Exhibit 10.38
CORNERSTONE BIOPHARMA HOLDINGS, INC.
2005 STOCK OPTION PLAN
(as Amended and Restated Effective October 31, 2008)
     1. Purposes of this Plan. The purposes of this 2005 Stock Option Plan (as
Amended and Restated Effective October 31, 2008) are to attract and retain the
best available personnel, to provide additional incentive to the Employees of
Cornerstone BioPharma Holdings, Inc. (the “Company”) and any of its
Subsidiaries, to promote the success of the Company’s business and to enable the
Employees to share in the growth and prosperity of the Company by providing them
with an opportunity to purchase stock in the Company.
     Options granted hereunder may be either Incentive Stock Options or
Nonstatutory Stock Options, at the discretion of the Board and as reflected in
the terms of the written stock option agreement.
     2. Definitions. As used herein, the following definitions shall apply:
          (a) “Board” shall mean the Board of Directors of the Company.
          (b) “Code” shall mean the Internal Revenue Code of the 1986, as
amended.
          (c) “Common Stock” shall mean the Common Stock of the Company.
          (d) “Company” shall mean Cornerstone BioPharma Holdings, Inc., a
corporation duly organized under the laws of the State of Delaware.
          (e) “Committee” shall mean the Committee appointed by the Board in
accordance with Section 4 of this Plan, if one is appointed.
          (f) “Continuous Employment” or “Continuous Status as an Employee”
shall mean the absence of any interruption or termination of employment or
service as an Employee, Director or Consultant by or to the Company or any
Parent or Subsidiary of the Company which now exists or is hereafter organized
or acquired by or acquires the Company. Continuous Employment shall not be
considered interrupted in the case of sick leave, military leave or any other
leave of absence approved by the Board or in the event of transfers between
locations of the Company or between the Company, its Parent, any of its
Subsidiaries or its successors.
          (g) “Corporate Change” shall mean one of the following events: (i) the
merger, consolidation or other reorganization of the Company in which the
outstanding Common Stock is converted into or exchanged for a different class of
securities of the Company, a class of securities of any other issuer (except a
Parent or Subsidiary of the Company), cash or other property (ii) the sale,
lease or exchange of all or substantially all of the assets of the Company to
any other corporation or entity (except a Parent or Subsidiary of the Company);
or (iii) the adoption by shareholders of the Company of a plan of liquidation or
dissolution. The following events are not defined as a “Corporate Change”: (i) a
merger, consolidation or reorganization of the Company which would result in the
voting stock of the Company outstanding immediately prior thereto

 

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continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity), in combination with the
ownership of any trustee or other fiduciary holding securities under an employee
benefit plan of the Company, at least sixty percent (60%) of the combined voting
power of the voting stock of the Company or such surviving entity outstanding
immediately after such merger, consolidation or reorganization of the Company,
or (ii) merger, consolidation or reorganization of the Company effected to
implement a recapitalization of the Company (or similar transaction) in which no
person acquires more than forty-nine percent (49%) of the combined voting power
of the Company’s then outstanding stock;
          (h) “Employee” shall mean any person, including officers and
directors, employed by the Company, its Parent, any of its Subsidiaries or its
successors; or, for purposes of eligibility for Nonstatutory Stock Options, any
person employed by the Company, including officers and directors, or any
consultant to, or director of, the Company, or any Parent or Subsidiary of the
Company, whether or not such consultant or director is an employee of such
entities.
          (i) “Exchange Act” shall mean the Securities Exchange Act of 1934, as
amended, or any successor legislation.
          (j) “Incentive Stock Option” shall mean an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code.
          (k) “Non-Employee Director” shall mean a director who is a
“Non-Employee Director,” as such term is defined under Rule 16b-3(b)(3)(i)
promulgated pursuant to the Exchange Act and any applicable releases and
opinions or the Securities and Exchange Commission.
          (1) “Nonstatutory Stock Option” shall mean an Option which is not an
Incentive Stock Option.
          (m) “Option” shall mean a stock option granted pursuant to this Plan.
          (n) “Option Agreement” shall mean a written agreement in such form or
forms as the Board (subject to the terms and conditions of this Plan) may from
time to time approve, evidencing an Option.
          (o) “Optioned Stock” shall mean the Common Stock subject to an Option.
          (p) “Optionee” shall mean an Employee who is granted an Option.
          (q) “Parent” shall mean a “parent corporation,” whether now or
hereafter existing, as defined in Sections 424(e) and (g) of the Code.
          (r) “Plan” shall mean this 2005 Stock Option Plan (as Amended and
Restated Effective October 31, 2008).
          (s) “Registration Date” shall mean the effective date of the first
registration statement which is filed by the Company and declared effective
pursuant to Section 12(g) of the Exchange Act, with respect to any class of the
Company’s securities.

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          (t) “Securities Act” shall mean the Securities Act of 1933, as
amended, or any successor legislation.
          (u) “Share” or “Shares” shall mean the Common Stock, as adjusted in
accordance with Section 11 of this Plan.
          (v) “Stock Purchase Agreement” shall mean an agreement in such form or
forms as the Board (subject to the terms and conditions of this Plan) may from
time to time approve, which is to be executed as a condition of purchasing
Optioned Stock upon exercise of an Option.
          (w) “Subsidiary” or “Subsidiaries” shall mean one or more subsidiary
corporations, whether now or hereafter existing, as defined in Sections 424(f)
and (g) of the Code.
     3. Stock Subject to this Plan. Subject to the provisions of Section 11 of
this Plan, the maximum number of Shares which may be optioned and sold under
this Plan is 373,650 Shares. The Shares may be authorized, but unissued Shares
or reacquired Shares other than reacquired Shares delivered pursuant to
Section 7(c)(iv) hereof as payment of consideration or associated taxes in
connection with the exercise of an option. If an Option should expire or become
unexercisable or otherwise terminate for any reason without having been
exercised in full after October 31, 2008, the unpurchased Shares which were
subject thereto shall not return to this Plan and shall not become available for
other Options under this Plan and shall instead be immediately canceled.
     The Company intends that as long as it is not subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, and is not an
investment company registered or required to be registered under the Investment
Company Act of 1940, as amended, all offers and sales of Options and Common
Stock issuable upon exercise of any Option shall be exempt from registration
under the provisions of Section 5 of the Securities Act, and this Plan shall be
administered in such a manner so as to preserve such exemption.
     The Company intends for this Plan to constitute a written compensatory
benefit plan within the meaning of Rule 701(b) of 17 CFR Section 230.701
(“Rule 701”) promulgated by the Securities and Exchange Commission pursuant to
the Securities Act. Unless otherwise designated by the Committee at the time an
Option is granted, all options granted under this Plan by the Company, and the
issuance of any Shares upon exercise thereof, are intended to be granted in
reliance on Rule 701.
     4. Administration of this Plan.
          (a) Procedure. This Plan shall be administered by the Board. The Board
may appoint a Committee consisting of two (2) or more members of the Board (or
such greater number as is required to qualify for the exemption from the
provisions of Section 16(b) of the Exchange Act provided by Rule 16b-3
promulgated pursuant to the Exchange Act) to administer this Plan on behalf of
the Board, subject to such terms and conditions as the Board may prescribe. Once
appointed, the Committee shall continue to serve until otherwise directed by the
Board. From time to time, the Board may increase the size of the Committee and
appoint additional members of the Board thereto, remove members (with or without
cause) and appoint new members of the Board in

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substitution therefor, fill vacancies, however caused, and remove all members of
the Committee and, thereafter, directly administer this Plan. Members of the
Board or Committee who are either eligible for Options or have been granted
Options may vote on any matters affecting the administration of this Plan or the
grant of Options pursuant to this Plan, except that no such member shall act
upon the granting of an Option to such person nor shall any such member’s
presence at a meeting of the Board of Directors establish the existence of a
quorum at any meeting of the Board or the Committee during which action is taken
with respect to the granting of an Option to him.
          (b) Procedure After Registration Date. Notwithstanding the provisions
of Section 4(a) above, after the Registration Date this Plan shall be
administered either by: (i) the full Board, provided that at all times each
member of the Board is a Non-Employee Director; or (ii) a Committee which at all
times consists solely of Board members who are Non-Employee Directors. After the
Registration Date, the Board shall take all action necessary to administer this
Plan in accordance with the then-effective provisions of Rule 16b-3 promulgated
under the Exchange Act, provided that any amendment to this Plan required for
compliance with such provisions shall be made in accordance with Section 13 of
this Plan.
          (c) Powers of the Board and/or Committee. Subject to the provisions of
this Plan, the Committee or the Board, as appropriate, shall have the authority,
in its discretion: (i) to grant Incentive Stock Options and Nonstatutory Stock
Options; (ii) to determine, upon review of relevant information and in
accordance with Section 7 of this Plan, the fair market value per Share; (iii)
to determine the exercise price of the Options, which exercise price and type of
consideration shall be determined in accordance with Section 7 of this Plan;
(iv) to determine the Employees to whom, and the time or times at which, Options
shall be granted, and the number of Shares to be subject to each Option; (v) to
prescribe, amend and rescind rules and regulations relating to this Plan;
(vi) to determine the terms and provisions of each Option Agreement and each
Stock Purchase Agreement (each of which need not be identical with the terms of
other Option Agreements and Stock Purchase Agreements) and, with the consent of
the holder thereof, to modify or amend each Option Agreement and Stock Purchase
Agreement; (vii) to determine whether a stock repurchase agreement or other
agreement will be required to be executed by any Employee as a condition to the
exercise of an Option, and to determine the terms and provisions of any such
agreement (which need not be identical with the terms of any other such
agreement) and, with the consent of the Optionee, to amend any such agreement;
(viii) to interpret this Plan, the Option Agreements, the Stock Purchase
Agreements or any agreement entered into with respect to the grant or exercise
of Options; (ix) to authorize any person to execute on behalf of the Company any
instrument required to effectuate the grant of an Option previously granted by
the Board or to take such other actions as may be necessary or appropriate with
respect to the Company’s rights pursuant to Options or agreements relating to
the grant or exercise thereof; and (x) to make such other determinations and
establish such other procedures as it deems necessary or advisable for the
administration of this Plan.
          (d) Effect of the Board’s or Committee’s Decision. All decisions,
determinations and interpretations of the Board or the Committee shall be final
and binding on all Optionees and any other holders of Options.

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     5. Eligibility. Options may be granted only to Employees, which, as defined
herein, includes consultants. An Employee who has been granted an Option may, if
such Employee is otherwise eligible, be granted additional Options.
     6. Term of Plan. This Plan originally became effective upon the earlier to
occur of its adoption by the Board or its approval by vote of a majority of the
outstanding shares of the Company’s capital stock entitled to vote on the
adoption of this Plan. The Plan was amended and restated as set forth herein
effective October 31, 2008. This Plan shall continue in effect for a term of
(10) years from its original effective date unless sooner terminated in
accordance with the terms and provisions of this Plan.
     7. Option Price and Consideration.
          (a) Exercise Price. The exercise price per Share for the Shares to be
issued pursuant to the exercise of an Option shall be such price as is
determined by the Board; provided, however, that such price shall in no event be
less than eighty-five percent (85%) with respect to Nonstatutory Stock Options,
and one hundred percent (100%) with respect to Incentive Stock Options, of the
fair market value per Share on the date of grant. In the case of an Option
granted to an Employee who, at the time the Option is granted, owns stock (as
determined under Section 424(d) of the Code) constituting more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or its Parent or Subsidiaries, the exercise price per Share shall be no less
than one hundred ten percent (110%) of the fair market value per Share on the
date of grant.
          (b) Fair Market Value. The fair market value per Share on the date of
grant shall be determined by the Board in its sole discretion, exercised in good
faith and consistent with the laws of The State of Delaware; provided, however,
that where there is a public market for the Common Stock, the fair market value
per Share shall be the average of the closing bid and asked prices of the Common
Stock on the date of grant, as reported in The Wall Street Journal (or, if not
so reported, as otherwise reported by the National Association of Securities
Dealers Automated Quotations (“NASDAQ”) System), or, in the event the Common
Stock is listed on a stock exchange or on the NASDAQ System, the fair market
value per Share shall be the closing price on the exchange or on the NASDAQ
System as of the date of grant of the Option, as reported in The Wall Street
Journal.
          (c) Payment of Consideration. The consideration to be paid for the
Shares to be issued upon exercise of an Option, including the method of payment,
shall be determined by the Board and may consist entirely of cash, check,
promissory notes, Shares held by the Optionee for the requisite period necessary
to avoid a charge to the Company’s earnings for financial reporting purposes
which have a fair market value on the date of surrender equal to the aggregate
exercise price of the Shares as to which said Option shall be exercised, or any
combination of such methods of payment. Subject to subparagraphs (i) through
(iv) hereto, utilization of Shares as the method of payment may be completed by
either (a) the tender of Shares then held by the Optionee, or (b) the
withholding of Shares which would otherwise be issued pursuant to an Option
pursuant to a broker-dealer sale and remittance procedure described in
subparagraph (iii) hereto. In making its determination as to the type of
consideration to accept, the Board shall consider if acceptance of such
consideration is deemed to be such as may be reasonably expected to benefit the
Company.

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               (i) If the consideration for the exercise of an Option is a
promissory note, it shall be a full recourse promissory note executed by the
Optionee, bearing interest at a rate which shall be sufficient to preclude the
imputation of interest under the applicable provisions of the Code. Until such
time as the promissory note has been paid in full, the Company may retain the
Shares purchased upon exercise of the Option in escrow as security for payment
of the promissory note.
               (ii) If the consideration for the exercise of an Option is the
surrender of previously acquired and owned Shares, the Optionee will be required
to make representations and warranties satisfactory to the Company regarding his
or her title to the Shares used to effect the purchase, including, without
limitation, representations and warranties that the Optionee has good and
marketable title to such Shares free and clear of any and all liens,
encumbrances, charges, equities, claims, security interests, options or
restrictions and has full power to deliver such Shares without obtaining the
consent or approval of any person or governmental authority other than those
which have already given consent or approval in a form satisfactory to the
Company. The value of the Shares used to effect the purchase shall be the fair
market value of those Shares as determined by the Board in its sole discretion,
exercised in good faith.
               (iii) If the consideration for the exercise of an Option is to be
paid through a broker-dealer sale and remittance procedure, the Optionee shall
provide (1) irrevocable written instructions to a designated brokerage firm to
effect the immediate sale of the purchased shares and to remit to the Company,
out of the sale proceeds available on the settlement date, sufficient funds to
cover the aggregate option price payable for the purchased Shares plus all
applicable Federal and State income and employment taxes required to be withheld
by the Company in connection with such purchase and (2) written instructions to
the Company to deliver the certificates for the purchased Shares directly to
such brokerage firm in order to complete the sale transaction.
               (iv) If an Optionee is permitted to exercise an Option by
delivering shares of the Company’s Common Stock, the option agreement covering
such Option may include provisions authorizing the Optionee to exercise the
Option, in whole or in part, by: (1) delivering whole shares of the Company’s
Common Stock previously owned by such Optionee (whether or not acquired through
the prior exercise of a stock option) having a fair market value equal to the
option price; and/or (2) directing the Company to withhold from the Shares that
would otherwise be issued upon exercise of the Option that number of whole
Shares having a fair market value equal to the option price. Shares of the
Company’s Common Stock so delivered or withheld shall be valued at their fair
market value on the date of exercise of the Option, as determined by the
Committee and/or the Board, as appropriate. Any balance of the exercise price
shall be paid in cash or by check or a promissory note, each in accordance with
the terms of this Section 7. Any Shares delivered or withheld in accordance with
this provision shall again become available for purposes of this Plan and for
Options subsequently granted thereunder to the extent permissible pursuant to
Section 3 of this Plan.
     8. Options.
          (a) Terms and Provisions of Options. As provided in Section 4 of this
Plan and subject to any limitations specified herein, the Board and/or Committee
shall have the authority to

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determine the terms and provisions of any Option granted under this Plan or any
agreement required to be executed in connection with the grant or exercise of an
Option. Each Option granted pursuant to this Plan shall be evidenced by an
Option Agreement. Options granted pursuant to this Plan are conditioned upon the
Company obtaining any required permit or order from appropriate governmental
agencies authorizing the Company to issue such Options and Shares issuable upon
exercise thereof.
          (b) Term of Option. The term of each Option may be up to ten
(10) years from the date of grant thereof as determined by the Board upon the
grant of the Option and specified in the Option Agreement, except that the term
of an Option granted to an Employee who, at the time the Option is granted, owns
stock comprising more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or its Parent or Subsidiaries, shall be
five (5) years from the date of grant thereof or such shorter term as may be
provided in the Option Agreement.
          (c) Exercise of Option.
               (i) Procedure for Exercise; Rights as a Shareholder. Any Option
shall be exercisable at such times, in such installments and under such
conditions as may be determined by the Board and specified in the Option
Agreement, including performance criteria with respect to the Company and/or the
Optionee, and as shall be permissible under the terms of this Plan.
          An Option may be exercised in accordance with the provisions of this
Plan as to all or any portion of the Shares then exercisable under an Option,
from time to time during the term of the Option. An Option may not be exercised
for a fraction of a Share.
          An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company at its principal business office in
accordance with the terms of the Option Agreement by the person entitled to
exercise the Option and, except when the broker-dealer sale and remittance
procedure described in Section 7(c)(iii) hereto is used, full payment for the
Shares with respect to which the Option is exercised has been received by the
Company, accompanied by an executed Stock Purchase Agreement and any other
agreements required by the terms of this Plan and/or the Option Agreement. Full
payment may consist of such consideration and method of payment allowable under
Section 7 of this Plan. Until the Option is properly exercised in accordance
with the terms of this paragraph, no right to vote or receive dividends or any
other rights as a stockholder exist with respect to the Optioned Stock. No
adjustment shall be made for a dividend or other right for which the record date
is prior to the date the Option is exercised, except as provided in Section 11
of this Plan.
          As soon as practicable after any proper exercise of an Option in
accordance with the provisions of this Plan, the Company shall, without transfer
or issue tax to the Optionee, deliver to the Optionee at the principal executive
office of the Company or such other place as shall be mutually agreed upon
between the Company and the Optionee, a certificate or certificates representing
the Shares for which the Option shall have been exercised. The time of issuance
and delivery of the certificate(s) representing the Shares for which the Option
shall have been exercised may be postponed by the Company for such period as may
be required by the Company, with reasonable diligence, to comply with any
applicable listing requirements of any national or regional securities exchange
or any law or regulation applicable to the issuance or delivery of such Shares.
No

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Option may be exercised unless this Plan has been duly approved by the
shareholders of the Company in accordance with applicable law. Notwithstanding
anything to the contrary herein, the terms of a Stock Purchase Agreement
required to be executed and delivered in connection with the exercise of an
Option may require the certificate or certificates representing the Shares
purchased upon exercise of an Option to be delivered and deposited with the
Company as security for the Optionee’s faithful performance of the terms of his
Stock Purchase Agreement.
          Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of this
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
               (ii) Termination of Status as an Employee. If an Optionee ceases
to serve as an Employee for any reason other than death or disability and
thereby terminates his or her Continuous Status as an Employee, such Optionee
shall have the right to exercise the Option at any time within thirty (30) days
(or such other period of time not exceeding three (3) months as is determined by
the Board at the time of granting the Option), following the date such Optionee
ceases his or her Continuous Status as an Employee of the Company to the extent
that such Optionee was entitled to exercise the Option at the date of such
termination; provided, however, that no Option shall be exercisable after the
expiration of the term set forth in the Option Agreement. To the extent that
such Optionee was not entitled to exercise the Option at the date of such
termination, or if such Optionee does not exercise such Option (which such
Optionee was entitled to exercise) within the time specified herein, the Option
shall terminate.
               (iii) Death or Disability of Optionee. If an Optionee ceases to
serve as an Employee due to death or disability and thereby terminates his or
her Continuous Status as an Employee, the Option may be exercised at any time
within six (6) months following the date of death or termination of employment
due to disability, in the case of death, by the Optionee’s estate or by a person
who acquired the right to exercise the Option by bequest or inheritance, or, in
the case of disability, by the Optionee, but in any case only to the extent the
Optionee was entitled to exercise the Option at the date of his or her
termination of employment by death or disability; provided, however, that no
Option shall be exercisable after the expiration of the Option term set forth in
the Option Agreement. To the extent that such Optionee was not entitled to
exercise such Option at the date of his or her termination of employment by
death or disability or if such Option is not exercised (to the extent it could
be exercised) within the time specified herein, the Option shall terminate.
               (iv) Extension of Time to Exercise. Notwithstanding anything to
the contrary in this Section 8, the Board may at any time and from time to time
prior to the termination of a Nonstatutory Stock Option, with the consent of the
Optionee, extend the period of time during which the Optionee may exercise his
or her Nonstatutory Stock Option following the date the Optionee ceases such
Optionee’s Continuous Status as an Employee; provided, however, that (1) the
maximum period of time during which a Nonstatutory Stock Option shall be
exercisable following such termination date shall not exceed an aggregate of six
(6) months, (2) the Nonstatutory Stock Option shall not become exercisable after
the expiration of the term of such Option as set form in the Option Agreement as
a result of such extension, and (3) notwithstanding any extension of time during
which the Nonstatutory Stock Option may be exercised, such Option, unless
otherwise amended by the Board, shall only be exercisable to the extent to which
the Optionee was entitled to

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exercise it on the date Optionee ceased Continuous Status as an Employee. To the
extent that such Optionee was not entitled to exercise the Option at the date of
such termination, or if such Optionee does not exercise an Option which Optionee
was entitled to exercise within the time specified herein, the Option shall
terminate.
     9. Limit on Incentive Stock Options. The aggregate fair market value
(determined at the time an Incentive Stock Option is granted) of the Shares
which may be acquired upon exercise of Incentive Stock Options for the first
time by an Optionee during any calendar year under all incentive stock option
plans of the Company, its Parents or its Subsidiaries, if any, cannot exceed One
Hundred Thousand Dollars ($100,000). Incentive Stock Options which exceed this
limit must be treated as Nonstatutory Stock Options. The Board shall determine,
in accordance with the Code, which of an Optionee’s Incentive Stock Options will
not be treated as Incentive Stock Options as a result of such limitation and
will so notify the Optionee as soon as practicable following such determination.
     10. Nontransferability of Options. Options granted under this Plan may not
be sold, pledged, assigned, hypothecated, gifted, transferred or disposed of in
any manner, either voluntarily or involuntarily by operation of law, other than
by will or by the laws of descent or distribution, and may be exercised during
the lifetime of the Optionee only by such Optionee.
     11. Adjustments Upon Changes in Capitalization or Corporate Change.
          (a) Subject to any required action by the shareholders of the Company,
the number of Shares covered by each outstanding Option, and the number of
Shares which have been authorized for issuance under this Plan but as to which
no Options have yet been granted or which have been returned to this Plan upon
cancellation or expiration of an Option or repurchase of shares from an Optionee
upon termination of employment or service, as well as the exercise or purchase
price per Share covered by each such outstanding Option, shall be
proportionately adjusted for any increase or decrease in the number of issued
Shares resulting from a stock split, reverse stock split, combination or
reclassification of the Common Stock, or the payment of a stock dividend (but
only on the Common Stock) or any other increase or decrease in the number of
issued shares of Common Stock effected without receipt of consideration by the
Company (other than stock bonuses to Employees, including, without limitation,
officers and directors); provided, however, that the conversion of any
convertible securities of the Company shall not be deemed to have been effected
without the receipt of consideration. Such adjustment shall be made by the
Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issue by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of Shares subject to this Plan or an Option.
          (b) In the event of a Corporate Change effected by a transaction in
which the consideration therefor consists only of stock of another issuer, then
the Plan, all Options and Option Agreements in force at the date of the
Corporate Change shall continue to be in full force and effect and shall be
assumed by the merging or acquiring entity.
          (c) In the event of a Corporate Change effected by a transaction in
which the consideration therefor does not consist solely of the stock of another
issuer (e.g., an all cash or part

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cash and part stock transaction), then all Options which are not vested and
exercisable at that date shall terminate immediately.
          (d) No fractional shares of Common Stock shall be issuable on account
of any action described in this Section, and the aggregate number of shares into
which Shares then covered by the Option, when changed as the result of such
action, shall be reduced to the largest number of whole shares resulting from
such action, unless the Board, in its sole discretion, shall determine to issue
scrip certificates in respect to any fractional shares, which scrip
certificates, in such event, shall be in a form and have such terms and
conditions as the Board in its discretion shall prescribe.
     12. Time of Granting Options. The date of grant of an Option shall be the
date on which the Board makes the determination granting such Option; provided,
however, that if the Board determines that such grant shall be as of some future
date, the date of grant shall be such future date. Notice of the determination
shall be given to each Employee to whom an Option is so granted within a
reasonable time after the date of such grant.
     13. Amendment and Termination of this Plan.
          (a) Amendment and Termination. The Board may amend or terminate this
Plan from time to time in such respects as the Board may deem advisable and
shall make any amendments which may be required so that Options intended to be
Incentive Stock Options shall at all times continue to be Incentive Stock
Options for the purpose of the Code, except that, without approval of the
holders of a majority of the outstanding shares of the Company’s capital stock,
no such revision or amendment shall:
               (i) Increase the number of Shares subject to this Plan, other
than in connection with an adjustment under Section 11 of this Plan;
               (ii) Materially change the designation of the class of Employees
eligible to be granted Options;
               (iii) Remove the administration of this Plan from the Board
(other than to the Committee);
               (iv) Materially increase the benefits accruing to participants
under this Plan; or
               (v) Extend the term of this Plan.
          (b) Effect of Amendment or Termination. Except as otherwise provided
in Section 11, any amendment or termination of this Plan shall not affect
Options already granted and such Options shall remain in full force and effect
as if this Plan had not been amended or terminated, unless mutually agreed
otherwise between the Optionee and the Company, which agreement must be in
writing and signed by the Optionee and the Company.

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     14. Conditions Upon Issuance of Shares.
          (a) Shares shall not be issued pursuant to the exercise of an Option
unless the exercise of such Option and the issuance and delivery of such Shares
pursuant thereto shall comply with all relevant provisions of law, including,
without limitation, the Securities Act, the Exchange Act, applicable state
securities laws, the rules and regulations promulgated thereunder, and the
requirement of any stock exchange upon which the Shares may then be listed, and
shall be further subject to the approval of counsel for the Company with respect
to such compliance.
          (b) As a condition to the exercise of an Option, the Board may require
the person exercising such Option to execute an agreement with, and/or may
require the person exercising such Option to make any representation and
warranty to, the Company as may in the judgment of counsel to the Company be
required under applicable law or regulation, including but not limited to a
representation and warranty that the Shares are being purchased only for
investment and without any present intention to sell or distribute such Shares
if, in the opinion of counsel for the Company, such a representation is
appropriate under any of the aforementioned relevant provisions of law.
     15. Reservation of Shares. The Company, during the term of this Plan, at
all times shall reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of this Plan.
     The Company, during the term of this Plan, shall use diligent efforts to
seek to obtain from appropriate regulatory agencies any requisite authorization
in order to issue and sell such number of Shares as shall be sufficient to
satisfy the requirements of this Plan. The inability of the Company to obtain
the requisite authorization(s) deemed by the Company’s counsel to be necessary
for the lawful issuance and sale of any Shares hereunder, or the inability of
the Company to confirm to its satisfaction that any issuance and sale of any
Shares hereunder will meet applicable legal requirements, shall relieve the
Company of any liability in respect to the failure to issue or sell such Shares
as to which such requisite authority shall not have been obtained.
     16. Stock Option and Stock Purchase Agreements. Options shall be evidenced
by written stock option agreements in such form or forms as the Board shall
approve from time to time. Upon the exercise of an Option, the Optionee shall
sign and deliver to the Company a Stock Purchase Agreement (if required to be
executed and delivered to the Company by an Optionee as a condition to the
exercise of an Option) in such form or forms as the Board shall approve from
time to time.
     17. Shareholder Approval. Continuance of this Plan shall be subject to
approval by the shareholders of the Company within twelve (12) months before or
after the date this Plan is adopted by the Board. If such shareholder approval
is obtained at a duly held shareholders’ meeting, it may be obtained by the
affirmative vote of the holders of a majority of the outstanding shares of the
Company entitled to vote thereon. All Options granted prior to shareholder
approval of this Plan are subject to such approval, and if such approval is not
obtained within twelve (12) months before or after the date this Plan is adopted
by the Board all such Options shall expire and shall be of no further force or
effect.

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     18. Taxes. Fees, Expenses and Withholding of Taxes.
          (a) The Company shall pay all original issue and transfer taxes (but
not income taxes, if any) with respect to the grant of Options and/or the issue
and transfer of Shares pursuant to the exercise thereof, and all other fees and
expenses necessarily incurred by the Company in connection therewith, and will
from time to time use diligent efforts to comply with all laws and regulations
which, in the opinion of counsel for the Company, shall be applicable thereto.
          (b) The grant of Options hereunder and the issuance of Shares pursuant
to the exercise thereof is conditioned upon the Company’s reservation of the
right to withhold, in accordance with any applicable law, from any compensation
payable to the Optionee any taxes required to be withheld by federal, state or
local law as a result of the grant or exercise of such Option or the sale of the
Shares issued upon exercise thereof. To the extent that compensation or other
amounts, if any, payable to the Optionee are insufficient to pay any taxes
required to be so withheld, the Company may, in its sole discretion, require the
Optionee, as a condition of the exercise of an Option, to pay in cash to the
Company an amount sufficient to cover such tax liability or otherwise to make
adequate provision for the Company’s satisfaction of its withholding obligations
under federal and state law.
          (c) The Board or the Committee may, in its discretion and upon such
terms and conditions as it may deem appropriate (including the applicable
safe-harbor provisions of SEC Rule 16b-3 and interpretations thereof by the
staff of the Securities and Exchange Commission) provide any or all holders of
outstanding option grants under this Plan with the election to have the Company
withhold, from the shares of Common Stock otherwise issuable upon the exercise
of such options, one or more of such shares with an aggregate fair market value
equal to the designated percentage (any multiple of 5% specified by the
optionee) of the Federal and State income taxes (“Taxes”) incurred in connection
with the acquisition of such Shares. In lieu of such direct withholding, one or
more optionees may also be granted the right to deliver shares of Common Stock
to the Company in satisfaction of such Taxes. The withheld or delivered shares
shall be valued at the Fair Market Value on the applicable determination date
for such Taxes or such other date required by the applicable safe-harbor
provisions of SEC Rule 16b-3.
     19. Liability of Company. The Company, its Parent or any Subsidiary which
is in existence or hereafter comes into existence shall not be liable to an
Optionee or other person if it is determined for any reason by the Internal
Revenue Service or any court having jurisdiction that any Options intended to be
Incentive Stock Options granted hereunder do not qualify as incentive stock
options within the meaning of Section 422 of the Code.
     20. Information to Optionee. The Company shall provide without charge at
least annually to each Optionee during the period his or her Option is
outstanding a balance sheet and income statement of the Company. In the event
that the Company provides annual reports or periodic reports to its shareholders
during the period in which an Optionee’s Option is outstanding, the Company
shall provide to each Optionee a copy of each such report.
     21. Notices. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail,

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as first class, registered or certified mail, with postage and fees prepaid and
addressed (i) if to the Company, at its principal place of business, attention:
Secretary, or (ii) if to the Optionee at his or her address as set forth on the
signature page of his or her Option Agreement, or at such other address as
either party may from time to time designate in writing to other. It shall be
the obligation of each Optionee and each transferee holding Shares purchased
upon exercise of an Option to provide the Secretary of the Company, by letter
mailed as provided hereinabove, with written notice of his or her direct mailing
address.
     22. No Enlargement of Employee Rights. This Plan is purely voluntary on the
part of the Company, and the continuance of this Plan shall not be deemed to
constitute a contract between the Company and any Employee, or to be
consideration for or a condition of the employment or service of any Employee.
Nothing contained in this Plan shall be deemed to give any Employee the right to
be retained in the employ or service of the Company, its Parent, Subsidiary or a
successor corporation, or to interfere with the right of the Company or any such
corporations to discharge or retire any Employee at any time with or without
cause and with or without notice. No Employee shall have any right to or
interest in Options authorized hereunder prior to the grant thereof to such
Employee, and upon such grant such Employee shall have only such rights and
interests as are expressly provided herein, subject, however, to all applicable
provisions of the Company’s Articles of Incorporation, as the same may be
amended from time to time.
     23. Legends on Certificates.
          (a) Federal Law. Unless an appropriate registration statement is filed
pursuant to the Securities Act of 1933 with respect to the Options and Shares
issuable under this Plan, each document or certificate representing such Options
or Shares shall be endorsed thereon with a legend substantially as follows:
“THIS OPTION AND THE SECURITIES WHICH MAY BE PURCHASED UPON EXERCISE OF THIS
SECURITY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION
WITH, THE SALE OR DISTRIBUTION THEREOF. NO SALE, TRANSFER OR DISTRIBUTION MAY BE
EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATING THERETO OR AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED.”
          (b) California Legend. If required by the California Commissioner of
Corporations, each document or certificate representing the Options or Shares
issuable under this Plan shall be endorsed thereon with a legend substantially
as follows:
“IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS OPTION AND THE
SECURITIES WHICH MAY BE PURCHASED UPON EXERCISE OF THIS OPTION, OR ANY INTEREST
THEREIN, OR TO RECEIVE ANY

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CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE
COMMISSIONER’S RULES.”
          (c) Additional Legends. Each document or certificate representing the
Options or Shares issuable under this Plan, where applicable, shall also contain
the legends as may be required under California law or other applicable state or
federal securities laws or by any Stock Purchase Agreement or other agreement
the execution of which is a condition to the exercise of an Option under this
Plan including a legend substantially as follows:
“THIS OPTION AND THE SECURITIES WHICH MAY BE PURCHASED UPON EXERCISE OF THIS
OPTION, OR ANY INTEREST THEREIN, ARE SUBJECT TO CERTAIN RESTRICTIONS, INCLUDING
A RIGHT OF FIRST REFUSAL OF THE COMPANY, AND MAY BE TRANSFERRED ONLY IN
ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE
SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.”
     24. Availability of Plan. A copy of this Plan shall be delivered to the
Secretary of the Company and shall be shown by him to any eligible person making
reasonable inquiry concerning it.
     25. Compliance with Exchange Act Rule 16b-3. With respect to persons
subject to Section 16 of the Exchange Act, transactions under this Plan are
intended to comply with all applicable conditions of Rule 16b-3, promulgated
pursuant to the Exchange Act, or its successors. To the extent any provision of
this Plan or action by the Board or any Committee fails so to comply, it shall
be deemed null and void to the extent permitted by law and deemed advisable by
the Board or any Committee.
     26. Invalid Provisions. In the event that any provision of this Plan is
found to be invalid or otherwise unenforceable under any applicable law, such
invalidity or unenforceability shall not be construed as rendering any other
provisions contained herein as invalid or unenforceable, and all such other
provisions shall be given full force and effect to the same extent as though the
invalid or unenforceable provision was not contained herein.
     27. Applicable Law. This Plan shall be governed by and construed in
accordance with the laws of The State of Delaware.
     As amended and restated by the Board of Directors effective October 31,
2008.

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