**EXHIBIT 10.7**

 

**TAPESTRY PHARMACEUTICALS, INC.**

**2006 EQUITYINCENTIVE****PLAN**

 

**STOCK OPTION AGREEMENT(INCENTIVE STOCK OPTION OR NONSTATUTORY STOCK OPTION)**

 

Pursuant to your Stock OptionGrant Notice (“Grant Notice”) and this Stock Option Agreement, Tapestry Pharmaceuticals, Inc.  (the “Company”) has granted you an option underits 2006 Equity Incentive Plan(the “Plan”) to purchase the number of shares of the Company’s Common Stockindicated in your Grant Notice at the exercise price indicated in your GrantNotice. Defined terms not explicitly defined in this Stock Option Agreement butdefined in the Plan shall have the same definitions as in the Plan.

 

The details of your option areas follows:

 

**1.             VESTING.**Subjectto the limitations contained herein, your option will vest as provided in yourGrant Notice, provided that vesting will cease upon the termination of yourContinuous Service.

 

**2.             NUMBER OF SHARES AND EXERCISE PRICE.**The number of shares of Common Stock subject to your optionand your exercise price per share referenced in your Grant Notice may beadjusted from time to time for Capitalization Adjustments.

 

**3.             EXERCISE PRIOR TO VESTING (“EARLYEXERCISE”).**If permitted in your Grant Notice (i.e., the “ExerciseSchedule” indicates that “Early Exercise” of your option is permitted) andsubject to the provisions of your option, you may elect at any time that isboth (i) during the period of your Continuous Service and (ii) during the termof your option, to exercise all or part of your option, including the nonvestedportion of your option; *provided, however,*that:

 

**(a)          **a partial exerciseof your option shall be deemed to cover first vested shares of Common Stock andthen the earliest vesting installment of unvested shares of Common Stock;

 

**(b)          **any shares of CommonStock so purchased from installments that have not vested as of the date ofexercise shall be subject to the purchase option in favor of the Company asdescribed in the Company’s form of Early Exercise Stock Purchase Agreement;

 

**(c)          **you shall enter intothe Company’s form of Early Exercise Stock Purchase Agreement with a vestingschedule that will result in the same vesting as if no early exercise hadoccurred; and

 

**(d)          **if your option isan Incentive Stock Option, then, to the extent that the aggregate Fair MarketValue (determined at the time of grant) of the shares of Common Stock withrespect to which your option plus all other Incentive Stock Options you holdare exercisable

 

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for the first time by you during any calendar year(under all plans of the Company and its Affiliates) exceeds one hundredthousand dollars ($100,000), your option(s) or portions thereof that exceedsuch limit (according to the order in which they were granted) shall be treatedas Nonstatutory Stock Options.

 

**4.             METHOD OF PAYMENT.**Paymentof the exercise price is due in full upon exercise of all or any part of youroption. You may elect to make payment of the exercise price in cash or by checkor in any other manner ***permitted by your GrantNotice,*** which may include one or more of the following:

 

**(a)          **In the Company’ssole discretion at the time your option is granted (or subsequently in the caseof a Nonstatutory Stock Option) and provided that at the time of exercise theCommon Stock is publicly traded and quoted regularly in *The WallStreet Journal*, pursuant to a program developed under Regulation Tas promulgated by the Federal Reserve Board that, prior to the issuance ofCommon Stock, results in either the receipt of cash (or check) by the Companyor the receipt of irrevocable instructions to pay the aggregate exercise priceto the Company from the sales proceeds.

 

**(b)          **In the Company’ssole discretion at the time your option is granted (or subsequently in the caseof a Nonstatutory Stock Option) and provided that at the time of exercise theCommon Stock is publicly traded and quoted regularly in *The WallStreet Journal*, by delivery of already-owned shares of Common Stockeither that you have held for the period required to avoid a charge to theCompany’s reported earnings (generally six (6) months) or that you did notacquire, directly or indirectly from the Company, that are owned free and clearof any liens, claims, encumbrances or security interests, and that are valuedat Fair Market Value on the date of exercise. “Delivery” for these purposes, inthe sole discretion of the Company at the time you exercise your option, shallinclude delivery to the Company of your attestation of ownership of such sharesof Common Stock in a form approved by the Company. Notwithstanding theforegoing, you may not exercise your option by tender to the Company of CommonStock to the extent such tender would violate the provisions of any law,regulation or agreement restricting the redemption of the Company’s stock.

 

**(c)          **In the Company’ssole discretion at the time your option is granted (or subsequently in the caseof a Nonstatutory Stock Option) and provided that at the time of exercise theCommon Stock is publicly traded and quoted regularly in *The WallStreet Journal*, through a “net exercise” of your option, pursuant towhich the Company will not require payment of the exercise price of your optionbut will reduce the number of shares of Common Stock issued to you upon theexercise by the largest number of whole shares that has a Fair Market Valuethat does not exceed the aggregate exercise price. With respect to anyremaining balance of the aggregate exercise price, you shall make a cashpayment to the Company. The shares of Common Stock so used to pay the exerciseprice of your option under a “net exercise” will be considered to have resultedfrom the exercise of the option, and accordingly, the option will not again beexercisable with respect to such shares, the shares actually delivered to you,and any shares withheld for purposes of tax withholding.

 

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**(d)          **In the Company’ssole discretion at the time your option is granted (or subsequently in the caseof a Nonstatutory Stock Option), pursuant to the following deferred paymentalternative:

 

**(i)           **Not less than onehundred percent (100%) of the aggregate exercise price, plus accrued interest,shall be due four (4) years from date of exercise or, at the Company’selection, upon termination of your Continuous Service.

 

**(ii)          **Interest shall becompounded at least annually and shall be charged at the minimum rate ofinterest necessary to avoid (1) the treatment as interest, under any applicableprovisions of the Code, of any amounts other than amounts stated to be interestunder the deferred payment arrangement and (2) the treatment of the Option as avariable award for financial accounting purposes.

 

**(iii)        **At any time that theCompany is incorporated in Delaware, payment of the Common Stock’s “par value,”as defined in the Delaware General Corporation Law, shall be made in cash andnot by deferred payment.

 

**(iv)         **In order to electthe deferred payment alternative, you must, as a part of your written notice ofexercise, give notice of the election of this payment alternative and, in orderto secure the payment of the deferred exercise price to the Company hereunder,if the Company so requests, you must tender to the Company a promissory noteand a pledge agreement covering the purchased shares of Common Stock, both inform and substance satisfactory to the Company, or such other or additionaldocumentation as the Company may request.

 

**5.             WHOLE SHARES.**Youmay exercise your option only for whole shares of Common Stock.

 

**6.             SECURITIES LAW COMPLIANCE.**Notwithstandinganything to the contrary contained herein, you may not exercise your optionunless the shares of Common Stock issuable upon such exercise are thenregistered under the Securities Act or, if such shares of Common Stock are notthen so registered, the Company has determined that such exercise and issuancewould be exempt from the registration requirements of the Securities Act. Theexercise of your option also must comply with other applicable laws andregulations governing your option, and you may not exercise your option if theCompany determines that such exercise would not be in material compliance withsuch laws and regulations.

 

**7.             TERM.**You may notexercise your option before the commencement or after the expiration of itsterm. The term of your option commences on the Date of Grant and expires uponthe earliest of the following:

 

**(a)           ****For Eligible Directors.******Inthe event that an Eligible Director’s Continuous Service terminates (other thanupon the Eligible Director’s removal for cause), the Eligible Director mayexercise his or her Option (to the extent that the Eligible Director wasentitled to exercise such Option as of the date of termination or with respectto such greater number of shares as determined by the Board) but only withinsuch period of time ending on the earlier of (i) the date three (3) yearsfollowing the termination of the Eligible Director’s

 

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Continuous Service (or such longer or shorter periodspecified in the Option Agreement) or (ii) the expiration of the term of theOption as set forth in the Option Agreement. If, after termination, theEligible Director does not exercise his or her Option within the time specifiedherein or in the Option Agreement (as applicable), the Option shall terminate. Inthe event that an Eligible Director’s Continuous Service terminates upon his orher removal for cause, all Options held by that Eligible Director shallimmediately terminate;

 

**(b)           For Others.**In theevent that an Optionholder’s Continuous Service terminates (other than upon theOptionholder’s death or Disability), the Optionholder may exercise his or herOption (to the extent that the Optionholder was entitled to exercise suchOption as of the date of termination) but only within such period of timeending on the earlier of (i) the expiration of the term of the Option as setforth in the Option Agreement or (ii) the date one hundred eighty (180) days(ninety (90) days in the case of Incentive Stock Options) following thetermination of the Optionholder’s Continuous Service (or such longer or shorterperiod specified in the Option Agreement). If, after termination of ContinuousService, the Optionholder does not exercise his or her Option within the timespecified herein or in the Option Agreement (as applicable), the Option shallterminate;

 

**(c)          **in accordance withthe provisions of Section 12 of the Plan; or

 

**(d)          **the day before thetenth (10th) anniversary of the Date of Grant (as defined in your Grant Notice).

 

If your option is an IncentiveStock Option, note that to obtain the federal income tax advantages associatedwith an Incentive Stock Option, the Code requires that at all times beginningon the date of grant of your option and ending on the day three (3) monthsbefore the date of your option’s exercise, you must be an employee of theCompany or an Affiliate, except in the event of your death or your permanentand total disability, as defined in Section 22(e) of the Code. (The definitionof disability in Section 22(e) of the Code is different from the definition ofthe Disability under the Plan). The Company has provided for extendedexercisability of your option under certain circumstances for your benefit butcannot guarantee that your option will necessarily be treated as an IncentiveStock Option if you continue to provide services to the Company or an Affiliateas a Consultant or Director after your employment terminates or if youotherwise exercise your option more than three (3) months after the date youremployment with the Company or an Affiliate terminates.

 

**8.             EXERCISE.**

 

**(a)          **You may exercisethe vested portion of your option (and the unvested portion of your option ifyour Grant Notice so permits) during its term by delivering a Notice ofExercise (in a form designated by the Company) together with the exercise priceto the Secretary of the Company, or to such other person as the Company maydesignate, during regular business hours, together with such additionaldocuments as the Company may then require.

 

**(b)          **By exercising youroption you agree that, as a condition to any exercise of your option, theCompany may require you to enter into an arrangement providing for the paymentby you to the Company of any tax withholding obligation of the Company arisingby

 

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reason of (1) the exercise of your option, (2) thelapse of any substantial risk of forfeiture to which the shares of Common Stockare subject at the time of exercise, or (3) the disposition of shares of CommonStock acquired upon such exercise.

 

**(c)          **If your option isan Incentive Stock Option, by exercising your option you agree that you willnotify the Company in writing within fifteen (15) days after the date of anydisposition of any of the shares of the Common Stock issued upon exercise ofyour option that occurs within two (2) years after the date of your optiongrant or within one (1) year after such shares of Common Stock are transferredupon exercise of your option.

 

**9.             TRANSFERABILITY.**Youroption is not transferable, except by will or by the laws of descent anddistribution, and is exercisable during your life only by you. Notwithstandingthe foregoing, by delivering written notice to the Company, in a formsatisfactory to the Company, you may designate a third party who, in the eventof your death, shall thereafter be entitled to exercise your option.

 

**10.          CHANGE IN CONTROL – ELIGIBLE DIRECTORS.**If a Change in Control occurs and an Eligible Director’sContinuous Service with the Company has not terminated as of, or immediatelyprior to, the effective time of the Change in Control, then, as of theeffective time of such Change in Control (and contingent upon the effectivenessof the Change in Control), the vesting and exercisability of the EligibleDirector’s Option shall be accelerated in full. In the event that an EligibleDirector is required to resign his or her position as a Non-Employee Directoras a condition of a Change in Control, the outstanding Options of such EligibleDirector shall become fully vested and exercisable immediately prior to theeffectiveness of such resignation (and contingent upon the effectiveness of theChange in Control).

 

**11.          OPTION NOT A SERVICE CONTRACT.**Youroption is not an employment or service contract, and nothing in your optionshall be deemed to create in any way whatsoever any obligation on your part tocontinue in the employ of the Company or an Affiliate, or of the Company or anAffiliate to continue your employment. In addition, nothing in your optionshall obligate the Company or an Affiliate, their respective stockholders,Boards of Directors, Officers or Employees to continue any relationship thatyou might have as a Director or Consultant for the Company or an Affiliate.

 

**12.          WITHHOLDING OBLIGATIONS.**

 

**(a)          **At the time youexercise your option, in whole or in part, or at any time thereafter asrequested by the Company, you hereby authorize withholding from payroll and anyother amounts payable to you, and otherwise agree to make adequate provisionfor (including by means of a “cashless exercise” pursuant to a programdeveloped under Regulation T as promulgated by the Federal Reserve Board to theextent permitted by the Company), any sums required to satisfy the federal,state, local and foreign tax withholding obligations of the Company or anAffiliate, if any, which arise in connection with the exercise of your option.

 

**(b)          **Upon your requestand subject to approval by the Company, in its sole discretion, and compliancewith any applicable legal conditions or restrictions, the Company may withholdfrom fully vested shares of Common Stock otherwise issuable to you upon the

 

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exercise of your option a number of whole shares ofCommon Stock having a Fair Market Value, determined by the Company as of thedate of exercise, not in excess of the minimum amount of tax required to bewithheld by law (or such lower amount as may be necessary to avoid variableaward accounting). If the date of determination of any tax withholdingobligation is deferred to a date later than the date of exercise of youroption, share withholding pursuant to the preceding sentence shall not bepermitted unless you make a proper and timely election under Section 83(b) ofthe Code, covering the aggregate number of shares of Common Stock acquired uponsuch exercise with respect to which such determination is otherwise deferred,to accelerate the determination of such tax withholding obligation to the dateof exercise of your option. Notwithstanding the filing of such election, sharesof Common Stock shall be withheld solely from fully vested shares of CommonStock determined as of the date of exercise of your option that are otherwiseissuable to you upon such exercise. Any adverse consequences to you arising inconnection with such share withholding procedure shall be your soleresponsibility.

 

**(c)          **You may notexercise your option unless the tax withholding obligations of the Companyand/or any Affiliate are satisfied. Accordingly, you may not be able toexercise your option when desired even though your option is vested, and theCompany shall have no obligation to issue a certificate for such shares ofCommon Stock or release such shares of Common Stock from any escrow providedfor herein unless such obligations are satisfied.

 

**13.          NOTICES.**Any noticesprovided for in your option or the Plan shall be given in writing and shall bedeemed effectively given upon receipt or, in the case of notices delivered bymail by the Company to you, five (5) days after deposit in the United Statesmail, postage prepaid, addressed to you at the last address you provided to theCompany.

 

**14.          GOVERNING PLAN DOCUMENT.**Youroption is subject to all the provisions of the Plan, the provisions of whichare hereby made a part of your option, and is further subject to allinterpretations, amendments, rules and regulations, which may from time to timebe promulgated and adopted pursuant to the Plan. In the event of any conflictbetween the provisions of your option and those of the Plan, the provisions ofthe Plan shall control.

 

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