Exhibit 10.3

 

ANACOR PHARMACEUTICALS, INC.

 

2010 EQUITY INCENTIVE PLAN

 

ADOPTED BY THE BOARD OF DIRECTORS: NOVEMBER 9, 2010

APPROVED BY THE STOCKHOLDERS: NOVEMBER 9, 2010

AMENDED BY THE BOARD OF DIRECTORS: MARCH 31, 2011

APPROVED BY THE STOCKHOLDERS: MAY 25, 2011

TERMINATION DATE: NOVEMBER 8, 2020

 

1.                                      GENERAL.

 

(a)                                  Successor to and Continuation of Prior
Plan.  The Plan is intended as the successor to and continuation of the Anacor
Pharmaceuticals, Inc. 2001 Equity Incentive 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 issuance or settlement of stock awards under the Prior Plan as of the
Effective Date (the “Prior Plan’s Available Reserve”) shall become available for
issuance pursuant to Stock Awards granted hereunder.  From and after the
Effective Date, all outstanding stock awards granted under the Prior Plan shall
remain subject to the terms of the Prior Plan; provided, however, any shares
subject to outstanding stock awards granted under the Prior Plan that expire or
terminate for any reason prior to exercise or settlement or are forfeited
because of the failure to meet a contingency or condition required to vest such
shares (the “Returning Shares”) shall become available for issuance pursuant to
Awards granted hereunder.  All Awards granted on or after the Effective Date of
this Plan shall be subject to the terms of this Plan.

 

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

 

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

 

(d)                                  Purpose.  The Company, by means of the
Plan, seeks to secure and retain the services of the group of persons eligible
to receive Awards as set forth in Section 1(b), to provide incentives for such
persons to exert maximum efforts for the success of the Company and any
Affiliate and to provide a means by which such eligible recipients may be given
an opportunity to benefit from increases in value of the Common Stock through
the granting of Awards.

 

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).

 

1

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

 

(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 Awards; (B) when and how
each Award shall be granted; (C) what type or combination of types of Award
shall be granted; (D) the provisions of each 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; (E) the number of shares
of Common Stock with respect to which a Stock Award shall be granted to each
such person; and (F) the Fair Market Value applicable to a Stock Award.

 

(ii)                                To construe and interpret the Plan and
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 or in the written terms of a Performance Cash Award, in a manner
and to the extent it shall deem necessary or expedient to make the Plan or Award
fully effective.

 

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

 

(iv)                               To accelerate the time at which an Award may
first be exercised or the time during which an Award or any part thereof will
vest in accordance with the Plan, notwithstanding the provisions in the Award
stating the time at which it may first be exercised or the time during which it
will vest.

 

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

 

(vi)                               To amend the Plan in any respect the Board
deems necessary or advisable, including, without limitation, by adopting
amendments relating to Incentive Stock Options and certain nonqualified deferred
compensation under Section 409A of the Code and/or to bring the Plan or 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, to the extent required by applicable law or listing
requirements, 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 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 Awards
available for issuance under the Plan. Except as provided above, rights under
any 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.

 

(vii)                           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 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.

 

2

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

 

(viii)                       To approve forms of Award Agreements for use under
the Plan and to amend the terms of any one or more Awards, including, but not
limited to, amendments to provide terms more favorable to the Participant than
previously provided in the Award Agreement, subject to any specified limits in
the Plan that are not subject to Board discretion; provided however, that except
with respect to amendments that disqualify or impair the status of an Incentive
Stock Option, a Participant’s rights under any 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 Awards without the affected Participant’s
consent if necessary to maintain the qualified status of the Award as an
Incentive Stock Option or to bring the Award into compliance with Section 409A
of the Code.

 

(ix)                              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 Awards.

 

(x)                                  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.

 

(xi)                              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 SAR under the
Plan; (B) the cancellation of any outstanding Option or SAR under the Plan and
the grant in substitution therefor of (1) a new Option or SAR 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 of the Plan 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 this Plan to
the Board shall thereafter be to the Committee or subcommittee), subject,
however, to such resolutions, not inconsistent with the provisions of the Plan,
as may be adopted from time to time by the Board.  The Board may retain the
authority to concurrently administer the Plan with the Committee and may, at any
time, revest in the Board some or all of the powers previously delegated.

 

3

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

 

(ii)                                Section 162(m) and Rule 16b-3 Compliance. 
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.

 

(d)                                  Delegation to an Officer.  The Board may
delegate to one (1) or more Officers the authority to do one or both of the
following (i) designate Employees who are providing Continuous Service to the
Company or any of its Subsidiaries who are not Officers to be recipients of
Options and Stock Appreciation Rights (and, to the extent permitted by
applicable 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 the foregoing,
the Board may not delegate authority to an Officer to determine the Fair Market
Value pursuant to Section 13(x)(iii) below.

 

(e)                                  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.

 

3.                                      SHARES SUBJECT TO THE PLAN.

 

(a)                                  Share Reserve.  Subject to
Section 9(a) relating to Capitalization Adjustments, the aggregate number of
shares of Common Stock that may be issued pursuant to Stock Awards from and
after the Effective Date shall not exceed 4,075,922 shares (the “Share
Reserve”), which number is the sum of (i) the number of shares subject to the
Prior Plan’s Available Reserve plus an additional number of shares which
consists of the Returning Shares, if any, as such shares become available from
time to time, in an aggregate amount not to exceed 1,975,922 shares, (ii) an
additional 900,000 shares, plus (iii) an additional 1,200,000 shares approved by
the stockholders at the 2011 Annual Meeting.  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 ten (10) years commencing
on January 1, 2012 and ending on (and including) January 1, 2021, in an amount
equal to four percent (4%) of the total number of shares of Common Stock
outstanding on December 31st of the preceding calendar year.  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 NASDAQ Listing
Rule 5635(c) or, if applicable, NYSE Listed Company Manual Section 303A.08, AMEX
Company Guide Section 711 or other applicable rule, and such issuance shall not
reduce the number of shares available for issuance under the Plan.  Furthermore,
if a Stock Award or any portion thereof (i) expires or otherwise terminates
without all of the shares covered by such Stock Award having been issued or
(ii) is settled in cash (i.e., the Participant receives cash rather than stock),
such expiration, termination or settlement shall not reduce (or otherwise
offset) the number of shares Common Stock that may be available for issuance
under the Plan.

 

4

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

 

(b)                                  Reversion of Shares to the Share Reserve. 
If any shares of common stock issued pursuant to a Stock Award are forfeited
back to the Company because of the failure to meet a contingency or condition
required to vest such shares in the Participant, then the shares that are
forfeited shall revert to and again become available for issuance under the
Plan.  Any shares reacquired by the Company pursuant to Section 8(g) or as
consideration for the exercise of an Option shall again become available for
issuance under the Plan.

 

(c)                                  Incentive Stock Option Limit. 
Notwithstanding anything to the contrary in this Section 3 and, 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 Fifty Million (50,000,000) shares
of Common Stock.

 

(d)                                  Section 162(m) Limitation on Annual
Grants.  Subject to the provisions of Section 9(a) relating to Capitalization
Adjustments, at such time as the Plan must contain share limits in order for
performance-based equity to be exempt from the one million dollar ($1,000,000)
limit on deductibility under the applicable provisions of Section 162(m) of the
Code (subject to any necessary stockholder approval at such time), a maximum of
Two Million (2,000,000) shares of Common Stock subject to Options, Stock
Appreciation Rights and Other 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 on the date the Stock Award is
granted may be granted to any Participant during any calendar year. 
Notwithstanding the foregoing, if any additional Options, Stock Appreciation
Rights or Other 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 on the date the Stock Award are granted to any
Participant during any calendar year, compensation attributable to the exercise
of such additional Stock Awards shall not satisfy the requirements to be
considered “qualified performance-based compensation” under Section 162(m) of
the Code unless such additional Stock Awards are approved by the Company’s
stockholders.

 

(e)                                  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 or otherwise.

 

4.                                      ELIGIBILITY.

 

(a)                                  Eligibility for Specific Stock Awards. 
Incentive Stock Options may be granted only to employees of the Company or a
“parent corporation” or “subsidiary corporation” thereof (as such terms are
defined in Sections 424(e) and (f) of the Code).  Stock Awards other than
Incentive Stock Options may be granted to Employees, Directors and Consultants;
provided, however, Nonstatutory Stock Options and SARs may not be granted to
Employees, Directors and Consultants who are providing Continuous Service only
to any “parent” of the Company, as such term is defined in Rule 405, unless the
stock underlying such Stock Awards is treated as “service recipient stock” under
Section 409A of the Code because the Stock Awards are granted pursuant to a
corporate transaction (such as a spin off transaction) or unless such Stock
Awards comply with the distribution requirements of Section 409A of the Code.

 

5

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

 

(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 on the date of grant and the Option is not exercisable after the
expiration of five (5) years from the date of grant.

 

5.                                      PROVISIONS RELATING TO OPTIONS AND STOCK
APPRECIATION RIGHTS.

 

Each Option or SAR 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 or SARs need not be identical; provided, however, that each
Option Agreement or Stock Appreciation Right Agreement shall conform to (through
incorporation of provisions hereof by reference in the applicable Award
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 or SAR shall be
exercisable after the expiration of ten (10) years from the date of its grant or
such shorter period specified in the Award Agreement.

 

(b)                                  Exercise Price.  Subject to the provisions
of Section 4(b) regarding Ten Percent Stockholders, the exercise price (or
strike price) of each Option or SAR shall be not less than one hundred percent
(100%) of the Fair Market Value of the Common Stock subject to the Option or SAR
on the date the Option or SAR is granted.  Notwithstanding the foregoing, an
Option or SAR may be granted with an exercise price (or strike price) lower than
one hundred percent (100%) of the Fair Market Value of the Common Stock subject
to the Option or SAR if such Option or SAR is granted pursuant to an assumption
of or substitution for another option or stock appreciation right pursuant to a
Corporate Transaction and in a manner consistent with the provisions of Sections
409A and, if applicable, 424(a) of the Code.  Each SAR will be denominated in
shares of Common Stock equivalents.

 

(c)                                  Purchase Price for Options.  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 permitted methods of
payment are as follows:

 

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

 

(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;

 

6

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

 

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

 

(iv)                               if the option is a Nonstatutory Stock Option,
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.

 

(d)                                  Exercise and Payment of a SAR.  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.  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 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 that will be determined by the Board at the
time of grant of the Stock Appreciation Right.  The appreciation distribution in
respect to 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 contained in the Stock Appreciation Right Agreement evidencing
such Stock Appreciation Right.

 

(e)                                  Transferability of Options and SARs.  The
Board may, in its sole discretion, impose such limitations on the
transferability of Options and SARs 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 and SARs shall apply:

 

(i)                                    Restrictions on Transfer.  An Option or
SAR shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Participant
only by the Participant; provided, however, that the Board may, in its sole
discretion, permit transfer of the Option or SAR in a manner that is not
prohibited by applicable tax and securities laws upon the Participant’s
request.  Except as explicitly provided herein, neither an Option nor a SAR may
be transferred for consideration.

 

7

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

 

(ii)                                Domestic Relations Orders.  Notwithstanding
the foregoing, an Option or SAR 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 Participant 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 Participant, shall thereafter be entitled
to exercise the Option or SAR and receive the Common Stock or other
consideration resulting from such exercise.  In the absence of such a
designation, the executor or administrator of the Participant’s estate shall be
entitled to exercise the Option or SAR and receive the Common Stock or other
consideration resulting from such exercise.

 

(f)                                    Vesting Generally.  The total number of
shares of Common Stock subject to an Option or SAR may vest and therefore become
exercisable in periodic installments that may or may not be equal.  The Option
or SAR 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 or SARs may vary.  The provisions of
this Section 5(f) are subject to any Option or SAR provisions governing the
minimum number of shares of Common Stock as to which an Option or SAR may be
exercised.

 

(g)                                 Termination of Continuous Service.  Except
as otherwise provided in the applicable Award Agreement or other agreement
between the Participant and the Company, if a Participant’s Continuous Service
terminates (other than for Cause or upon the Participant’s death or Disability),
the Participant may exercise his or her Option or SAR (to the extent that the
Participant was entitled to exercise such Award 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 Participant’s
Continuous Service (or such longer or shorter period specified in the applicable
Award Agreement), or (ii) the expiration of the term of the Option or SAR as set
forth in the Award Agreement.  If, after termination of Continuous Service, the
Participant does not exercise his or her Option or SAR within the time specified
herein or in the Award Agreement (as applicable), the Option or SAR shall
terminate.

 

(h)                                 Extension of Termination Date.  If the
exercise of an Option or SAR following the termination of the Participant’s
Continuous Service (other than for Cause or upon the Participant’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 or SAR shall terminate on the earlier of (i) the
expiration of a total period of three (3) months (that need not be consecutive)
after the termination of the Participant’s Continuous Service during which the
exercise of the Option or SAR would not be in violation of such registration
requirements, or (ii) the expiration of the term of the Option or SAR as set
forth in the applicable Award Agreement.  In addition, unless otherwise provided
in a Participant’s Award Agreement, if the sale of any Common Stock received
upon exercise of an Option or SAR following the termination of the Participant’s
Continuous Service (other than for Cause) would violate the Company’s insider
trading policy, then the Option or SAR shall

 

8

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

 

terminate on the earlier of (i) the expiration of a period equal to the
applicable post-termination exercise period after the termination of the
Participant’s Continuous Service during which the sale of the Common Stock
received upon exercise of the Option or SAR would not be in violation of the
Company’s insider trading policy, or (ii) the expiration of the term of the
Option or SAR as set forth in the applicable Award Agreement.

 

(i)                                    Disability of Participant.  Except as
otherwise provided in the applicable Award Agreement or other agreement between
the Participant and the Company, if a Participant’s Continuous Service
terminates as a result of the Participant’s Disability, the Participant may
exercise his or her Option or SAR (to the extent that the Participant was
entitled to exercise such Option or SAR 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 Award Agreement), or
(ii) the expiration of the term of the Option or SAR as set forth in the Award
Agreement.  If, after termination of Continuous Service, the Participant does
not exercise his or her Option or SAR within the time specified herein or in the
Award Agreement (as applicable), the Option or SAR (as applicable) shall
terminate.

 

(j)                                    Death of Participant.  Except as
otherwise provided in the applicable Award Agreement or other agreement between
the Participant and the Company, if (i) a Participant’s Continuous Service
terminates as a result of the Participant’s death, or (ii) the Participant dies
within the period (if any) specified in the Award Agreement after the
termination of the Participant’s Continuous Service for a reason other than
death, then the Option or SAR may be exercised (to the extent the Participant
was entitled to exercise such Option or SAR as of the date of death) by the
Participant’s estate, by a person who acquired the right to exercise the Option
or SAR by bequest or inheritance or by a person designated to exercise the
Option or SAR upon the Participant’s death, but only within the period ending on
the earlier of (i) the date eighteen (18) months following the date of death (or
such longer or shorter period specified in the Award Agreement), or (ii) the
expiration of the term of such Option or SAR as set forth in the Award
Agreement.  If, after the Participant’s death, the Option or SAR is not
exercised within the time specified herein or in the Award Agreement (as
applicable), the Option or SAR shall terminate.

 

(k)                                Termination for Cause.  Except as explicitly
provided otherwise in a Participant’s Award Agreement, if a Participant’s
Continuous Service is terminated for Cause, the Option or SAR shall terminate
upon the date on which the event giving rise to the termination occurred, and
the Participant shall be prohibited from exercising his or her Option or SAR
from and after the time of such termination of Continuous Service.

 

(l)                                    Non-Exempt Employees.  No Option or SAR
granted to an Employee who is a non-exempt employee for purposes of the Fair
Labor Standards Act of 1938, as amended, shall be first exercisable for any
shares of Common Stock until at least six (6) months following the date of grant
of the Option or SAR. Notwithstanding the foregoing, consistent with the
provisions of the Worker Economic Opportunity Act, (i) in the event of the
Participant’s death or Disability, (ii) upon a Corporate Transaction in which
such Option or SAR is not assumed, continued, or substituted, (iii) upon a
Change in Control, or (iv) upon the Participant’s retirement (as such term may
be defined in the Participant’s Award Agreement or in another

 

9

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

 

applicable agreement or in accordance with the Company’s then current employment
policies and guidelines), any such vested Options and SARs may be exercised
earlier than six months following the date of grant.  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 or SAR will be exempt from
his or her regular rate of pay.

 

6.                                      PROVISIONS OF STOCK AWARDS OTHER THAN
OPTIONS AND SARS.

 

(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 services to the Company or an Affiliate, or
(C) any other form of legal consideration (including future services) that may
be acceptable to the Board, in its sole discretion, and permissible under
applicable law.

 

(ii)                                Vesting.  Shares of Common Stock awarded
under the 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.  If a Participant’s Continuous Service terminates, the Company may
receive through a forfeiture condition or a repurchase right any or all of the
shares of Common Stock held by the Participant that 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.

 

(v)                                   Dividends.  A Restricted Stock Award
Agreement may provide that any dividends paid on Restricted Stock will be
subject to the same vesting and forfeiture restrictions as apply to the shares
subject to the Restricted Stock Award to which they relate.

 

10

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

 

(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.

 

(ii)                                Vesting.  At the time of the grant of a
Restricted Stock Unit Award, the Board may impose such restrictions on 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 of the
same 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.

 

(c)                                  Performance Awards.

 

(i)                                    Performance Stock Awards.  A Performance
Stock Award is a Stock Award that may vest or may be exercised contingent 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

 

11

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

 

whether and to what degree such Performance Goals have been attained shall be
conclusively determined by the Committee, in its sole discretion.  At such time
as the Plan must contain share limits in order for performance-based equity
awards to be exempt from the one million dollar ($1,000,000) limit on
deductibility under the applicable provisions of Section 162(m) of the Code, the
maximum number of shares covered by an Award that may be granted to any
Participant in a calendar year attributable to Stock Awards described in this
Section 6(c)(i) (whether the grant, vesting or exercise is contingent upon the
attainment during a Performance Period of the Performance Goals) shall not
exceed One Million (1,000,000) shares of Common Stock (subject to any necessary
stockholder approval at such time). The Board may provide for or, subject to
such terms and conditions as the Board may specify, may permit a Participant to
elect for, the payment of any Performance Stock Award to be deferred to a
specified date or event.  In addition, to the extent permitted by applicable law
and the applicable Award Agreement, the Board may determine that cash may be
used in payment of Performance Stock Awards.

 

(ii)                                Performance Cash Awards.  A Performance Cash
Award is a cash award that may be paid contingent upon the attainment during a
Performance Period of certain Performance Goals.  A Performance Cash Award may
also require the completion of a specified period of Continuous Service.  At the
time of grant of a Performance Cash Award, 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.  At
such time as the Plan must contain dollar limits in order for performance-based
cash awards to be exempt from the one million dollar ($1,000,000) limit on
deductibility under the applicable provisions of Section 162(m) of the Code, in
any calendar year, the Committee may not grant a Performance Cash Award that has
a maximum value that may be paid to any Participant in excess of one million
dollars ($1,000,000) (subject to any necessary stockholder approval at such
time). The Board may provide for or, subject to such terms and conditions as the
Board may specify, may permit a Participant to elect for, the payment of any
Performance Cash Award to be deferred to a specified date or event.  The
Committee may specify the form of payment of Performance Cash Awards, which may
be cash or other property, or may provide for a Participant to have the option
for his or her Performance Cash Award, or such portion thereof as the Board may
specify, to be paid in whole or in part in cash or other property.

 

(iii)                            Section 162(m) Compliance.  Unless otherwise
permitted in compliance with the requirements of Section 162(m) of the Code with
respect to an Award intended to qualify as “performance-based compensation”
thereunder, the Committee shall establish the Performance Goals applicable to,
and the formula for calculating the amount payable under, the Award no later
than the earlier of (a) the date ninety (90) days after the commencement of the
applicable Performance Period, or (b) the date on which twenty-five (25%) of the
Performance Period has elapsed, and in any event at a time when the achievement
of the applicable Performance Goals remains substantially uncertain.  Prior to
the payment of any compensation under an Award intended to qualify as
“performance-based compensation” under Section 162(m) of the Code, the Committee
shall certify the extent to which any Performance Goals and any other material
terms under such Award have been satisfied (other than in cases where such
relate solely to the increase in the value of the Common Stock). Notwithstanding
satisfaction of any completion of any Performance Goals, to the extent specified
at the time of grant of an Award to

 

12

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

 

“covered employees” within the meaning of Section 162(m) of the Code, the number
of Shares, Options, cash or other benefits granted, issued, retainable and/or
vested under an Award on account of satisfaction of such Performance Goals may
be reduced by the Committee on the basis of such further considerations as the
Committee, in its sole discretion, shall determine.

 

(d)                                  Other Stock Awards.  Other forms of Stock
Awards valued in whole or in part by reference to, or otherwise based on, Common
Stock, including the appreciation in value thereof (e.g., options or stock
rights with an exercise price or strike price less than 100% of the Fair Market
Value of the Common Stock at the time of grant) 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 reasonably 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. A Participant
shall not be eligible for the grant of a Stock Award or the subsequent issuance
of Common Stock pursuant to the Stock Award if such grant or issuance would be
in violation of any applicable securities law.

 

(c)                                  No Obligation to Notify or Minimize Taxes. 
The Company shall have no duty or obligation to any Participant 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.

 

13

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

 

8.                                      MISCELLANEOUS.

 

(a)                                  Use of Proceeds from Sales of Common
Stock.  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.

 

(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, if applicable, and (ii) the issuance of the
Common Stock subject to such Stock Award 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 any other instrument executed
thereunder or in connection with any Award granted pursuant thereto 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

 

14

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

 

assurances given pursuant to such requirements, shall be inoperative if (A) 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 (B) 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 an Award by any of the following means 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 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 lesser amount as may be
necessary to avoid classification of the Stock Award as a liability for
financial accounting purposes); (iii) withholding cash from an 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 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 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 or otherwise providing
services to the Company.  The Board is authorized to make deferrals of Awards
and determine when, and in what annual percentages, Participants may receive
payments, including lump sum payments, following the Participant’s termination
of Continuous Service, 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 Award granted hereunder is subject to
Section 409A of the Code, the Award Agreement evidencing such Award shall
incorporate the terms and conditions necessary to avoid the consequences
specified in Section 409A(a)(1) of the Code.  To the extent applicable, the Plan
and Award Agreements shall be interpreted in accordance with Section 409A of the
Code.  Notwithstanding anything to the contrary in this Plan (and unless the
Award Agreement specifically provides otherwise), if the Shares are publicly
traded and a Participant holding an Award that constitutes “deferred
compensation” under Section 409A of the Code is a “specified employee” for
purposes of Section 409A of the Code, no distribution or payment of any amount

 

15

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

 

shall be made upon a “separation from service” before a date that is six
(6) months following the date of such Participant’s “separation from service”
(as defined in Section 409A of the Code without regard to alternative
definitions thereunder) or, if earlier, the date of the Participant’s death.

 

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(c), (iii) the class(es) and maximum number
of securities that may be awarded to any person pursuant to Sections 3(d) and
6(c)(i), 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 the Stock Award Agreement, in the event of a dissolution
or liquidation of the Company, all outstanding Stock Awards (other than 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 or subject to
a forfeiture condition may be repurchased or reacquired 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 or unless otherwise expressly provided by the Board at the time
of grant of a Stock Award.  In the event of a Corporate Transaction, then,
notwithstanding any other provision of the Plan, the Board shall take one or
more of the following actions with respect to Stock Awards, contingent upon the
closing or completion of the Corporate Transaction:

 

(i)                                    arrange for the surviving corporation or
acquiring corporation (or the surviving or acquiring corporation’s parent
company) to assume or continue the Stock Award or to substitute a similar stock
award for the Stock Award (including, but not limited to, an award to acquire
the same consideration paid to the stockholders of the Company pursuant to the
Corporate Transaction);

 

(ii)                                arrange for the assignment of any
reacquisition or repurchase rights held by the Company in respect of Common
Stock issued pursuant to the Stock Award to the surviving corporation or
acquiring corporation (or the surviving or acquiring corporation’s parent
company);

 

16

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

 

(iii)                            accelerate the vesting of the Stock Award (and,
if applicable, the time at which the Stock Award may be exercised) 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 date of the Corporate Transaction), with
such Stock Award terminating if not exercised (if applicable) at or prior to the
effective time of the Corporate Transaction;

 

(iv)                               arrange for the lapse of any reacquisition or
repurchase rights held by the Company with respect to the Stock Award;

 

(v)                                   cancel or arrange for the cancellation of
the Stock Award, to the extent not vested or not exercised prior to the
effective time of the Corporate Transaction, in exchange for such cash
consideration, if any, as the Board, in its sole discretion, may consider
appropriate; and

 

(vi)                               make a payment, in such form as may be
determined by the Board equal to the excess, if any, of (A) the value of the
property the Participant would have received upon the exercise of the Stock
Award immediately prior to the effective time of the Corporate Transaction, over
(B) any exercise price payable by such holder in connection with such exercise.

 

The Board need not take the same action or actions with respect to all Stock
Awards or portions thereof or with respect to all Participants.

 

(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, but in the absence of such provision, 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; provided, however, that Incentive Stock Options
may no longer be granted under the Plan after 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 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 Award
granted while the Plan is in effect except with the written consent of the
affected Participant.

 

11.                               EFFECTIVE DATE OF PLAN.

 

The Plan became effective on the IPO Date, but no Stock Award shall be exercised
(or, in the case of a Restricted Stock Award, Restricted Stock Unit Award,
Performance Stock Award, or Other Stock Award, shall be granted and no
Performance Cash Award shall be settled) unless and until the Plan has been
approved by the stockholders of the Company, which approval shall be within
twelve (12) months after the date the Plan is adopted by the Board.

 

17

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

 

12.                               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.

 

13.                               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)                                  “Annual Meeting” means the first meeting of
the Company’s stockholders held each calendar year at which Directors of the
Company are selected.

 

(c)                                  “Award” means a Stock Award or a
Performance Cash Award.

 

(d)                                  “Award Agreement” means a written agreement
between the Company and a Participant evidencing the terms and conditions of an
Award.

 

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

 

(f)                                    “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, large nonrecurring cash
dividend, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or any similar equity restructuring
transaction, as that term is used in Statement of Financial Accounting Standards
No. 123 (revised).  Notwithstanding the foregoing, the conversion of any
convertible securities of the Company shall not be treated as a Capitalization
Adjustment.

 

(g)                                 “Cause” shall have the meaning ascribed to
such term in any written agreement between the Participant and the Company
defining such term and, in the absence of such agreement, such term shall mean,
with respect to a Participant, the occurrence of any of the following events
that has a material negative impact on the business or reputation of the
Company:  (i) such Participant’s attempted commission of, or participation in, a
fraud or act of dishonesty against the Company; (ii) such Participant’s
intentional, material violation of any contract or agreement between the
Participant and the Company or of any statutory duty owed to the Company;
(iii)  such Participant’s unauthorized use or disclosure of the Company’s
confidential information or trade secrets; or (iv) such Participant’s gross
misconduct. The determination that a termination of the Participant’s Continuous
Service is either for Cause or without Cause shall be made by the Company, in
its sole discretion.  Any determination by the Company that the Continuous
Service of a Participant was terminated with or without Cause for the purposes
of outstanding Awards held by such Participant shall have no effect upon any
determination of the rights or obligations of the Company or such Participant
for any other purpose.

 

18

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

 

(h)                                 “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 directly from the Company, (B) on account of the acquisition of
securities of the Company by an investor, any affiliate thereof or any other
Exchange Act Person that acquires the Company’s securities 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
(C) 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)                            there is consummated a sale, lease, exclusive
license or other disposition of all or substantially all of the consolidated
assets of the Company and its Subsidiaries, other than a sale, lease, license or
other disposition of all or substantially all of the consolidated assets of the
Company and its Subsidiaries to an Entity, more than fifty percent (50%) of the
combined voting power of the voting securities of which are Owned by
stockholders of the Company in substantially the same proportions as their
Ownership of the outstanding voting securities of the Company immediately prior
to such sale, lease, license or other disposition; or

 

19

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

 

(iv)                               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 this Plan, be considered as a member of the Incumbent
Board.

 

Notwithstanding the foregoing or any other provision of this Plan, (A) 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, and (B) 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 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.

 

(i)                                    “Code” means the Internal Revenue Code of
1986, as amended, including any applicable regulations and guidance thereunder.

 

(j)                                    “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).

 

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

 

(l)                                    “Company” means Anacor
Pharmaceuticals, Inc., a Delaware corporation.

 

(m)                              “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. Notwithstanding the foregoing, a person is treated as a Consultant
under this Plan only if a Form S-8 Registration Statement under the Securities
Act is available to register either the offer or the sale of the Company’s
securities to such person.

 

(n)                                 “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
Chief

 

20

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

 

Executive Officer, 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.

 

(o)                                  “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)                                    the consummation of a sale or other
disposition of all or substantially all, as determined by the Board, in its sole
discretion, of the consolidated assets of the Company and its Subsidiaries;

 

(ii)                                the consummation of 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.

 

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

 

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

 

(r)                                  “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 which has lasted or can
be expected to last for a continuous period of not less than twelve (12) months,
as provided in Sections 22(e)(3) and 409A(a)(2)(c)(i) of the Code, and shall be
determined by the Board on the basis of such medical evidence as the Board deems
warranted under the circumstances.

 

(s)                                  “Effective Date” means the effective date
of the Plan as set forth in Section 11.

 

(t)                                    “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.

 

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

 

21

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

 

(v)                                   “Exchange Act” means the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder.

 

(w)                                “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 a registered public 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.

 

(x)                                  “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 any established market, the Fair Market
Value of a share of Common Stock shall be, unless otherwise determined by the
Board, the closing sales price for such stock as quoted on such exchange or
market (or the exchange or market with the greatest volume of trading in the
Common Stock) on the date of determination, as reported in a source the Board
deems reliable.

 

(ii)                                Unless otherwise provided by the Board, if
there is no closing sales price for the Common Stock on the date of
determination, then the Fair Market Value shall be the closing selling price on
the last preceding date for which such quotation exists.

 

(iii)                            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 Sections 409A and 422 of the Code.

 

(y)                                  “Incentive Stock Option” means an option
granted pursuant to Section 5 of the Plan that is intended to be, and qualifies
as, an “incentive stock option” within the meaning of Section 422 of the Code.

 

(z)                                  “IPO Date” means the date of the
underwriting agreement between the Company and the underwriter(s) managing the
initial public offering of the Common Stock, pursuant to which the Common Stock
is priced for the initial public offering.

 

(aa)                            “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.

 

22

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

 

(bb)                            “Nonstatutory Stock Option” means any option
granted pursuant to Section 5 of the Plan that does not qualify as an Incentive
Stock Option.

 

(cc)                            “Officer” means a person who is an officer of
the Company within the meaning of Section 16 of the Exchange Act.

 

(dd)                            “Option” means an Incentive Stock Option or a
Nonstatutory Stock Option to purchase shares of Common Stock granted pursuant to
the Plan.

 

(ee)                            “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.

 

(ff)                                “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.

 

(gg)                          “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(d).

 

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

 

(ii)                                “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.

 

(jj)                                “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.

 

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

 

(ll)                                “Performance Cash Award” means an award of
cash granted pursuant to the terms and conditions of Section 6(c)(ii).

 

23

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

 

(mm)                    “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 as determined by the Board: (i) earnings (including earnings per
share and net earnings); (ii) earnings before interest, taxes and depreciation;
(iii) earnings before interest, taxes, depreciation and amortization; (iv) total
stockholder return; (v) return on equity or average stockholder’s equity;
(vi) return on assets, investment, or capital employed; (vii) stock price;
(viii) margin (including gross margin); (ix) income (before or after taxes);
(x) operating income; (xi) operating income after taxes; (xii) pre-tax profit;
(xiii) operating cash flow; (xiv) sales or revenue targets; (xv) increases in
revenue or product revenue; (xvi) expenses and cost reduction goals;
(xvii) improvement in or attainment of working capital levels; (xviii) economic
value added (or an equivalent metric); (xix) market share; (xx) cash flow;
(xxi) cash flow per share; (xxii) share price performance; (xxiii) debt
reduction; (xxiv) implementation or completion of projects or processes;
(xxv) customer satisfaction; (xxvi) stockholders’ equity; (xxvii) capital
expenditures; (xxviii) debt levels; (xxix) operating profit or net operating
profit; (xxx) workforce diversity; (xxxi) growth of net income or operating
income; (xxxii) billings; and (xxxiii) to the extent that an Award is not
intended to comply with Section 162(m) of the Code, other measures of
performance selected by the Board.

 

(nn)                          “Performance Goals” means, for a Performance
Period, the one or more goals established by the Board for the Performance
Period based upon 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.  Unless specified otherwise by the Board (i) in the Award
Agreement at the time the Award is granted or (ii) in such other document
setting forth the Performance Goals at the time the Performance Goals are
established, the Board shall appropriately make adjustments in the method of
calculating the attainment of Performance Goals for a Performance Period as
follows: (1) to exclude restructuring and/or other nonrecurring charges; (2) to
exclude exchange rate effects, as applicable, for non-U.S. dollar denominated
Performance Goals; (3) to exclude the effects of changes to generally accepted
accounting principles; (4) to exclude the effects of any statutory adjustments
to corporate tax rates; (5) to exclude the effects of any “extraordinary items”
as determined under generally accepted accounting principles; (6) to exclude the
dilutive effects of acquisitions or joint ventures; (7) to assume that any
business divested by the Company achieved performance objectives at targeted
levels during the balance of a Performance Period following such divestiture;
(8) to exclude the effect of any change in the outstanding shares of common
stock of the Company by reason of any stock dividend or split, stock repurchase,
reorganization, recapitalization, merger, consolidation, spin-off, combination
or exchange of shares or other similar corporate change, or any distributions to
common shareholders other than regular cash dividends; (9) to exclude the
effects of stock based compensation and/or the award of bonuses under the
Company’s bonus plans and (10) to exclude the effect of any other unusual,
non-recurring gain or loss or other extraordinary item.  In addition, the Board
retains the discretion to reduce or eliminate the compensation or economic
benefit due upon attainment of Performance Goals and to define the manner of
calculating the Performance Criteria it selects to use for such Performance
Period. 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 or the written terms of a Performance Cash Award.

 

24

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

 

(oo)                            “Performance Period” means the period of time
selected by the Board 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 Stock Award or a Performance Cash Award.  Performance Periods may
be of varying and overlapping duration, at the sole discretion of the Board.

 

(pp)                            “Performance Stock Award” means a Stock Award
granted under the terms and conditions of Section 6(c)(i).

 

(qq)                            “Plan” means this Anacor Pharmaceuticals, Inc.
2010 Equity Incentive Plan.

 

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

 

(ss)                            “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.

 

(tt)                                “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).

 

(uu)                          “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.

 

(vv)                              “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.

 

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

 

(xx)                            “Stock Appreciation Right” or “SAR” means a
right to receive the appreciation on Common Stock that is granted pursuant to
the terms and conditions of Section 5.

 

(yy)                            “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.

 

(zz)                            “Stock Award” means any right to receive Common
Stock granted under the Plan, including an Incentive Stock Option, a
Nonstatutory Stock Option, a Restricted Stock Award, a Restricted Stock Unit
Award, a Stock Appreciation Right, a Performance Stock Award or any Other Stock
Award.

 

25

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

 

(aaa)                      “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.

 

(bbb)                      “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%).

 

(ccc)                      “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.

 

26

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