EXHIBIT
10.5


 


AFFYMAX,
INC.

AMENDED AND RESTATED


2006
EQUITY INCENTIVE PLAN


APPROVED
BY THE BOARD:  JULY 7, 2006


APPROVED
BY THE STOCKHOLDERS:  NOVEMBER 22, 2006


AS
AMENDED BY THE BOARD ON OCTOBER 29, 2009


TERMINATION
DATE:  JULY 6, 2016


 


1.             GENERAL.


 


(a)           Successor and Continuation of Prior
Plan.  The Plan is intended as the successor to and
continuation of the Affymax, Inc. 2001 Stock Option/Stock Issuance Plan
(the “Prior Plan”).  On the Effective Date, the shares of Common
stock issuable pursuant to all then outstanding stock awards granted under the
Prior Plan shall be deemed transferred to the share reserve of this Plan, but
such stock awards shall remain subject to the terms of the Prior Plan.  All Stock Awards granted subsequent to the
Effective Date shall be subject to the terms of this Plan.  On and after the Effective Date, no
additional stock awards shall be granted pursuant to the terms of the Prior
Plan, and  any unused shares of Common
Stock remaining available on the Effective Date for the future grant of stock
awards under the Prior Plan  shall not
become available for issuance under this Plan.


 


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


 


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


 


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


 


2.             ADMINISTRATION.


 


(a)           Administration by Board. 
The Board shall administer the Plan unless and until the Board delegates
administration of the Plan to a Committee or Committees, as provided in Section 2(d).  However, the Board may not delegate
administration of the Non-Discretionary Grant Program.


 


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(b)           Powers of Board. 
Except with respect to the Non-Discretionary Grant Program, the Board
shall have the power, subject to, and within the limitations of, the express provisions
of the Plan:


 


(i)            To determine from time to time (A) which of the
persons eligible under the Plan shall be granted Stock Awards; (B) when
and how each Stock Award shall be granted; (C) what type or combination of
types of Stock Award shall be granted; (D) the provisions of each Stock
Award granted (which need not be identical), including the time or times when a
person shall be permitted to receive cash or Common Stock pursuant to a Stock
Award; and (E) the number of shares of Common Stock with respect to which
a Stock Award shall be granted to each such person.


 


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


 


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


 


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


 


(v)            To effect, at any time and from time to time, with the
consent of any adversely affected Participant, (1) the reduction of the
exercise price of any outstanding Option or the strike price of any outstanding
Stock Appreciation Right; (2) the cancellation of any outstanding Option
or Stock Appreciation Right and the grant in substitution therefor of (a) a
new Option or Stock Appreciation Right under the Plan or another equity plan of
the Company covering the same or different number of shares of Common Stock, (b) a
Restricted Stock Award, (c) a Restricted Stock Unit Award, (d) an
Other Stock Award, (e) cash, and/or (f) other valuable consideration
as determined by the Board in its sole discretion; or (3) any other action
that is treated as a repricing under generally accepted accounting principles.


 


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


 


(vii)         To amend the Plan in any respect the
Board deems necessary or advisable, including, without limitation, relating to
Incentive Stock Options and certain nonqualified deferred compensation under Section 409A
of the Code and/or to bring the Plan or Stock Awards granted under the Plan
into compliance therewith, subject to the limitations, if any, of applicable
law. However, except as provided in Section 10(a) relating to
Capitalization Adjustments, stockholder approval shall be required for
any amendment of the Plan that either (i) materially increases the number
of shares of Common Stock available for issuance under the Plan, (ii) 


 


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materially
expands the class of individuals eligible to receive Stock Awards under the
Plan, (iii) materially increases the benefits accruing to Participants
under the Plan or materially reduces the price at which shares of Common Stock
may be issued or purchased under the Plan, (iv) materially extends the
term of the Plan, or (v) expands the types of Stock Awards available for
issuance under the Plan, but in each of (i) through (v) only to the
extent required by applicable law or listing requirements. Except as provided above, rights under
any Stock Award granted before amendment of the Plan shall not be impaired by
any amendment of the Plan unless (i) the Company requests the consent of
the affected Participant, and (ii) such Participant consents in writing.


 


(viii)        To submit any amendment to the Plan for
stockholder approval, including, but not limited to, amendments to the Plan
intended to satisfy the requirements of (i) Section 162(m) of
the Code and the regulations thereunder regarding the exclusion of
performance-based compensation from the limit on corporate deductibility of
compensation paid to Covered Employees, (ii) Section 422 of the Code
regarding Incentive Stock Options, or (iii) Rule 16b-3.


 


(ix)          To approve forms of Stock Award Agreements for use
under the Plan and to amend the terms of any one or more Stock Awards,
including, but not limited to, amendments to provide terms more favorable than
previously provided in the Stock Award Agreement, subject to any specified
limits in the Plan that are not subject to Board discretion; provided however, that, the rights under any Stock Award
shall not be impaired by any such amendment unless (i) the Company
requests the consent of the affected Participant, and (ii) such
Participant consents in writing. 
Notwithstanding the foregoing, subject to the limitations of applicable
law, if any, the Board may amend the terms of any one or more Stock Awards
without the affected Participant’s consent if necessary to maintain the
qualified status of the Stock Award as an Incentive Stock Option or to bring
the Stock Award into compliance with Section 409A of the Code and the
related guidance thereunder.


 


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


 


(xi)          To adopt such procedures and sub-plans as are
necessary or appropriate to permit participation in the Plan by Employees,
Directors or Consultants who are foreign nationals or employed outside the
United States.


 


(c)           Administration of Non-Discretionary
Grant Program.  The Board shall have the power, subject to
and within the limitation of, the express provisions of the Non-Discretionary
Grant Program:


 


(i)            To determine the provisions of each Option to the
extent not specified in the Non-Discretionary Grant Program.


 


(ii)           To construe and interpret the Non-Discretionary Grant
Program and the Options granted under it, and to establish, amend and revoke rules and
regulations for its administration.  The
Board, in the exercise of this power, may correct any defect, omission or
inconsistency in the Non-Discretionary Grant Program or in any Option
Agreement, in a manner 


 


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and to the extent it
shall deem necessary or expedient to make the Non-Discretionary Grant Program
or Option fully effective.


 


(iii)         Generally, to exercise such powers and to perform such
acts as the Board deems necessary or expedient to promote the best interests of
the Company and that are not in conflict with the provisions of the
Non-Discretionary Grant Program.


 


(d)           Delegation to Committee.


 


(i)            General. 
The Board may delegate some or all of the administration of the Plan
(except the Non-Discretionary Grant Program) to a Committee or Committees.  If administration is delegated to a
Committee, the Committee shall have, in connection with the administration of
the Plan, the powers theretofore possessed by the Board that have been
delegated to the Committee, including the power to delegate to a subcommittee
of the Committee any of the administrative powers the Committee is authorized
to exercise (and references in the Plan to the Board shall thereafter be to the
Committee or subcommittee), subject, however, to such resolutions, not
inconsistent with the provisions of the Plan, as may be adopted from time to
time by the Board.  The Board may retain
the authority to concurrently administer the Plan with the Committee and may,
at any time, revest in the Board some or all of the powers previously
delegated.


 


(ii)           Section 162(m) and Rule 16b-3
Compliance.  In the sole discretion of the Board, the
Committee may consist solely of two or more Outside Directors, in accordance
with Section 162(m) of the Code, or solely of two or more
Non-Employee Directors, in accordance with Rule 16b-3.  In addition, the Board or the Committee, in
its sole discretion, may (A) delegate to a Committee who need not be
Outside Directors the authority to grant Stock Awards to eligible persons who
are either (I) not then Covered Employees and are not expected to be
Covered Employees at the time of recognition of income resulting from such Stock
Award, or (II) not persons with respect to whom the Company wishes to
comply with Section 162(m) of the Code, or (B) delegate to a
Committee who need not be Non-Employee Directors the authority to grant Stock
Awards to eligible persons who are not then subject to Section 16 of the
Exchange Act.


 


(e)           Delegation to Officers. 
The Board may delegate to one or more Officers the authority to do one
or both of the following (i) designate Officers and Employees of the
Company or any of its Subsidiaries to be recipients of Options (and, to the
extent permitted by Delaware law, other Stock Awards) and the terms thereof,
and (ii) determine the number of shares of Common Stock to be subject to
such Stock Awards granted to such Officers and Employees; provided, however, that the Board
resolutions regarding such delegation shall specify the total number of shares
of Common Stock that may be subject to the Stock Awards granted by such
Officers and that such Officer may not grant a Stock Award to himself or
herself.  Notwithstanding anything to the
contrary in this Section 2(e), the Board may not delegate to an Officer
authority to determine the Fair Market Value of the Common Stock pursuant to Section 14(x)(iii) below.


 


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


 


3.             SHARES SUBJECT TO THE PLAN.


 


(a)           Share Reserve. Subject to the provisions of Section 10(a) relating
to Capitalization Adjustments, the aggregate number of shares of Common
Stock  that may be issued pursuant to
Stock Awards under the Plan shall not exceed two million eight hundred thirty-seven
thousand two hundred eighty-one (2,837,281) shares, subject to reduction as set
forth below.  Such share reserve consists
of (i) the one million five hundred eighty-seven thousand two hundred
eighty-one (1,587,281) shares reserved for issuance under the Prior Plan, plus (ii) an
additional one million two hundred fifty thousand (1,250,000) shares reserved
for issuance under the Plan, but such aggregate number shall be reduced by any
unused shares of Common Stock remaining available on the Effective Date for the
future grant of stock awards under the Prior Plan.  In addition, the number of shares of Common
Stock available for issuance under the Plan shall automatically increase on January 1st
of each year commencing in 2007 and ending on (and including) January 1,
2016, in an amount equal to the lesser of (i) four and one-half percent
(41⁄2%) of the total number of shares of Common Stock outstanding on December 31st
of the preceding calendar year, or (ii) the number of shares of stock (not
to exceed one million four hundred thousand (1,400,000) shares) determined by
the Board of Directors.  Notwithstanding
the foregoing, the Board may act prior to the first day of any calendar year,
to provide that there shall be no increase in the share reserve for such calendar
year or that the increase in the share reserve for such calendar year shall be
a lesser number of shares of Common Stock than would otherwise occur pursuant
to the preceding sentence.  Shares may be
issued in connection with a merger or acquisition as permitted by NASD Rule 4350(i)(1)(A)(iii) or,
if applicable, NYSE Listed Company Manual Section 303A.08, or AMEX Company
Guide Section 711 and such issuance shall not reduce the number of shares
available for issuance under the Plan.


 


(b)           Reversion of Shares to the Share
Reserve.  If any (i) Stock Award shall for any
reason expire or otherwise terminate, in whole or in part, without having been
exercised in full, (ii) shares of Common Stock issued to a Participant
pursuant to a Stock Award are forfeited back to or repurchased by the Company
because of the failure to meet a contingency or condition required for the
vesting of such shares, (iii) a Stock Award is settled in cash, (iv) if
any shares of Common Stock are cancelled in accordance with the cancellation
and regrant provisions of Section 3(b)(v), then the shares of Common Stock
not issued under such Stock Award, or forfeited to or repurchased by the
Company, shall revert to and again become available for issuance under the
Plan.  If any shares subject to a Stock
Award are not delivered to a Participant because such shares are withheld for
the payment of taxes or the Stock Award is exercised through a reduction of
shares subject to the Stock Award (i.e., “net exercised”) or an appreciation
distribution in respect of a Stock Appreciation right is paid in shares of
Common Stock, the number of shares subject to the Stock Award that are not
delivered to the Participant shall remain available for subsequent issuance
under the Plan.  If the exercise price of
any Stock Award is satisfied by tendering shares of Common Stock held by the
Participant (either by actual delivery or attestation), then the number of
shares so tendered shall remain available for issuance under the Plan.


 


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(c)           Incentive Stock Option Limit.  Notwithstanding anything to the contrary in this Section 3(c),
subject to the provisions of Section 10(a) relating to Capitalization
Adjustments the aggregate maximum number of shares of Common Stock that may be
issued pursuant to the exercise of Incentive Stock Options shall be one million
two hundred fifty thousand (1,250,000) 
(pre-split) shares of Common Stock plus the amount of any increase in
the number of shares that may be available for issuance pursuant to Stock
Awards pursuant to Section 3(a).


 


(d)           Source of Shares. 
The stock issuable under the Plan shall be shares of authorized but
unissued or reacquired Common Stock, including shares repurchased by the
Company on the open market.


 


4.             ELIGIBILITY.


 


(a)           Eligibility for Specific Stock
Awards.  Incentive Stock Options may be granted only
to employees of the Company or a “parent corporation” or “subsidiary
corporation” thereof (as such terms are defined in Sections 424(e) and 424(f) of
the Code).  Stock Awards other than
Incentive Stock Options may be granted to Employees, Directors and
Consultants.  Non-discretionary Options
granted under the Non-Discretionary Grant Program in Section 7 may be
granted only to Eligible Directors.


 


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


 


(c)           Section 162(m) Limitation. 
Subject to the provisions of Section 10(a) relating to
Capitalization Adjustments, at such time as the Company may be subject to the
applicable provisions of Section 162(m) of the Code, no Employee
shall be eligible to be granted during any calendar year Stock Awards whose
value is determined by reference to an increase over an exercise or strike
price of at least one hundred percent (100%) of the Fair Market Value of the
Common Stock on the date the Stock Award is granted covering more than six
hundred twenty-five thousand (625,000)  shares of
Common Stock.


 


(d)           Consultants.  A Consultant shall be eligible for the grant of a
Stock Award only if, at the time of grant, a Form S-8 Registration
Statement under the Securities Act (“Form S-8”) is available to register either
the offer or the sale of the Company’s securities to such Consultant.


 


5.             OPTION PROVISIONS.


 


Each Option shall be in such form and shall contain
such terms and conditions as the Board shall deem appropriate.  All Options shall be separately designated
Incentive Stock Options or Nonstatutory Stock Options at the time of grant,
and, if certificates are issued, a separate certificate or certificates shall
be issued for shares of Common Stock purchased on exercise of each type of
Option.  If an Option is not specifically
designated as an Incentive Stock Option, then the Option shall be a
Nonstatutory Stock Option.  The
provisions of separate Options need not be identical; provided, however, that each Option
Agreement shall conform to (through incorporation of provisions hereof by
reference in the Option Agreement or otherwise) the substance of each of the
following provisions:


 


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(a)           Term. 
Subject to the provisions of Section 4(b) regarding Ten
Percent Stockholders, no Option shall be exercisable after the expiration of
ten (10) years from the date of its grant or such shorter period specified
in the Option Agreement.


 


(b)           Exercise Price. 
Subject to the provisions of Section 4(b) regarding Ten
Percent Stockholders, the exercise price of each Option shall be not less than
one hundred percent (100%) of the Fair Market Value of the Common Stock subject
to the Option on the date the Option is granted.  Notwithstanding the foregoing, an Option may
be granted with an exercise price lower than one hundred percent (100%) of the
Fair Market Value of the Common Stock subject to the Option if such Option is
granted pursuant to an assumption or substitution for another option in a
manner consistent with the provisions of Section 424(a) of the Code
(whether or not such options are Incentive Stock Options).


 


(c)           Consideration. 
The purchase price of Common Stock acquired pursuant to the exercise of
an Option shall be paid, to the extent permitted by applicable law and as
determined by the Board in its sole discretion, by any combination of the
methods of payment set forth below.  The
Board shall have the authority to grant Options that do not permit all of the
following methods of payment (or otherwise restrict the ability to use certain
methods) and to grant Options that require the consent of the Company to
utilize a particular method of payment. 
The methods of payment permitted by this Section 5(c) are:


 


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


 


(ii)           pursuant to a program developed under Regulation T as
promulgated by the Federal Reserve Board that, prior to the issuance of the stock
subject to the Option, results in either the receipt of cash (or check) by the
Company or the receipt of irrevocable instructions to pay the aggregate
exercise price to the Company from the sales proceeds;


 


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


 


(iv)          by a “net exercise” arrangement pursuant to which the
Company will reduce the number of shares of Common Stock issuable upon exercise
by the largest whole number of shares with a Fair Market Value that does not
exceed the aggregate exercise price; provided,
however, the Company shall accept a cash or other payment from the
Participant to the extent of any remaining balance of the aggregate exercise
price not satisfied by such reduction in the number of whole shares to be
issued; provided, further, that
shares of Common Stock will no longer be subject to an Option and will not be
exercisable thereafter to the extent that (A) shares issuable upon
exercise are reduced to pay the exercise price pursuant to the “net exercise,” (B) shares
are delivered to the Participant as a result of such exercise, and (C) shares
are withheld to satisfy tax withholding obligations;  or


 


(v)            in any other form of legal consideration that may be
acceptable to the Board in its sole discretion and permissible under applicable
law.


 


(d)           Transferability of Options. 
The Board may, in its sole discretion, impose such limitations on the
transferability of Options as the Board shall determine.  In the absence of such 


 


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a determination by the
Board to the contrary, the following restrictions on the transferability of
Options shall apply:


 


(i)            Restrictions on Transfer. 
An Option shall not be transferable except by will or by the laws of
descent and distribution and shall be exercisable during the lifetime of the
Optionholder only by the Optionholder; provided, however,
that the Board may, in its sole discretion, permit transfer of the Option in a
manner that is not prohibited by applicable tax and securities laws upon the
Optionholder’s request.


 


(ii)           Domestic Relations Orders. 
Notwithstanding the foregoing, an Option may be transferred pursuant to
a domestic relations order, provided, however,
that if an Option is an Incentive Stock Option, such Option may be deemed to be
a Nonstatutory Stock Option as a result of such transfer.


 


(iii)         Beneficiary Designation. 
Notwithstanding the foregoing, the Optionholder may, by delivering
written notice to the Company, in a form provided by or otherwise satisfactory
to the Company and any broker designated by the Company to effect Option
exercises, designate a third party who, in the event of the death of the
Optionholder, shall thereafter be entitled to exercise the Option.  In the absence of such a designation, the
executor or administrator of the Optionholder’s estate shall be entitled to
exercise the Option.


 


(e)           Vesting of Options Generally. 
The total number of shares of Common Stock subject to an Option may vest
and therefore become exercisable in periodic installments that may or may not
be equal.  The Option may be subject to
such other terms and conditions on the time or times when it may or may not be
exercised (which may be based on the satisfaction of Performance Goals or other
criteria) as the Board may deem appropriate. 
The vesting provisions of individual Options may vary.  The provisions of this Section 5(e) are
subject to any Option provisions governing the minimum number of shares of
Common Stock as to which an Option may be exercised.


 


(f)            Termination of Continuous Service. 
In the event that an Optionholder’s Continuous Service terminates (other
than for Cause or upon the Optionholder’s death or Disability), the
Optionholder may exercise his or her Option (to the extent that the
Optionholder was entitled to exercise such Option as of the date of termination
of Continuous Service) but only within such period of time ending on the
earlier of (i) the date three (3) months following the termination of
the Optionholder’s Continuous Service (or such longer or shorter period
specified in the Option Agreement), or (ii) the expiration of the term of
the Option as set forth in the Option Agreement.  If, after termination of Continuous Service,
the Optionholder does not exercise his or her Option within the time specified
herein or in the Option Agreement (as applicable), the Option shall terminate.


 


(g)           Extension of Termination Date. 
An Optionholder’s Option Agreement may provide that if the exercise of
the Option following the termination of the Optionholder’s Continuous Service
(other than for Cause or upon the Optionholder’s death or Disability) would be
prohibited at any time solely because the issuance of shares of Common Stock
would violate the registration requirements under the Securities Act, then the
Option shall terminate on the earlier of (i) the expiration of a period of
three (3) months after the termination of the 


 


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Optionholder’s Continuous
Service during which the exercise of the Option would not be in violation of
such registration requirements, or (ii) the expiration of the term of the
Option as set forth in the Option Agreement.


 


(h)           Disability of Optionholder. 
In the event that an Optionholder’s Continuous Service terminates as a
result of the Optionholder’s Disability, the Optionholder may exercise his or
her Option (to the extent that the Optionholder was entitled to exercise such
Option as of the date of termination of Continuous Service), but only within
such period of time ending on the earlier of (i) the date twelve (12)
months following such termination of Continuous Service (or such longer or
shorter period specified in the Option Agreement), or (ii) the expiration
of the term of the Option as set forth in the Option Agreement.  If, after termination of Continuous Service,
the Optionholder does not exercise his or her Option within the time specified
herein or in the Option Agreement (as applicable), the Option shall terminate.


 


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


 


(j)            Termination for Cause. 
In the event that an Optionholder’s Continuous Service is terminated for
Cause, the Option shall terminate immediately and cease to remain outstanding.


 


(k)           Non-Exempt Employees. 
No Option granted to an Employee that is a non-exempt employee for
purposes of the Fair Labor Standards Act shall be first exercisable for any
shares of Common Stock until at least six months following the date of grant of
the Option.  The foregoing provision is
intended to operate so that any income derived by a non-exempt employee in
connection with the exercise or vesting of an Option will be exempt from his or
her regular rate of pay.


 


6.             PROVISIONS OF STOCK AWARDS OTHER
THAN OPTIONS.


 


(a)           Restricted Stock Awards. 
Each Restricted Stock Award Agreement shall be in such form and shall
contain such terms and conditions as the Board shall deem appropriate.  To the extent consistent with the Company’s
Bylaws, at the Board’s election, shares of Common Stock may be (x) held in
book entry form subject to the Company’s instructions until any restrictions
relating to the Restricted Stock Award lapse; or (y) evidenced by a
certificate, which certificate shall be held in such form and manner as
determined by the Board.  The terms and
conditions of Restricted Stock Award Agreements may change from time to time,
and the terms and conditions of separate Restricted Stock Award Agreements need
not be identical, provided, 


 


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however, that each Restricted Stock Award
Agreement shall conform to (through incorporation of the provisions hereof by
reference in the agreement or otherwise) the substance of each of the following
provisions:


 


(i)            Consideration.  A
Restricted Stock Award may be awarded in consideration for (A) cash,
check, bank draft or money order payable to the Company; (B) past or
future services actually or to be rendered to the Company or an Affiliate; or (C) any
other form of legal consideration that may be acceptable to the Board in its
sole discretion and permissible under applicable law.


 


(ii)           Vesting. 
Shares of Common Stock awarded under a Restricted Stock Award Agreement
may be subject to forfeiture to the Company in accordance with a vesting
schedule to be determined by the Board.


 


(iii)         Termination of Participant’s Continuous Service. 
In the event a Participant’s Continuous Service terminates, the Company
may receive via a forfeiture condition or a repurchase right, any or all of the
shares of Common Stock held by the Participant which have not vested as of the
date of termination of Continuous Service under the terms of the Restricted
Stock Award Agreement.


 


(iv)          Transferability.  Rights to acquire shares of
Common Stock under the Restricted Stock Award Agreement shall be transferable
by the Participant only upon such terms and conditions as are set forth in the
Restricted Stock Award Agreement, as the Board shall determine in its sole
discretion, so long as Common Stock awarded under the Restricted Stock Award
Agreement remains subject to the terms of the Restricted Stock Award Agreement.


 


(b)           Restricted Stock Unit Awards.  Each Restricted Stock Unit Award Agreement shall be in
such form and shall contain such terms and conditions as the Board shall deem
appropriate.  The terms and conditions of
Restricted Stock Unit Award Agreements may change from time to time, and the
terms and conditions of separate Restricted Stock Unit Award Agreements need
not be identical, provided, however, that
each Restricted Stock Unit Award Agreement shall conform to (through
incorporation of the provisions hereof by reference in the agreement or
otherwise) the substance of each of the following provisions:


 


(i)            Consideration. 
At the time of grant of a Restricted Stock Unit Award, the Board will determine
the consideration, if any, to be paid by the Participant upon delivery of each
share of Common Stock subject to the Restricted Stock Unit Award. The
consideration to be paid (if any) by the Participant for each share of Common
Stock subject to a Restricted Stock Unit Award may be paid in any form of legal
consideration that may be acceptable to the Board in its sole discretion and
permissible under applicable law.


 


(ii)           Vesting.  At the time of the grant of a Restricted Stock Unit
Award, the Board may impose such restrictions or conditions to the vesting of
the Restricted Stock Unit Award as it, in its sole discretion, deems
appropriate.


 


(iii)         Payment. 
A Restricted Stock Unit Award may be settled by the delivery of shares
of Common Stock, their cash equivalent, any combination thereof or in any other
form


 


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of consideration, as
determined by the Board and contained in the Restricted Stock Unit Award
Agreement.


 


(iv)          Additional Restrictions.  At the time of the grant of a Restricted Stock Unit
Award, the Board, as it deems appropriate, may impose such restrictions or
conditions that delay the delivery of the shares of Common Stock (or their cash
equivalent) subject to a Restricted Stock Unit Award to a time after the
vesting of such Restricted Stock Unit Award.


 


(v)            Dividend Equivalents.  Dividend equivalents may be credited in respect of
shares of Common Stock covered by a Restricted Stock Unit Award, as determined
by the Board and contained in the Restricted Stock Unit Award Agreement.  At the sole discretion of the Board, such
dividend equivalents may be converted into additional shares of Common Stock
covered by the Restricted Stock Unit Award in such manner as determined by the
Board.  Any additional shares covered by
the Restricted Stock Unit Award credited by reason of such dividend equivalents
will be subject to all the terms and conditions of the underlying Restricted
Stock Unit Award Agreement to which they relate.


 


(vi)          Termination of Participant’s
Continuous Service.  Except as otherwise provided in the
applicable Restricted Stock Unit Award Agreement, such portion of the
Restricted Stock Unit Award that has not vested will be forfeited upon the
Participant’s termination of Continuous Service.


 


(vii)         Compliance with Section 409A of
the Code.  Notwithstanding anything to the contrary set
forth herein, any Restricted Stock Unit Award granted under the Plan that is
not exempt from the requirements of Section 409A of the Code shall
incorporate terms and conditions necessary to avoid the consequences of Section 409A(a)(1) of
the Code.  Such restrictions, if any,
shall be determined by the Board and contained in the Restricted Stock Unit
Award Agreement evidencing such Restricted Stock Unit Award.


 


(c)           Stock Appreciation Rights.  Each Stock Appreciation Right Agreement shall be in
such form and shall contain such terms and conditions as the Board shall deem
appropriate.  Stock Appreciation Rights
may be granted as stand-alone Stock Awards or in tandem with other Stock
Awards.  The terms and conditions of
Stock Appreciation Right Agreements may change from time to time, and the terms
and conditions of separate Stock Appreciation Right Agreements need not be
identical; provided, however,
that each Stock Appreciation Right Agreement shall conform to (through
incorporation of the provisions hereof by reference in the agreement or
otherwise) the substance of each of the following provisions:


 


(i)            Term. 
No Stock Appreciation Right shall be exercisable after the expiration of
ten (10) years from the date of its grant or such shorter period specified
in the Stock Appreciation Right Agreement.


 


(ii)           Strike Price. Each Stock Appreciation Right will be
denominated in shares of Common Stock equivalents.  The strike price of each Stock Appreciation
Right shall not be less than one hundred percent (100%) of the Fair Market Value
of the Common Stock equivalents subject to the Stock Appreciation Right on the
date of grant.


 


11

















 


(iii)         Calculation of Appreciation. 
The appreciation distribution payable on the exercise of a Stock Appreciation
Right will be not greater than an amount equal to the excess of (A) the
aggregate Fair Market Value (on the date of the exercise of the Stock
Appreciation Right) of a number of shares of Common Stock equal to the number
of share of Common Stock equivalents in which the Participant is vested under
such Stock Appreciation Right, and with respect to which the Participant is
exercising the Stock Appreciation Right on such date, over (B) the strike
price.


 


(iv)          Vesting.  At the time of the grant of a Stock Appreciation
Right, the Board may impose such restrictions or conditions to the vesting of
such Stock Appreciation Right as it, in its sole discretion, deems appropriate.


 


(v)            Exercise. 
To exercise any outstanding Stock Appreciation Right, the Participant
must provide written notice of exercise to the Company in compliance with the
provisions of the Stock Appreciation Right Agreement evidencing such Stock
Appreciation Right.


 


(vi)          Payment. 
The appreciation distribution in respect of a Stock Appreciation Right
may be paid in Common Stock, in cash, in any combination of the two or in any
other form of consideration, as determined by the Board and set forth in the
Stock Appreciation Right Agreement evidencing such Stock Appreciation Right.


 


(vii)         Termination of Continuous Service. 
In the event that a Participant’s Continuous Service terminates (other
than for Cause), the Participant may exercise his or her Stock Appreciation
Right (to the extent that the Participant was entitled to exercise such Stock Appreciation
Right as of the date of termination of Continuous Service) but only within such
period of time ending on the earlier of (A) the date three (3) months
following the termination of the Participant’s Continuous Service (or such
longer or shorter period specified in the Stock Appreciation Right Agreement),
or (B) the expiration of the term of the Stock Appreciation Right as set
forth in the Stock Appreciation Right Agreement.  If, after termination of Continuous Service,
the Participant does not exercise his or her Stock Appreciation Right within
the time specified herein or in the Stock Appreciation Right Agreement (as
applicable), the Stock Appreciation Right shall terminate.


 


(viii)        Termination for Cause. 
Except as explicitly provided otherwise in an Participant’s Stock
Appreciation Right Agreement, in the event that a Participant’s Continuous
Service is terminated for Cause, the Stock Appreciation Right shall terminate
upon the termination date of such Participant’s Continuous Service, and the Participant
shall be prohibited from exercising his or her Stock Appreciation Right from
and after the time of such termination of Continuous Service.


 


(ix)          Compliance with Section 409A of
the Code.  Notwithstanding anything to the contrary
set forth herein, any Stock Appreciation Rights granted under the Plan that are
not exempt from the requirements of Section 409A of the Code shall
incorporate terms and conditions necessary to avoid the consequences described
in Section 409A(a)(1) of the Code. 
Such restrictions, if any, shall be determined by the Board and
contained in the Stock Appreciation Right Agreement evidencing such Stock
Appreciation Right.


 


12

















 


(d)           Performance Stock Awards. 
A Performance Stock Award is either a Restricted Stock Award or
Restricted Stock Unit Award that may be granted or may vest based upon the
attainment during a Performance Period of certain Performance Goals.  A Performance Stock Award may, but need not,
require the completion of a specified period of Continuous Service. The length
of any Performance Period, the Performance Goals to be achieved during the
Performance Period, and the measure of whether and to what degree such
Performance Goals have been attained shall be conclusively determined by the
Committee in its sole discretion.  The
maximum benefit to be received by any Participant in a calendar year
attributable to Performance Stock Awards described in this Section 6(d) shall
not exceed the value of six hundred twenty-five thousand (625,000)  shares of Common Stock. 
In addition, to the extent permitted by applicable law and the
applicable Award Agreement, the Board may determine that cash may be used in
payment of Performance Stock Awards.


 


(e)           Other Stock Awards. 
Other forms of Stock Awards valued in whole or in part by reference to,
or otherwise based on, Common Stock may be granted either alone or in addition
to Stock Awards provided for under Section 5 and the preceding provisions
of this Section 6.  Subject to the
provisions of the Plan, the Board shall have sole and complete authority to
determine the persons to whom and the time or times at which such Other Stock
Awards will be granted, the number of shares of Common Stock (or the cash
equivalent thereof) to be granted pursuant to such Other Stock Awards and all
other terms and conditions of such Other Stock Awards.


 


7.             NON-DISCRETIONARY GRANTS TO
ELIGIBLE DIRECTORS


 


(a)           General.  The Non-Discretionary Grant Program in this Section 7
allows Eligible Directors to receive Nonstatutory Stock Options automatically
at designated intervals over their period of Continuous Service on the Board.


 


(b)           Eligibility.  The Stock Awards shall automatically be
granted to all Eligible Directors who meet the specified criteria.


 


(c)           Non-Discretionary Grants.


 


(i)            IPO Awards.   Without any further action of the Board,
each person who is serving as a Non-Employee Director on the IPO Date, except
any such person who was elected or appointed to the Board within nine (9) months
prior to the IPO Date and received an option grant from the Company in
connection with his or her initial election or appointment to the Board, shall
automatically be granted a Nonstatutory Stock Option (the “IPO Award”) to purchase seven
thousand five hundred (7,500) shares of Common Stock on the
terms and conditions set forth in Section 7(d).


 


(ii)           Initial Awards.   Without any further action of the Board,
each person who is elected or appointed for the first time to be a Non-Employee
Director automatically shall, upon the date of his or her initial election or
appointment to be a Non-Employee Director, be granted a Nonstatutory Stock
Option (the “Initial Award”)
to purchase (a) if such initial election or appointment is after the IPO
Date but prior to October 29, 2009, seven thousand five hundred (7,500)
shares of Common Stock on the terms and conditions set forth in Section 7(d),
or (b) if 


 


13

















 


such
initial election or appointment is on or after October 29, 2009, twelve
thousand five hundred (12,500) shares of Common Stock on the terms and
conditions set forth in Section 7(d).


 


(iii)         Annual Awards.  Without any further action of the Board, on
the date of each Annual Meeting, commencing with the Annual Meeting in 2007,
each person who is then a Non-Employee Director shall be granted a Nonstatutory
Stock Option (the “Annual Award”) to purchase two thousand five hundred (2,500) shares
of Common Stock on the terms and conditions set forth in Section 7(d); provided however that commencing with
the Annual Meeting in 2010, the number of shares subject to the Annual Award
shall be increased to seven thousand five hundred (7, 500) from two thousand
five hundred (2,500).


 


(d)           Non-Discretionary Option Grant
Provisions.


 


(i)            Term.  No Option granted hereunder shall be
exercisable after the expiration of ten (10) years from the date it was
granted.


 


(ii)           Exercise Price.  The exercise price of each Option shall be
one hundred percent (100%) of the Fair Market Value of the Common Stock subject
to the Option on the date the Option is granted.


 


(iii)         Consideration.  The purchase price of Common Stock acquired
pursuant to the exercise of an Option may be paid by any combination of the
methods of payment set forth below.


 


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


 


(2)           pursuant to a program developed under Regulation T as
promulgated by the Federal Reserve Board that, prior to the issuance of the
stock subject to the Option, results in either the receipt of cash (or check)
by the Company or the receipt of irrevocable instructions to pay the aggregate
exercise price to the Company from the sales proceeds; or


 


(3)           by delivery to the Company (either by actual delivery
or attestation) of shares of Common Stock.


 


(iv)          Termination of Continuous Service.  In the event that an Optionholder’s
Continuous Service terminates (other than upon the Optionholder’s death or
Disability or upon a Change in Control), the Optionholder may exercise his or
her Option (to the extent that the Optionholder was entitled to exercise such
Option as of the date of termination of Continuous Service) but only within
such period of time ending on the earlier of (i) the date three (3) months
following the termination of the Optionholder’s Continuous Service (or such
longer or shorter period specified in the Option Agreement), or (ii) the
expiration of the term of the Option as set forth in the Option Agreement.  If, after termination of Continuous Service,
the Optionholder does not exercise his or her Option within the time specified
herein or in the Option Agreement (as applicable), the Option shall terminate.


 


14

















 


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


 


(vi)          Disability of Optionholder.  In the event that an Optionholder’s
Continuous Service terminates as a result of the Optionholder’s Disability, the
Option shall become fully vested and exercisable and the Optionholder may
exercise his or her Option, but only within such period of time ending on the
earlier of (i) the date twelve (12) months following such termination of
Continuous Service, or (ii) the expiration of the term of the Option as
set forth in the Option Agreement.  If,
after termination, the Optionholder does not exercise his or her Option within
the time specified herein or in the Option Agreement, the Option shall
terminate.


 


(vii)         Death of Optionholder.  In the event that (i) an Optionholder’s
Continuous Service terminates as a result of the Optionholder’s death, or (ii) the
Optionholder dies within the three-month period after the termination of the
Optionholder’s Continuous Service for a reason other than death, then the
Option shall become fully vested and exercisable and may be exercised by the
Optionholder’s estate, by a person who acquired the right to exercise the
Option by bequest or inheritance or by a person designated to exercise the
Option upon the Optionholder’s death, but only within the period ending on the
earlier of (i) the date eighteen (18) months following the date of death,
or (ii) the expiration of the term of such Option as set forth in the
Option Agreement.  If, after the
Optionholder’s death, the Option is not exercised within the time specified
herein, the Option shall terminate.


 


(viii)        Termination Upon Change in Control.  In the event that an Optionholder’s
Continuous Service terminates as of, or within twelve (12) months following a
Change in Control, the Optionholder may exercise his or her Option (to the
extent that the Optionholder was entitled to exercise such Option as of the
date of termination of Continuous Service) within such period of time ending on
the earlier of (i) the date twelve (12) months following the effective
date of the Change in Control (or such longer or shorter period specified in
the Option Agreement), or (ii) the expiration of the term of the Option as
set forth in the Option Agreement.  If,
after termination of Continuous Service, the Optionholder does not exercise his
or her Option within the time specified herein or in the Option Agreement (as
applicable), the Option shall terminate.


 


(ix)          Vesting.  Options granted under the Non-Discretionary
Grant Program shall vest as follows:


 


(1)           IPO Awards. 
Each IPO Award shall vest in a series of thirty-six (36) successive
equal monthly installments during the Eligible Director’s Continuous Service
over the three (3)-year period measured from the date of grant.


 


15

















 


(2)           Initial Awards. 
Each Initial Award shall vest in a series of thirty-six (36) successive
equal monthly installments during the Optionholder’s Continuous Service over
the three (3)-year period measured from the date of grant.


 


(3)           Annual Awards. 
Each Annual Award shall vest in a series of twelve (12) successive equal
monthly installments during the Eligible Director’s Continuous Service over the
one (1)-year period measured from the date of grant.


 


(x)           Change in Control.  In the event of a Change in Control, each
Option granted under the Non-Discretionary Grant Program shall become fully
vested and exercisable immediately prior to the effectiveness of such Change in
Control.


 


(xi)          Remaining Terms.  The remaining terms and conditions of each
Option shall be as set forth in an Option Agreement in the form adopted from
time to time by the Board; provided, however, that the terms of such Option
Agreement shall be consistent with the terms of the Plan.


 


8.             COVENANTS OF THE COMPANY.


 


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


 


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


 


(c)           No Obligation to Notify.  The Company shall have no duty or obligation to any
holder of a Stock Award to advise such holder as to the time or manner of
exercising such Stock Award. 
Furthermore, the Company shall have no duty or obligation to warn or
otherwise advise such holder of a pending termination or expiration of a Stock
Award or a possible period in which the Stock Award may not be exercised.  The Company has no duty or obligation to
minimize the tax consequences of a Stock Award to the holder of such Stock
Award.


 


9.             MISCELLANEOUS.


 


(a)           Use of Proceeds.  Proceeds from the sale of shares of Common Stock
pursuant to Stock Awards shall constitute general funds of the Company.


 


(b)           Corporate Action Constituting Grant
of Stock Awards.  Corporate action constituting a grant by the
Company of a Stock Award to any Participant shall be deemed 


 


16

















 


completed as of the date
of such corporate action, unless otherwise determined by the Board, regardless
of when the instrument, certificate, or letter evidencing the Stock Award is
communicated to, or actually received or accepted by, the Participant.


 


(c)           Stockholder Rights. 
No Participant shall be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares of Common Stock subject to
such Stock Award unless and until (i) such Participant has satisfied all
requirements for exercise of the Stock Award pursuant to its terms, and (ii) the
issuance of the Common Stock pursuant to such exercise has been entered into
the books and records of the Company.


 


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


 


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


 


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


 


17

















 


(g)           Withholding Obligations. 
Unless prohibited by the terms of a Stock Award Agreement, the Company
may, in its sole discretion, satisfy any federal, state or local tax
withholding obligation relating to a Stock Award by any of the following means
(in addition to the Company’s right to withhold from any compensation paid to
the Participant by the Company) or by a combination of such means: (i) causing
the Participant to tender a cash payment; (ii)  withholding shares of
Common Stock from the shares of Common Stock issued or otherwise issuable to
the Participant in connection with the Stock Award; provided,
however, that no shares of Common Stock are withheld with a value
exceeding the minimum amount of tax required to be withheld by law (or such
lower amount as may be necessary to avoid classification of the Stock Award as
a liability for financial accounting purposes); (iii) withholding cash
from a Stock Award settled in cash; (iv) withholding payment from any
amounts otherwise payable to the Participant; or (v) by such other method
as may be set forth in the Stock Award Agreement.


 


(h)           Electronic Delivery. 
Any reference herein to a “written” agreement or document shall include
any agreement or document delivered electronically or posted on the Company’s
intranet.


 


(i)            Deferrals. 
To the extent permitted by applicable law, the Board, in its sole
discretion, may determine that the delivery of Common Stock or the payment of
cash, upon the exercise, vesting or settlement of all or a portion of any Stock
Award may be deferred and may establish programs and procedures for deferral
elections to be made by Participants. 
Deferrals by Participants will be made in accordance with Section 409A
of the Code. Consistent with Section 409A of the Code, the Board may
provide for distributions while a Participant is still an employee.  The Board is authorized to make deferrals of
Stock Awards and determine when, and in what annual percentages, Participants
may receive payments, including lump sum payments, following the Participant’s
termination of employment or retirement, and implement such other terms and
conditions consistent with the provisions of the Plan and in accordance with
applicable law.


 


(j)            Compliance with Section 409A.  To the extent that the Board determines that any Stock
Award granted under the Plan is subject to Section 409A of the Code, the
Stock Award Agreement evidencing such Stock Award shall incorporate the terms
and conditions necessary to avoid the consequences described in Section 409A(a)(1) of
the Code.  To the extent applicable, the Plan and Stock
Award Agreements shall be interpreted in accordance with Section 409A of
the Code and Department of Treasury regulations and other interpretive guidance
issued thereunder, including without limitation any such regulations or other
guidance that may be issued or amended after the Effective Date.  Notwithstanding any provision of the Plan to
the contrary, in the event that following the Effective Date the Board
determines that any Stock Award may be subject to Section 409A of the Code
and related Department of Treasury guidance (including such Department of
Treasury guidance as may be issued after the Effective Date), the Board may
adopt such amendments to the Plan and the applicable Stock Award Agreement or
adopt other policies and procedures (including amendments, policies and
procedures with retroactive effect), or take any other actions, that the Board
determines are necessary or appropriate to (1) exempt the Stock Award from
Section 409A of the Code and/or preserve the intended tax treatment of the
benefits provided with respect to the Stock Award, or (2) comply with the
requirements of Section 409A of the Code and related Department of
Treasury guidance.


 


18

















 


10.          ADJUSTMENTS UPON CHANGES IN COMMON STOCK; OTHER CORPORATE EVENTS.


 


(a)           Capitalization Adjustments. 
In the event of a Capitalization Adjustment, the Board shall equitably
adjust: (i) the class(es) and maximum number of securities subject to the
Plan pursuant to Section 3(a); (ii) the class(es) and maximum number
of securities that may be issued pursuant to the exercise of Incentive Stock
Options pursuant to Section 3(c); (iii) the class(es) and maximum
number of securities that may be awarded to any person pursuant to Section 4(c) and
6(d); (iv) the class(es) and number of securities subject to each Option
granted under the Non-Discretionary Grant Program under Section 7; and (v) the
class(es) and number of securities and price per share of stock subject to
outstanding Stock Awards.  The Board
shall make such adjustments, and its determination shall be final, binding and
conclusive.


 


(b)           Dissolution or Liquidation. 
Except as otherwise provided in a Stock Award Agreement, in the event of
a dissolution or liquidation of the Company, all outstanding Stock Awards
(other than Stock Awards consisting of vested and outstanding shares of Common
Stock not subject to a forfeiture condition or the Company’s right of
repurchase) shall terminate immediately prior to the completion of such
dissolution or liquidation, and the shares of Common Stock subject to the
Company’s repurchase rights may be repurchased by the Company notwithstanding
the fact that the holder of such Stock Award is providing Continuous Service, provided, however, that the Board may, in
its sole discretion, cause some or all Stock Awards to become fully vested,
exercisable and/or no longer subject to repurchase or forfeiture (to the extent
such Stock Awards have not previously expired or terminated) before the
dissolution or liquidation is completed but contingent on its completion.


 


(c)           Corporate Transaction. 
The following provisions shall apply to Stock Awards in the event of a
Corporate Transaction unless otherwise provided in a written agreement between
the Company or any Affiliate and the holder of the Stock Award:


 


(i)            Stock Awards May Be Assumed. 
In the event of a Corporate Transaction, any surviving corporation or
acquiring corporation (or the surviving or acquiring corporation’s parent
company) may assume or continue any or all Stock Awards outstanding under the
Plan or may substitute similar stock awards for Stock Awards outstanding under
the Plan (including, but not limited to, awards to acquire the same
consideration paid to the stockholders of the Company pursuant to the Corporate
Transaction), and any reacquisition or repurchase rights held by the Company in
respect of Common Stock issued pursuant to Stock Awards may be assigned by the
Company to the successor of the Company (or the successor’s parent company, if
any), in connection with such Corporate Transaction.  A surviving corporation or acquiring
corporation may choose to assume or continue only a portion of a Stock Award or
substitute a similar stock award for only a portion of a Stock Award.  The terms of any assumption, continuation or
substitution shall be set by the Board in accordance with the provisions of Section 2(b).


 


(ii)           Stock Awards Held by Current
Participants.  In the event of a Corporate Transaction in
which the surviving corporation or acquiring corporation (or its parent
company) does not assume or continue any or all outstanding Stock Awards or
substitute similar stock awards for such outstanding Stock Awards, then with
respect to Stock Awards that have not been assumed, continued or substituted
and that are held by Participants whose Continuous 


 


19

















 


Service has not
terminated prior to the effective time of the Corporate Transaction (referred
to as the “Current
Participants”), the vesting of such Stock Awards (and, if
applicable, the time at which such Stock Awards may be exercised) shall
(contingent upon the effectiveness of the Corporate Transaction) be accelerated
in full to a date prior to the effective time of such Corporate Transaction as
the Board shall determine (or, if the Board shall not determine such a date, to
the date that is five (5) days prior to the effective time of the
Corporate Transaction), and such Stock Awards shall terminate if not exercised
(if applicable) at or prior to the effective time of the Corporate Transaction,
and any reacquisition or repurchase rights held by the Company with respect to
such Stock Awards shall lapse (contingent upon the effectiveness of the
Corporate Transaction).


 


(iii)         Stock Awards Held by Former
Participants.  In the event of a Corporate Transaction in
which the surviving corporation or acquiring corporation (or its parent
company) does not assume or continue any or all outstanding Stock Awards or
substitute similar stock awards for such outstanding Stock Awards, then with
respect to Stock Awards that have not been assumed, continued or substituted
and that are held by persons other than Current Participants, the vesting of
such Stock Awards (and, if applicable, the time at which such Stock Award may
be exercised) shall not be accelerated and such Stock Awards (other than a
Stock Award consisting of vested and outstanding shares of Common Stock not
subject to the Company’s right of repurchase) shall terminate if not exercised
(if applicable) prior to the effective time of the Corporate Transaction; provided, however, that any reacquisition
or repurchase rights held by the Company with respect to such Stock Awards
shall not terminate and may continue to be exercised notwithstanding the
Corporate Transaction.


 


(iv)          Payment for Stock Awards in Lieu of
Exercise.  Notwithstanding the foregoing, in the event a
Stock Award will terminate if not exercised prior to the effective time of a
Corporate Transaction, the Board may provide, in its sole discretion, that the
holder of such Stock Award may not exercise such Stock Award but will receive a
payment, in such form as may be determined by the Board, equal in value to the
excess, if any, of (i) the value of the property the holder of the Stock
Award would have received upon the exercise of the Stock Award, over (ii) any
exercise price payable by such holder in connection with such exercise.


 


(d)           Change in Control.  A
Stock Award may be subject to additional acceleration of vesting and
exercisability upon or after a Change in Control as may be provided in the
Stock Award Agreement for such Stock Award or as may be provided in any other
written agreement between the Company or any Affiliate and the Participant.  A Stock Award may vest as to all or any
portion of the shares subject to the Stock Award (i) immediately upon the
occurrence of a Change in Control, whether or not such Stock Award is assumed,
continued, or substituted by a surviving or acquiring entity in the Change in
Control, or (ii) in the event a Participant’s Continuous Service is
terminated, actually or constructively, within a designated period following
the occurrence of a Change in Control. 
In the absence of such provisions, no such acceleration shall occur.


 


11.          TERMINATION OR SUSPENSION OF THE PLAN.


 


(a)           Plan Term. 
The Board may suspend or terminate the Plan at any time.  Unless terminated sooner, the Plan shall
terminate on the day before the tenth (10th) anniversary of the


 


20














 


earlier of (i) the
date the Plan is adopted by the Board, or (ii) the date the Plan is
approved by the stockholders of the Company. 
No Stock Awards may be granted under the Plan while the Plan is
suspended or after it is terminated.


 


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


 


12.          EFFECTIVE DATE OF PLAN.


 


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


 


13.          CHOICE OF LAW.


 


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


 


14.          DEFINITIONS.


 


As used in the Plan, the following definitions shall
apply to the capitalized terms indicated below:


 


(a)           “Affiliate”
means, at the time of determination, any “parent” or “subsidiary” of the
Company as such terms are defined in Rule 405 of the Securities Act.  The Board shall have the authority to
determine the time or times at which “parent” or “subsidiary” status is
determined within the foregoing definition.


 


(b)           “Annual Award”
means an Option granted to an Eligible Director who meets the specified
criteria pursuant to Section 7(c)(iii).


 


(c)           “Annual Meeting”
means the annual meeting of the stockholders of the Company.


 


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


 


(e)           “Capitalization Adjustment”
means any change that is made in, or other events that occur with respect to,
the Common Stock subject to the Plan or subject to any Stock Award after the
Effective Date without the receipt of consideration by the Company (through
merger, consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by
the Company).  Notwithstanding the
foregoing, the conversion of any convertible securities of the Company shall
not be treated as a transaction “without receipt of consideration” by the
Company.


 


21

















 


(f)            “Cause”  means with respect to a Participant, the
occurrence of any of the following events: 
(i) such Participant’s commission of any felony or any crime
involving fraud, dishonesty or moral turpitude under the laws of the United
States or any state thereof; (ii) such Participant’s attempted commission
of, or participation in, a fraud or act of dishonesty against the Company; (iii) such
Participant’s intentional, material violation of any contract or agreement
between the Participant and the Company or of any statutory duty owed to the
Company; (iv)  such Participant’s unauthorized use or disclosure of
the Company’s confidential information or trade secrets; or (v) such
Participant’s gross misconduct. The determination that a termination of the
Participant’s Continuous Service is either for Cause or without Cause shall be
made by the Company in its sole discretion. 
Any determination by the Company that the Continuous Service of a
Participant was terminated with or without Cause for the purposes of
outstanding Stock Awards held by such Participant shall have no effect upon any
determination of the rights or obligations of the Company or such Participant
for any other purpose.


 


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


 


(i)            any Exchange Act Person becomes the Owner, directly or
indirectly, of securities of the Company representing more than fifty percent (50%) of the combined
voting power of the Company’s then outstanding securities other than by virtue
of a merger, consolidation or similar transaction.  Notwithstanding
the foregoing, a Change in Control shall not be deemed to occur (A) on
account of the acquisition of securities of the Company by an investor, any
affiliate thereof or any other Exchange Act Person from the Company in a
transaction or series of related transactions the primary purpose of which is
to obtain financing for the Company through the issuance of equity securities
or (B) solely because the level of Ownership held by any Exchange Act
Person (the “Subject
Person”) exceeds the
designated percentage threshold of the outstanding voting securities as a result
of a repurchase or other acquisition of voting securities by the Company
reducing the number of shares outstanding, provided that if a Change in Control
would occur (but for the operation of this sentence) as a result of the
acquisition of voting securities by the Company, and after such share
acquisition, the Subject Person becomes the Owner of any additional voting
securities that, assuming the repurchase or other acquisition had not occurred,
increases the percentage of the then outstanding voting securities Owned by the
Subject Person over the designated percentage threshold, then a Change in
Control shall be deemed to occur;


 


(ii)           there is consummated a merger, consolidation or
similar transaction involving (directly or indirectly) the Company and,
immediately after the consummation of such merger, consolidation or similar
transaction, the stockholders of the Company immediately prior thereto do not
Own, directly or indirectly, either (A) outstanding voting securities
representing more than fifty percent
(50%) of the combined outstanding voting power of the surviving Entity
in such merger, consolidation or similar transaction or (B) more than fifty percent (50%) of the combined
outstanding voting power of the parent of the surviving Entity in such merger,
consolidation or similar transaction, in each case in substantially the same
proportions as their Ownership of the outstanding voting securities of the
Company immediately prior to such transaction;


 


22

















 


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


 


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


 


(v)            individuals who, on the date the Plan is adopted by
the Board, are members of the Board (the “Incumbent Board”) cease for any reason to
constitute at least a majority of the members of the Board; provided, however, that if the appointment or election (or
nomination for election) of any new Board member was approved or recommended by
a majority vote of the members of the Incumbent Board then still in office,
such new member shall, for purposes of the Plan, be considered as a member of
the Incumbent Board.


 


For avoidance of doubt, the term Change in Control
shall not include a sale of assets, merger or other transaction effected
exclusively for the purpose of changing the domicile of the Company.


 


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


 


The Board may, in its sole discretion and without a
Participant’s consent, amend the definition of “Change in Control” to conform
to the definition of “Change in Control” under Section 409A of the Code,
and the regulations thereunder.


 


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


 


(i)            “Committee”
means a committee of one (1) or more Directors to whom authority has been
delegated by the Board in accordance with Section 2(c).


 


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


 


(k)           “Company”
means Affymax, Inc., a Delaware corporation.


 


(l)            “Consultant” means any person, including an advisor,
who is (i) engaged by the Company or an Affiliate to render consulting or
advisory services and is compensated for such services, or (ii) serving as
a member of the board of directors of an Affiliate and is compensated for such
services.  However, service solely as a
Director, or payment of a fee for such service, shall not cause a Director to
be considered a “Consultant” for purposes of the Plan.


 


23

















 


(m)          “Continuous Service”
means that the Participant’s service with the Company or an Affiliate, whether
as an Employee, Director or Consultant, is not interrupted or terminated.  A change in the capacity in which the
Participant renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the Participant
renders such service, provided that there is no interruption or termination of
the Participant’s service with the Company or an Affiliate, shall not terminate
a Participant’s Continuous Service; provided, however,
if the Entity for which a Participant is rendering services ceases to qualify
as an “Affiliate,” as determined by the Board in its sole discretion, such
Participant’s Continuous Service shall be considered to have terminated on the
date such Entity ceases to qualify as an Affiliate.  To the extent permitted by law, the Board or
the chief executive officer of the Company, in that party’s sole discretion,
may determine whether Continuous Service shall be considered interrupted in the
case of: (i) any leave of absence approved by the Board of the chief
executive officer of the Company, including sick leave, military leave or any
other personal leave; or (ii) transfers between the Company, an Affiliate,
or their successors.  Notwithstanding the
foregoing, a leave of absence shall be treated as Continuous Service for
purposes of vesting in a Stock Award only to such extent as may be provided in
the Company’s leave of absence policy, in the written terms of any leave of
absence agreement or policy applicable to the Participant, or as otherwise
required by law.


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


(q)           “Disability”
means, with respect to a Participant, 
the inability of such Participant to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment
which can be expected to result in death or can be expected to last for a 


 


24

















 


continuous period of not
less than 12 months, as provided in Section 22(e)(3) and
409A(a)(2)(c)(i) of the Code.


 


(r)           “Effective Date”
means the effective date of the Plan as set forth in Section 12.


 


(s)           “Eligible Director”
means a Director who is not an Employee and is eligible to participate in the
Non-Discretionary Grant Program.


 


(t)            “Employee” means any person employed by the Company
or an Affiliate.  However, service solely
as a Director, or payment of a fee for such services, shall not cause a
Director to be considered an “Employee” for purposes of the Plan.


 


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


 


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


 


(w)           “Exchange Act Person”  means any natural person, Entity or
“group” (within the meaning of Section 13(d) or 14(d) of the
Exchange Act), except that “Exchange Act Person” shall not include (i) the
Company or any Subsidiary of the Company, (ii) any employee benefit plan
of the Company or any Subsidiary of the Company or any trustee or other
fiduciary holding securities under an employee benefit plan of the Company or
any Subsidiary of the Company, (iii) an underwriter temporarily holding
securities pursuant to an offering of such securities, (iv) an Entity
Owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their Ownership of stock of the Company;
or (v) any natural person, Entity or “group” (within the meaning of Section 13(d) or
14(d) of the Exchange Act) that, as of the Effective Date, is the Owner,
directly or indirectly, of securities of the Company representing more than
fifty percent (50%) of the combined voting power of the Company’s then
outstanding securities.


 


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


 


(i)            If the Common Stock is listed on any established stock
exchange or traded on the Nasdaq Global Select Market or the Nasdaq Global
Market (formerly the Nasdaq National Market), the Fair Market Value of a share
of Common Stock shall be the closing sales price for such stock (or the closing
bid, if no sales were reported) as quoted on such exchange (or the exchange or
market with the greatest volume of trading in the Common Stock) on the date of
determination, as reported in The Wall Street Journal  or such other source as the Board deems
reliable.


 


(ii)           If the Common Stock is listed or traded on the Nasdaq
Capital Market (formerly the Nasdaq Small Cap Market), the Fair Market Value of
a share of Common Stock shall be the mean between the bid and asked prices for
the Common Stock on the date of determination, as reported in The Wall Street Journal  or
such other source as the Board deems reliable. 
Unless otherwise provided by the Board, if there is no closing sales
price (or closing bid if no sales were reported) for the Common Stock on the
date of determination, then the Fair 


 


25

















 


Market Value shall be the
mean between the bid and asked prices for the Common Stock on the last
preceding date for which such quotation exists.


 


(iii)         In the absence of such markets for the Common Stock,
the Fair Market Value shall be determined by the Board in good faith and in a
manner that complies with Section 409A of the Code.


 


(y)           “Incentive Stock Option”
means an Option which qualifies as an “incentive stock option” within the
meaning of Section 422 of the Code and the regulations promulgated
thereunder.


 


(z)           “Initial Award”
means an Option granted to an Eligible Director who meets the specified
criteria pursuant to Section 7(c)(ii).


 


(aa)         “IPO Award”
means an Option granted to an Eligible Director who meets the specified
criteria pursuant to Section 7(c)(i).


 


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


 


(cc)         “Non-Discretionary Grant
Program” means the non-discretionary grant program in effect
under Section 7 of the Plan.


 


(dd)         “Non-Employee Director”  means a Director who either (i) is not a current
employee or officer of the Company or an Affiliate, does not receive
compensation, either directly or indirectly, from the Company or an Affiliate
for services rendered as a consultant or in any capacity other than as a
Director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S-K promulgated pursuant to the Securities
Act (“Regulation S-K”)),
does not possess an interest in any other transaction for which disclosure
would be required under Item 404(a) of Regulation S-K, and is not engaged
in a business relationship for which disclosure would be required pursuant to
Item 404(b) of Regulation S-K; or (ii) is otherwise considered a
“non-employee director” for purposes of Rule 16b-3.


 


(ee)         “Nonstatutory Stock Option”
means an Option that does not qualify as an Incentive Stock Option.


 


(ff)           “Officer”
means a person who is an officer of the Company within the meaning of Section 16
of the Exchange Act and the rules and regulations promulgated thereunder.


 


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


 


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


 


26

















 


(ii)           “Optionholder”
means a person to whom an Option is granted pursuant to the Plan or, if
applicable, such other person who holds an outstanding Option.


 


(jj)           “Other Stock Award” means an award based in whole or in part
by reference to the Common Stock which is granted pursuant to the terms and
conditions of Section 6(d).


 


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


 


(ll)           “Outside Director”
means a Director who either (i) is not a current employee of the Company
or an “affiliated corporation” (within the meaning of Treasury Regulations
promulgated under Section 162(m) of the Code), is not a former
employee of the Company or an “affiliated corporation” who receives
compensation for prior services (other than benefits under a tax-qualified
retirement plan) during the taxable year, has not been an officer of the
Company or an “affiliated corporation,” and does not receive remuneration from
the Company or an “affiliated corporation,” either directly or indirectly, in
any capacity other than as a Director, or (ii) is otherwise considered an “outside
director” for purposes of Section 162(m) of the Code.


 


(mm)       “Own,” “Owned,” “Owner,”
“Ownership”  A person or Entity shall be deemed
to “Own,” to have “Owned,” to be the “Owner” of, or to have acquired “Ownership”
of securities if such person or Entity, directly or indirectly, through any
contract, arrangement, understanding, relationship or otherwise, has or shares
voting power, which includes the power to vote or to direct the voting, with
respect to such securities.


 


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


 


(oo)         “Performance Criteria” means the one or more criteria that the
Board shall select for purposes of establishing the Performance Goals for a
Performance Period.  The Performance
Criteria that shall be used to establish such Performance Goals may be based on
any one of, or combination of, the following: (i) earnings per share; (ii) earnings
before interest, taxes and depreciation; (iii) earnings before interest,
taxes, depreciation and amortization (EBITDA); (iv) total stockholder
return; (v) return on equity; (vi) return on assets, investment, or
capital employed; (vii) operating margin; (viii) gross margin; (ix) operating
income; (x) net income (before or after taxes); (xi) net operating income;
(xii) net operating income after tax; (xiii) pre- and after-tax income; (xiv)
pre-tax profit; (xv) operating cash flow; (xvi) sales or revenue targets;
(xvii) orders and revenue; (xviii) increases in revenue or product revenue;
(xix) expenses and cost reduction goals; (xx) improvement in or attainment of
expense levels; (xxi) improvement in or attainment of working capital levels;
(xxii) economic value added (or an equivalent metric); (xxiii) market share;
(xxiv) cash flow; (xxv) cash flow per share; (xxvi) share price performance;
(xxvii) debt reduction; (xxviii) implementation or completion of projects or
processes; (xxix) customer satisfaction; (xxx) stockholders’ equity; (xxxi)
quality measures; and (xxxii) to the extent that a Stock
Award is not intended to comply with Section 162(m) of the Code, other measures of performance selected by
the Board.  Partial achievement of the
specified criteria may result in the payment or vesting corresponding to the
degree of achievement as specified in 


 


27

















 


the Stock Award
Agreement.  The Board shall, in its sole
discretion, define the manner of calculating the Performance Criteria it
selects to use for such Performance Period.


 


(pp)         “Performance Goals” means, for a Performance Period, the one
or more goals established by the Board for the Performance Period based upon
the satisfaction of the Performance Criteria. 
Performance Goals may be based on a Company-wide basis, with respect to
one or more business units, divisions, Affiliates, or business segments, and in
either absolute terms or relative to the performance of one or more comparable
companies or the performance of one or more relevant indices.  At the time of the grant of any Stock Award,
the Board is authorized to determine whether, when calculating the attainment
of Performance Goals for a Performance Period: (i) to exclude
restructuring and/or other nonrecurring charges; (ii) to exclude exchange
rate effects, as applicable, for non-U.S. dollar denominated net sales and
operating earnings; (iii) to exclude the effects of changes to generally
accepted accounting standards required by the Financial Accounting Standards
Board; (iv) to exclude the effects of any statutory adjustments to
corporate tax rates; and (v) to exclude the effects of any “extraordinary
items” as determined under generally accepted accounting principles.  In addition, the Board retains the discretion
to reduce or eliminate the compensation or economic benefit due upon attainment
of Performance Goals.


 


(qq)         “Performance Period” means one or more periods of time, which
may be of varying and overlapping duration, as the Committee may select, over
which the attainment of one or more Performance Goals will be measured for the
purpose of determining a Participant’s right to and the payment of a
Performance Stock Award.


 


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


 


(ss)         “Plan” means
this Affymax, Inc. 2006 Equity Incentive Plan.


 


(tt)           “Prior Plan”
means the Company’s 2001 Stock Option/Stock Issuance Plan as in effect
immediately prior to the Effective Date.


 


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


 


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


 


(ww)        “Restricted Stock Unit Award”  means a right to receive shares of Common
Stock which is granted pursuant to the terms and conditions of Section 6(b).


 


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


 


28

















 


(yy)         “Rule 16b-3”
means Rule 16b-3 promulgated under the Exchange Act or any successor to Rule 16b-3,
as in effect from time to time.


 


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


 


(aaa)       “Stock Appreciation Right” means a right to receive the
appreciation on Common Stock that is granted pursuant to the terms and
conditions of Section 6(c).


 


(bbb)       “Stock Appreciation Right Agreement” means a written agreement between the
Company and a holder of a Stock Appreciation Right evidencing the terms and
conditions of a Stock Appreciation Right grant. 
Each Stock Appreciation Right Agreement shall be subject to the terms
and conditions of the Plan.


 


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


 


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


 


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


 


(fff)         “Ten Percent Stockholder”
means a person who Owns (or is deemed to Own pursuant to Section 424(d) of
the Code) stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or any Affiliate.


 


29