Exhibit 10.3


 


INTARCIA
THERAPEUTICS, INC.


 


2002
EQUITY INCENTIVE PLAN


 


ADOPTED:  MARCH 5, 2002


APPROVED
BY STOCKHOLDERS:  MAY 23, 2002


AMENDED
BY THE BOARD OF DIRECTORS: JUNE 7, 2003


APPROVED
BY STOCKHOLDERS:  JUNE 16, 2003


AMENDED
BY THE BOARD OF DIRECTORS: MAY 20, 2004


APPROVED
BY STOCKHOLDERS:  SEPTEMBER 23, 2004


AMENDED
BY THE BOARD OF DIRECTORS: NOVEMBER 12, 2004


APPROVED
BY STOCKHOLDERS:  NOVEMBER 18, 2004


TERMINATION
DATE:  MARCH 5, 2012


 


1.                                      PURPOSES.


 


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


 


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


 


(c)                                  General
Purpose.  The Company, by means of
the Plan, seeks to retain the services of the group of persons eligible to
receive Stock Awards, 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)                                  “Capitalization Adjustment” has the meaning ascribed to
that term in Section 11(a).


 


(d)                                  “Change in Control” means the occurrence, in a single
transaction or in a series of related transactions, of any one or more of the
following events:


 


(i)                                    any
Exchange Act Person becomes the Owner, directly or indirectly, of securities of
the Company representing more than fifty percent (50%) of the combined voting 


 


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power of the Company’s then outstanding securities
other than by virtue of a merger, consolidation or similar transaction.  Notwithstanding the foregoing, a Change in
Control shall not be deemed to occur solely because the level of Ownership held
by any Exchange Act Person (the “Subject Person”) exceeds the designated
percentage threshold of the outstanding voting securities as a result of a
repurchase or other acquisition of voting securities by the Company reducing
the number of shares outstanding, provided that if a Change in Control would
occur (but for the operation of this sentence) as a result of the acquisition
of voting securities by the Company, and after such share acquisition, the
Subject Person becomes the Owner of any additional voting securities that,
assuming the repurchase or other acquisition had not occurred, increases the
percentage of the then outstanding voting securities Owned by the Subject
Person over the designated percentage threshold, then a Change in Control shall
be deemed to occur.


 


(ii)                                there
is consummated a merger, consolidation or similar transaction involving
(directly or indirectly) the Company and, immediately after the consummation of
such merger, consolidation or similar transaction, the stockholders of the
Company immediately prior thereto do not Own, directly or indirectly,
outstanding voting securities representing more than fifty percent (50%) of the
combined outstanding voting power of the surviving Entity in such merger,
consolidation or similar transaction or more than fifty percent (50%) of the
combined outstanding voting power of the parent of the surviving Entity in such
merger, consolidation or similar transaction;


 


(iii)                            the
stockholders of the Company approve or the Board approves a plan of complete
dissolution or liquidation of the Company, or a complete dissolution or
liquidation of the Company shall otherwise occur; or


 


(iv)                               there
is consummated a sale, lease, license or other disposition of all or
substantially all of the consolidated assets of the Company and its
Subsidiaries, other than a sale, lease, license or other disposition of all or
substantially all of the consolidated assets of the Company and its
Subsidiaries to an Entity, more than fifty percent (50%) of the combined voting
power of the voting securities of which are Owned by stockholders of the
Company in substantially the same proportions as their Ownership of the Company
immediately prior to such sale, lease, license or other disposition.


 


Notwithstanding the foregoing
or any other provision of this Plan, the definition of Change in Control (or
any analogous term) in an individual written agreement between the Company or
any Affiliate and the Participant shall supersede the foregoing definition with
respect to Stock Awards subject to such agreement (it being understood,
however, that if no definition of Change in Control or any analogous term is
set forth in such an individual written agreement, the foregoing definition
shall apply).


 


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


 


(f)                                    “Committee” means a committee of one or more members of
the Board appointed by the Board in accordance with Section 3(c).


 


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


 


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(h)                                 “Company” means Intarcia Therapeutics, Inc., a Delaware
corporation.


 


(i)                                    “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) serving as a member
of the Board of Directors of an Affiliate and who is compensated for such
services.  However, the term “Consultant”
shall not include Directors who are not compensated by the Company for their
services as Directors, and the payment of a director’s fee by the Company for
services as a Director shall not cause a Director to be considered a “Consultant”
for purposes of the Plan.


 


(j)                                    “Continuous Service” means that the Participant’s
service with the Company or an Affiliate, whether as an Employee, Director or
Consultant, is not interrupted or terminated. 
A change in the capacity in which the Participant renders service to the
Company or an Affiliate as an Employee, Consultant or Director or a change in
the entity for which the Participant renders such service, provided that there
is no interruption or termination of the Participant’s service with the Company
or an Affiliate, shall not terminate a Participant’s Continuous Service.  For example, a change in status from an
Employee of the Company to a Consultant of an Affiliate or a Director shall 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.  Notwithstanding the
foregoing, a leave of absence shall be treated as Continuous Service for
purposes of vesting in a Stock Award only to such extent as may be provided in
the Company’s leave of absence policy or in the written terms of the
Participant’s leave of absence.


 


(k)                                “Corporate Transaction” means the occurrence, in a
single transaction or in a series of related transactions, of any one or more
of the following events:


 


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


 


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


 


(iii)                            a
merger, consolidation or similar transaction following which the Company is not
the surviving corporation; or


 


(iv)                               a
merger, consolidation or similar transaction following which the Company is the
surviving corporation but the shares of Common Stock outstanding immediately
preceding the merger, consolidation or similar transaction are converted or
exchanged by virtue of the merger, consolidation or similar transaction into
other property, whether in the form of securities, cash or otherwise.


 


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


 


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(m)                              “Disability” means 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 because
of the sickness or injury of the person.


 


(n)                                 “Employee” means any person employed by the Company or
an Affiliate.  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.


 


“Entity”
means a corporation, partnership or other entity.


 


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


 


(p)                                  “Exchange Act Person” means any natural person, Entity
or “group” (within the meaning of Section 13(d) or 14(d) of the Exchange Act),
except that “Exchange Act Person” shall not include (A) the Company or any
Subsidiary of the Company, (B) any employee benefit plan of the Company or any
Subsidiary of the Company or any trustee or other fiduciary holding securities
under an employee benefit plan of the Company or any Subsidiary of the Company,
(C) an underwriter temporarily holding securities pursuant to an offering of
such securities, or (D) an Entity Owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their
Ownership of stock of the Company.


 


(q)                                  “Fair Market Value” means, as of any date, the value of
the Common Stock determined in good faith by the Board, and in a manner
consistent with Section 260.140.50 of Title 10 of the California Code of Regulations.


 


(r)                                  “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.


 


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


 


(t)                                    “Officer” means any person designated by the Company as
an officer.


 


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


 


(v)                                   “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.


 


(w)                                “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.


 


(x)                                  “Own,” “Owned,” “Owner,” “Ownership”  A person or Entity shall be deemed to “Own,”
to have “Owned,” to be the “Owner” of, or to have acquired “Ownership” of


 


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securities if such person or Entity, directly or
indirectly, through any contract, arrangement, understanding, relationship or
otherwise, has or shares voting power, which includes the power to vote or to
direct the voting, with respect to such securities.


 


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


 


(z)                                  “Plan” means this Intarcia Therapeutics, Inc. 2002
Equity Incentive Plan.


 


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


 


(bb)                            “Stock Award” means any right granted under the Plan,
including an Option, a stock bonus and a right to acquire restricted stock.


 


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


 


(dd)                            “Subsidiary” means, with respect to the Company, (i) any
corporation of which more than fifty percent (50%) of the outstanding capital
stock having ordinary voting power to elect a majority of the board of
directors of such corporation (irrespective of whether, at the time, stock of
any other class or classes of such corporation shall have or might have voting
power by reason of the happening of any contingency) is at the time, directly
or indirectly, Owned by the Company, and (ii) any partnership in which the
Company has a direct or indirect interest (whether in the form of voting or
participation in profits or capital contribution) of more than fifty percent
(50%).


 


(ee)                            “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 Section 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 Stock Awards; when and how each Stock Award shall be granted; what
type or combination of types of Stock Award shall be granted; the provisions of
each Stock Award granted (which need not be identical), including the time or
times when a person shall be permitted to receive Common Stock pursuant to a
Stock Award; and the number of shares of Common Stock with respect to which a
Stock Award shall be granted to each such person.


 


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(ii)                                To
construe and interpret the Plan and Stock Awards granted under it, and to
establish, amend and revoke rules and regulations for its administration.  The Board, in the exercise of this power, may
correct any defect, omission or inconsistency in the Plan or in any Stock Award
Agreement, in a manner and to the extent it shall deem necessary or expedient
to make the Plan fully effective.


 


(iii)                            To
amend the Plan or a Stock Award as provided in Section 12.


 


(iv)                               To
terminate or suspend the Plan as provided in Section 13.


 


(v)                                   Generally,
to exercise such powers and to perform such acts as the Board deems necessary
or expedient to promote the best interests of the Company and that are not in
conflict with the provisions of the Plan.


 


(c)                                  Delegation
to Committee.  The Board may delegate
administration of the Plan to a Committee or Committees of one (1) 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.


 


(d)                                  Effect of Board’s Decision.  All
determinations, interpretations and constructions made by the Board in good
faith shall not be subject to review by any person and shall be final, binding
and conclusive on all persons.


 


4.                                      SHARES
SUBJECT TO THE PLAN.


 


(a)                                  Share
Reserve.  Subject to the provisions
of Section 11(a) relating to Capitalization Adjustments, the Common Stock that
may be issued pursuant to Stock Awards shall not exceed in the aggregate
twenty-seven million four hundred forty-nine thousand four hundred twenty-seven
(27,449,427) shares of Common Stock.


 


(b)                                  Reversion
of Shares to the Share Reserve.  If
any Stock Award shall for any reason expire or otherwise terminate, in whole or
in part, without having been exercised in full, or if any shares of Common
Stock issued to a Participant pursuant to a Stock Award are forfeited back to
or repurchased by the Company because of or in connection with the failure to
meet a contingency or condition required to vest such shares in the
Participant, the shares of Common Stock not acquired, forfeited or repurchased
under such Stock Award shall revert to and again become available for issuance
under the Plan; provided, however, that subject
to the provisions of Section 11(a) relating to Capitalization Adjustments, the
aggregate maximum number of shares of Common Stock that may be issued as
Incentive Stock Options shall be forty-five million (45,000,000) shares of
Common Stock.


 


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


 


(d)                                  Share
Reserve Limitation.  To the extent
required by Section 260.140.45 of Title 10 of the California Code of
Regulations, the total number of shares of Common Stock issuable upon exercise
of all outstanding Options and the total number of shares of Common Stock
provided for under any stock bonus or similar plan of the Company shall not
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 Common Stock of the Company that
are outstanding at the time the calculation is made.


 


5.                                      ELIGIBILITY.


 


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


 


(b)                                  Ten
Percent Stockholders.


 


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


 


(ii)                                A
Ten Percent Stockholder shall not be granted a Nonstatutory Stock Option unless
the exercise price of such Option is at least (i) one hundred ten percent
(110%) of the Fair Market Value of the Common Stock on the date of grant or
(ii) such lower percentage of the Fair Market Value of the Common Stock on the date
of grant as is permitted by Section 260.140.41 of Title 10 of the California
Code of Regulations at the time of the grant of the Option.


 


(iii)                            A
Ten Percent Stockholder shall not be granted a restricted stock award unless
the purchase price of the restricted stock is at least (i) one hundred percent
(100%) of the Fair Market Value of the Common Stock on the date of grant or
(ii) such lower percentage of the Fair Market Value of the Common Stock on the
date of grant as is permitted by Section 260.140.41 of Title 10 of the
California Code of Regulations at the time of the grant of the restricted stock
award.


 


(c)                                  Consultants.  A Consultant shall not be eligible for the
grant of a Stock Award if, at the time of grant, either the offer or the sale
of the Company’s securities to such Consultant is not exempt under Rule 701 of
the Securities Act (“Rule 701”) because of the nature of the services that the
Consultant is providing to the Company, because the Consultant is not a natural
person, or because of some other provision of Rule 701, unless the Company
determines that such grant need not comply with the requirements of Rule 701
and will satisfy another exemption under the Securities Act as well as comply
with the securities laws of all other relevant jurisdictions.


 


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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, if certificates are issued, a separate certificate or certificates shall
be issued for shares of Common Stock purchased on exercise of each type of
Option.  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 Section 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 Section 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 Common
Stock 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 Section 5(b) regarding Ten Percent
Stockholders, the exercise price of each Nonstatutory Stock Option shall be not
less than eighty-five percent (85%) of the Fair Market Value of the Common
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 Common 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) (1) by
delivery to the Company of other Common Stock, (2) according to a deferred
payment or other similar arrangement with the Optionholder or (3) in any other
form of legal consideration that may be acceptable to the Board.  Unless otherwise specifically provided in the
Option, the purchase price of Common Stock acquired pursuant to an Option that
is paid by delivery to the Company of other Common Stock acquired, directly or
indirectly from the Company, shall be paid only by shares of the Common Stock
of the Company that have been held for more than six (6) months (or such longer
or shorter period of time required to avoid a charge to earnings for financial
accounting purposes).  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.


 


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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 (1) the treatment as interest,
under any applicable provisions of the Code, of any amounts other than amounts
stated to be interest under the deferred payment arrangement and (2) the
treatment of the Option as a variable award for financial accounting purposes.


 


(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, 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 shall not be transferable except by will or by the
laws of descent and distribution and, to the extent provided in the Option
Agreement, to such further extent as permitted by Section 260.140.41(d) of
Title 10 of the California Code of Regulations at the time of the grant of the
Option, and shall be exercisable during the lifetime of the Optionholder only
by the Optionholder.  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 lifetime of the Optionholder
only by the Optionholder. 
Notwithstanding the foregoing, 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 that 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 Section 6(g) are subject to any Option provisions governing
the minimum number of shares of Common Stock as to which an Option may be
exercised.


 


(h)                                 Minimum
Vesting.  Notwithstanding the
foregoing Section 6(g), to the extent that the following restrictions on
vesting are required by Section 260.140.41(f) of Title 10 of the California
Code of Regulations at the time of the grant of the Option, then:


 


(i)                                    Options
granted to an Employee who is not an Officer, Director or Consultant shall provide
for vesting of the total number of shares of Common Stock 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;  and


 


(ii)                                Options
granted to Officers, Directors or Consultants may be made fully exercisable,
subject to reasonable conditions such as continued employment, at any time or
during any period established by the Company.


 


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(i)                                    Termination
of Continuous Service.  In the event
that an Optionholder’s Continuous Service terminates (other than upon the
Optionholder’s death or Disability), the Optionholder may exercise his or her
Option (to the extent that the Optionholder was entitled to exercise such
Option as of the date of termination) but only within such period of time
ending on the earlier of (i) the 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 period 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 of Common Stock would violate the registration
requirements under the Securities Act, then the Option shall terminate on the
earlier of (i) the expiration of the term of the Option set forth in Section
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 that
an Optionholder’s Continuous Service terminates as a result of the Optionholder’s
Disability, the Optionholder may exercise his or her Option (to the extent that
the Optionholder was entitled to exercise such Option as of the date of
termination), 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 period 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 that
(i) an Optionholder’s Continuous Service terminates as a result of the
Optionholder’s death or (ii) the Optionholder dies within the period (if any)
specified in the Option Agreement after the termination of the Optionholder’s
Continuous Service for a reason other than death, then the Option may be
exercised (to the extent the Optionholder was entitled to exercise such Option
as of the date of death) by the Optionholder’s estate, by a person who acquired
the right to exercise the Option by bequest or inheritance or by a person
designated to exercise the option upon the Optionholder’s death pursuant to
Section 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 period 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


 


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exercise the Option as to any part or all of the
shares of Common Stock subject to the Option prior to the full vesting of the
Option.  Subject to the “Repurchase
Limitation” in Section 10(h), any unvested shares of Common Stock so purchased
may be subject to a repurchase option in favor of the Company or to any other
restriction the Board determines to be appropriate.  Provided that the “Repurchase Limitation” in
Section 10(h) is not violated, the Company will not exercise its repurchase
option until at least six (6) months (or such longer or shorter period of time
required to avoid a charge to earnings for financial accounting purposes) have
elapsed following exercise of the Option unless the Board otherwise
specifically provides in the Option.


 


(n)                                 Right
of Repurchase.  Subject to the “Repurchase
Limitation” in Section 10(h), the Option may, but need not, include a provision
whereby the Company may elect to repurchase all or any part of the vested
shares of Common Stock acquired by the Optionholder pursuant to the exercise of
the Option.  Provided that the “Repurchase
Limitation” in Section 10(h) is not violated, the Company will not exercise its
repurchase option until at least six (6) months (or such longer or shorter
period of time required to avoid a charge to earnings for financial accounting
purposes) have elapsed following exercise of the Option unless the Board
otherwise specifically provides in the Option.


 


(o)                                  Right
of First Refusal.  The Option may,
but need not, include a provision whereby the Company may elect 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 of Common Stock received upon
the exercise of the Option.  Except as
expressly provided in this Section 6(o), such right of first refusal shall
otherwise comply with any applicable provisions of the Bylaws of the Company.


 


7.                                      PROVISIONS
OF STOCK AWARDS OTHER THAN OPTIONS.


 


(a)                                  Stock
Bonus Awards.  Each stock bonus
agreement shall be in such form and shall contain such terms and conditions as
the Board shall deem appropriate.  The
terms and conditions of stock bonus agreements may change from time to time,
and the terms and conditions of separate stock bonus agreements need not be
identical, but each stock bonus agreement shall include (through incorporation
of provisions hereof by reference in the agreement or otherwise) the substance
of each of the following provisions:


 


(i)                                    Consideration.  A stock bonus may be awarded in consideration
for past services actually rendered to the Company or an Affiliate for its
benefit.


 


(ii)                                Vesting.  Subject to the “Repurchase Limitation” in
Section 10(h), shares of Common Stock awarded under the stock bonus agreement
may, but need not, be subject to a share repurchase option in favor of the
Company in accordance with a vesting schedule to be determined by the Board.


 


(iii)                            Termination
of Participant’s Continuous Service. 
Subject to the “Repurchase Limitation” in Section 10(h), in the event
that a Participant’s Continuous Service terminates, the Company may reacquire
any or all of the shares of Common Stock held by the


 


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Participant that have not vested as of the date of
termination under the terms of the stock bonus agreement.


 


(iv)                               Transferability.  Rights to acquire shares of Common Stock
under the stock bonus agreement shall not be transferable except by will or by
the laws of descent and distribution and shall be exercisable during the
lifetime of the Participant only by the Participant.


 


(b)                                  Restricted
Stock Awards.  Each restricted stock
purchase agreement shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. 
The terms and conditions of the restricted stock purchase agreements may
change from time to time, and the terms and conditions of separate restricted
stock purchase agreements need not be identical, but each restricted stock
purchase agreement shall include (through incorporation of provisions hereof by
reference in the agreement or otherwise) the substance of each of the following
provisions:


 


(i)                                    Purchase
Price.  Subject to the provisions of
Section 5(b) regarding Ten Percent Stockholders, the purchase price of
restricted stock awards shall not be less than eighty-five percent (85%) of the
Common Stock’s Fair Market Value on the date such award is made or at the time
the purchase is consummated.


 


(ii)                                Consideration.  The purchase price of Common Stock acquired
pursuant to the restricted stock purchase agreement shall be paid either: (i)
in cash at the time of purchase; (ii) at the discretion of the Board, according
to a deferred payment or other similar arrangement with the Participant; or
(iii) in any other form of legal consideration that may be acceptable to the
Board in its discretion; provided, however,
that at any time that the Company is incorporated in Delaware, then payment of
the Common Stock’s “par value,” as defined in the Delaware General Corporation
Law, shall not be made by deferred payment.


 


(iii)                            Vesting.  Subject to the “Repurchase Limitation” in
Section 10(h), shares of Common Stock acquired under the restricted stock
purchase agreement may, but need not, be subject to a share repurchase option
in favor of the Company in accordance with a vesting schedule to be determined
by the Board.


 


(iv)                               Termination
of Participant’s Continuous Service. 
Subject to the “Repurchase Limitation” in Section 10(h), in the event
that a Participant’s Continuous Service terminates, the Company may repurchase
or otherwise reacquire any or all of the shares of Common Stock held by the
Participant that have not vested as of the date of termination under the terms
of the restricted stock purchase agreement.


 


(v)                                   Transferability.  Rights to acquire shares of Common Stock
under the restricted stock purchase agreement shall not be transferable except
by will or by the laws of descent and distribution and shall be exercisable
during the lifetime of the Participant only by the Participant.


 


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8.                                      COVENANTS
OF THE COMPANY.


 


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


 


(b)                                  Securities
Law Compliance.  The Company shall
seek to obtain from each regulatory commission or agency having jurisdiction
over the Plan such authority as may be required to grant Stock Awards and to
issue and sell shares of Common Stock upon exercise of the Stock Awards; provided, however, that this undertaking shall not require
the Company to register under the Securities Act the Plan, any Stock Award or
any Common Stock issued or issuable pursuant to any such Stock Award.  If, after reasonable efforts, the Company is unable
to obtain from any such regulatory commission or agency the authority which
counsel for the Company deems necessary for the lawful issuance and sale of
Common Stock under the Plan, the Company shall be relieved from any liability
for failure to issue and sell Common Stock upon exercise of such Stock Awards
unless and until such authority is obtained.


 


9.                                      USE
OF PROCEEDS FROM STOCK.


 


Proceeds from the sale of Common Stock pursuant to
Stock Awards shall constitute general funds of the Company.


 


10.                               MISCELLANEOUS.


 


(a)                                  Acceleration
of Exercisability and Vesting.  The
Board shall have the power to accelerate the time at which a Stock Award may
first be exercised or the time during which a Stock Award or any part thereof
will vest in accordance with the Plan, notwithstanding the provisions in the
Stock Award stating the time at which it may first be exercised or the time
during which it will vest.


 


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


 


(c)                                  No
Employment or other Service Rights. 
Nothing in the Plan or any instrument executed or Stock Award granted
pursuant thereto shall confer upon any Participant any right to continue to
serve the Company or an Affiliate in the capacity in effect at the time the
Stock Award was granted or shall affect the right of the Company or an
Affiliate to terminate (i) the employment of an Employee with or without notice
and with or without cause, (ii) the service of a Consultant pursuant to the
terms of such Consultant’s agreement with the Company or an Affiliate or (iii)
the service of a Director pursuant to the Bylaws of the Company or an
Affiliate, and any applicable provisions of the corporate law of the state in
which the Company or the Affiliate is incorporated, as the case may be.


 


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


 


(e)                                  Investment
Assurances.  The Company may require
a Participant, as a condition of exercising or acquiring Common Stock under any
Stock Award, (i) to give written assurances satisfactory to the Company as to
the Participant’s knowledge and experience in financial and business matters
and/or to employ a purchaser representative reasonably satisfactory to the
Company who is knowledgeable and experienced in financial and business matters
and that he or she is capable of evaluating, alone or together with the
purchaser representative, the merits and risks of exercising the Stock Award;
and (ii) to give written assurances satisfactory to the Company stating that
the Participant is acquiring Common Stock subject to the Stock Award for the
Participant’s own account and not with any present intention of selling or
otherwise distributing the Common Stock. 
The foregoing requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (1) the issuance of the shares of Common
Stock upon the exercise or acquisition of Common Stock under the Stock Award
has been registered under a then currently effective registration statement under
the Securities Act or (2) as to any particular requirement, a determination is
made by counsel for the Company that such requirement need not be met in the
circumstances under the then applicable securities laws.  The Company may, upon advice of counsel to
the Company, place legends on stock certificates issued under the Plan as such
counsel deems necessary or appropriate in order to comply with applicable
securities laws, including, but not limited to, legends restricting the
transfer of the Common Stock.


 


(f)                                    Withholding
Obligations.  To the extent provided
by the terms of a Stock Award Agreement, the Participant may satisfy any
federal, state or local tax withholding obligation relating to the exercise or
acquisition of Common Stock under a Stock Award by any of the following means
(in addition to the Company’s right to withhold from any compensation paid to
the Participant by the Company) or by a combination of such means:  (i) tendering a cash payment; (ii)
authorizing the Company to withhold shares of Common Stock from the shares of
Common Stock otherwise issuable to the Participant as a result of the exercise
or acquisition of Common Stock under the Stock Award; provided,
however, that no shares of Common Stock are withheld with a value
exceeding the minimum amount of tax required to be withheld by law (or such
lower amount as may be necessary to avoid variable award accounting); or (iii)
delivering to the Company owned and unencumbered shares of Common Stock.


 


(g)                                 Information
Obligation.  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 Participants at least
annually.  This Section 10(g) shall not
apply to key Employees whose duties in connection with the Company assure them
access to equivalent information.


 


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(h)                                 Repurchase
Limitation.  The terms of any
repurchase option shall be specified in the Stock Award 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 at the time a Stock Award is made, any repurchase option
contained in a Stock Award granted 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 of Common Stock
upon termination of employment at not less than the Fair Market Value of the
shares of Common Stock 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 of Common Stock
within ninety (90) days of termination of Continuous Service (or in the case of
shares of Common Stock issued upon exercise of Stock Awards 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 Participant (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 of Common Stock become publicly traded.


 


(ii)                                Original
Purchase Price.  If the repurchase
option gives the Company the right to repurchase the shares of Common Stock
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 of Common Stock per year over
five (5) years from the date the Stock Award is granted (without respect to the
date the Stock Award 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 of Common Stock within ninety (90) days of
termination of Continuous Service (or in the case of shares of Common Stock
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 Participant (for example, for purposes of
satisfying the requirements of Section 1202(c)(3) of the Code regarding “qualified
small business stock”).


 


11.                               ADJUSTMENTS
UPON CHANGES IN STOCK.


 


(a)                                  Capitalization
Adjustments.  If any change is made
in, or other event occurs with respect to, the Common Stock subject to the Plan
or subject to any Stock Award 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 (each a “Capitalization Adjustment”), the Plan
will be appropriately adjusted in the class(es) and maximum number of
securities subject to the Plan pursuant to Sections 4(a) and 4(b) and the
maximum number of securities subject to award to any person pursuant to Section
5(c), and the outstanding Stock Awards will be appropriately adjusted in the
class(es) and number of securities and price per share of Common Stock subject
to such outstanding Stock Awards.  The


 


15





















 


Board shall make such adjustments, and its
determination shall be final, binding and conclusive.  (The conversion of any convertible securities
of the Company shall not be treated as a transaction “without receipt of
consideration” by the Company.)


 


(b)                                  Dissolution
or Liquidation.  In the event of a
dissolution or liquidation of the Company, then all outstanding Stock Awards
shall terminate immediately prior to the completion of such dissolution or
liquidation.


 


(c)                                  Corporate
Transaction.  In the event of a
Corporate Transaction, any surviving corporation or acquiring corporation may
assume any or all Stock Awards outstanding under the Plan or may substitute
similar stock awards for Stock Awards outstanding under the Plan (it being
understood that similar stock awards include, but are not limited to, awards to
acquire the same consideration paid to the stockholders or the Company, as the
case may be, pursuant to the Corporate Transaction).  In the event that any surviving corporation
or acquiring corporation does not assume any or all such outstanding Stock
Awards or substitute similar stock awards for such outstanding Stock Awards,
then with respect to Stock Awards that have been neither assumed nor
substituted and that are held by Participants whose Continuous Service has not
terminated prior to the effective time of the Corporate Transaction, the
vesting of such Stock Awards (and, if applicable, the time at which such Stock
Awards may be exercised) shall (contingent upon the effectiveness of the
Corporate Transaction) be accelerated in full to a date prior to the effective
time of such Corporate Transaction as the Board shall determine (or, if the
Board shall not determine such a date, to the date that is five (5) days prior
to the effective time of the Corporate Transaction), and the Stock Awards shall
terminate if not exercised (if applicable) at or prior to such effective
time.  With respect to any other Stock
Awards outstanding under the Plan that have been neither assumed nor
substituted, the vesting of such Stock Awards (and, if applicable, the time at
which such Stock Award may be exercised) shall not be accelerated unless
otherwise provided in a written agreement between the Company or any Affiliate
and the holder of such Stock Award, and such Stock Awards shall terminate if
not exercised (if applicable) prior to the effective time of the Corporate
Transaction.


 


(d)                                  Change
in Control.  A Stock Award held by
any Participant whose Continuous Service has not terminated prior to the
effective time of a Change in Control may be subject to additional acceleration
of vesting and exercisability upon or after such event as may be provided in
the Stock Award Agreement for such Stock Award or as may be provided in any
other written agreement between the Company or any Affiliate and the
Participant, but in the absence of such provision, no such acceleration shall
occur.


 


12.                               AMENDMENT
OF THE PLAN AND STOCK AWARDS.


 


(a)                                  Amendment
of Plan.  The Board at any time, and
from time to time, may amend the Plan. 
However, except as provided in Section 11(a) relating to Capitalization
Adjustments, 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.


 


(b)                                  Stockholder
Approval.  The Board, in its sole
discretion, may submit any other amendment to the Plan for stockholder
approval.


 


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(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 Stock Award 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
Participant and (ii) the Participant consents in writing.


 


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


 


13.                               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 Stock Awards may be granted under the Plan
while the Plan is suspended or after it is terminated.


 


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


 


14.                               EFFECTIVE
DATE OF PLAN.


 


The Plan shall become
effective as determined by the Board, but no Stock Award shall be exercised
(or, in the case of a stock bonus, shall be granted) unless and until the Plan
has been approved by the stockholders of the Company, which approval shall be
within twelve (12) months before or after the date the Plan is adopted by the
Board.


 


CHOICE OF
LAW.


 


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


 


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