
pursuant to the Plan or, if applicable, such other person who holds an
outstanding Stock Award.

(gg)     “Performance Criteria” means the one or more criteria that the Board
shall select for purposes of establishing the Performance Goals for a
Performance Period. The Performance Criteria that shall be used to establish
such Performance Goals may be based on any one of, or combination of, the
following: (i) earnings per share; (ii) earnings before interest, taxes and
depreciation; (iii) earnings before interest, taxes, depreciation and
amortization (EBITDA); (iv) total stockholder return; (v) return on equity;
(vi) return on assets, investment, or capital employed; (vii) operating margin;
(viii) gross margin; (ix) operating income; (x) net income (before or after
taxes); (xi) net operating income; (xii) net operating income after tax;
(xiii) pre- and after-tax income; (xiv) pre-tax profit; (xv) operating cash
flow; (xvi) sales or revenue targets; (xvii) orders and revenue;
(xviii) increases in revenue or product revenue; (xix) expenses and cost
reduction goals; (xx) improvement in or attainment of expense levels;
(xxi) improvement in or attainment of working capital levels; (xxii) economic
value added (or an equivalent metric); (xxiii) market share; (xxiv) cash flow;
(xxv) cash flow per share; (xxvi) share price performance; (xxvii) debt
reduction; (xxviii) implementation or completion of projects or processes;
(xxix) achievement of product development or commercialization milestones;
(xxx) stockholders’ equity; (xxxi) quality measures; and (xxxii) to the extent
that a Stock Award is not intended to comply with Section 162(m) of the Code,
other measures of performance selected by the Board. Partial achievement of the
specified criteria may result in the payment or vesting corresponding to the
degree of achievement as specified in the Stock Award Agreement. The Board
shall, in its sole discretion, define the manner of calculating the Performance
Criteria it selects to use for such Performance Period.

(hh)     “Performance Goals” means, for a Performance Period, the one or more
goals established by the Board for the Performance Period based upon the
satisfaction of the Performance Criteria. Performance Goals may be based on a
Company-wide basis, with respect to one or more business units, divisions,
Affiliates, or business segments, and in either absolute terms or relative to
the performance of one or more comparable companies or the performance of one or
more relevant indices. At the time of the grant of any Stock Awards, the Board
is authorized to determine whether, when calculating the attainment of
Performance Goals for a Performance Period: (i) to exclude restructuring and/or
other nonrecurring charges; (ii) to exclude exchange rate effects, as
applicable, for non-U.S. dollar denominated net sales and operating earnings;
(iii) to exclude the effects of changes to generally accepted accounting
standards required by the Financial Accounting Standards Board; (iv) to exclude
the effects of any statutory adjustments to corporate tax rates; and (v) to
exclude the effects of any “extraordinary items” as determined under generally
accepted accounting principles. In addition, the Board retains the discretion to
reduce or eliminate the compensation or economic benefit due upon attainment of
Performance Goals.

(ii)       “Performance Period” means one or more periods of time, which may be
of varying and overlapping duration, as the Committee may select, over which the
attainment of one or more Performance Goals will be measured for the purpose of
determining a Participant’s right to and the payment of a Performance Stock
Award.

(jj)       “Performance Stock Award” means an award of shares of Common Stock
which is granted pursuant to the terms and conditions of Section 6(d).

(kk)     “Plan” means this Cempra, Inc. 2011 Equity Incentive Plan.

 

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(ll)       “Prior Plan” means the Company’s 2004 Stock Plan, as in effect
immediately prior to the Effective Date.

(mm)   “Restricted Stock Award” means an award of shares of Common Stock which
is granted pursuant to the terms and conditions of Section 6(a).

(nn)     “Restricted Stock Award Agreement” means a written agreement between
the Company and a holder of a Restricted Stock Award evidencing the terms and
conditions of a Restricted Stock Award grant. Each Restricted Stock Award
Agreement shall be subject to the terms and conditions of the Plan.

(oo)      “Restricted Stock Unit Award” means a right to receive shares of
Common Stock which is granted pursuant to the terms and conditions of
Section 6(b).

(pp)     “Restricted Stock Unit Award Agreement” means a written agreement
between the Company and a holder of a Restricted Stock Unit Award evidencing the
terms and conditions of a Restricted Stock Unit Award grant. Each Restricted
Stock Unit Award Agreement shall be subject to the terms and conditions of the
Plan.

(qq)     “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.

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

(ss)       “Stock Appreciation Right” means a right to receive the appreciation
on Common Stock that is granted pursuant to the terms and conditions of
Section 6(c).

(tt)       “Stock Appreciation Right Agreement” means a written agreement
between the Company and a holder of a Stock Appreciation Right evidencing the
terms and conditions of a Stock Appreciation Right grant. Each Stock
Appreciation Right Agreement shall be subject to the terms and conditions of the
Plan.

(uu)     “Stock Award” means any Option, Restricted Stock Award, Restricted
Stock Unit Award, Stock Appreciation Right, Performance Stock Award, or any
Other Stock Award granted under the Plan.

(vv)      “Stock Award Agreement” means a written agreement between the Company
and a Participant evidencing the terms and conditions of a Stock Award grant.
Each Stock Award Agreement shall be subject to the terms and conditions of the
Plan.

(ww)    “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, limited liability company or other
entity in which the Company has a direct or indirect interest (whether in the
form of voting or participation in profits or capital contribution) of more than
fifty percent (50%).

(xx)      “Ten Percent Stockholder” means a person who Owns (or is deemed to Own
pursuant to Section 424(d) of the Code) stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or any Affiliate.

 

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