Exhibit
10.2


 


BIOMEDICINES,
INC.


 


1998
STOCK OPTION PLAN


 


Adopted
September 22, 1998


Approved
By Stockholders September 22, 1998


Amended
by the Board of Directors April 20, 1999


Approved
by the Stockholders April 20, 1999


Amended
by the Board of Directors March 22, 2000


Approved
by the Stockholders August 31, 2000


Termination
Date:  September 21, 2008


 


1.                                      PURPOSES.


 


(a)                                  Eligible
Option Recipients.  The persons
eligible to receive Options are the Employees, Directors and Consultants of the
Company and its Affiliates.


 


(b)                                  Available
Options.  The purpose of the Plan is
to provide a means by which eligible recipients of Options may be given an
opportunity to benefit from increases in value of the Common Stock through the
granting of the following Options:  (i) Incentive
Stock Options and (ii) Nonstatutory Stock Options.


 


(c)                                  General
Purpose.  The Company, by means of
the Plan, seeks to retain the services of the group of persons eligible to
receive Options, to secure and retain the services of new members of this group
and to provide incentives for such persons to exert maximum efforts for the
success of the Company and its Affiliates.


 


2.                                      DEFINITIONS.


 


(a)                                  “Affiliate” means any parent corporation or subsidiary
corporation of the Company, whether now or hereafter existing, as those terms
are defined in Sections 424(e) and (f), respectively, of the Code.


 


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


 


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


 


(d)                                  “Committee” means a Committee appointed by the Board in
accordance with subsection 3(c).


 


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


 


(f)                                    “Company” means BioMedicines, Inc., a Delaware
corporation.


 


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(g)                                 “Consultant” means any person, including an advisor, (i)
engaged by the Company or an Affiliate to render consulting or advisory
services and who is compensated for such services or (ii) who is a member of
the Board of Directors of an Affiliate. 
However, the term “Consultant” shall not include either Directors of the
Company who are not compensated by the Company for their services as Directors
or Directors of the Company who are merely paid a director’s fee by the Company
for their services as Directors.


 


(h)                                 “Continuous Service” means that the Optionholder’s
service with the Company or an Affiliate, whether as an Employee, Director or
Consultant, is not interrupted or terminated. 
The Optionholder’s Continuous Service shall not be deemed to have
terminated merely because of a change in the capacity in which the Optionholder
renders service to the Company or an Affiliate as an Employee, Consultant or
Director or a change in the entity for which the Optionholder renders such
service, provided that there is no interruption or termination of the
Optionholder’s Continuous Service.  For
example, a change in status from an Employee of the Company to a Consultant of
an Affiliate or a Director of the Company will not constitute an interruption
of Continuous Service.  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 any leave of absence approved by that party, including sick leave,
military leave or any other personal leave.


 


(i)                                    “Covered Employee” means the chief executive officer and
the four (4) other highest compensated officers of the Company for whom total
compensation is required to be reported to stockholders under the Exchange Act,
as determined for purposes of Section 162(m) of the Code.


 


(j)                                    “Director” means a member of the Board of Directors of
the Company.


 


(k)                                “Disability” means (i) before the Listing Date, the
inability of a person, in the opinion of a qualified physician acceptable to
the Company, to perform the major duties of that person’s position with the
Company or an Affiliate of the Company because of the sickness or injury of the
person and (ii) after the Listing Date, the permanent and total disability of a
person within the meaning of Section 22(e)(3) of the Code.


 


(l)                                    “Employee” means any person employed by the Company or
an Affiliate.  Mere service as a Director
or payment of a director’s fee by the Company or an Affiliate shall not be
sufficient to constitute “employment” by the Company or an Affiliate.


 


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


 


(n)                                 “Fair Market Value” means, as of any date, the value of
the Common Stock determined as follows:


 


(i)                                    If
the Common Stock is listed on any established stock exchange or traded on the
Nasdaq National Market or the Nasdaq SmallCap Market, the Fair Market Value of
a share of Common Stock shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or market
(or the exchange or market with the


 


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greatest volume of trading in the Common Stock) on the
last market trading day prior to the day of determination, as reported in The Wall Street Journal or such
other source as the Board deems reliable.


 


(ii)                                In
the absence of such markets for the Common Stock, the Fair Market Value shall
be determined in good faith by the Board.


 


(iii)                            Prior
to the Listing Date, the value of the Common Stock shall be determined in a manner
consistent with Section 260.140.50 of Title 10 of the California Code of
Regulations.


 


(o)                                  “Incentive Stock Option” means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of
the Code and the regulations promulgated thereunder.


 


(p)                                  “Listing Date” means the first date upon which any
security of the Company is listed (or approved for listing) upon notice of
issuance on any securities exchange or designated (or approved for designation)
upon notice of issuance as a national market security on an interdealer
quotation system if such securities exchange or interdealer quotation system
has been certified in accordance with the provisions of Section 25100(o) of the
California Corporate Securities Law of 1968.


 


(q)                                  “Non-Employee Director”  means a Director of the Company
who either (i) is not a current Employee or Officer of the Company or its
parent or a subsidiary, does not receive compensation (directly or indirectly)
from the Company or its parent or a subsidiary 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 as to which disclosure would be
required under Item 404(a) of Regulation S-K and is not engaged in a business
relationship as to which disclosure would be required under Item 404(b) of
Regulation S-K; or (ii) is otherwise considered a “non-employee director” for
purposes of Rule 16b-3.


 


(r)                                  “Nonstatutory Stock Option” means an Option not intended
to qualify as an Incentive Stock Option.


 


(s)                                  “Officer” means (i) before the Listing Date, any person
designated by the Company as an officer and (ii) on and after the Listing Date,
a person who is an officer of the Company within the meaning of Section 16
of the Exchange Act and the rules and regulations promulgated thereunder.


 


(t)                                    “Option” means an Incentive Stock Option or a
Nonstatutory Stock Option granted pursuant to the Plan.


 


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(u)                                 “Option Agreement” means a written agreement between the
Company and an Optionholder evidencing the terms and conditions of an individual
Option grant.  Each Option Agreement
shall be subject to the terms and conditions of the Plan.


 


(v)                                   “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.


 


(w)                                “Outside Director” means a Director of the Company 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” receiving compensation for prior services (other than benefits
under a tax qualified pension plan), was not an officer of the Company or an “affiliated
corporation” at any time and is not currently receiving direct or indirect
remuneration from the Company or an “affiliated corporation” for services 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.


 


(x)                                  “Plan” means this BioMedicines, Inc. 1998 Stock Option
Plan.


 


(y)                                  “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.


 


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


 


(aa)                            “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 of any of its Affiliates.


 


3.                                      ADMINISTRATION.


 


(a)                                  Administration
by Board.  The Board shall administer
the Plan unless and until the Board delegates administration to a Committee, as
provided in subsection 3(c).


 


(b)                                  Powers
of Board.  The Board shall have the
power, subject to, and within the limitations of, the express provisions of the
Plan:


 


(i)                                    To
determine from time to time which of the persons eligible under the Plan shall
be granted Options; when and how each Option shall be granted; what type of
Option shall be granted; the provisions of each Option granted (which need not
be identical), including the time or times when a person shall be permitted to
receive stock pursuant to an Option; and the number of shares with respect to
which an Option shall be granted to each such person.


 


(ii)                                To
construe and interpret the Plan and Options 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 Option
Agreement, in a manner and to the extent it shall deem necessary or expedient
to make the Plan fully effective.


 


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(iii)                            To
amend the Plan or an Option as provided in Section 11.


 


(iv)                               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 which are not in
conflict with the provisions of the Plan.


 


(c)                                  Delegation
to Committee.


 


(i)                                    General.  The Board may delegate administration of the
Plan to a Committee or Committees of one or more members of the Board, and the
term “Committee” shall apply to any person or persons to whom such authority
has been delegated.  If administration is
delegated to a Committee, the Committee shall have, in connection with the
administration of the Plan, the powers theretofore possessed by the Board,
including the power to delegate to a subcommittee 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 abolish the Committee at any
time and revest in the Board the administration of the Plan.


 


(ii)                                Committee
Composition when Common Stock is Publicly Traded.  At such time as the Common Stock is publicly
traded, in the discretion of the Board, a Committee may consist solely of two
or more Outside Directors, in accordance with Section 162(m) of the Code,
and/or solely of two or more Non-Employee Directors, in accordance with Rule
16b-3.  Within the scope of such
authority, the Board or the Committee may (i) delegate to a committee of one or
more members of the Board who are not Outside Directors the authority to grant
Options to eligible persons who are either (1) not then Covered Employees and
are not expected to be Covered Employees at the time of recognition of income
resulting from such Option or (2) not persons with respect to whom the Company
wishes to comply with Section 162(m) of the Code and/or) (ii) delegate to a
committee of one or more members of the Board who are not Non-Employee
Directors the authority to grant Options to eligible persons who are not then
subject to Section 16 of the Exchange Act.


 


4.                                      SHARES
SUBJECT TO THE PLAN.


 


(a)                                  Share
Reserve.  Subject to the provisions
of Section 10 relating to adjustments upon changes in stock, the stock that may
be issued pursuant to Options shall not exceed in the aggregate one million
four hundred fifty thousand (1,450,000) shares of Common Stock, less the number
of shares subject to outstanding stock options outstanding immediately prior to
adoption of the Plan (provided that if any such options shall for any reason
expire or terminate, in whole or in part, without having been exercised in
full, the stock not acquired under such options shall no longer be deducted
from the shares reserved under the Plan).


 


(b)                                  Reversion
of Shares to the Share Reserve.  If
any Option shall for any reason expire or otherwise terminate, in whole or in
part, without having been exercised in full, the stock not acquired under such
Option shall revert to and again become available for issuance under the
Plan.  If any Common Stock acquired
pursuant to the exercise of an Option shall for


 


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any reason be repurchased by the Company under an
unvested share repurchase option provided under the Plan, the stock repurchased
by the Company under such repurchase option shall not revert to and again
become available for issuance under the Plan.


 


(c)                                  Source
of Shares.  The stock subject to the
Plan may be unissued shares or reacquired shares, bought on the market or
otherwise.


 


(d)                                  Share
Reserve Limitation.  Prior to the
Listing Date, at no time shall the total number of shares issuable upon
exercise of all outstanding Options and the total number of shares provided for
under any stock bonus or similar plan of the Company exceed the applicable
percentage as calculated in accordance with the conditions and exclusions of
Section 260.140.45 of Title 10 of the California Code of Regulations, based on
the shares of the Company which are outstanding at the time the calculation is
made.


 


5.                                      ELIGIBILITY.


 


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


 


(b)                                  Ten
Percent Stockholders.  No Ten Percent
Stockholder shall be eligible for the grant of an Incentive Stock Option unless
the exercise price of such Option is at least one hundred ten percent (110%) of
the Fair Market Value of the Common Stock at the date of grant and the Option
is not exercisable after the expiration of five (5) years from the date of
grant.


 


Prior to the Listing Date, no Ten Percent Stockholder
shall be eligible for the grant of a Nonstatutory Stock Option unless the
exercise price of such Option is at least one hundred ten percent (110%) of the
Fair Market Value of the Common Stock at the date of grant.


 


6.                                      OPTION
PROVISIONS.


 


Each Option shall be in such form and shall contain
such terms and conditions as the Board shall deem appropriate.  All Options shall be separately designated
Incentive Stock Options or Nonstatutory Stock Options at the time of grant, and
a separate certificate or certificates will be issued for shares purchased on
exercise of each type of Option.  The provisions
of separate Options need not be identical, but each Option shall include
(through incorporation of provisions hereof by reference in the Option or
otherwise) the substance of each of the following provisions:


 


(a)                                  Term.  Subject to the provisions of subsection 5(b)
regarding Ten Percent Stockholders, no Option shall be exercisable after the
expiration of ten (10) years from the date it was granted.


 


(b)                                  Exercise
Price of an Incentive Stock Option. 
Subject to the provisions of subsection 5(b) regarding Ten Percent
Stockholders, the exercise price of each Incentive Stock Option shall be not
less than one hundred percent (100%) of the Fair Market Value of the stock


 


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subject to the Option on the date the Option is
granted.  Notwithstanding the foregoing,
an Incentive Stock Option may be granted with an exercise price lower than that
set forth in the preceding sentence if such Option is granted pursuant to an
assumption or substitution for another option in a manner satisfying the
provisions of Section 424(a) of the Code.


 


(c)                                  Exercise
Price of a Nonstatutory Stock Option. 
Subject to the provisions of subsection 5(b) regarding Ten Percent
Stockholders, the exercise price of each Nonstatutory Stock Option granted
prior to the Listing Date shall be not less than eighty-five percent (85%) of
the Fair Market Value of the stock subject to the Option on the date the Option
is granted.  The exercise price of each
Nonstatutory Stock Option granted on or after the Listing Date shall be not
less than eighty-five percent (85%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted.  Notwithstanding the foregoing, a Nonstatutory
Stock Option may be granted with an exercise price lower than that set forth in
the preceding sentence if such Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of
Section 424(a) of the Code.


 


(d)                                  Consideration.  The purchase price of stock acquired pursuant
to an Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised or (ii) at
the discretion of the Board at the time of the grant of the Option (or
subsequently in the case of a Nonstatutory Stock Option) by (1) delivery to the
Company of other Common Stock, (2) according to a deferred payment or other
arrangement (which may include, without limiting the generality of the
foregoing, the use of other Common Stock) with the Optionholder or (3) in any
other form of legal consideration that may be acceptable to the Board;
provided, however, that at any time that the Company is incorporated in
Delaware, payment of the Common Stock’s “par value,” as defined in the Delaware
General Corporation Law, shall not be made by deferred payment.


 


In the case of any deferred payment arrangement,
interest shall be compounded at least annually and shall be charged at the
minimum rate of interest necessary to avoid the treatment as interest, under
any applicable provisions of the Code, of any amounts other than amounts stated
to be interest under the deferred payment arrangement.


 


(e)                                  Transferability
of an Incentive Stock Option.  An
Incentive Stock Option shall not be transferable except by will or by the laws
of descent and distribution and shall be exercisable during the lifetime of the
Optionholder only by the Optionholder. 
Notwithstanding the foregoing provisions of this subsection 6(e), the
Optionholder may, by delivering written notice to the Company, in a form satisfactory
to the Company, designate a third party who, in the event of the death of the
Optionholder, shall thereafter be entitled to exercise the Option.


 


(f)                                    Transferability
of a Nonstatutory Stock Option.  A
Nonstatutory Stock Option granted prior to the Listing Date shall not be
transferable except by will or by the laws of descent and distribution and
shall be exercisable during the lifetime of the Optionholder only by the
Optionholder.  A Nonstatutory Stock Option
granted on or after the Listing Date shall be transferable to the extent
provided in the Option Agreement.  If the
Nonstatutory Stock Option does not provide for transferability, then the
Nonstatutory Stock Option shall not be transferable except by will or by the
laws of descent and distribution and shall be exercisable during the




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lifetime of the Optionholder only by the
Optionholder.  Notwithstanding the
foregoing provisions of this subsection 6(f), the Optionholder may, by
delivering written notice to the Company, in a form satisfactory to the
Company, designate a third party who, in the event of the death of the
Optionholder, shall thereafter be entitled to exercise the Option.


 


(g)                                 Vesting
Generally.  The total number of
shares of Common Stock subject to an Option may, but need not, vest and
therefore become exercisable in periodic installments which may, but need not,
be equal.  The Option may be subject to
such other terms and conditions on the time or times when it may be exercised
(which may be based on performance or other criteria) as the Board may deem
appropriate.  The vesting provisions of
individual Options may vary.  The
provisions of this subsection 6(g) are subject to any Option provisions
governing the minimum number of shares as to which an Option may be exercised.


 


(h)                                 Minimum
Vesting Prior to the Listing Date. 
Notwithstanding the foregoing subsection 6(g), Options granted prior to
the Listing Date shall provide for vesting of the total number of shares at a
rate of at least twenty percent (20%) per year over five (5) years from the
date the Option was granted, subject to reasonable conditions such as continued
employment.  However, in the case of such
Options granted to Officers, Directors or Consultants, the Option may become
fully exercisable, subject to reasonable conditions such as continued
employment, at any time or during any period established by the Company; for
example, the vesting provision of the Option may provide for vesting of less
than twenty percent (20%) per year of the total number of shares subject to the
Option.


 


(i)                                    Termination
of Continuous Service.  In the event
an Optionholder’s Continuous Service terminates (other than upon the
Optionholder’s death or Disability), the Optionholder may exercise his or her
Option (to the extent that the Optionholder was entitled to exercise it as of
the date of termination) but only within such period of time ending on the
earlier of (i) the date three (3) months following the termination of the
Optionholder’s Continuous Service (or such longer or shorter period specified
in the Option Agreement, which, for Options granted prior to the Listing Date,
shall not be less than thirty (30) days, unless such termination is for cause),
or (ii) the expiration of the term of the Option as set forth in the Option
Agreement.  If, after termination, the
Optionholder does not exercise his or her Option within the time specified in
the Option Agreement, the Option shall terminate.


 


(j)                                    Extension
of Termination Date.  An Optionholder’s
Option Agreement may also provide that if the exercise of the Option following
the termination of the Optionholder’s Continuous Service (other than upon the
Optionholder’s death or Disability) would be prohibited at any time solely
because the issuance of shares would violate the registration requirements
under the Securities Act, then the Option shall terminate on the earlier of (i)
the expiration of the term of the Option set forth in subsection 6(a) or (ii)
the expiration of a period of three (3) months after the termination of the
Optionholder’s Continuous Service during which the exercise of the Option would
not be in violation of such registration requirements.


 


(k)                                Disability
of Optionholder.  In the event an
Optionholder’s Continuous Service terminates as a result of the Optionholder’s
Disability, the Optionholder may exercise his or her Option (to the extent that
the Optionholder was entitled to exercise it as of the date of




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termination), but only within such period of time
ending on the earlier of (i) the date twelve (12) months following such
termination (or such longer or shorter period specified in the Option
Agreement, which, for Options granted prior to the Listing Date, shall not be
less than six (6) months) or (ii) the expiration of the term of the Option as
set forth in the Option Agreement.  If,
after termination, the Optionholder does not exercise his or her Option within
the time specified herein, the Option shall terminate.


 


(l)                                    Death
of Optionholder.  In the event (i) an
Optionholder’s Continuous Service terminates as a result of the Optionholder’s
death or (ii) the Optionholder dies within the period (if any) specified in the
Option Agreement after the termination of the Optionholder’s Continuous Service
for a reason other than death, then the Option may be exercised (to the extent
the Optionholder was entitled to exercise the Option as of the date of death)
by the Optionholder’s estate, by a person who acquired the right to exercise
the Option by bequest or inheritance or by a person designated to exercise the
option upon the Optionholder’s death pursuant to subsection 6(e) or 6(f), but
only within the period ending on the earlier of (1) the date eighteen (18)
months following the date of death (or such longer or shorter period specified
in the Option Agreement, which, for Options granted prior to the Listing Date,
shall not be less than six (6) months) or (2) the expiration of the term of
such Option as set forth in the Option Agreement.  If, after death, the Option is not exercised
within the time specified herein, the Option shall terminate.


 


(m)                              Early
Exercise.  The Option may, but need
not, include a provision whereby the Optionholder may elect at any time before
the Optionholder’s Continuous Service terminates to exercise the Option as to
any part or all of the shares subject to the Option prior to the full vesting
of the Option.  Subject to the “Repurchase
Limitation” in subsection 9(h), any unvested shares so purchased may be subject
to an unvested share repurchase option in favor of the Company or to any other
restriction the Board determines to be appropriate.


 


(n)                                 Right
of Repurchase.  Subject to the “Repurchase
Limitation” in subsection 9(h), the Option may, but need not, include a
provision whereby the Company may elect, prior to the Listing Date, to
repurchase all or any part of the vested shares acquired by the Optionholder
pursuant to the exercise of the Option.


 


(o)                                  Right
of First Refusal.  The Option may,
but need not, include a provision whereby the Company may elect, prior to the
Listing Date, to exercise a right of first refusal following receipt of notice
from the Optionholder of the intent to transfer all or any part of the shares
exercised pursuant to the Option.  Except
as expressly provided in this subsection 6(o), such right of first refusal
shall otherwise comply with any applicable provisions of the Bylaws of the
Company.


 


(p)                                  Re-Load
Options.  Without in any way limiting
the authority of the Board to make or not to make grants of Options hereunder,
the Board shall have the authority (but not an obligation) to include as part
of any Option Agreement a provision entitling the Optionholder to a further
Option (a “Re-Load Option”) in the event the Optionholder exercises the Option
evidenced by the Option Agreement, in whole or in part, by surrendering other
shares of Common Stock in accordance with this Plan and the terms and
conditions of the Option




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Agreement.  Any
such Re-Load Option shall (i) provide for a number of shares equal to the
number of shares surrendered as part or all of the exercise price of such
Option; (ii) have an expiration date which is the same as the expiration date
of the Option the exercise of which gave rise to such Re-Load Option; and (iii)
have an exercise price which is equal to one hundred percent (100%) of the Fair
Market Value of the Common Stock subject to the Re-Load Option on the date of
exercise of the original Option. 
Notwithstanding the foregoing, a Re-Load Option shall be subject to the
same exercise price and term provisions heretofore described for Options under
the Plan.


 


Any such Re-Load Option may be an Incentive Stock
Option or a Nonstatutory Stock Option, as the Board may designate at the time
of the grant of the original Option; provided, however, that the designation of
any Re-Load Option as an Incentive Stock Option shall be subject to the one
hundred thousand dollars ($100,000) annual limitation on exercisability of
Incentive Stock Options described in subsection 9(d) and in Section 422(d) of
the Code.  There shall be no Re-Load
Options on a Re-Load Option.  Any such
Re-Load Option shall be subject to the availability of sufficient shares under
subsection 4(a) and the “Section 162(m) Limitation” on the grants of Options
under subsection 5(c) and shall be subject to such other terms and conditions
as the Board may determine which are not inconsistent with the express
provisions of the Plan regarding the terms of Options.


 


7.                                      COVENANTS
OF THE COMPANY.


 


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


 


(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 Options and to issue
and sell shares of Common Stock upon exercise of the Options; provided,
however, that this undertaking shall not require the Company to register under
the Securities Act the Plan, any Option or any stock issued or issuable
pursuant to any such Option.  If, after
reasonable efforts, the Company is unable to obtain from any such regulatory
commission or agency the authority which counsel for the Company deems
necessary for the lawful issuance and sale of stock under the Plan, the Company
shall be relieved from any liability for failure to issue and sell stock upon
exercise of such Options unless and until such authority is obtained.


 


8.                                      USE
OF PROCEEDS FROM STOCK.


 


Proceeds from the sale of stock pursuant to Options
shall constitute general funds of the Company.


 


9.                                      MISCELLANEOUS.


 


(a)                                  Acceleration
of Exercisability and Vesting.  The
Board shall have the power to accelerate the time at which an Option may first
be exercised or the time during which an Option


 


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or any part thereof will vest in accordance with the
Plan, notwithstanding the provisions in the Option stating the time at which it
may first be exercised or the time during which it will vest.


 


(b)                                  Stockholder
Rights.  No Optionholder shall be
deemed to be the holder of, or to have any of the rights of a holder with
respect to, any shares subject to such Option unless and until such
Optionholder has satisfied all requirements for exercise of the Option pursuant
to its terms.


 


(c)                                  No
Employment or other Service Rights. 
Nothing in the Plan or any instrument executed or Option granted
pursuant thereto shall confer upon any Optionholder any right to continue to
serve the Company or an Affiliate in the capacity in effect at the time the
Option 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.


 


(d)                                  Incentive
Stock Option $100,000 Limitation.  To
the extent that the aggregate Fair Market Value (determined at the time of
grant) of 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 its Affiliates) exceeds one hundred thousand dollars
($100,000), the Options or portions thereof which exceed such limit (according
to the order in which they were granted) shall be treated as Nonstatutory Stock
Options.


 


(e)                                  Investment
Assurances.  The Company may require
an Optionholder, as a condition of exercising or acquiring stock under any
Option, (i) to give written assurances satisfactory to the Company as to the
Optionholder’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 Option; and (ii) to give
written assurances satisfactory to the Company stating that the Optionholder is
acquiring the stock subject to the Option for the Optionholder’s own account
and not with any present intention of selling or otherwise distributing the
stock.  The foregoing requirements, and
any assurances given pursuant to such requirements, shall be inoperative if
(iii) the issuance of the shares upon the exercise or acquisition of stock under
the Option has been registered under a then currently effective registration
statement under the Securities Act or (iv) 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
stock.


 


(f)                                    Withholding
Obligations.  To the extent provided
by the terms of an Option Agreement, the Optionholder may satisfy any federal,
state or local tax withholding obligation


 


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relating to the exercise or acquisition of stock under
an Option by any of the following means (in addition to the Company’s right to
withhold from any compensation paid to the Optionholder by the Company) or by a
combination of such means:  (i) tendering
a cash payment; (ii) authorizing the Company to withhold shares from the shares
of the Common Stock otherwise issuable to the Optionholder as a result of the
exercise or acquisition of stock under the Option; or (iii) delivering to the
Company owned and unencumbered shares of the Common Stock.


 


(g)                                 Information
Obligation.  Prior to the Listing
Date, to the extent required by Section 260.140.46 of Title 10 of the
California Code of Regulations, the Company shall deliver financial statements
to Optionholders at least annually.  This
subsection 9(g) shall not apply to key Employees whose duties in connection
with the Company assure them access to equivalent information.


 


(h)                                 Repurchase
Limitation.  The terms of any
repurchase option shall be specified in the Option and may be either at Fair
Market Value at the time of repurchase or at not less than the original
purchase price.  To the extent required
by Section 260.140.41 and Section 260.140.42 of Title 10 of the California Code
of Regulations, any repurchase option contained in an Option granted prior to
the Listing Date to a person who is not an Officer, Director or Consultant
shall be upon the terms described below:


 


(i)                                    Fair
Market Value.  If the repurchase
option gives the Company the right to repurchase the shares upon termination of
employment at not less than the Fair Market Value of the shares to be purchased
on the date of termination of Continuous Service, then (i) the right to
repurchase shall be exercised for cash or cancellation of purchase money
indebtedness for the shares within ninety (90) days of termination of
Continuous Service (or in the case of shares issued upon exercise of Options
after such date of termination, within ninety (90) days after the date of the
exercise) or such longer period as may be agreed to by the Company and the
Optionholder (for example, for purposes of satisfying the requirements of
Section 1202(c)(3) of the Code regarding “qualified small business stock”) and
(ii) the right terminates when the shares become publicly traded.


 


(ii)                                Original
Purchase Price.  If the repurchase
option gives the Company the right to repurchase the shares upon termination of
Continuous Service at the original purchase price, then (i) the right to
repurchase at the original purchase price shall lapse at the rate of at least
twenty percent (20%) of the shares per year over five (5) years from the date
the Option is granted (without respect to the date the Option was exercised or
became exercisable) and (ii) the right to repurchase shall be exercised for
cash or cancellation of purchase money indebtedness for the shares within
ninety (90) days of termination of Continuous Service (or in the case of shares
issued upon exercise of Options after such date of termination, within ninety
(90) days after the date of the exercise) or such longer period as may be
agreed to by the Company and the Optionholder (for example, for purposes of
satisfying the requirements of Section 1202(c)(3) of the Code regarding “qualified
small business stock”).


 


 


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(i)                                    Cancellation
and Re-Grant of Options.


 


(i)                                    Authority
to Reprice.  The Board shall have the
authority to effect, at any time and from time to time, (i) the repricing
of any outstanding Options under the Plan and/or (ii) with the consent of
any adversely affected holders of Options, the cancellation of any outstanding
Options under the Plan and the grant in substitution therefor of new Options
under the Plan covering the same or different numbers of shares of Common
Stock.  The exercise price per share
shall be not less than that specified under the Plan for newly granted
Options.  Notwithstanding the foregoing,
the Board may grant an Option with an exercise price lower than that set forth
above if such Option is granted as part of a transaction to which Section
424(a) of the Code applies.


 


(ii)                                Effect
of Repricing under Section 162(m) of the Code.  Shares subject to an Option which is amended
or canceled in order to set a lower exercise price per share shall continue to
be counted against the maximum award of Options permitted to be granted
pursuant to subsection 5(c).  The
repricing of an Option under this subsection 9(i) resulting in a reduction of the
exercise price shall be deemed to be a cancellation of the original Option and
the grant of a substitute Option; in the event of such repricing, both the
original and the substituted Options shall be counted against the maximum
awards of Options permitted to be granted pursuant to subsection 5(c).  The provisions of this subsection 9(i)(b)
shall be applicable only to the extent required by Section 162(m) of the Code.


 


10.                               ADJUSTMENTS
UPON CHANGES IN STOCK.


 


(a)                                  Capitalization
Adjustments.  If any change is made
in the stock subject to the Plan, or subject to any Option, without the receipt
of consideration by the Company (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange
of shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan will be appropriately
adjusted in the class(es) and maximum number of securities subject to the Plan
pursuant to subsection 4(a) and the maximum number of securities subject to
award to any person pursuant to subsection 5(c), and the outstanding Options
will be appropriately adjusted in the class(es) and number of securities and
price per share of stock subject to such outstanding Options.  The Board, the determination of which shall
be final, binding and conclusive, shall make such adjustments.  (The conversion of any convertible securities
of the Company shall not be treated as a transaction “without receipt of
consideration” by the Company.)


 


(b)                                  Change
in Control—Dissolution or Liquidation. 
In the event of a dissolution or liquidation of the Company, then such
Options shall be terminated if not exercised (if applicable) prior to such
event.


 


(c)                                  Change
in Control—Asset Sale, Merger, Consolidation or Reverse Merger.  In the event of (i) a sale of substantially
all of the assets of the Company, (ii) a merger or consolidation in which the
Company is not the surviving corporation or (iii) a reverse merger in which the
Company is the surviving corporation but the shares of Common Stock outstanding
immediately preceding the merger are converted by virtue of the merger into
other property, whether in the form of securities, cash or otherwise, then any
surviving corporation or acquiring


 


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corporation shall assume any Options outstanding under
the Plan or shall substitute similar Options (including an option to acquire
the same consideration paid to the stockholders in the transaction described in
this subsection 10(c) for those outstanding under the Plan.  In the event any surviving corporation or
acquiring corporation refuses to assume such Options or to substitute similar
Options for those outstanding under the Plan, then with respect to Options held
by Optionholders whose Continuous Service has not terminated, the vesting of
such Options shall be accelerated in full, and the Options shall terminate if
not exercised at or prior to such event. 
With respect to any other Options outstanding under the Plan, such
Options shall terminate if not exercised prior to such event.


 


11.                               AMENDMENT
OF THE PLAN AND OPTIONS.


 


(a)                                  Amendment
of Plan.  The Board at any time, and
from time to time, may amend the Plan. 
However, except as provided in Section 10 relating to adjustments upon
changes in stock, no amendment shall be effective unless approved by the
stockholders of the Company to the extent stockholder approval is necessary to
satisfy the requirements of Section 422 of the Code, Rule 16b-3 or any Nasdaq
or securities exchange listing requirements.


 


(b)                                  Stockholder
Approval.  The Board may, in its sole
discretion, submit any other amendment to the Plan for stockholder approval, including,
but not limited to, amendments to the Plan intended to satisfy the requirements
of Section 162(m) of the Code and the regulations thereunder regarding the
exclusion of performance-based compensation from the limit on corporate
deductibility of compensation paid to certain executive officers.


 


(c)                                  Contemplated
Amendments.  It is expressly
contemplated that the Board may amend the Plan in any respect the Board deems
necessary or advisable to provide eligible Employees with the maximum benefits
provided or to be provided under the provisions of the Code and the regulations
promulgated thereunder relating to Incentive Stock Options and/or to bring the
Plan and/or Incentive Stock Options granted under it into compliance therewith.


 


(d)                                  No
Impairment of Rights.  Rights under
any Option granted before amendment of the Plan shall not be impaired by any
amendment of the Plan unless (i) the Company requests the consent of the
Optionholder and (ii) the Optionholder consents in writing.


 


(e)                                  Amendment
of Options.  The Board at any time,
and from time to time, may amend the terms of any one or more Options;
provided, however, that the rights under any Option shall not be impaired by
any such amendment unless (i) the Company requests the consent of the
Optionholder and (ii) the Optionholder consents in writing.


 


12.                               TERMINATION
OR SUSPENSION OF THE PLAN.


 


(a)                                  Plan
Term.  The Board may suspend or
terminate the Plan at any time.  Unless
sooner terminated, the Plan shall terminate on the day before the tenth (10th)
anniversary of the date the Plan is adopted by the Board or approved by the
stockholders of the Company, whichever is earlier.  No Options may be granted under the Plan
while the Plan is suspended or after it is terminated.


 


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(b)                                  No
Impairment of Rights.  Suspension or
termination of the Plan shall not impair rights and obligations under any
Option granted while the Plan is in effect except with the written consent of
the Optionholder.


 


13.                               EFFECTIVE
DATE OF PLAN.


 


The Plan shall become
effective as determined by the Board, but no Option shall be exercised unless
and until the Plan has been approved by the stockholders of the Company, which
approval shall be within twelve (12) months of the date the Plan is adopted by
the Board.


 


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