**EXHIBIT10.6**

 

**WORLD HEART CORPORATION**

**2006 EQUITY INCENTIVE PLAN**

 

**Adopted November 10, 2006**

**Approved By Shareholders September 17, 2009**

**Termination Date: November 10, 2016**

**(formerly, known as World Heart Corporation**

**Employee Stock Option Plan)**

 

**II.****           ****PURPOSES.**

 

(1)           The purpose of the Plan isto amend and restate the World Heart Corporation Employee Stock Option Plan andis to provide a means by which Employees, Directors and Consultants may begiven an opportunity to benefit from increases in value of the Common Stockthrough the granting of the following types of awards: (i) Incentive StockOptions; (ii) Nonstatutory Stock Options; (iii) Stock AppreciationRights, (iv) Restricted Stock Awards; (v) Restricted Stock UnitsAwards; (vi) Performance Shares and (vii) Other Share-Based Awards.

 

(2)**          ****T**he Company, bymeans of the Plan, seeks to retain the services of persons who are nowEmployees, Directors or Consultants, to secure and retain the services of newEmployees, Directors and Consultants and to provide incentives for such personsto exert maximum efforts for the success of the Company and its Affiliates.

 

(3)           The Company, by means of thePlan, amends and restates the World Heart Corporation Employee Stock OptionPlan. Nothing under the Plan will amend the terms and conditions of any optionsgranted prior to November 10, 2006 under the World Heart CorporationEmployee Stock Option Plan, a copy of which is included as part of the Plan inSchedule A hereto.

 

**III.****         ****DEFINITIONS.**

 

(1)***          ******“Affiliate”*** means any parent corporationor subsidiary corporation, whether now or hereafter existing, as those termsare defined in Sections 424(e) and (f) respectively, of theCode.

 

(2)***          ******“Board”*** means the Board ofDirectors of the Company.

 

(3)***          ******“Cause”*** means the occurrence of anyone or more of the following: (i) the Participant’s conviction of anyfelony or crime involving fraud, dishonesty or moral turpitude; (ii) theParticipant’s participation in a fraud or act of dishonesty against theCompany, an Affiliate of the Company or any successor to the Company thatresult in material harm to the business of the Company, an Affiliate of theCompany or any successor to the Corporation; or (iii) the Participant’sintentional, material violation of any contract between the Company, anAffiliate of the Company or any successor to the Company and the Participant orany statutory duty the Participant owes to the Company, an Affiliate of theCompany or any successor to the Company that the Participant does not correctwithin 30 days after written notice thereof has been provided to theParticipant.

 

(4)***          ******“Code”*** means the Internal RevenueCode of 1986, as amended.

 

(5)***          ******“Committee”*** means a Committee appointedby the Board in accordance with Section 3(c) of the Plan.

 

(6)***          ******“Common Stock”*** means the common shares ofthe Company.

 

(7)***          ******“Company”*** means World HeartCorporation, a Canadian corporation.

 

(8)***          ******“Consultant”*** means any natural person,including an advisor, engaged by the Company or an Affiliate to renderconsulting or advisory services, which involved spending a significant amountof time and attention on the affairs of the Company, and who is compensated forsuch services pursuant to a written contract with the Company or an Affiliate,provided that the term “Consultant” shall not include Directors who are paidonly a director’s fee by the Company or who are not compensated by the Companyfor their services as Directors.

 

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(9)***          ******“Continuous Service”*** means that the Participant’semployment or service with the Company or an Affiliate of the Company, whetherin the capacity of an Employee, a Director or a Consultant, is not interruptedor terminated. The Participant’s Continuous Service shall not be deemed to haveterminated merely because of a change in the capacity in which the Participantrenders employment or service to the Company or an Affiliate or the Company ora change in the entity for which the Participant renders such employment orservice, provided that there is no interruption or termination of theParticipant’s Continuous Service. The Board or the Chief Executive Officer ofthe Company, in that party’s sole discretion, may determine whether ContinuousService shall be considered interrupted in the case of any leave of absenceapproved by the Board or the Chief Executive Officer of the Company, includingsick leave, military leave, or any other personal leave.

 

(10)***        ******“Corporate Transaction”*** means theoccurrence, in a single transaction or in a series of related transactions, ofany one or more of the following events:

 

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

 

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

 

(iii)          a merger, consolidation orsimilar transaction following which the Company is the surviving corporationbut the shares of Common Stock outstanding immediately preceding the merger,consolidation or similar transaction are converted or exchanged by virtue ofthe merger, consolidation or similar transaction into other property, whetherin the form of securities, cash or otherwise.

 

(11)***        ******“Covered Employee”*** means the chief executiveofficer and the four (4) other highest compensated officers of the Companyfor whom total compensation is required to be reported to shareholders underthe Exchange Act, as determined for purposes of Section 162(m) of theCode.

 

(12)***        ******“Director”*** means a member of theBoard.

 

(13)***        ******“Disability”*** means the inability of aperson, in the opinion of a qualified physician acceptable to the Company, toperform the major duties of that person’s position with the Company or anAffiliate of the Company because of the sickness or injury of the person.

 

(14)***        ******“Employee”*** means any person, includingOfficers and Directors, employed by the Company or any Affiliate of theCompany. Neither service as a Director nor payment of a director’s fee by theCompany shall be sufficient to constitute “employment” by the Company.

 

(15)***        ******“Exchange Act”*** means the SecuritiesExchange Act of 1934, as amended.

 

(16)***        ******“Fair Market Value”*** means, as of any date, thevalue of the Common Stock of the Company determined as follows:

 

A.            If the Common Stock islisted on any established stock exchange, traded on the Nasdaq Global Market orthe Nasdaq Capital Market, or quoted on the OTC Bulletin Board, the Fair MarketValue of a share of Common Stock shall be the closing sales price for suchstock (or the closing bid, if no sales were reported) as quoted on such exchange,market or board (or the exchange or market with the greatest volume of tradingin Common Stock) on the trading day prior to the day of determination, asreported in the Wall Street Journal or such other source as the Board deemsreliable;

 

B.            In the absence of suchmarkets for the Common Stock, the Fair Market Value shall be determined in goodfaith by the Board.

 

(17)***        ******“Full Value Award”*** means a Stock Award thatdoes not provide for full payment in cash or property by the Participant.

 

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

 

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(19)***        ******“Non-Employee Director”*** means aDirector who either (i) is not currently an employee or officer of theCompany or its parent or a subsidiary, does not receive compensation, eitherdirectly or indirectly, from the Company or its parent or a subsidiary, forservices 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 underItem 404(a) of Regulation S-K promulgated pursuant to theSecurities Act (“Regulation S-K”)), does not possess an interest in anyother transaction for which disclosure would be required under Item 404(a) ofRegulation S-K, and is not engaged in a business relationship for whichdisclosure would be required pursuant to Item 404(b) ofRegulation S-K; or (ii) is otherwise considered a “non-employeedirector” for purposes of Rule 16b-3.

 

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

 

(21)***        ******“Option”*** means a stock optiongranted pursuant to the Plan.

 

(22)***        ******“Option Agreement”*** means a written agreementbetween the Company and a Participant evidencing the terms and conditions of anindividual Option grant. Each Option Agreement shall be subject to the termsand conditions of the Plan.

 

(23)***        ******“Other Share-Based Award”*** means an Awardgranted pursuant to Section 7(d).

 

(24)***        ******“Other Share-Based Award Agreement”*** means theagreement between the Corporation and the recipient of an Other Share-BasedAward which contains the terms and conditions pertaining to the Other Share-BasedAward.

 

(25)***        ******“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) ofthe Code), is not a former employee of the Company or an “affiliatedcorporation” who receives compensation for prior services (other than benefitsunder a tax-qualified retirement plan) during the taxable year, has not been anofficer of the Company or an “affiliated corporation”, and does not receiveremuneration from the Company or an “affiliated corporation,” either directlyor indirectly, in any capacity other than as a Director or (ii) isotherwise considered an “outside director” for purposes of Section 162(m) ofthe Code.

 

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

 

(27)***        ******“Performance Share”*** means a Stock Awarddenominated in shares of Common Stock equivalents granted pursuant to Section 7(c) thatmay be earned in whole or in part based upon attainment of performanceobjectives established by the Board pursuant to Section 7(c).

 

(28)***        ******“Performance Share Agreement”*** means awritten agreement between the Company and a holder of Performance Sharesevidencing the terms and conditions of an individual Performance Share award.Each Performance Share Agreement shall be subject to the terms and conditionsof the Plan.

 

(29)***        ******“Plan”*** means this World HeartCorporation 2006 Equity Incentive Plan.

 

(30)***        ******“Restricted Stock Award”*** means sharesof Common Stock granted pursuant to the terms and conditions of Section 7(a).

 

(31)***        ******“Restricted Stock Award Agreement”*** means awritten agreement between the Company and a holder of Restricted Stockevidencing the terms and conditions of an individual Restricted Stock Award.Each Restricted Stock Award Agreement shall be subject to the terms andconditions of the Plan.

 

(32)***        ******“Restricted Stock Unit Award”*** means a StockAward denominated in shares of Common Stock equivalents granted pursuant to theterms and conditions of Section 7(b) in which the Participant has theright to receive a specified number of shares of Common Stock over a specifiedperiod of time.

 

(33)***        ******“Restricted Stock Unit Award Agreement”*** means awritten agreement between the Company and a holder of a Restricted Stock UnitAward evidencing the terms and conditions of an individual Restricted StockUnit Award. Each Restricted Stock Unit Award Agreement shall be subject to theterms and conditions of the Plan.

 

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

 

(35)***        ******“Securities Act”*** means the Securities Act of1933, as amended.

 

(36)***        ******“Stock Appreciation Right”*** means a right,granted pursuant to Section 6, to receive an amount equal to the value ofa specified number of Shares which will be payable in Shares or cash asestablished by the Board.

 

(37)***        ******“Stock Appreciation Right Agreement”*** means theagreement between the Corporation and the recipient of the Stock AppreciationRight which contains the terms and conditions pertaining to the StockAppreciation Right.

 

(38)***        ******“Stock Award”*** means any right grantedunder the Plan, including any Option or Restricted Stock Award.

 

(39)***        ******“Stock Award Agreement”*** means awritten agreement between the Company and a holder of a Stock Award evidencingthe terms and conditions of an individual Stock Award. Each Stock AwardAgreement shall be subject to the terms and conditions of the Plan.

 

(40)***        ******“Subsidiary”*** means, with respect to theCompany, (i) any corporation of which more than fifty percent (50%) of theoutstanding capital stock having ordinary voting power to elect a majority ofthe board of directors of such corporation (irrespective of whether, at thetime, stock of any other class or classes of such corporation shall have ormight have voting power by reason of the happening of any contingency) is atthe time, directly or indirectly, owned by the Company, and (ii) anypartnership in which the Company has a direct or indirect interest (whether inthe form of voting or participation in profits or capital contribution) of morethan fifty percent (50%).

 

(41)***        ******“Tax Act”*** means the Income Tax Act(Canada).

 

(42)***        ******“Ten Percent Shareholder”*** means a personwho 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 powerof all classes of stock of the Company or any of its Affiliates.

 

**IV.****         ****ADMINISTRATION.**

 

(1) ****Administrationby Board.**  The Board shalladminister the Plan unless and until the Board delegates administration to aCommittee, as provided in Section 3(c).

 

(2) ****Powersof Board.**  The Board shallhave the power, subject to, and within the limitations of, the expressprovisions of the Plan:

 

A.            To determine from time totime which of the persons eligible under the Plan shall be granted StockAwards; when and how each Stock Award shall be granted; what type orcombination of types of Stock Award shall be granted; the provisions of eachStock Award granted (which need not be identical), including the time or timeswhen a person shall be permitted to receive Common Stock pursuant to a StockAward; and the number of shares of Common Stock with respect to which a StockAward shall be granted to each such person.

 

B.            To construe and interpretthe Plan and Stock Awards granted under it, and to establish, amend and revoke rules andregulations 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 AwardAgreement, in a manner and to the extent it shall deem necessary or expedientto make the Plan fully effective.

 

C.            To amend the Plan or a StockAward as provided in Section 13.

 

D.            To terminate or suspend thePlan as provided in Section 14.

 

E.            Generally, to exercise suchpowers and to perform such acts as the Board deems necessary or expedient topromote the best interests of the Company and that are not in conflict with theprovisions of the Plan.

 

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**(3)****          ****Delegationto Committee.**

 

**A.*** ***General.**  The Board may delegate administration of thePlan to a Committee or Committees of one (1) or more members of the Board,and the term “Committee” shall apply to any person or persons to whom suchauthority has been delegated. If administration is delegated to a Committee,the Committee shall have, in connection with the administration of the Plan,the powers theretofore possessed by the Board, including the power to delegateto a subcommittee any of the administrative powers the Committee is authorizedto exercise (and references in this Plan to the Board shall thereafter be tothe Committee or subcommittee), subject, however, to such resolutions, notinconsistent with the provisions of the Plan, as may be adopted from time totime by the Board.

 

The Board may abolish theCommittee at any time and revest in the Board the administration of the Plan.

 

B.* ***Section 162(m) and Rule 16b-3Compliance.**  In the discretionof the Board, the Committee may consist solely of two or more OutsideDirectors, in accordance with Section 162(m) of the Code, and/orsolely of two or more Non-Employee Directors, in accordance with Rule 16b-3.In addition, the Board or the Committee may delegate to a committee of one ormore members of the Board the authority to grant Stock Awards to eligiblepersons who are either (a) not then Covered Employees and are not expectedto be Covered Employees at the time of recognition of income resulting fromsuch Stock Award, (b) not persons with respect to whom the Company wishesto comply with Section 162(m) of the Code, or (c) not thensubject to Section 16 of the Exchange Act.

 

(4) ****Effectof Board’s Decision.**  Alldeterminations, interpretations and constructions made by the Board in goodfaith shall not be subject to review by any person and shall be final, bindingand conclusive on all persons.

 

**V.****           ****SHARES SUBJECT TO THE PLAN.**

 

(1) ****ShareReserve.**  Subject to theprovisions of Section 12(a) relating to adjustments upon changes instock and subject to Section 4(c) below, the stock that may be issuedpursuant to Stock Awards shall not exceed in the aggregate 2,166,667 shares ofCommon Stock. If any Stock Award granted under the Plan shall for any reasonexpire or otherwise terminate, in whole or in part, without having beenexercised in full, the stock not acquired under such Stock Award shall revertto and again become available for issuance under the Plan.

 

(2) ****Sourceof Shares.**  The stock subjectto the Plan may be unissued shares or reacquired shares, bought on the marketor otherwise.

 

**VI.****         ****ELIGIBILITY.**

 

(1) ****Eligibilityfor Specific Stock Awards.** Incentive Stock Options may be granted only to Employees. Stock Awardsother than Incentive Stock Options may be granted to Employees, Directors andConsultants.

 

(2) ****TenPercent Shareholders.**  A TenPercent Shareholder shall not be granted an Incentive Stock Option unless theexercise price of such Option is at least one hundred ten percent (110%) of theFair Market Value of the Common Stock on the date of grant and the Option isnot exercisable after the expiration of five (5) years from the date ofgrant.

 

(3) ****Section 162(m) Limitationon Annual Grants.**  Subject tothe provisions of Section 12(a) relating to CapitalizationAdjustments, no Employee shall be eligible to be granted Stock Awards coveringmore than 3,000,000 shares of Common Stock during any calendar year.

 

(4) ****Consultants.**  A Consultant shall not be eligible for thegrant of a Stock Award if, at the time of grant, a Form S-8 RegistrationStatement under the Securities Act (“Form S-8”) is not available toregister either the offer or the sale of the Company’s securities to suchConsultant because of the nature of the services that the Consultant isproviding to the Company, because the Consultant is not a natural person, orbecause of any other rule governing the use of Form S-8.

 

**VII.****        ****OPTION AND STOCKAPPRECIATION RIGHT PROVISIONS.**

 

Each Option or StockAppreciation Right shall be in such form and shall contain such terms andconditions as the Board shall deem appropriate. The provisions of separateOptions and Stock Appreciation Rights need not be identical, but each Optionand Stock Appreciation Right shall include (through incorporation of provisionshereof by reference in the Option or Stock Appreciation Right Agreement) thesubstance of each of the following provisions:

 

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(1) ****Term.**  Subject to the provisions of Section 5(b) regardingTen Percent Shareholders, no Option or Stock Appreciation Right shall beexercisable after the expiration of ten years from the date it was granted.

 

(2) ****ExercisePrice.**  Subject to theprovisions of Section 5(b) regarding Ten Percent Shareholders, theexercise price of each Option or Stock Appreciation Right shall be not lessthan one hundred percent (100%) of the Fair Market Value of the Common Stocksubject to the Option or Stock Appreciation Right on the date of grant.Notwithstanding the foregoing, an Option or Stock Appreciation Right may begranted with an exercise price lower than that set forth in the precedingsentence if such Option or Stock Appreciation Right is granted pursuant to anassumption or substitution for another option or stock appreciation right in amanner satisfying the provisions of Section 424(a) of the Code.

 

(3) ****Consideration.**  The purchase price of Common Stock acquiredpursuant to an Option or Stock Appreciation Right shall be paid, to the extentpermitted by applicable statutes and regulations, either (i) in cash atthe time of exercise or (ii) at the discretion of the Board at the time ofthe grant (or subsequently in the case of a Nonstatutory Stock Option or StockAppreciation Right) (l) by delivery to the Company of other Common Stock, (2) accordingto a deferred payment or other similar arrangement with the Participant, (3) bya “net exercise” of the Option or Stock Appreciation Right (as furtherdescribed below) (4) pursuant to a program developed underRegulation T as promulgated by the Federal Reserve Board that, prior tothe issuance of Common Stock, results in either the receipt of cash (or check)by the Company or the receipt of irrevocable instructions to pay the aggregateexercise price to the Company from the sales proceeds or (5) in any otherform of legal consideration that may be acceptable to the Board. Unlessotherwise specifically provided in the Option or Stock Appreciation Right, thepurchase price of Common Stock acquired pursuant to an Option or StockAppreciation Right that is paid by delivery to the Company of other CommonStock acquired, directly or indirectly from the Company, shall be paid only byshares of the Common Stock that have been held for more than six (6) months(or such longer or shorter period of the time required to avoid a charge toearnings for financial accounting purposes). At any time that the Company isincorporated in Delaware, payment of the Common Stock’s “par value,” as definedin the Delaware General Corporation Law, shall not be made by deferred payment.

 

In the case of any deferredpayment arrangement, interest shall be compounded at least annually and shallbe charged at the minimum rate of interest necessary to avoid (l) thetreatment as interest, under any applicable provisions of the Code or the TaxAct, of any amounts other than amounts stated to be interest under the deferredpayment arrangement and (2) the treatment of an Option as a variable awardfor financial accounting purposes.

 

In the case of a “netexercise” of an Option or Stock Appreciation Right, the Company will notrequire a payment of the exercise price from the Participant but will reducethe number of shares of Common Stock issued upon the exercise by the largestnumber of whole shares that has a Fair Market Value that does not exceed theaggregate exercise price. With respect to any remaining balance of theaggregate exercise price, the Company shall accept a cash payment from theParticipant. The shares of Common Stock so used to pay the exercise price undera “net exercise” will be considered to have resulted from the exercise of theOption or Stock Appreciation Right, and accordingly, the Option or Stock AppreciationRight will not again be exercisable with respect to such shares, the sharesactually delivered to the Participant, and any shares withheld for purposes oftax withholding.

 

(4) ****Transferabilityof an Incentive Stock Option.** An Incentive Stock Option shall not be transferable except by will or bythe laws of descent and distribution and shall be exercisable during thelifetime of the Participant only by the Participant. Notwithstanding theforegoing, the Participant may, by delivering written notice to the Company, ina form satisfactory to the Company, designate a third party who, in the eventof the death of the Participant, shall thereafter be entitled to exercise theOption.

 

(5) ****Transferabilityof a Nonstatutory Stock Option or Stock Appreciation Right.**  A Nonstatutory Stock Option or StockAppreciation Right shall be transferable to the extent provided in the Optionor Stock Appreciation Right Agreement. If the agreement does not provide fortransferability, then the Nonstatutory Stock Option or Stock Appreciation Rightshall not be transferable except by will or by the laws of descent anddistribution and shall be exercisable during the lifetime of the Participantonly by the Participant. Notwithstanding the foregoing, the Participant may, bydelivering written notice to the Company, in a form satisfactory to theCompany, designate a third party who, in the event of the death of theParticipant, shall thereafter be entitled to exercise the Option or StockAppreciation Right.

 

(6) ****Vesting.**  The total number of shares of Common Stocksubject to an Option may, but need not, vest and therefore become exercisablein periodic installments (which may, but need not, be equal).

 

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The Option or StockAppreciation Right may be subject to such other terms and conditions on thetime or times when it may be exercised (which may be based on performance orother criteria) as the Board may deem appropriate. The vesting provisions ofindividual Options or Stock Appreciation Rights may vary.

 

(7) ****Terminationof the Participant’s Continuous Service without Cause.**  In the event a Participant’s ContinuousService terminates without Cause (other than upon the Participant’s death orDisability), the Participant may exercise his or her Option or StockAppreciation Right (to the extent that the Participant was entitled to exercisesuch Option or Stock Appreciation Right at the date of termination) but onlywithin such period of time ending on the earlier of (i) the date three (3) monthsafter the termination of the Participant’s Continuous Service (or such longeror shorter period specified in the Option or Stock Appreciation RightAgreement, which period shall not be less than thirty (30) days), or (ii) theexpiration of the term of the Option or Stock Appreciation Right as set forthin the agreement. If, at the date of termination, the Participant is notentitled to exercise his or her entire Option or Stock Appreciation Right, theshares covered by the unexercisable portion of the Option or Stock AppreciationRight shall revert to and again become available for issuance under the Plan.If, after termination, the Participant does not exercise his or her Option orStock Appreciation Right within the time specified in the agreement, the Optionor Stock Appreciation Right shall terminate, and the shares covered by suchOption or Stock Appreciation Right shall revert to and again become availablefor issuance under the Plan.

 

(8) ****Terminationof the Participant’s Continuous Service with Cause.**  In the event a Participant’s ContinuousService terminates with Cause (other than upon the Participant’s death orDisability), the shares covered by the Option or Stock Appreciation Right shallrevert to and again become available for issuance under the Plan and theParticipant shall have no further opportunity to exercise any vested orunvested portion of the Option or Stock Appreciation Right.

 

(9) ****Disabilityof Participant.**  In the eventa Participant’s Continuous Service terminates as a result of the Participant’sDisability, the Participant may exercise his or her Option or StockAppreciation Right (to the extent that the Participant was entitled to exercisesuch Option or Stock Appreciation Right at the date of termination), but onlywithin such period of time ending on the earlier of (i) the date twelve(12) months following such termination (or such longer or shorter periodspecified in the Option or Stock Appreciation Right Agreement, which periodshall not be less than six (6) months), or (ii) the expiration of theterm of the Option or Stock Appreciation Right as set forth in the agreement.If, at the date of termination, the Participant is not entitled to exercise hisor her entire Option or Stock Appreciation Right, the shares covered by theunexercisable portion of the Option or Stock Appreciation Right shall revert toand again become available for issuance under the Plan. If, after termination,the Participant does not exercise his or her Option or Stock Appreciation Rightwithin the time specified herein, the Option or Stock Appreciation Right shallterminate, and the shares covered by such Option or Stock Appreciation Rightshall revert to and again become available for issuance under the Plan.

 

(10) ****Deathof Participant.**  In the eventof the death of a Participant during, or within a period specified in theOption or Stock Appreciation Right Agreement after the termination of, theParticipant’s Continuous Service, the Option or Stock Appreciation Right may beexercised (to the extent the Participant was entitled to exercise such Optionor Stock Appreciation Right at the date of death) by the Participant’s estate,by a person who acquired the right to exercise the Option or Stock AppreciationRight by bequest or inheritance or by a person designated to exercise theOption or Stock Appreciation Right upon the Participant’s death pursuant toSections 6(d) and 6(e), but only within the period ending on theearlier of (i) the date twelve (12) months following the date ofdeath (or such longer or shorter period specified in the Option or StockAppreciation Right Agreement, which period shall not be less than six (6) months),or (ii) the expiration of the term of such Option or Stock AppreciationRight as set forth in the agreement. If, at the time of death, the Participantwas not entitled to exercise his or her entire Option or Stock AppreciationRight, the shares covered by the unexercisable portion of the Option or StockAppreciation Right shall revert to and again become available for issuanceunder the Plan. If, after death, the Option or Stock Appreciation Right is notexercised within the time specified herein, the Option or Stock AppreciationRight shall terminate, and the shares covered by such Option or StockAppreciation Right shall revert to and again become available for issuanceunder the Plan.

 

**VIII.****      ****PROVISIONSOF OTHER STOCK AWARDS.**

 

(1) ****RestrictedStock Awards.**  Each RestrictedStock Award Agreement shall be in such form and shall contain such terms andconditions as the Board shall deem appropriate. The terms and conditions of theRestricted Stock Award Agreement may change from time to time, and the termsand conditions of separate Restricted Stock Award Agreements need not beidentical, but each Restricted Stock Award Agreement shall include (throughincorporation of 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 StockAward, the Board will determine the consideration, if any, to be paid by theParticipant upon delivery of each share of Common Stock subject to the 

 

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Restricted Stock Award. Tothe extent required by applicable law, the consideration to be paid by theParticipant for each share of Common Stock subject to a Restricted Stock Awardwill not be less that the par value of a share of Common Stock. Suchconsideration may be paid in any form permitted under applicable law.

 

(ii) ****Vesting.**  Shares of Common Stock acquired pursuant tothe Restricted Stock Award shall be subject to a share repurchase option infavor of the Company in accordance with a vesting schedule to be determined bythe Board. The Board may condition the vesting of the shares acquired pursuantto the Restricted Stock Award upon the attainment of specified performance objectivesestablished by the Board pursuant to Section 8 or such other factors asthe Board may determine in its sole discretion, including time-based vesting;provided, however, that if the vesting schedule is a time-based vestingschedule, such shares shall vest not faster than one-third per year over threeyears and if the vesting schedule is a performance-based vesting schedule, suchshares shall vest not earlier than the first anniversary of the date of grant.

 

(iii) ****Terminationof Participant’s Continuous Service.** In the event that a Participant’s Continuous Service terminates, theCompany may repurchase or otherwise reacquire any or all of the shares ofCommon Stock held by the Participant that have not vested as of the date oftermination under the terms of the Restricted Stock Award Agreement. TheCompany will not exercise its repurchase option until at least six (6) months(or such longer or shorter period of time required to avoid a charge toearnings for financial accounting purposes) have elapsed following the purchaseof the restricted stock unless otherwise provided in the Restricted Stock AwardAgreement.

 

(iv) ****Transferability.**  Rights to acquire shares of Common Stockpursuant to the Restricted Stock Award shall be transferable by the Participantonly upon such terms and conditions as are set forth in the Restricted StockAward Agreement, as the Board shall determine in its discretion, so long asCommon Stock awarded pursuant to the Restricted Stock Award remains subject tothe terms of the Restricted Stock Award Agreement.

 

(2) ****RestrictedStock Unit Awards.**  EachRestricted Stock Unit Award Agreement shall be in such form and shall containsuch terms and conditions as the Board shall deem appropriate. The terms andconditions of Restricted Stock Unit Award Agreements may change from time totime, and the terms and conditions of separate Restricted Stock Unit AwardAgreements need not be identical, but each Restricted Stock Unit AwardAgreement shall include (through incorporation of the provisions hereof byreference in the agreement or otherwise) the substance of each of the followingprovisions:

 

(i) ****Consideration.**  At the time of grant of a Restricted StockUnit Award, the Board will determine the consideration, if any, to be paid bythe Participant upon delivery of each share of Common Stock subject to theRestricted Stock Unit Award. To the extent required by applicable law, theconsideration to be paid by the Participant for each share of Common Stocksubject to a Restricted Stock Unit Award will not be less that the par value ofa share of Common Stock. Such consideration may be paid in any form permittedunder applicable law.

 

(ii) ****Vesting.**  At the time of grant of a Restricted StockUnit Award, the Board shall impose such restrictions or conditions to thevesting of the Restricted Stock Unit Award as it, in its absolute discretion,deems appropriate. The Board may condition the vesting of the Restricted StockUnit Award upon the attainment of specified performance objectives establishedby the Board pursuant to Section 8 or such other factors as the Board maydetermine in its sole discretion, including time-based vesting; provided,however, that if the vesting schedule is a time-based vesting schedule, suchStock Award shall vest not faster than one-third per year over three years andif the vesting schedule is a performance-based vesting schedule, such StockAward shall vest not earlier than the first anniversary of the date of grant.

 

(iii) ****Payment.**  A Restricted Stock Unit Award will bedenominated in shares of Common Stock equivalents. A Restricted Stock UnitAward will be settled by the delivery of shares of Common Stock.

 

(iv) ****DividendEquivalents.**  Dividendequivalents may be credited in respect of shares of Common Stock equivalentscovered by a Restricted Stock Unit Award, as determined by the Board andcontained in the Restricted Stock Unit Award Agreement. At the discretion ofthe Board, such dividend equivalents may be converted into additional shares ofCommon Stock equivalents covered by the Restricted Stock Unit Award by dividing(1) the aggregate amount or value of the dividends paid with respect tothat number of shares of Common Stock equivalents covered by the RestrictedStock Unit Award then credited by (2) the Fair Market Value per share ofCommon Stock on the payment date for such dividend, or in such other manner asdetermined by the Board. Any additional share equivalents covered by theRestricted Stock Unit Award credited by reason of such dividend equivalents willbe subject to all the terms and conditions of the underlying Restricted StockUnit Award Agreement to which they relate.

 

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(v) ****Terminationof Participant’s Continuous Service.** Except as otherwise provided in the applicable Restricted Stock UnitAward Agreement, such portion of the Restricted Stock Unit Award that has notvested will be forfeited upon the Participant’s termination of ContinuousService for any reason.

 

(vi) ****Transferability.**  Restricted Stock Units shall be transferableby the Participant only upon such terms and conditions as are set forth in theRestricted Stock Unit Agreement, as the Board shall determine in itsdiscretion.

 

(3) ****PerformanceShares.**  Each PerformanceShare Agreement shall be in such form and shall contain such terms andconditions as the Board shall deem appropriate. The terms and conditions ofPerformance Share Agreements may change from time to time, and the terms andconditions of separate Performance Share Agreements need not be identical;provided, however, that each Performance Share Agreement shall include (throughincorporation of the provisions hereof by reference in the agreement orotherwise) the substance of each of the following provisions:

 

(i) ****Consideration.**  At the time of grant of Performance Shares, theBoard will determine the consideration, if any, to be paid by the Participantupon delivery of each share of Common Stock subject to the Performance Shares.To the extent required by applicable law, the consideration to be paid by theParticipant for each share of Common Stock subject to a Performance Shares willnot be less that the par value of a share of Common Stock. Such considerationmay be paid in any form permitted under applicable law.

 

(ii) ****Vesting.**  At the time of grant of Performance Shares,the Board shall impose such restrictions or conditions to the vesting of thePerformance Shares as it, in its discretion, deems appropriate. The Board maycondition the grant of Performance Shares upon the attainment of specifiedperformance objectives established by the Board pursuant to Section 8 orsuch other factors as the Board may determine in its sole discretion; provided,however, that such Performance Shares shall vest not earlier than the firstanniversary of the date of grant.

 

(iii) ****Payment.**  Performance Shares will be denominatedin shares of Common Stock Equivalents. Performance Shares will be settled bythe delivery of shares of Common Stock.

 

(iv) ****DividendEquivalents.**  Dividendequivalents may be credited in respect of shares of Common Stock equivalentscovered by Performance Shares, as determined by the Board and contained in thePerformance Share Agreement. At the discretion of the Board, such dividendequivalents may be converted into additional shares of Common Stock equivalentscovered by the Performance Shares by dividing (1) the aggregate amount orvalue of the dividends paid with respect to that number of shares of CommonStock equivalents covered by the Performance Shares then credited by (2) theFair Market Value per share of Common Stock on the payment date for suchdividend, or in such other manner as determined by the Board. Any additionalshare equivalents covered by the Performance Shares credited by reason of suchdividend equivalents will be subject to all the terms and conditions of theunderlying Performance Share Agreement to which they relate.

 

(v) ****Terminationof Participant’s Continuous Service.** Except as otherwise provided in the applicable Performance ShareAgreement, such portion of the Performance Shares that have not vested will beforfeited upon the Participant’s termination of Continuous Service for anyreason.

 

(vi) ****Transferability.**  Performance Shares shall be transferable bythe Participant only upon such terms and conditions as are set forth in thePerformance Share Agreement, as the Board shall determine in its discretion.

 

(4) ****OtherShare-Based Awards.**  Awards ofShares and other Awards that are valued in whole or in part by reference to, orare otherwise based on, Shares (“Other Share-Based Awards”), may be grantedeither alone or in addition to or in conjunction with other Awards under thisPlan. Each Other Share-Based Award Agreement shall be in such form and shallcontain such terms and conditions as the Board shall deem appropriate. Theterms and conditions of Other Share-Based Award Agreements may change from timeto time, and the terms and conditions of separate Other Share-Based AwardAgreements need not be identical; provided, however, that each Other Share-BasedAward Agreement shall include (through incorporation of the provisions hereofby reference in the agreement or otherwise) the substance of each of thefollowing provisions:

 

(i) ****Terminationof Participant’s Continuous Service.** Except as otherwise provided in the applicable Other Share-Based AwardAgreement, such portion of the Other Share-Based Award that have not vestedwill be forfeited upon the Participant’s termination of Continuous Service forany reason.

 

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(ii) ****Transferability.**  Other Share-Based Awards shall betransferable by the Participant only upon such terms and conditions as are setforth in the Other Share-Based Award Agreement, as the Board shall determine inits discretion.

 

(5) ****Deferralof Award Payment.**  The Boardmay establish one or more programs under the Plan to permit selectedParticipants to elect to defer receipt of consideration upon exercise of aStock Award, the satisfaction of performance objectives, or other events which,absent such an election, would entitle such Participants to payment or receiptof Common Stock or other consideration under a Stock Award. The Board mayestablish the election procedures of such deferrals, the mechanisms for paymentof Common Stock or other consideration subject to deferral (including accrualof interest or other earnings, if any, on amounts with respect thereto) andsuch other terms, conditions, rules and procedures that the Board deemsadvisable and in compliance with Section 409A of the Code and incompliance with the Tax Act.

 

**IX.****         ****PERFORMANCE OBJECTIVES.**

 

The Board shall determinethe terms and conditions of Stock Awards at the date of grant or thereafter;provided that performance objectives, if any, related to Stock Awards grantedto Covered Employees shall be established by the Board not later than thelatest date permissible under Section 162(m) of the Code. To theextent that such Stock Awards are paid to Covered Employees the performanceobjectives to be used, if any, shall be expressed in terms of one or more ofthe following: return on total shareholder equity; net income; stock price; netearnings; related return ratios cash flow; earnings before interest, taxes,depreciation, and amortization; revenues; return on total capital; profitbefore taxation; product development milestones; clinical trial milestones.

 

**X.****           ****COVENANTS OF THE COMPANY.**

 

(1)           During the terms of theStock Awards, the Company shall keep available at all times the number ofshares of Common Stock required to satisfy such Stock Awards.

 

(2)**          ****T**he Companyshall seek to obtain from each regulatory commission or agency havingjurisdiction over the Plan such authority as may be required to issue and sellshares under Stock Awards; provided, however, that this undertaking shall notrequire the Company to register under the Securities Act the Plan, any Stock Awardor any stock issued or issuable pursuant to any such Stock Award. If, afterreasonable efforts, the Company is unable to obtain from any such regulatorycommission or agency the authority which counsel for the Company deemsnecessary for the lawful issuance and sale of stock under the Plan, the Companyshall be relieved from any liability for failure to issue and sell stock uponexercise of such Stock Awards unless and until such authority is obtained.

 

**XI.****         ****USE OF PROCEEDS FROM STOCK.**

 

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

 

**XII.****       ****MISCELLANEOUS.**

 

(1) ****Accelerationof Exercisability and Vesting.** The Board shall have the power to accelerate the time at which a StockAward may first be exercised or the time during which a Stock Award or any partthereof will vest in accordance with the Plan, notwithstanding the provisionsin the Stock Award stating the time at which it may first be exercised or thetime during which it will vest.

 

(2) ****ShareholderRights.**  Neither the recipientof a Stock Award nor any person to whom a Stock Award is transferred inaccordance with the Plan shall be deemed to be the holder of, or to have any ofthe rights of a holder with respect to, any shares of Common Stock subject tosuch Stock Award unless and until such person has satisfied all requirementsfor exercise of the Stock Award pursuant to its terms.

 

(3) ****NoEmployment or Other Service Rights.** Nothing in the Plan or any instrument executed or Stock Award grantedpursuant thereto shall confer upon any recipient or other holder of StockAwards any right to continue in the employ of the Company or any Affiliate orto continue serving as a Consultant or a Director, or shall affect the right ofthe Company or any Affiliate to terminate the employment of any Employee withor without notice and with or without cause, or the right to terminate therelationship of any Consultant pursuant to the terms of such Consultant’sagreement with the Company or any Affiliate or service as a Director pursuantto the Company’s Bylaws and the provisions of the corporate law of the state inwhich the Company is incorporated.

 

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(4) ****IncentiveStock Option $100,000 Limitation.** To the extent that the aggregate Fair Market Value (determined at thetime of grant) of stock with respect to which Incentive Stock Options areexercisable for the first time by any Participant during any calendar yearunder all plans of the Company and its Affiliates exceeds one hundred thousanddollars ($100,000), the Options or portions thereof which exceed such limit(according to the order in which they were granted) shall be treated asNonstatutory Stock Options.

 

(5) ****InvestmentAssurances.**  The Company mayrequire any person to whom a Stock Award is granted, or any person to whom aStock Award is transferred in accordance with the Plan, as a condition ofexercising or acquiring stock under any Stock Award, (1) to give writtenassurances satisfactory to the Company as to such person’s knowledge andexperience in financial and business matters and/or to employ a purchaserrepresentative reasonably satisfactory to the Company who is knowledgeable andexperienced in financial and business matters, and that he or she is capable ofevaluating, alone or together with the purchaser representative, the merits andrisks of exercising the Stock Award; and (2) to give written assurancessatisfactory to the Company stating that such person is acquiring the stocksubject to the Stock Award for such person’s own account and not with anypresent intention of selling or otherwise distributing the stock. The foregoingrequirements, and any assurances given pursuant to such requirements, shall beinoperative if (i) the issuance of the shares upon the exercise oracquisition of stock under the Stock Award has been registered under a thencurrently effective registration statement under the Securities Act, or (ii) asto any particular requirement, a determination is made by counsel for theCompany that such requirement need not be met in the circumstances under thethen applicable securities laws. The Company may, upon advice of counsel to theCompany, place legends on stock certificates issued under the Plan as suchcounsel deems necessary or appropriate in order to comply with applicablesecurities laws, including, but not limited to, legends restricting thetransfer of the stock.

 

(6) ****WithholdingObligations.**  To the extentprovided by the terms of a Stock Award Agreement, the Participant may satisfyany federal, state or local tax withholding obligation relating to the exerciseor acquisition of Common Stock under a Stock Award by any of the followingmeans (in addition to the Company’s right to withhold from any compensationpaid to such Participant by the Company) or by a combination of such means: (1) tenderinga cash payment; (2) authorizing the Company to withhold shares of CommonStock from the shares of the Common Stock otherwise issuable to the Participantas a result of the exercise or acquisition of Common Stock under the StockAward, provided that no shares of Common Stock are withheld with a valueexceeding the minimum amount of tax required to be withheld by law; or (3) deliveringto the Company owned and unencumbered shares of the Common Stock of theCompany.

 

**XIII.****      ****ADJUSTMENTSUPON CHANGES IN STOCK.**

 

(1) ****CapitalizationAdjustments.**  If any change ismade in the stock subject to the Plan, or subject to any Stock Award, withoutthe receipt of consideration by the Company (through merger, consolidation,reorganization, recapitalization, reincorporation, stock dividend, dividend inproperty other than cash, stock split, liquidating dividend, combination ofshares, exchange of shares, change in corporate structure or other transactionnot involving the receipt of consideration by the Company), the Plan will beappropriately adjusted in the class(es) and maximum number of securitiessubject to the Plan pursuant to Section 4(a), and the outstanding StockAwards will be appropriately adjusted in the class(es) and number of securitiesand price per share of stock subject to such outstanding Stock Awards. Suchadjustments shall be made by the Board, and its determination shall be final,binding and conclusive. (The conversion of any convertible securities of theCompany shall not be treated as a “transaction not involving the receipt ofconsideration by the Company”.)

 

(2) ****Dissolutionor Liquidation.**  In the eventof a dissolution or liquidation of the Company, then all outstanding StockAwards shall terminate immediately prior to such event.

 

(3) ****AssetSale, Merger, Consolidation or Reverse Merger.**  In the event of (i) a sale, lease orother disposition of all or substantially all of the assets of the Company, (ii) amerger or consolidation in which the Company is not the surviving corporationor (iii) a reverse merger in which the Company is the survivingcorporation but the shares of Common Stock outstanding immediately precedingthe merger are converted by virtue of the merger into other property, whetherin the form of securities, cash or otherwise, then any surviving corporation oracquiring corporation shall assume any Stock Awards outstanding under the Planor shall substitute similar stock awards (including an award to acquire thesame consideration paid to the shareholders in the transaction described inthis Section 11(c) for those outstanding under the Plan). In theevent any surviving corporation or acquiring corporation refuses to assume suchStock Awards or to substitute similar stock awards for those outstanding under thePlan, then with respect to Stock Awards held by Participants whose ContinuousService has not terminated, the vesting of such Stock Awards (and, ifapplicable, the time during which such Stock Awards may be exercised) shall beaccelerated in full, and the Stock Awards shall terminate if not exercised (ifapplicable) at or prior to such event. With respect to any other Stock Awardsoutstanding under the Plan, such Stock Award shall terminate if not exercised(if applicable) prior to such event.

 

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**XIV.****      ****AMENDMENT OF THE PLAN AND STOCKAWARDS.**

 

(1)           The Board at any time, andfrom time to time, may amend the Plan. However, except as provided in Section 12(a) relatingto adjustments upon changes in stock, no amendment shall be effective unlessapproved by the shareholders of the Company to the extent shareholder approvalis necessary for the Plan to satisfy the requirements of Section 422 ofthe Code.

 

(2)           The Board may in its solediscretion submit any other amendment to the Plan for shareholder approval.

 

(3)           It is expressly contemplatedthat the Board may amend the Plan in any respect the Board deems necessary oradvisable to provide eligible Participants with the maximum benefits providedor to be provided under the provisions of the Code and the regulationspromulgated thereunder relating to Incentive Stock Options and/or to bring thePlan and/or Incentive Stock Options granted under it into compliance therewith.

 

(4)           Rights under any Stock Awardgranted before amendment of the Plan shall not be impaired by any amendment ofthe Plan unless (i) the Company requests the consent of the person to whomthe Stock Award was granted and (ii) such person consents in writing.

 

(5)           The Board at any time, andfrom time to time, may amend the terms of any one or more Stock Awards;provided, however, that the rights under any Stock Award shall not be impairedby any such amendment unless (i) the Company requests the consent of theperson to whom the Stock Award was granted and (ii) such person consentsin writing.

 

**XV.****        ****TERMINATION OR SUSPENSION OFTHE PLAN.**

 

(1)           The Board may suspend orterminate the Plan at any time. Unless sooner terminated, the Plan shallterminate ten (10) years from the date the Plan is adopted by the Board orapproved by the shareholders of the Company, whichever is earlier. No StockAwards may be granted under the Plan while the Plan is suspended or after it isterminated. Notwithstanding the foregoing, all Incentive Stock Options shall begranted, if at all, no later than the last day preceding the tenth (10th)anniversary of the earlier of (i) the date on which the latest increase inthe maximum number of shares issuable under the Plan was approved by theshareholders of the Company or (ii) the date such amendment was adopted bythe Board.

 

(2)           Rights and obligations underany Stock Award granted while the Plan is in effect shall not be impaired bysuspension or termination of the Plan, except with the consent of the person towhom the Stock Award was granted.

 

**XVI.****      ****EFFECTIVE DATE OF PLAN.**

 

The Plan shall becomeeffective as determined by the Board, but no Stock Award shall be exercised,unless and until the Plan has been approved by the shareholders of the Company,which approval shall be within twelve (12) months before or after the datethe Plan was adopted by the Board.

 

**XVII.****    ****CHOICE OFLAW.**

 

The law of the State ofCalifornia shall govern all questions concerning the construction, validity andinterpretation of this Plan, without regard to such state’s conflict of lawsrules.

 

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