EXHIBIT 10.5


 


COMBIMATRIX CORPORATION


 


2006 STOCK INCENTIVE PLAN


 


(as amended January 15, 2009)


 


ARTICLE ONE



GENERAL PROVISIONS


 


I.                                       PURPOSE OF THE PLAN


 


This CombiMatrix Corporation 2006 Stock Incentive Plan
is intended to promote the interests of CombiMatrix Corporation, a Delaware
corporation, by providing eligible persons in the Corporation’s Service with
the opportunity to acquire a proprietary interest, or otherwise increase their
proprietary interest, in the Corporation as an incentive for them to remain in
such Service.


 


Capitalized terms shall have the meanings assigned to
such terms in the attached Appendix.


 


II.                                   STRUCTURE OF THE PLAN


 


A.                                   The Plan shall be divided into three
separate equity incentive programs:


 


·                  the Discretionary Option/Stock Appreciation
Right Grant Program under which eligible persons may, at the discretion of the
Plan Administrator, be granted options to purchase shares of Common Stock,


 


·                  the Stock Issuance Program under which
eligible persons may, at the discretion of the Plan Administrator, be issued
shares of Common Stock directly, either through the immediate purchase of such
shares or as a bonus for services rendered the Corporation (or any Parent or
Subsidiary),


 


·                  the Automatic Option Grant Program under
which eligible non-employee Board members shall automatically receive option
grants at designated intervals over their period of continued Board Service,
and


 


B.                                     The provisions of Articles One and Five
shall apply to all equity incentive programs under the Plan and shall govern
the interests of all persons under the Plan.


 





















 


III.                               ADMINISTRATION OF THE PLAN


 


A.                                   The Committee shall have sole and
exclusive authority to administer the Discretionary Option Grant and Stock
Issuance Programs with respect to Section 16 Insiders. Administration of
the Discretionary Option Grant and Stock Issuance Programs with respect to all
other persons eligible to participate in those programs may, at the Board’s
discretion, be vested in the Committee, or the Board may retain the power to
administer those programs with respect to all such persons. Other than with
respect to Section 16 Insiders, the Board may also appoint an Executive
Officer Committee to administer the Discretionary Option Program and Stock
Issuance Program, subject to the applicable limitations and requirements of the
Delaware Corporate Law.  However, any
discretionary option grants or stock issuances to members of the Committee must
be authorized and approved by a disinterested majority of the Board.


 


B.                                     Members of the Committee or, if
applicable, the Executive Officer Committee, shall serve for such period of
time as the Board may determine and may be removed by the Board at any time.


 


C.                                     The Plan Administrator shall, within the
scope of its administrative functions under the Plan, have full power and
authority (subject to the provisions of the Plan) to establish such rules and
regulations as it may deem appropriate for proper administration of the
Discretionary Option Grant and Stock Issuance Programs and to make such
determinations under, and issue such interpretations of, the provisions of
those programs and any outstanding options or stock issuances thereunder as it
may deem necessary or advisable. Decisions of the Plan Administrator within the
scope of its administrative functions under the Plan shall be final and binding
on all parties who have an interest in the Discretionary Option Grant and Stock
Issuance Programs under its jurisdiction or any stock option or stock issuance
thereunder.


 


D.                                    Service on the Committee shall constitute
Service as a Board member, and members of each such committee shall accordingly
be entitled to full indemnification and reimbursement as Board members for
their service on such committee. No member of the Committee or, if applicable,
the Executive Officer Committee, shall be liable for any act or omission made
in good faith with respect to the Plan or any option grants or stock issuances
under the Plan.


 


E.                                      Administration of the Automatic Option
Grant Program shall be self-executing in accordance with the terms of those
programs, and no Plan Administrator shall exercise any discretionary functions
with respect to any option grants or stock issuances made under those programs.


 


IV.                              ELIGIBILITY


 


A.                                   The persons eligible to participate in
the Discretionary Option Grant and Stock Issuance Programs are as follows:


 


(i)                                     Employees,


 


(ii)                                  non-employee members of the Board or the
board of directors of any Parent or Subsidiary, and


 


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(iii)                               consultants and other independent
advisors who provide services to the Corporation (or any Parent or Subsidiary).


 


B.                                     The Plan Administrator shall, within the
scope of its administrative jurisdiction under the Plan, have full authority to
determine, (i) with respect to the option grants under the Discretionary
Option Grant Program, which eligible persons are to receive such grants, the
time or times when those grants are to be made, the number of shares to be
covered by each such grant, the status of the granted option as either an
Incentive Option or a Non-Statutory Option, if, and the extent to which, each
option is to be exercisable at a different time or times than those times set
forth in Section I.B.1. of Article Two of the Plan, the vesting
schedule (if any) applicable to the option shares and the maximum term for
which the option is to remain outstanding and (ii) with respect to stock
issuances under the Stock Issuance Program, which eligible persons are to
receive such issuances, the time or times when the issuances are to be made,
the number of shares to be issued to each Participant, the vesting schedule (if
any) applicable to the issued shares and the consideration for such shares.


 


C.                                     The Plan Administrator shall have the
absolute discretion either to grant options in accordance with the
Discretionary Option/Stock Appreciation Right Grant Program or to effect stock
issuances in accordance with the Stock Issuance Program.


 


D.                                    The individuals who shall be eligible to
participate in the Automatic Option Grant Program shall be limited to (i) those
individuals who first become non-employee Board members after the Plan
Effective Date, whether through appointment by the Board or election by the
Corporation’s stockholders, and (ii) those individuals who continue to
serve as non-employee Board members on the first business day in each calendar
year following the Plan Effective Date and during the term of the Plan,
including any individuals who first became non-employee Board members prior to
such Plan Effective Date. A non-employee Board member who has previously been
in the employ of the Corporation (or any Parent or Subsidiary) shall not be
eligible to receive an option grant under the Automatic Option Grant Program at
the time he or she first becomes a non-employee Board member, but shall be
eligible to receive periodic option grants under the Automatic Option Grant
Program while he or she continues to serve as a non-employee Board member.


 


V.                                  STOCK SUBJECT TO THE PLAN


 


A.                                   The stock issuable under the Plan shall
be shares of authorized but unissued or reacquired Common Stock, including
shares repurchased by the Corporation on the open market. The number of shares
of Common Stock initially reserved for issuance over the term of the Plan shall
not exceed 8,100,000 shares of Common Stock. 
For purposes of clarification, the shares of Common Stock subject to the
Assumed Options are not included in the 8,100,000 share of Common Stock
reserved hereunder for issuance pursuant to this paragraph, though the shares
of Common Stock subject to the Assumed Options may become available for grant
under this Plan to the extent provided in Article One, Section V.D.
below.


 


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B.                                     The number of shares of Common Stock
available for issuance under the Plan shall automatically increase on the first
trading day of January each calendar year during the term of the Plan,
beginning with calendar year 2007, by an amount equal to three percent (3%) of
the total number of shares of Common Stock outstanding on the last trading day
in December of the immediately preceding calendar year.  The maximum aggregate number of shares of
Common Stock that may be issued under the Plan (as adjusted for all such annual
increases) through Incentive Options shall be 30,000,000 shares of Common
Stock.


 


C.                                     At such time as stock option or stock
appreciation rights granted under the Plan may qualify as performance-based
compensation under Code Section 162(m), no one person participating in the
Plan may receive stock options or separately exercisable stock appreciation
rights for more than 200,000 shares of Common Stock in the aggregate per
calendar year.  At such time as direct
stock issuances or share right awards granted under the Plan may qualify as
performance-based compensation under Code Section 162(m), no one person
participating in the Plan may receive direct stock issuances or share right
awards for more than 200,000 shares of Common Stock in the aggregate per
calendar year. In addition, the maximum dollar value payable to any one
Participant with respect to awards granted under Article Five, Section VIII.B.
is $1,000,000 per calendar year.


 


D.                                    Shares of Common Stock subject to
outstanding options, Assumed Options or stock appreciation rights shall be
available for subsequent issuance under the Plan to the extent such shares are
not issued pursuant to such options, Assumed Options or stock appreciation
rights prior to the expiration, termination or cancellation of such options,
Assumed Options or stock appreciation rights for any reason.  Shares of Common Stock subject to outstanding
share right awards shall be available for subsequent issuance under the Plan to
the extent those share right awards expire, terminate or are cancelled for any
reason prior to the issuance of all shares of Common Stock subject to such
share right awards. Unvested shares issued under the Plan and subsequently
cancelled, forfeited or repurchased by the Corporation, at a price per share
not greater than the original issue price paid per share, pursuant to the
Corporation’s repurchase rights under the Plan shall be added back to the
number of shares of Common Stock reserved for issuance under the Plan.  In addition, (i) should no shares of
Common Stock be delivered upon the exercise of a stock appreciation right or (ii) should
the exercise price of an option under the Plan or an Assumed Option be paid
with shares of Common Stock (either shares previously held by the individual
exercising the option or shares deducted from the option) or (iii) should
shares of Common Stock otherwise issuable under the Plan or pursuant to or an
Assumed Option be withheld by the Corporation in satisfaction of the
withholding taxes incurred in connection with the exercise of an option, an
Assumed Option or stock appreciation right or in connection with a stock
issuance (including a share right award) under the Plan, then the number of
shares of Common Stock available for issuance under the Plan shall be reduced
by the net number of shares issued to the holder of the award, and not by the
gross number of shares of Common Stock for which the option, Assumed Option or
stock appreciation right is exercised or which vest or are issued pursuant to
the stock issuance (including a share right award).


 


E.                                      If any change is made to the Common Stock
by reason of any stock split, stock dividend, recapitalization, merger,
reorganization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation’s
receipt of consideration, appropriate adjustments shall be made by the Plan
Administrator to (i) the maximum number, type and/or class of securities
issuable under the Plan, (ii) the maximum number, type and/or class of
securities for which any one person may be granted (x) stock options and
separately exercisable stock appreciation rights and (y) direct stock
issuances and share right awards under the Plan per calendar year, (iii) the
number, type and/or class of securities for which grants are subsequently to be
made under the Automatic Option Grant Program to new and continuing
non-employee Board members, (iv) the number, type and/or class of
securities and the exercise price per share in effect under each outstanding
option and stock appreciation right under the Plan, (v) the number, kind
and/or class of securities under each share right award, and (vi) the
maximum number, type and/or class of securities by which the share reserve is
to increase automatically each calendar year pursuant to the provisions of Section V.B.
of this Article One. Such adjustments to the outstanding awards are to be
effected in a manner which shall preclude the enlargement or dilution of rights
and benefits under such options. The adjustments determined by the Plan
Administrator shall be final, binding and conclusive.


 


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ARTICLE TWO



DISCRETIONARY OPTION/STOCK APPRECIATION RIGHT GRANT PROGRAM


 


I.                                       OPTION TERMS


 


Each option shall be evidenced by one or more
documents in the form approved by the Plan Administrator; provided, however,
that each such document shall comply with the terms specified below. Each
document evidencing an Incentive Option shall, in addition, be subject to the
provisions of the Plan applicable to such options.


 


A.                                   EXERCISE PRICE.


 


1.                                       The exercise price per share shall be
fixed by the Plan Administrator but shall not be less than one hundred percent
(100%) of the Fair Market Value per share of Common Stock on the option grant
date.


 


2.                                       The exercise price shall become
immediately due upon exercise of the option and shall, subject to the
provisions of the documents evidencing the option, be payable in one or more of
the forms specified below:


 


(i)                                     cash or check made payable to the
Corporation, or


 


(ii)                                  shares of Common Stock held for the
requisite period necessary to avoid a charge to the Corporation’s earnings for
financial reporting purposes and valued at Fair Market Value on the Exercise
Date (including the cancellation of shares of Common Stock subject to the
option), or


 


(iii)                               to the extent the option is exercised for
vested shares, through a special sale and remittance procedure pursuant to
which the Optionee shall concurrently provide irrevocable instructions to (a) a
Corporation-designated brokerage firm to effect the immediate sale of the purchased
shares and remit to the Corporation, out of the sale proceeds available on the
settlement date, sufficient funds to cover the aggregate exercise price payable
for the purchased shares plus all applicable Federal, state and local income
and employment taxes required to be withheld by the Corporation by reason of
such exercise and (b) the Corporation to deliver the certificates for the
purchased shares directly to such brokerage firm in order to complete the sale,
or


 


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(iv)                              Any other form of legal consideration, as
determined by the Plan Administrator and specifically included in the stock
option agreement.


 


Except to the extent such sale and remittance
procedure is utilized, payment of the exercise price for the purchased shares
must be made on the Exercise Date.


 


B.                                     EXERCISE AND TERM OF OPTIONS.


 


1.                                       Each option shall vest and be exercisable
at such time or times, during such period and for such number of shares as
shall be determined by the Plan Administrator and set forth in the documents
evidencing the option.


 


2.                                       Notwithstanding any other provision of
the Plan, no option shall have a term in excess of ten (10) years measured
from the option grant date.


 


C.                                     EFFECT OF TERMINATION OF SERVICE.


 


1.                                       The following provisions shall govern the
exercise of any options held by the Optionee at the time of cessation of
Service or death:


 


(i)                                     Termination of Service. 
Subject to earlier termination of the option as otherwise provided in
the Plan and unless otherwise specifically provided by the Plan Administrator
with respect to an option and set forth in the award agreement (either at grant
or by amendment at a later time), an option shall remain exercisable, to the
extent vested, after a Optionee’s termination of Service only during the
applicable time period determined in accordance with this Section and
thereafter shall terminate and no longer be exercisable:


 


(A)                              Death or Permanent Disability. 
If the Optionee’s Service terminates because of the death or Permanent
Disability of the Optionee, the option, to the extent unexercised, vested and
exercisable on the date on which the Optionee’s Service terminated, may be
exercised by the Optionee (or the Optionee’s legal representative or estate, as
applicable) at any time prior to the expiration of twelve (12) months (or such
other period of time as determined by the Plan Administrator, in its
discretion) after the date on which the Optionee’s Service terminated, but in
any event only with respect to the unexercised and vested portion of the option
and not after the maximum term of the option.


 


(B)                                Termination for Misconduct. 
Notwithstanding any other provision of the Plan to the contrary, if the
Optionee’s Service is terminated for Misconduct or should the Optionee otherwise
engage in Misconduct while holding one or more outstanding options, then all
such options shall terminate immediately and cease to be outstanding.


 


(C)                                Other Termination of Service. 
If the Optionee’s Service terminates for any reason, except Permanent
Disability, death or Misconduct, the option, to the extent unexercised, vested
and exercisable by the Optionee on the date on which the Optionee’s Service
terminated, may be exercised by the Optionee at any time prior to the
expiration of ninety (90) days (or such longer or shorter period of time as
determined by the Plan Administrator, in its discretion) after the date on
which the Optionee’s Service terminated, but in any event only with respect to
the unexercised and vested portion of the option and not the maximum term of
the option.


 


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(ii)                                  Any option held by the Optionee at the
time of death and exercisable in whole or in part at that time may be
subsequently exercised by the personal representative of the Optionee’s estate
or by the person or persons to whom the option is transferred pursuant to the
Optionee’s will or the laws of descent and distribution or by the Optionee’s
designated beneficiary or beneficiaries of that option.


 


(iii)                               During the applicable post-Service
exercise period, the option may not be exercised in the aggregate for more than
the number of vested shares for which the option is exercisable on the date of
the Optionee’s cessation of Service. Upon the expiration of the applicable
exercise period or (if earlier) upon the expiration of the option term, the
option shall terminate and cease to be outstanding for any vested shares for
which the option has not been exercised. However, the option shall, immediately
upon the Optionee’s cessation of Service, terminate and cease to be outstanding
to the extent the option is not otherwise at that time exercisable for vested
shares.


 


2.                                       The Plan Administrator shall have
complete discretion, exercisable either at the time an option is granted or at
any time while the option remains outstanding, to:


 


(i)                                     extend the period of time for which the
option is to remain exercisable following the Optionee’s cessation of Service
from the limited exercise period otherwise in effect for that option to such greater
period of time as the Plan Administrator shall deem appropriate, but in no
event beyond the expiration of the option term and in no event to such extent
to make the option subject to Section 409A (unless given the prior consent
of the Optionee), and/or


 


(ii)                                  permit the option to be exercised, during
the applicable post-Service exercise period, not only with respect to the
number of vested shares of Common Stock for which such option is exercisable at
the time of the Optionee’s cessation of Service but also with respect to one or
more additional installments in which the Optionee would have vested had the
Optionee continued in Service.


 


D.                                    STOCKHOLDER RIGHTS. The holder of an
option shall have no stockholder rights with respect to the shares subject to
the option until such person shall have exercised the option, paid the exercise
price and become a holder of record of the purchased shares.


 


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E.                                      REPURCHASE RIGHTS.   The Plan Administrator shall have the discretion
to grant options which are exercisable for unvested shares of Common
Stock.  Should the Optionee cease Service
while holding such unvested shares, the Corporation shall have the right, but
not the obligation, to repurchase any or all of those unvested shares at a
price per share equal to the lower of (i) the
exercise price paid per share or (ii) the Fair Market Value per share of
Common Stock at the time of the Optionee’s cessation of Service.  The terms upon which such repurchase right
shall be exercisable (including the period and procedure for exercise and the
appropriate vesting schedule for the purchased shares) shall be established by
the Plan Administrator and set forth in the document evidencing such repurchase
right.


 


F.                                      LIMITED TRANSFERABILITY OF OPTIONS.
During the lifetime of the Optionee, Incentive Options shall be exercisable
only by the Optionee and shall not be assignable or transferable other than by
will or the laws of descent and distribution following the Optionee’s death.
Non-Statutory Options shall be subject to the same limitation, except as
otherwise determined by the Plan Administrator, including an assignment to the
Optionee’s Immediate Family.  To the
extent that a Non-Statutory Option is assigned, the assigned portion may only
be exercised by the person or persons who acquire a proprietary interest in the
option pursuant to the assignment. The terms applicable to the assigned portion
shall be the same as those in effect for the option immediately prior to such
assignment and shall be set forth in such documents issued to the assignee as
the Plan Administrator may deem appropriate. Notwithstanding the foregoing, the
Optionee may also designate one or more persons as the beneficiary or
beneficiaries of his or her outstanding options under this Article Two,
and those options shall, in accordance with such designation, automatically be
transferred to such beneficiary or beneficiaries upon the Optionee’s death
while holding those options. Such beneficiary or beneficiaries shall take the
transferred options subject to all the terms and conditions of the applicable
agreement evidencing each such transferred option, including (without
limitation) the limited time period during which the option may be exercised
following the Optionee’s death.


 


II.                                   INCENTIVE OPTIONS


 


The terms specified below shall be applicable to all
Incentive Options. Except as modified by the provisions of this Section II,
all the provisions of Articles One and Two shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options
when issued under the Plan shall not be subject to the terms of this Section II.


 


A.                                   ELIGIBILITY. Incentive Options may only
be granted to Employees.


 


B.                                     EXERCISE PRICE. The exercise price per
share shall not be less than one hundred percent (100%) of the Fair Market
Value per share of Common Stock on the option grant date.


 


C.                                     DOLLAR LIMITATION. The aggregate Fair
Market Value of the shares of Common Stock (determined as of the respective
date or dates of grant) for which one or more options granted to any Employee
under the Plan (or any other option plan of the Corporation or any Parent or
Subsidiary) may for the first time become exercisable as Incentive Options
during any one calendar year shall not exceed the sum of One Hundred Thousand
Dollars ($100,000). To the extent the Employee holds two (2) or more such
options which become exercisable for the first time in the same calendar year,
the foregoing limitation on the exercisability of such options as Incentive
Options shall be applied on the basis of the order in which such options are
granted.  To the extent that the options
exceed this limit, the excess amount shall be considered Non-Statutory Options.


 


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D.                                    FAILURE TO QUALIFY AS INCENTIVE
OPTION.  To the extent that any option
governed by this Plan does not qualify as an Incentive Option, by reason of the
dollar limitation described in Section II.C of this Article Two or
for any other reason, such option shall be exercisable as a Non-Statutory
Option under the Federal tax laws.


 


E.                                      10% STOCKHOLDER. If any Employee to whom
an Incentive Option is granted is a 10% Stockholder, then the exercise price
per share shall not be less than one hundred ten percent (110%) of the Fair
Market Value per share of Common Stock on the option grant date, and the option
term shall not exceed five (5) years measured from the option grant date.


 


III.                               STOCK APPRECIATION RIGHT TERMS


 


The Plan Administrator may grant stock appreciation
rights either in conjunction with all or part of any option or without regard
to any option, in each case upon such terms and conditions as the Plan
Administrator may establish in its sole discretion, not inconsistent with the
provisions of the Plan.  Each stock
appreciation right shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such
document shall comply with the terms specified below.


 


A.                                   RIGHT TO PAYMENT.


 


1.                                       Each stock appreciation right shall
confer on the Participant to whom it is granted a right to receive, upon
exercise thereof, the excess of (A) the Fair Market Value of one share of
Common Stock on the date of exercise over (B) the per share strike price
of the stock appreciation right.


 


2.                                       The Plan Administrator shall determine
the method of settlement, form of consideration payable in settlement and
method by or forms in which shares of Common Stock will be delivered or deemed
to be delivered to Participants.


 


3.                                       The strike price per share shall be fixed
by the Plan Administrator but shall not be less than one hundred percent (100%)
of the Fair Market Value per share of Common Stock on the stock appreciation
right grant date.


 


B.                                     EXERCISE AND TERM OF STOCK APPRECIATION
RIGHTS.   Each stock appreciation right shall be
exercisable at such time or times, during such period and for such number of
shares as shall be determined by the Plan Administrator and set forth in the
documents evidencing the stock appreciation right.  However, no stock appreciation right shall
have a term in excess of ten (10) years measured from the stock
appreciation right grant date.


 


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C.                                     EFFECT OF TERMINATION OF SERVICE.


 


1.                                       The following provisions shall govern the
exercise of any stock appreciation rights held by the Participant at the time
of cessation of Service or death:


 


(i)                                     Any stock appreciation right outstanding
at the time of the Participant’s cessation of Service for any reason shall remain
exercisable for such period of time thereafter as shall be determined by the
Plan Administrator and set forth in the documents evidencing the stock
appreciation right, but no such stock appreciation right shall be exercisable
after the expiration of the stock appreciation right term.


 


(ii)                                  Any stock appreciation right held by the
Participant at the time of death and exercisable in whole or in part at that
time may be subsequently exercised by the personal representative of the
Participant’s estate or by the person or persons to whom the stock appreciation
right is transferred pursuant to the Participant’s will or the laws of
inheritance or by the Participant’s designated beneficiary or beneficiaries of
that stock appreciation right.


 


(iii)                               Should the Participant’s Service be
terminated for Misconduct or should the Participant otherwise engage in
Misconduct while holding one or more outstanding stock appreciation rights
under this Article Two, then all those stock appreciation rights shall
terminate immediately and cease to be outstanding.


 


(iv)                              During the applicable post-Service
exercise period, the stock appreciation right may not be exercised in the
aggregate for more than the number of vested shares for which the stock
appreciation right is exercisable on the date of the Participant’s cessation of
Service.  Upon the expiration of the
applicable exercise period or (if earlier) upon the expiration of the stock
appreciation right term, the stock appreciation right shall terminate and cease
to be outstanding for any vested shares for which the stock appreciation right
has not been exercised.  However, the
stock appreciation right shall, immediately upon the Participant’s cessation of
Service, terminate and cease to be outstanding to the extent the stock appreciation
right is not otherwise at that time exercisable for vested shares.


 


2.                                       The Plan Administrator shall have
complete discretion, exercisable either at the time an stock appreciation right
is granted or at any time while the stock appreciation right remains
outstanding, to:


 


(i)                                     extend the period of time for which the
stock appreciation right is to remain exercisable following the Participant’s
cessation of Service from the limited exercise period otherwise in effect for
that stock appreciation right to such greater period of time as the Plan
Administrator shall deem appropriate, but in no event beyond the expiration of
the stock appreciation right term, and/or


 


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(ii)                                  permit
the stock appreciation right to be exercised, during the applicable
post-Service exercise period, not only with respect to the number of vested
shares of Common Stock for which such stock appreciation right is exercisable
at the time of the Participant’s cessation of Service but also with respect to
one or more additional installments in which the Participant would have vested
had the Participant continued in Service.


 


D.                                    STOCKHOLDER RIGHTS.  The holder of an stock appreciation right
shall have no stockholder rights with respect to the shares subject to the
stock appreciation right until such person shall have exercised the stock
appreciation right, received shares of common stock in connection with such
exercise and become a holder of record of the purchased shares.


 


E.                                      LIMITED TRANSFERABILITY OF STOCK
APPRECIATION RIGHTS.  During the lifetime
of the Participant, stock appreciation rights shall be exercisable only by the
Participant and shall not be assignable or transferable other than by will or
the laws of inheritance following the Participant’s death, except that the Plan
Administrator may structure one or more stock appreciation rights under the
Discretionary Option/Stock Appreciation Right Grant Program so that each such
stock appreciation right may be assigned in whole or in part during the
Participant’s lifetime to one or more members of the Participant’s family or to
a trust established exclusively for one or more such family members or to
Participant’s former spouse, to the extent such assignment is in connection
with the Participant’s estate plan or pursuant to a domestic relations
order.  The assigned portion may only be
exercised by the person or persons who acquire a proprietary interest in the
stock appreciation right pursuant to the assignment.  The terms applicable to the assigned portion
shall be the same as those in effect for the stock appreciation right
immediately prior to such assignment and shall be set forth in such documents
issued to the assignee as the Plan Administrator may deem appropriate.  Notwithstanding the foregoing, the
Participant may also designate one or more persons as the beneficiary or
beneficiaries of his or her outstanding stock appreciation rights under this Article Two,
and those stock appreciation rights shall, in accordance with such designation,
automatically be transferred to such beneficiary or beneficiaries upon the
Participant’s death while holding those stock appreciation rights.  Such beneficiary or beneficiaries shall take
the transferred stock appreciation rights subject to all the terms and
conditions of the applicable agreement evidencing each such transferred stock
appreciation right, including (without limitation) the limited time period
during which the stock appreciation right may be exercised following the
Participant’s death.


 


IV.                              CHANGE IN CONTROL/HOSTILE TAKE-OVER


 


A.                                   Except as otherwise provided in this Section IV,
none of the outstanding options or stock appreciation rights under the
Discretionary Option/Stock Appreciation Right Grant Program shall vest in whole
or in part on an accelerated basis upon the occurrence of a Change in Control,
and those options and stock appreciation rights may be assumed, continued or
substituted for by any successor corporation in the Change in Control.


 


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B.                                     Except as otherwise provided in this Section IV,
none of the outstanding repurchase rights under the Discretionary Option/Stock
Appreciation Right Grant Program shall terminate on an accelerated basis upon
the occurrence of a Change in Control, and those rights shall be assignable to
any successor corporation in the Change in Control.


 


C.                                     Unless an option or stock appreciation
right is assumed, continued or substituted for by the successor corporation (or
parent thereof) or otherwise continued in full force and effect pursuant to the
terms of the Change in Control transaction, if a Change in Control occurs while
the Optionee remains in Service, the shares of Common Stock at the time subject
to each outstanding option or stock appreciation right held by such Optionee
but not otherwise vested shall automatically accelerate so that each such
option or stock appreciation right shall, immediately prior to the effective
date of the Change in Control, vest and become exercisable for all the shares
of Common Stock at the time subject to such option or stock appreciation right
and may be exercised for any or all of those shares as fully vested shares of
Common Stock.   The Corporation shall
provide each holder of an option or a stock appreciation right that is
accelerated in accordance with this paragraph at least five (5) business
days notice of the vesting acceleration. 
Immediately following the consummation of the Change in Control, each
option or stock appreciation right shall terminate and cease to be outstanding,
except to the extent assumed or substituted for by the successor corporation
(or parent thereof) or otherwise continued in full force and effect pursuant to
the express terms of the Change in Control transaction.


 


D.                                    The Plan Administrator shall have the
discretionary authority to structure one or more options or stock appreciation
rights grants under the Discretionary Option/Stock Appreciation Right Grant
Program so that the vesting and exercisability of each option or stock
appreciation right shall automatically accelerate in whole or in part, either (i) immediately
prior to the effective date of that Change in Control or Hostile Takeover, and
become exercisable for all the shares of Common Stock at the time or (ii) upon
an event occurring after the Change in Control or Hostile Takeover (including a
termination of employment).    In
addition, the Plan Administrator may structure one or more of the Corporation’s
repurchase rights so that those rights shall immediately terminate, in whole or
in part, with respect to any shares held by the Participant (and the shares
subject to those terminated repurchase rights shall accordingly vest in full )
either (i) immediately prior to the effective date of that Change in
Control or Hostile Takeover, or (ii) upon an event occurring after the
Change in Control or Hostile Takeover (including a termination of employment).


 


E.                                      Each option which is assumed or
substituted for in connection with a Change in Control or otherwise continued
in effect shall be appropriately adjusted, immediately after such Change in
Control, to apply to the number and class of securities which would have been
issuable to the Optionee in consummation of such Change in Control had the
option been exercised immediately prior to such Change in Control. Appropriate
adjustments to reflect such Change in Control shall also be made to (i) the
exercise price payable per share under each outstanding option, provided the
aggregate exercise price payable for such securities shall remain the same, (ii) the
maximum number, type and/or class of securities available for issuance over the
remaining term of the Plan, (iii) the maximum number, type and/or class of
securities by which the share reserve is to increase each calendar year
pursuant to the automatic share increase provisions of the Plan and (iv) the
maximum number, type and/or class of securities for which any one person may be
granted options, separately exercisable stock appreciation rights and direct
stock issuances or share right awards under the Plan per calendar year.  To the extent the actual holders of the
Corporation’s outstanding Common Stock receive cash consideration for their
Common Stock in consummation of the Change in Control transaction, the
successor corporation may, in connection with the assumption of the outstanding
options under the Discretionary Option Grant Program, substitute one or more
shares of its own common stock (or those of its parent) with a fair market
value equivalent to the cash consideration paid per share of Common Stock in
such Change in Control transaction.


 


12





















 


F.                                      Unless otherwise determined by the Plan
Administrator and expressly set forth in the documents evidencing the option,
each option outstanding under the Discretionary Option/Stock Appreciation Right
Grant Program at the time of a Hostile Take-Over but not otherwise exercisable
for all the shares of Common Stock subject to such option at that time shall,
immediately prior to the effective date of a Hostile Take-Over, automatically
vest and become exercisable for all the shares of Common Stock at that time
subject to such options on an accelerated basis and may be exercised for any or
all of such shares as fully vested shares of Common Stock. In addition, all of
the Corporation’s repurchase rights under the Discretionary Option/Stock
Appreciation Right Grant Program shall terminate automatically upon the
consummation of such Hostile Take-Over, and the shares subject to those
terminated rights shall thereupon immediately vest in full, except to the
extent such accelerated vesting is precluded by limitations imposed by the Plan
Administrator at the time the repurchase right is issued.  Each option so accelerated shall remain
exercisable for fully vested shares of Common Stock until the expiration or
sooner termination of the option term.


 


G.                                     The portion of any Incentive Option
accelerated in connection with a Change in Control or Hostile Take-Over shall
remain exercisable as an Incentive Option only to the extent the applicable One
Hundred Thousand Dollar ($100,000) limitation is not exceeded. To the extent
such dollar limitation is exceeded, the excess accelerated portion of such
option shall be exercisable as a Non-Statutory Option under the Federal tax
laws.


 


H.                                    The grant of options under the
Discretionary Option/Stock Appreciation Right Grant Program shall in no way
affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.


 


V.                                  CANCELLATION AND REGRANT OF OPTIONS


 


The Plan Administrator shall have the authority to
effect, at any time and from time to time, with the consent of the affected
option holders, the cancellation of any or all outstanding options under the
Discretionary Option/Stock Appreciation Right Grant Program (including
outstanding options incorporated from the Predecessor Plans) and to grant (i) in
substitution new options or stock appreciation rights covering the same or a
different number of shares of Common Stock but with an exercise price per share
calculated based upon the Fair Market Value per share of Common Stock on the
new grant date; (ii) stock issuances (including share right awards); (iii) cash;
or (iv) other property.


 


13

















 


ARTICLE THREE



STOCK ISSUANCE PROGRAM


 


I.                                       STOCK ISSUANCE TERMS


 


Shares of Common Stock may be issued under the Stock
Issuance Program through direct and immediate issuances without any intervening
option grants. Each such stock issuance shall be evidenced by a Stock Issuance
Agreement which complies with the terms specified below. Shares of Common Stock
may also be issued under the Stock Issuance Program pursuant to share right
awards which entitle the recipients to receive those shares upon the attainment
of designated performance goals.


 


A.                                   PURCHASE PRICE.


 


1.                                       The purchase price per share shall be
fixed by the Plan Administrator, but shall not be less than any legal limit
required under state law.


 


2.                                       Shares of Common Stock may be issued
under the Stock Issuance Program for any of the following items of
consideration which the Plan Administrator may deem appropriate in each
individual instance:


 


(i)                                     cash
or check made payable to the Corporation for one hundred percent of the Fair
Market Value of the shares of Common Stock to be purchased,


 


(ii)                                  past
services rendered to the Corporation (or any Parent or Subsidiary),


 


(iii)                               services
to be rendered to the Corporation (or any Parent or Subsidiary) during the
vesting period, or


 


(iv)                              any
other form of legal consideration that may be acceptable to the Plan
Administrator.


 


B.                                     VESTING PROVISIONS.


 


1.                                       Shares of Common Stock issued under the
Stock Issuance Program may, in the discretion of the Plan Administrator, be
fully and immediately vested upon issuance or may vest in one or more
installments over the Participant’s period of Service or upon attainment of
specified performance objectives. The elements of the vesting schedule
applicable to any unvested shares of Common Stock issued under the Stock
Issuance Program shall be determined by the Plan Administrator and incorporated
into the Stock Issuance Agreement. Shares of Common Stock may also be issued
under the Stock Issuance Program pursuant to share right awards which entitle
the recipients to receive those shares upon the attainment of designated
performance goals or in one or more installments over the Participant’s period
of Service. Upon the attainment of such performance goals or Service period,
fully vested shares of Common Stock shall be issued in satisfaction of those
share right awards.


 


14





















 


2.                                       Any new, substituted or additional
securities or other property (including money paid other than as a regular cash
dividend) which the Participant may have the right to receive with respect to
the Participant’s unvested shares of Common Stock by reason of any stock dividend,
stock split, recapitalization, combination of shares, exchange of shares or
other change affecting the outstanding Common Stock as a class without the
Corporation’s receipt of consideration shall be issued subject to (i) the
same vesting requirements applicable to the Participant’s unvested shares of
Common Stock and (ii) such escrow arrangements as the Plan Administrator
shall deem appropriate.


 


3.                                       The Participant shall have full
stockholder rights with respect to any shares of Common Stock issued to the
Participant under the Stock Issuance Program, whether or not the Participant’s
interest in those shares is vested. Accordingly, the Participant shall have the
right to vote such shares and to receive any regular cash dividends paid on
such shares.


 


4.                                       Should the Participant cease to remain in
Service while holding one or more unvested shares of Common Stock issued under
the Stock Issuance Program or should the performance objectives not be attained
with respect to one or more such unvested shares of Common Stock, then those
shares shall be immediately surrendered to the Corporation for cancellation,
and the Participant shall have no further stockholder rights with respect to
those shares.  To the extent the surrendered
shares were previously issued to the Participant for consideration paid in cash
or cash equivalent (including the Participant’s purchase-money indebtedness),
the Corporation shall repay to the Participant the lower
of (i) the cash consideration paid for the surrendered
shares or (ii) the Fair Market Value of those shares at the time of
cancellation.


 


5.                                       The Plan Administrator may in its
discretion waive the surrender and cancellation of one or more unvested shares
of Common Stock which would otherwise occur upon the cessation of the Participant’s
Service or the non-attainment of the performance objectives applicable to those
shares. Such waiver shall result in the immediate vesting of the Participant’s
interest in the shares of Common Stock as to which the waiver applies. Such
waiver may be effected at any time, whether before or after the Participant’s
cessation of Service or the attainment or non-attainment of the applicable
performance objectives.


 


6.                                       Outstanding share right awards under the
Stock Issuance Program shall automatically terminate, and no shares of Common
Stock shall actually be issued in satisfaction of those awards, if the
performance goals or Service requirements established for such awards are not
attained. The Plan Administrator, however, shall have the discretionary authority
to issue shares of Common Stock under one or more outstanding share right
awards as to which the designated performance goals or Service requirements
have not been attained.


 


15





















 


II.                                   CHANGE IN CONTROL/HOSTILE TAKE-OVER


 


A.                                   Except as otherwise provided in this Section II,
none of the outstanding repurchase rights under the Stock Issuance Program
shall terminate on an accelerated basis upon the occurrence of a Change in
Control, and those rights shall be assignable to any successor corporation in
the Change in Control.  Except as
otherwise provided in this Section II, none of the outstanding share right
awards under the Stock Issuance Program shall vest in whole or in part on an
accelerated basis upon the occurrence of a Change in Control, and those share
right awards may be assumed, continued or substituted for by any successor
corporation in the Change in Control.


 


B.                                     To the extent that the outstanding
repurchase rights under the Stock Issuance Program are not assigned to any
successor corporation in the Change in Control and are not continued by the
Corporation, such outstanding repurchase rights under the Stock Issuance
Program shall terminate immediately prior to and contingent upon the occurrence
of the Change in Control.


 


C.                                     Unless a share right award is assumed or
substituted for by the successor corporation (or parent thereof) or otherwise
continued in full force and effect pursuant to the terms of the Change in
Control transaction, if a Change in Control occurs while the Participant
remains in Service, the shares of Common Stock at the time subject to each a
share right award held by such Participant but not otherwise vested shall
automatically accelerate so that each such Participant shall, immediately prior
to the effective date of the Change in Control, vest for all the shares of
Common Stock at the time subject to such share right award  and such fully vested shares of Common Stock
shall be delivered to the Participant immediately prior to and contingent upon
the Change in Control.  The Corporation
shall provide each holder of a share right award that is accelerated in
accordance with this paragraph at least five (5) business days notice of
the vesting acceleration.  Immediately
following the consummation of the Change in Control, each option or stock
appreciation right shall terminate and cease to be outstanding, except to the
extent assumed or substituted for by the successor corporation (or parent
thereof) or otherwise continued in full force and effect pursuant to the
express terms of the Change in Control transaction.


 


D.                                    To the extent a share right award is not
assumed, continued or substituted for by the successor corporation (or parent
thereof) or otherwise continued in full force and effect pursuant to the terms
of the Change in Control transaction, then such share right award shall become
fully vested and shares of Common Stock deliverable under the share right award
shall be delivered immediately prior to and contingent upon the Change in Control.  The Corporation shall provide each holder of
a share right award that is accelerated in accordance with this paragraph at
least five (5) business days notice of the vesting acceleration.


 


E.                                      Immediately following the consummation of
the Change in Control, all outstanding share right awards under the Stock
Issuance Program shall terminate and cease to be outstanding, except to the
extent assumed, continued or substituted for by the successor corporation (or
parent thereof) or otherwise continued in full force and effect pursuant to the
terms of the Change in Control transaction.


 


16





















 


F.                                      All of the Corporation’s outstanding
repurchase rights under the Stock Issuance Program shall terminate
automatically, and all the shares of Common Stock subject to those terminated
rights shall immediately vest in full, in the event of any Hostile Take-Over,
except to the extent such accelerated vesting is precluded by other limitations
imposed in the Stock Issuance Agreement. 
All the shares of Common Stock subject to outstanding share right awards
shall immediately vest in full, in the event of any Hostile Take-Over, except
to the extent such accelerated vesting is precluded by other limitations
imposed in the Share Right Award Agreement.


 


G.                                     The Plan Administrator may, in its
discretion, structure one or more of the Corporation’s repurchase rights so
that those rights shall immediately terminate, in whole or in part, with
respect to any shares held by the Participant (and the shares subject to those
terminated repurchase rights shall accordingly vest in full) either (i) immediately
prior to the effective date of that Change in Control or Hostile Takeover, or (ii) upon
an event occurring after the Change in Control or Hostile Takeover (including a
termination of a Participant’s Service).  
In addition, the Plan Administrator shall have the discretionary
authority to structure one or more share right awards grants under the Stock
Issuance Program so that the vesting of each share right shall automatically
accelerate in whole or in part, either (i) immediately prior to the
effective date of that Change in Control or Hostile Takeover, or (ii) upon
an event occurring after the Change in Control or Hostile Takeover (including a
termination of employment).


 


H.                                    Each share right award which is assumed
or substituted for in connection with a Change in Control or otherwise
continued in effect shall be appropriately adjusted, immediately after such
Change in Control, to convert the number and class of securities which would
have been issuable to the Participant in consummation of such Change in Control
had the shares of Common Stock subject to the share right award been issued
immediately prior to such Change in Control to the type and amount of
consideration received by the holders of Common Stock in the Change in
Control.  To the extent the actual
holders of the Corporation’s outstanding Common Stock receive cash
consideration for their Common Stock in consummation of the Change in Control,
the successor corporation may, in connection with the assumption or
substitution of the outstanding share right awards under the Stock Issuance
Program, substitute one or more shares of its own common stock or that of any
parent or publicly traded Subsidiary, with a fair market value equivalent to
the cash consideration paid per share of Common Stock in such Change in Control
transaction.


 


III.                               SHARE ESCROW/LEGENDS


 


Unvested shares may, in the Plan Administrator’s
discretion, be held in escrow by the Corporation until the Participant’s
interest in such shares vests or may be issued directly to the Participant with
restrictive legends on the certificates evidencing those unvested shares.


 


17





















 


ARTICLE FOUR



AUTOMATIC OPTION GRANT PROGRAM


 


I.                                       OPTION TERMS


 


A.                                   GRANT DATES. Option grants shall be made
on the dates specified below:


 


1.                                       Each individual who is first elected or
appointed as a non-employee Board member at any time on or after the Plan
Effective Date shall automatically be granted, on the date of such initial
election or appointment, a Non-Statutory Option to purchase 20,000 shares of
Common Stock, provided that individual has not previously been in the employ of
the Corporation or any Parent or Subsidiary.


 


2.                                       On the first business day in each
calendar year following the Plan Effective Date and during the term of the
Plan, each non-employee Board member then in office, shall automatically be
granted a Non-Statutory Option to purchase 20,000 shares of Common Stock,
provided such individual has served as a non-employee Board member for at least
six (6) months. There shall be no limit on the number of such option
grants any one non-employee Board member may receive over his or her period of
Service on the Board, and non-employee Board members who have previously been
in the employ of the Corporation (or any Parent or Subsidiary) or who joined
the Board prior to the Plan Effective Date shall be eligible to receive one or
more such annual option grants over their period of continued Board Service.


 


B.                                     EXERCISE PRICE.


 


1.             The exercise price per share shall
be equal to one hundred percent (100%) of the Fair Market Value per share of
Common Stock on the option grant date.


 


2.                                       The exercise price shall be payable in one
or more of the alternative forms authorized under the Discretionary Option
Grant Program. Except to the extent the sale and remittance procedure specified
thereunder is utilized, payment of the exercise price for the purchased shares
must be made on the Exercise Date.


 


C.                                     OPTION TERM. Each option shall have a
maximum term of ten (10) years measured from the option grant date.


 


D.                                    EXERCISE AND VESTING OF OPTIONS.


 


Each option
granted pursuant to this Automatic Option Grant Program shall become
exercisable in a series of four (4) equal quarterly installments upon the
Optionee’s completion of each three (3) months of continuous Service as a
Board member over the 12-month period measured from the option grant date.


 


E.                                      LIMITED TRANSFERABILITY OF OPTIONS. Each
option under this Article Four may be assigned in whole or in part during
the Optionee’s lifetime to one or more members of the Optionee’s Immediate
Family or to a trust established exclusively for the Optionee or one or more
Members of the Optionee’s Immediate Family or to Optionee’s former spouse, to
the extent such assignment is in connection with the Optionee’s estate plan or
pursuant to domestic relations order. The assigned portion may only be
exercised by the person or persons who acquire a proprietary interest in the
option pursuant to the assignment. The terms applicable to the assigned portion
shall be the same as those in effect for the option immediately prior to such
assignment and shall be set forth in such documents issued to the assignee as the
Plan Administrator may deem appropriate. The Optionee may also designate one or
more persons as the beneficiary or beneficiaries of his or her outstanding
options under this Article Four, and those options shall, in accordance
with such designation, automatically be transferred to such beneficiary or
beneficiaries upon the Optionee’s death while holding those options. Such
beneficiary or beneficiaries shall take the transferred options subject to all
the terms and conditions of the applicable agreement evidencing each such
transferred option, including (without limitation) the limited time period
during which the option may be exercised following the Optionee’s death.


 


18





















 


F.                                      TERMINATION OF BOARD SERVICE. The
following provisions shall govern the exercise of any options held by the
Optionee at the time the Optionee ceases to serve as a Board member for any
reason:


 


(i)                                     The
Optionee (or, in the event of Optionee’s death, the personal representative of
the Optionee’s estate or the person or persons to whom the option is
transferred pursuant to the Optionee’s will or the laws of descent and
distribution or the designated beneficiary or beneficiaries of such option)
shall have a six (6)-month period following the date of such cessation of Board
Service in which to exercise each such option.


 


(ii)                                  During
the six (6)-month post-Service exercise period, the option may not be exercised
in the aggregate for more than the number of vested shares of Common Stock for
which the option is exercisable at the time of the Optionee’s cessation of
Board Service.


 


(iii)                               In
no event shall the option remain exercisable after the expiration of the option
term. Upon the expiration of the six (6)-month post-Service exercise period or
(if earlier) upon the expiration of the option term, the option shall terminate
and cease to be outstanding for any shares for which the option has not been
exercised. However, the option shall, immediately upon the Optionee’s cessation
of Board Service for any reason, terminate and cease to be outstanding to the
extent the option is not otherwise at that time exercisable.


 


II.                                   CHANGE IN CONTROL/ HOSTILE TAKE-OVER


 


A.                                   In the event of any Change in Control
while the Optionee remains a Board member, the shares of Common Stock at the
time subject to each outstanding option held by such Optionee under the
Automatic Option Grant Program but not otherwise vested shall automatically
accelerate so that each such option shall, immediately prior to the effective
date of the Change in Control, vest and become exercisable for all the shares
of Common Stock at the time subject to such option and may be exercised for any
or all of those shares as fully vested shares of Common Stock. Immediately
following the consummation of the Change in Control, each automatic option
grant shall terminate and cease to be outstanding, except to the extent assumed
by the successor corporation (or parent thereof) or otherwise continued in full
force and effect pursuant to the express terms of the Change in Control
transaction.


 


19





















 


B.                                     In the event of a Hostile Take-Over while
the Optionee remains a Board member, the shares of Common Stock at the time
subject to each option outstanding under the Automatic Option Grant Program but
not otherwise vested shall automatically accelerate so that each such option
shall, immediately prior to the effective date of the Hostile Take-Over, vest
and become exercisable for all the shares of Common Stock at the time subject
to such option and may be exercised for any or all of those shares as fully
vested shares of Common Stock. Each such option shall remain exercisable for
such fully-vested option shares until the expiration or sooner termination of
the option term or the surrender of the option in connection with that Hostile
Take-Over.


 


C.                                     All outstanding repurchase rights under
the Automatic Option Grant Program shall automatically terminate, and the
shares of Common Stock subject to those terminated rights shall immediately
vest in full, in the event of any Change in Control or Hostile Take-Over.


 


D.                                    Upon the occurrence of a Hostile
Take-Over, the Optionee shall have a thirty (30)-day period in which to
surrender to the Corporation each of his or her outstanding automatic option
grants.  The Optionee shall in return be
entitled to a cash payment from the Corporation in an amount equal to the
excess of (i) the Take-Over Price of the shares of Common Stock at the
time subject to each surrendered option (whether or not the Optionee is
otherwise at the time vested in those shares) over (ii) the aggregate
exercise price payable for such shares. Such cash payment shall be paid within
five (5) days following the surrender of the option to the
Corporation.  The Plan Administrator
shall, at the time the option with such limited stock appreciation right is
granted under the Automatic Option Grant Program, pre-approve any subsequent
exercise of that right in accordance with the terms of this Paragraph D.  Accordingly, no further approval of the Plan
Administrator or the Board shall be required at the time of the actual option
surrender and cash payment.


 


E.                                      Each option which is assumed in
connection with a Change in Control or otherwise continued in full force and
effect shall be appropriately adjusted, immediately after such Change in
Control, to apply to the number and class of securities which would have been
issuable to the Optionee in consummation of such Change in Control had the
option been exercised immediately prior to such Change in Control. Appropriate
adjustments shall also be made to the exercise price payable per share under
each outstanding option, provided the aggregate exercise price payable for such
securities shall remain the same.  To the
extent the actual holders of the Corporation’s outstanding Common Stock receive
cash consideration for their Common Stock in consummation of the Change in
Control transaction, the successor corporation may, in connection with the
assumption of the outstanding options under the Automatic Option Grant Program,
substitute one or more shares of its own common stock with a fair market value
equivalent to the cash consideration paid per share of Common Stock in such
Change in Control transaction.


 


F.                                      The grant of options under the Automatic
Option Grant Program shall in no way affect the right of the Corporation to
adjust, reclassify, reorganize or otherwise change its capital or business
structure or to merge, consolidate, dissolve, liquidate or sell or transfer all
or any part of its business or assets.


 


III.                              REMAINING TERMS


 


The remaining terms of each option granted under the
Automatic Option Grant Program shall be the same as the terms in effect for
option grants made under the Discretionary Option Grant Program.


 


20














 


ARTICLE FIVE



MISCELLANEOUS


 


I.                                       NO FRACTIONAL SHARES


 


No fractional shares of Common Stock shall be issued
or delivered pursuant to the Plan, and the Plan Administrator shall determine
whether cash shall be paid in lieu of any fractional shares or whether such
fractional shares or any rights thereto shall be canceled, terminated or
otherwise eliminated.


 


II.                                   TAX WITHHOLDING


 


A.                                   The Corporation’s obligation to deliver
shares of Common Stock upon a stock issuance, or the exercise of options or
stock appreciation rights or the issuance or vesting of such shares under the
Plan shall be subject to the satisfaction of all applicable income and
employment tax withholding requirements. 
The Corporation shall also make appropriate arrangements to satisfy all
applicable foreign tax withholding requirements which may be imposed in
connection with the grant or exercise of options or stock appreciation rights
under the Plan or the issuance or vesting of shares of Common Stock under the
Plan.


 


B.                                     The Plan Administrator may, in its
discretion, provide in the respective award agreement that (i) the
Corporation, in its discretion, may determine that shares of Common Stock from
the award be withheld by the Corporation in satisfaction of all or part of the
Withholding Taxes which may become payable in connection with the an award
granted under the Plan (pursuant to Article Five Section II.B.1.) and
(ii) any or all Optionees or Participants under the Plan (other than the
non-employee Board members) with the right to use shares of Common Stock in
satisfaction of all or part of the Withholding Taxes to which such individuals
may become subject in connection with the grant or exercise of their options or
stock appreciation rights or the issuance or vesting of their shares.  Such right to an individual may be provided
to any such holder in either or both of the following formats:


 


1.                                       Stock Withholding: 
The election to have the Corporation withhold, from the shares of Common
Stock otherwise issuable upon the exercise of options or stock appreciation
rights or the issuance or the vesting of such shares, a portion of those shares
with an aggregate Fair Market Value equal to the percentage of the Withholding
Taxes (not to exceed one hundred percent (100%) of the minimum Withholding
Taxes required be law) designated by the holder.


 


2.                                       Stock Delivery: 
The election to deliver to the Corporation, at the time the option or
stock appreciation right is granted or exercised or the shares are issued or
vest, one or more shares of Common Stock previously acquired by such holder
(other than in connection with the option or stock appreciation right exercise
or share vesting triggering the Withholding Taxes) with an aggregate Fair
Market Value equal to the percentage of the Withholding Taxes (not to exceed
one hundred percent (100%) of the minimum Withholding Taxes required be law)
designated by the holder.


 


21

















 


III.                               EFFECTIVE DATE AND TERM OF THE PLAN


 


A.                                   The Plan shall become effective
immediately upon the Plan Effective Date. 
Options may be granted under the Discretionary Option/Stock Appreciation
Right Grant Program at any time on or after the Plan Effective Date, and the
initial option grants under the Automatic Option Grant Program shall be made on
the Plan Effective Date to any non-employee Board members eligible for such
grants at that time. However, no options granted under the Plan may be
exercised, and no shares shall be issued under the Plan, until the Plan is
approved by the Corporation’s stockholders. If such stockholder approval is not
obtained within twelve (12) months after the Plan Effective Date, then all
options previously granted under this Plan shall terminate and cease to be
outstanding, and no further options shall be granted and no shares shall be
issued under the Plan.


 


B.                                     The Plan shall terminate upon the
earliest of (i) the tenth anniversary of the Plan Effective Date, (ii) the
tenth anniversary of the approval of the Plan by the Corporation’s
stockholders, (iii) the date on which all shares available for issuance
under the Plan shall have been issued as fully-vested shares or (iv) the
termination of all outstanding awards in connection with a Change in
Control.  Upon such Plan termination, all
option grants and unvested stock issuances outstanding at that time shall
thereafter continue to have force and effect in accordance with the provisions
of the documents evidencing such grants or issuances.


 


IV.                              AMENDMENT OF THE PLAN


 


A.                                   The Board shall have complete and
exclusive power and authority to amend or modify the Plan or any outstanding
award granted under the Plan in any or all respects.  However, no such amendment or modification
shall adversely affect the rights and obligations with respect to stock
options, stock appreciation rights or unvested stock issuances at the time
outstanding, including share right awards, under the Plan unless the Optionee
or the Participant consents to such amendment or modification.  Notwithstanding the foregoing, any amendment
to either increase the number of shares that may be issued under the Plan or
the Persons eligible to receive awards under the Plan shall require stockholder
approval.  In addition, certain
amendments may require stockholder approval pursuant to applicable laws or
regulations.


 


B.                                     Options to purchase shares of Common
Stock may be granted under the Discretionary Option/Stock Appreciation Right
Grant Program and shares of Common Stock may be issued under the Stock Issuance
Program that are in each instance in excess of the number of shares then
available for issuance under the Plan, provided any excess shares actually
issued under those programs shall be held in escrow until there is obtained
stockholder approval of an amendment sufficiently increasing the number of
shares of Common Stock available for issuance under the Plan. If such
stockholder approval is not obtained within twelve (12) months after the date
the first such excess issuances are made, then (i) any unexercised options
granted on the basis of such excess shares shall terminate and cease to be
outstanding and (ii) the Corporation shall promptly refund to the
Optionees and the Participants the exercise or purchase price paid for any
excess shares issued under the Plan and held in escrow, together with interest
(at the short term applicable federal rate) for the period the shares were held
in escrow, and such shares shall thereupon be automatically cancelled and cease
to be outstanding.


 


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V.                                  USE OF PROCEEDS


 


Any cash proceeds received by the Corporation from the
sale of shares of Common Stock under the Plan shall be used for general
corporate purposes.


 


VI.                              REGULATORY APPROVALS


 


A.                                   The implementation of the Plan, the
granting of any stock option under the Plan and the issuance of any shares of
Common Stock (i) upon the exercise of any granted option or (ii) under
the Stock Issuance Program shall be subject to the Corporation’s procurement of
all approvals and permits required by regulatory authorities having
jurisdiction over the Plan, the stock options granted under it and the shares
of Common Stock issued pursuant to it.


 


B.                                     No shares of Common Stock or other assets
shall be issued or delivered under the Plan unless and until there shall have
been compliance with all applicable requirements of Federal and state
securities laws, including the filing and effectiveness of the Form S-8
registration statement for the shares of Common Stock issuable under the Plan,
and all applicable listing requirements of any stock exchange (or the Nasdaq
National Market, if applicable) on which Common Stock is then listed for
trading.


 


VII.                          NO EMPLOYMENT/SERVICE RIGHTS


 


Nothing in the Plan shall confer upon any Optionee or
Participant any right to continue in Service for any period of specific duration
or interfere with or otherwise restrict in any way the rights of the
Corporation (or any Parent or Subsidiary employing or retaining such person) or
of any Optionee or Participant, which rights are hereby expressly reserved by
each, to terminate such person’s Service at any time for any reason, with or
without cause.


 


VIII.                      SECTION 162(M)


 


A.                                   STOCK OPTIONS AND STOCK APPRECIATION
RIGHTS.


 


It is the intent of the Corporation that any options
or stock appreciation rights granted under the Plan to a “covered employee” (as
that term is defined in Section 162(m) of the Code) with an exercise
price of not less than the Fair Market Value per share of Common Stock on the
date of grant shall qualify as “qualified performance-based compensation”
(within the meaning of Treas. Reg. § 1.162-27(e)) to the extent that
options or stock appreciation rights granted under the Plan may qualify as “qualified
performance-based compensation” and the Plan shall be interpreted consistently
with such intent.  In furtherance of the
foregoing, if and to the extent that the Corporation intends that an option or
a stock appreciation right granted under the Plan to any covered employee shall
qualify as qualified performance-based compensation, all decisions regarding
the grant of such option or stock appreciation right shall be made only by
members of the Committee who qualify as “outside directors” within the meaning
of Treas. Reg. § 1.162-27(e)(3).


 


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B.                                     PERFORMANCE AWARDS.


 


The Plan Administrator shall also have the
discretionary authority, consistent with Code Section 162(m), to structure
(i) cash bonuses, (ii) stock options, (iii) stock appreciation
rights and (iv) stock issuances, including share right awards, so that (x) the
cash bonuses are only payable, (y) the shares of Common Stock received
upon exercise of the stock option or stock appreciation right and (z) the
shares of Common Stock subject to such stock issuances shall only vest or be
issuable upon the achievement of certain pre-established objective corporate
performance goals based on one or more of the following criteria: (1) earnings
per share; (2) revenues or margins; (3) cash flow; (4) operating
margin; (5) return on net assets, investment, capital, or equity; (6) direct
contribution; (7) net income; pretax earnings; (8) earnings before
interest and taxes; earnings before interest, taxes, depreciation and
amortization; earnings after interest expense and before extraordinary or
special items; operating income; income before interest income or expense,
unusual items and income taxes, local, state or federal and excluding budgeted
and actual bonuses which might be paid under any ongoing bonus plans of the
Company; (9) working capital; (10) management of fixed costs or variable
costs; (11) identification or consummation of investment opportunities or
completion of specified projects in accordance with corporate business plans,
including strategic mergers, acquisitions or divestitures; (12) total
shareholder return; and (13) debt reduction. In addition, such performance
goals may be based upon the attainment of specified levels of the Corporation’s
performance under one or more of the measures described above relative to the
performance of other entities and may also be based on the performance of any
of the Corporation’s business units or divisions or any Parent or Subsidiary.
Performance goals may include a minimum threshold level of performance below
which no award will be earned, levels of performance at which specified portions
of an award will be earned and a maximum level of performance at which an award
will be fully earned.  In furtherance of
the foregoing, if and to the extent that the Corporation intends that an award
granted under the Plan pursuant to this paragraph to any covered employee shall
qualify as qualified performance-based compensation, all decisions regarding
the grant of such award shall be made only by members of the Committee who
qualify as “outside directors” within the meaning of Treas. Reg. § 1.162-27(e)(3).


 


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APPENDIX


 


The following definitions
shall be in effect under the Plan:


 


A.                                   ASSUMED OPTIONS shall mean the stock
options assumed by the Corporation from Acacia Research that were exercisable
for Acacia Research - CombiMatrix stock and which include, but are not limited
to, the options outstanding as of the date of the Transaction that were granted
under the Acacia Research Corporation 2002 CombiMatrix Stock Incentive Plan,
the CombiMatrix Corporation 1998 Stock Option Plan, the CombiMatrix Corporation
2000 Stock Awards Plan and the Acacia Research Corporation 1996 Stock Option
Plan.


 


B.                                     AUTOMATIC OPTION GRANT PROGRAM shall mean
the automatic option grant program in effect under Article Four of the Plan.


 


C.                                     BOARD shall mean the Corporation’s Board
of Directors.


 


D.                                    CERTIFICATE OF INCORPORATION shall mean
the Certificate of Incorporation of CombiMatrix Corporation filed with the
Delaware Secretary of State on the Plan Effective Date and all subsequent
amendments, supplements, modifications and replacements thereof.


 


E.                                      CHANGE IN CONTROL shall mean a change in
ownership or control of the Corporation effected through any of the following
transactions:


 


(i)                                     a stockholder-approved merger or
consolidation in which securities possessing more than fifty percent (50%) of
the total combined voting power of the Corporation’s outstanding securities are
transferred to a person or persons different from the persons holding those
securities immediately prior to such transaction, or


 


(ii)                                  a sale, transfer or other disposition of
all or substantially all of the Corporation’s assets to an entity which is not
a Subsidiary of the Corporation, or


 


(iii)                               the acquisition, directly or indirectly by any person
or related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common control
with, the Corporation), of beneficial ownership (within the meaning of Rule 13d-3
of the 1934 Act) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Corporation’s outstanding securities
pursuant to a tender or exchange offer made directly to the Corporation’s
stockholders.


 


F.                                      CODE shall mean the Internal Revenue Code
of 1986, as amended.


 


G.                                     COMMITTEE shall mean the committee of two
(2) or more non-employee Board members appointed by the Board to
administer the Discretionary Option/Stock Appreciation Right Grant Program with
respect to Section 16 Insiders.


 


H.                                    COMMON STOCK shall mean the Corporation’s
Common Stock (as defined in the Certificate of Incorporation).


 


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I.                                         CORPORATION shall mean CombiMatrix
Corporation, a Delaware corporation, and any corporate successor to all or substantially
all of the assets or voting stock of CombiMatrix Corporation, which shall by
appropriate action adopt the Plan.


 


J.                                        DISCRETIONARY OPTION/STOCK APPRECIATION
RIGHT GRANT PROGRAM shall mean the Discretionary Option/Stock Appreciation
Right Grant Program in effect under Article Two of the Plan.


 


K.                                    EMPLOYEE shall mean an individual who is
in the employ of the Corporation (or any Parent or Subsidiary), subject to the
control and direction of the employer entity as to both the work to be
performed and the manner and method of performance.


 


L.                                      EXECUTIVE OFFICER COMMITTEE  shall mean the committee comprised of two (2) or more
executive officers of the Corporation appointed by the Board to administer the
Discretionary Option/Stock Appreciation Right Grant Program and Stock Issuance
Program with respect to persons other than Section 16 Insiders, but
subject to the applicable limitations and requirements of the Delaware
Corporate Law.


 


M.                                 EXERCISE DATE shall mean the date on
which the Corporation shall have received written notice of the option
exercise.


 


N.                                    FAIR MARKET VALUE per share of Common
Stock on any relevant date shall be determined in accordance with the following
provisions:


 


(i)                                     If the Common Stock is at the time traded
on the Nasdaq National Market, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question, as such price
is reported on the Nasdaq National Market. If there is no closing selling price
for the Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which such
quotation exists.


 


(ii)                                  If the Common Stock is at the time listed
on any Stock Exchange, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the Common
Stock, as such price is officially quoted in the composite tape of transactions
on such exchange. If there is no closing selling price for the Common Stock on
the date in question, then the Fair Market Value shall be the closing selling
price on the last preceding date for which such quotation exists.


 


(iii)                               If the Common Stock is at the time not traded on the
Nasdaq National Market or listed on any Stock Exchange, but is regularly traded
in any over-the-counter market, then the Fair Market Value shall be the average
of the bid and asked prices per share of Common Stock in such over-the-counter
market on the date in question.  If there
are no bid and asked prices on the date in question, then the Fair Market Value
shall be the average of the bid and asked prices in such over-the-counter
market on the last preceding date for which such prices exist.


 


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(iv)                              If the Common Stock is at the time not
traded as described in (i), (ii) or (iii) above, then the Fair Market
Value of a share of Common Stock shall be determined by the Plan Administrator,
after taking into account such factors as it deems appropriate.


 


O.                                    HOSTILE TAKE-OVER shall mean either of
the following events effecting a change in control or ownership of the
Corporation:


 


(i)                                     the acquisition, directly or indirectly,
by any person or related group of persons (other than the Corporation or a
person that directly or indirectly controls, is controlled by, or is under
common control with, the Corporation) of beneficial ownership (within the
meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than
fifty percent (50%) of the total combined voting power of the Corporation’s
outstanding securities pursuant to a tender or exchange offer made directly to
the Corporation’s stockholders which the Board does not recommend such
stockholders to accept, or


 


(ii)                                  a change in the composition of the Board
over a period of thirty-six (36) consecutive months or less such that a
majority of the Board members ceases, by reason of one or more contested
elections for Board membership, to be comprised of individuals who either (A) have
been Board members continuously since the beginning of such period or (B) have
been elected or nominated for election as Board members during such period by
at least a majority of the Board members described in clause (A) who were
still in office at the time the Board approved such election or nomination.


 


P.                                      IMMEDIATE FAMILY shall mean any child,
stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law and shall include adoptive relationships.


 


Q.                                    INCENTIVE OPTION shall mean an option
which satisfies the requirements of Code Section 422.


 


R.                                     MISCONDUCT shall, with respect to any
Participant, have the meaning specified in the Participant’s award
agreement.  In the absence of any
definition in the award agreement, “Misconduct” shall have the equivalent
meaning or the same meaning as “misconduct” or “cause” set forth in any
employment, consulting or other agreement for the performance of services
between the Participant and the Corporation or, in the absence of any such
agreement or any such definition in such agreement, such term shall mean the
commission of any act of fraud, embezzlement or dishonesty by the Optionee or
Participant, any unauthorized use or disclosure by such person of confidential
information or trade secrets of the Corporation (or any Parent or Subsidiary),
or any other intentional misconduct by such person adversely affecting the
business or affairs of the Corporation (or any Parent or Subsidiary)in a
material manner. The foregoing definition shall not be deemed to be inclusive
of all the acts or omissions which the Corporation (or any Parent or
Subsidiary) may consider as grounds for the dismissal or discharge of any Optionee,
Participant or other person in the Service of the Corporation (or any Parent or
Subsidiary).


 


S.                                      1934 ACT shall mean the Securities
Exchange Act of 1934, as amended.


 


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T.                                     NON-STATUTORY OPTION shall mean an option
not intended to satisfy the requirements of Code Section 422.


 


U.                                    OPTIONEE shall mean any person to whom an
option is granted under the Discretionary Option Grant Program, the Automatic
Option Grant Program.


 


V.                                     PARENT shall mean any corporation (other
than the Corporation) in an unbroken chain of corporations ending with the
Corporation, provided each corporation in the unbroken chain (other than the
Corporation) owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.


 


W.                                PARTICIPANT shall mean any person who is
issued shares of Common Stock under the Stock Issuance Program.


 


X.                                    PERMANENT DISABILITY OR PERMANENTLY
DISABLED shall mean the inability of the Optionee or the Participant to engage
in any substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death or to be
of continuous duration of twelve (12) months or more. However, solely for
purposes of the Automatic Option Grant Program, Permanent Disability or
Permanently Disabled shall mean the inability of the non-employee Board member
to perform his or her usual duties as a Board member by reason of any medically
determinable physical or mental impairment expected to result in death or to be
of continuous duration of twelve (12) months or more.


 


Y.                                     PLAN shall mean the Corporation’s 2006
Stock Incentive Plan, as amended and as set forth in this document.


 


Z.                                     PLAN ADMINISTRATOR shall mean the
particular body, whether the Committee or the Board, which is authorized to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity
is carrying out its administrative functions under those programs with respect
to the persons under its jurisdiction.


 


AA.                         PLAN EFFECTIVE DATE shall mean the date
on which the Plan is approved by the stockholders of the Corporation.


 


BB.                             SECTION 16 INSIDER shall mean an
officer or director of the Corporation subject to the short-swing profit
liabilities of Section 16 of the 1934 Act.


 


CC.                             SERVICE shall mean the performance of
services for the Corporation (or any Parent or Subsidiary) by a person in the
capacity of an Employee, a non-employee member of the board of directors or a
consultant or independent advisor, except to the extent otherwise specifically
provided in the documents evidencing the option grant or stock issuance.


 


DD.                           STOCK EXCHANGE shall mean either the,
Nasdaq National Market, the American Stock Exchange or the New York Stock
Exchange.


 


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EE.                               STOCK ISSUANCE AGREEMENT shall mean the
agreement entered into by the Corporation and the Participant at the time of
issuance of shares of Common Stock under the Stock Issuance Program.


 


FF.                               STOCK ISSUANCE PROGRAM shall mean the
stock issuance program in effect under Article Three of the Plan.


 


GG.                             SUBSIDIARY shall mean any corporation
(other than the Corporation) in an unbroken chain of corporations beginning
with the Corporation, provided each corporation (other than the last
corporation) in the unbroken chain owns, at the time of the determination,
stock possessing fifty percent (50%) or more of the total combined voting power
of all classes of stock in one of the other corporations in such chain.


 


HH.                           TAKE-OVER PRICE shall mean the greater of
(i) the Fair Market Value per share of Common Stock on the date the option
is surrendered to the Corporation in connection with a Hostile Take-Over or, if
applicable, (ii) the highest reported price per share of Common Stock paid
by the tender offeror in effecting the Hostile Take-Over through the
acquisition of such Common Stock. However, if the surrendered option is an
Incentive Option, the Take-Over Price shall not exceed the price per share
described in clause (i) above.


 


II.                                     10% STOCKHOLDER shall mean the owner of
stock (as determined under Code Section 424(d)) possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Corporation (or any Parent or Subsidiary).


 


JJ.                                   WITHHOLDING TAXES shall mean the minimum
Federal, state and local income and employment withholding taxes to which the holder
of options or unvested shares of Common Stock may become subject in connection
with the exercise of those options or the vesting of those shares.


 


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