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Exhibit 10.3  

 
 

EPOCRATES, INC.    
    
    1999 STOCK OPTION PLAN    
    

Adopted August 2, 1999

Approved By Shareholders August 2, 1999

Amended By Board of Directors August 1, 2000

Approved by Stockholders August 1, 2000

Amended by Board of Directors January 16, 2003

Amended by Board of Directors July 16, 2003

Approved by Stockholders January 15, 2004

Amended by Board of Directors June 28, 2004

Approved by Stockholders September 9, 2004

Amended by Board of Directors July 21, 2004

Approved by Stockholders September 9, 2004

Amended by Board of Directors July 20, 2005

Amended by Board of Directors November 29, 2005

Approved by Stockholders January 21, 2006

Amended by Board of Directors October 18, 2006

Amended by Board of Directors April 13, 2007

Amended by Board of Directors July 18, 2007

Amended by Stockholders October 15, 2007

Amended by Board of Directors January 31, 2008

Amended by Board of Directors March 19, 2008

Termination Date: August 2, 2009

1.    PURPOSES.    

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

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

        (c)    General Purpose.    The Company, by means of the Plan, seeks to
retain the services of the group of persons eligible to receive Options, to secure and retain the services of new members of this group and to provide incentives for such persons to exert maximum
efforts for the success of the Company and its Affiliates. 

2.    DEFINITIONS.    

        (a)   "Affiliate" means any parent corporation or subsidiary corporation of the
Company, whether now or hereafter existing, as those terms are defined in Sections 424(e) and (f), respectively, of the Code. 

        (b)   "Board" means the Board of Directors of the Company. 

        (c)   "Code" means the Internal Revenue Code of 1986, as amended. 

        (d)   "Committee" means a Committee appointed by the Board in accordance with
subsection 3(c). 

        (e)   "Common Stock" means the common stock of the Company. 

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        (f)    "Company" means Epocrates, Inc., a Delaware corporation. 

        (g)   "Consultant" means any person, including an advisor, (i) engaged
by the Company or an Affiliate to render consulting or advisory services and who is compensated for such services or (ii) who is a member of the Board of Directors of an Affiliate. However, the
term "Consultant" shall not include either Directors of the Company who are not compensated by the Company for their services as Directors or Directors of the Company who are merely paid a director's
fee by the Company for their services as Directors. 

        (h)   "Continuous Service" means that the Optionholder's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is not interrupted or terminated. The Optionholder's Continuous Service shall not be deemed to have terminated merely because
of a change in the capacity in which the Optionholder renders service to the Company or an Affiliate as an Employee, Consultant or Director or a change in the entity for which the Optionholder renders
such service, provided that there is no interruption or termination of the Optionholder's Continuous Service. For example, a change in status from an Employee of the Company to a Consultant of an
Affiliate or a Director of the Company will not constitute an interruption of Continuous Service. The Board or the chief executive officer of the Company, in that party's sole discretion, may
determine whether Continuous Service shall be considered interrupted in the case of any leave of absence approved by that party, including sick leave, military leave or any other personal leave. 

        (i)    "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 shareholders under the Exchange Act, as determined for purposes of
Section 162(m) of the Code. 

        (j)    "Director" means a member of the Board of Directors of the Company. 

        (k)   "Disability" means (i) before the Listing Date, the inability of a
person, in the opinion of a qualified physician acceptable to the Company, to perform the major duties of that person's position with the Company or an Affiliate of the Company because of the sickness
or injury of the person and (ii) after the Listing Date, the permanent and total disability of a person within the meaning of Section 22(e)(3) of the Code. 

        (l)    "Employee" means any person employed by the Company or an Affiliate. Mere
service as a Director or payment of a director's fee by the Company or an Affiliate shall not be sufficient to constitute "employment" by the Company or an Affiliate. 

        (m)  "Exchange Act" means the Securities Exchange Act of 1934, as amended. 

        (n)   "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 National Market or the Nasdaq
SmallCap 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 market
(or the exchange or market with the greatest volume of trading in the Common Stock) on the last market trading day prior to the day of determination, as reported in The Wall
Street Journal or such other source as the Board deems reliable. 

        (ii)   In the absence of such markets for the Common Stock, the Fair Market Value shall be determined in good faith by the
Board. 

        (iii)  Prior to the Listing Date, the value of the Common Stock shall be determined in a manner consistent with
Section 260.140.50 of Title 10 of the California Code of Regulations. 

        (o)   "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder. 

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        (p)   "Listing Date" means the first date upon which any security of the
Company is listed (or approved for listing) upon notice of issuance on any securities exchange or designated (or approved for designation) upon notice of issuance as a national market security on an
interdealer quotation system if such securities exchange or interdealer quotation system has been certified in accordance with the provisions of Section 25100(o) of the California Corporate
Securities Law of 1968. 

        (q)   "Non-Employee Director" means a Director of the Company who
either (i) is not a current Employee or Officer of the Company or its parent or a subsidiary, does not receive compensation (directly or indirectly) from the Company or its parent or a
subsidiary 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 as to which disclosure would
be required under Item 404(a) of Regulation S-K and is not engaged in a business relationship as to which disclosure would be required under Item 404(b) of
Regulation S-K; or (ii) is otherwise considered a "non-employee director" for purposes of Rule 16b-3. 

        (r)   "Nonstatutory Stock Option" means an Option not intended to qualify as an
Incentive Stock Option. 

        (s)   "Officer" means (i) before the Listing Date, any person designated
by the Company as an officer and (ii) on and after the Listing Date, 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. 

        (t)    "Option" means an Incentive Stock Option or a Nonstatutory Stock Option
granted pursuant to the Plan. 

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

        (v)   "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. 

        (w)  "Outside Director" means a Director of the Company 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" receiving compensation for prior services (other than benefits under a tax qualified pension plan), was not an officer of the Company or an
"affiliated corporation" at any time and is not currently receiving direct or indirect remuneration from the Company or an "affiliated corporation" for services 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. 

        (x)   "Plan" means this Epocrates, Inc. 1999 Stock Option Plan. 

        (y)   "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. 

        (z)   "Securities Act" means the Securities Act of 1933, as amended. 

        (aa) "Ten Percent Shareholder" means a person who owns (or is deemed to own
pursuant to Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any of its Affiliates. 

3.    ADMINISTRATION.    

        (a)    Administration by Board.    The Board shall administer the Plan
unless and until the Board delegates administration to a Committee, as provided in subsection 3(c). 

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        (b)    Powers of Board.    The Board shall have the power, subject to,
and within the limitations of, the express provisions of the Plan: 

        (i)    To determine from time to time which of the persons eligible under the Plan shall be granted Options; when and how each
Option shall be granted; what type of Option shall be granted; the provisions of each Option granted (which need not be identical), including the time or times when a person shall be permitted to
receive stock pursuant to an Option; and the number of shares with respect to which an Option shall be granted to each such person. 

        (ii)   To construe and interpret the Plan and 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 Plan or in any Option Agreement, in a manner and to the extent it
shall deem necessary or expedient to make the Plan fully effective. 

        (iii)  To amend the Plan or an Option as provided in Section 11. 

        (iv)  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 which are not in conflict with the provisions of the Plan. 

        (c)    Delegation to Committee.    

        (i)    General.    The Board may delegate administration of the Plan
to a Committee or Committees of one or more members of the Board, and the term "Committee" shall apply to any person or persons to whom such authority has been delegated. If administration is
delegated to a Committee, the Committee
shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, including the power to delegate to a subcommittee any of the administrative powers the
Committee is authorized to exercise (and references in this Plan to the Board shall thereafter be to the Committee or subcommittee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. 

        (ii)    Committee Composition when Common Stock is Publicly
Traded.    At such time as the Common Stock is publicly traded, in the discretion of the Board, a Committee may consist solely of two or more Outside Directors, in
accordance with Section 162(m) of the Code, and/or solely of two or more Non-Employee Directors, in accordance with Rule 16b-3. Within the scope of such
authority, the Board or the Committee may (i) delegate to a committee of one or more members of the Board who are not Outside Directors the authority to grant Options to eligible persons who
are either (1) not then Covered Employees and are not expected to be Covered Employees at the time of recognition of income resulting from such Option or (2) not persons with respect to
whom the Company wishes to comply with Section 162(m) of the Code and/or) (ii) delegate to a committee of one or more members of the Board who are not Non-Employee Directors
the authority to grant Options to eligible persons who are not then subject to Section 16 of the Exchange Act. 

4.    SHARES SUBJECT TO THE PLAN.    

        (a)    Share Reserve.    Subject to the provisions of
Section 10 relating to adjustments upon changes in stock, the stock that may be issued pursuant to Options shall not exceed in the aggregate twelve million one hundred seventy-nine thousand two
hundred eighty-five (12,179,285) shares of Common Stock. 

        (b)    Reversion of Shares to the Share Reserve.    If any Option
shall for any reason expire or otherwise terminate, in whole or in part, without having been exercised in full, the stock not acquired under such Option shall revert to and again become available for
issuance under the Plan. If any 

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Common
Stock acquired pursuant to the exercise of an Option shall for any reason be repurchased by the Company under an unvested share repurchase option provided under the Plan, the stock repurchased
by the Company under such repurchase option shall not revert to and again become available for issuance under the Plan. 

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

        (d)    Share Reserve Limitation.    Prior to the Listing Date, at no
time shall the total number of shares issuable upon exercise of all outstanding Options and the total number of shares provided for under
any stock bonus or similar plan of the Company exceed the applicable percentage as calculated in accordance with the conditions and exclusions of Section 260.140.45 of Title 10 of the
California Code of Regulations, based on the shares of the Company which are outstanding at the time the calculation is made. 

5.    ELIGIBILITY.    

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

        (b)    Ten Percent Shareholders.    No Ten Percent Shareholder shall
be eligible for the grant of 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 at the date of
grant and the Option is not exercisable after the expiration of five (5) years from the date of grant. 

        Prior
to the Listing Date, no Ten Percent Shareholder shall be eligible for the grant of a Nonstatutory 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 at the date of grant. 

        (c)    Section 162(m) Limitation.    Subject to the provisions
of Section 10 relating to adjustments upon changes in stock, no employee shall be eligible to be granted Options covering more than Five Hundred Thousand (500,000) shares of the Common Stock
during any calendar year. This subsection 5(c) shall not apply prior to the Listing Date and, following the Listing Date, this subsection 5(c) shall not apply until (i) the earliest of:
(1) the first material modification of the Plan (including any increase in the number of shares reserved for issuance under the Plan in accordance with Section 4); (2) the
issuance of all of the shares of Common Stock reserved for issuance under the Plan; (3) the expiration of the Plan; or (4) the first meeting of shareholders at which Directors of the
Company are to be elected that occurs after the close of the third calendar year following the calendar year in which occurred the first registration of an equity security under Section 12 of
the Exchange Act; or (ii) such other date required by Section 162(m) of the Code and the rules and regulations promulgated thereunder. 

6.    OPTION PROVISIONS.    

        Each
Option shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. All Options shall be separately designated Incentive Stock Options or
Nonstatutory Stock Options at the time of grant, and a separate certificate or certificates will be issued for shares purchased on exercise of each type of Option. The provisions of separate Options
need not be
identical, but each Option shall include (through incorporation of provisions hereof by reference in the Option or otherwise) the substance of each of the following provisions: 

        (a)    Term.    Subject to the provisions of subsection 5(b) regarding
Ten Percent Shareholders, no Option shall be exercisable after the expiration of ten (10) years from the date it was granted. 

        (b)    Exercise Price of an Incentive Stock Option.    Subject to the
provisions of subsection 5(b) regarding Ten Percent Shareholders, the exercise price of each Incentive Stock Option shall be not less 

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than
one hundred percent (100%) of the Fair Market Value of the stock subject to the Option on the date the Option is granted. Notwithstanding the foregoing, an Incentive Stock Option may be granted
with an exercise price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions
of Section 424(a) of the Code. 

        (c)    Exercise Price of a Nonstatutory Stock Option.    Subject to
the provisions of subsection 5(b) regarding Ten Percent Shareholders, the exercise price of each Nonstatutory Stock Option granted prior to the Listing Date shall be not less than
eighty-five percent (85%) of the Fair Market Value of the stock subject to the Option on the date the Option is granted. The exercise price of each Nonstatutory Stock Option granted on or
after the Listing Date shall be not less than eighty-five percent (85%) of the Fair Market Value of the stock subject to the Option on the date the Option is granted. Notwithstanding the
foregoing, a Nonstatutory Stock Option may be granted with an exercise price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution for
another option in a manner satisfying the provisions of Section 424(a) of the Code. 

        (d)    Consideration.    The purchase price of stock acquired pursuant
to an Option shall be paid, to the extent permitted by applicable statutes and regulations, either (i) in cash at the time the Option is exercised or (ii) at the discretion of the Board
at the time of the grant of the Option (or subsequently in the case of a Nonstatutory Stock Option) by (1) delivery to the Company of other Common Stock, (2) according to a deferred
payment or other arrangement (which may include, without limiting the generality of the foregoing, the use of other Common Stock) with the Optionholder or (3) in any other form of legal
consideration that may be acceptable to the Board; provided, however, that at any time that the Company is incorporated in Delaware, payment of the Common Stock's "par value," as defined in the
Delaware General Corporation Law, shall not be made by deferred payment. 

        In
the case of any deferred payment arrangement, interest shall be compounded at least annually and shall be charged at the minimum rate of interest necessary to avoid the treatment as
interest, under any applicable provisions of the Code, of any amounts other than amounts stated to be interest under the deferred payment arrangement. 

        (e)    Transferability of an Incentive Stock Option.    An Incentive
Stock Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Optionholder only by the Optionholder.
Notwithstanding the foregoing provisions of this subsection 6(e), the Optionholder may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who,
in the event of the death of the Optionholder, shall thereafter be entitled to exercise the Option. 

        (f)    Transferability of a Nonstatutory Stock Option.    A
Nonstatutory Stock Option granted prior to the Listing Date shall not be transferable except (i) by will, (ii) by the laws of descent and distribution, and (iii) if provided for
in the Option Agreement, then to the extent permitted by Section 260.140.41(d) of Title 10 of the California Code of Regulations at the time of the grant of the Option, and shall be exercisable
during the lifetime of the Optionholder only by the Optionholder. A Nonstatutory Stock Option granted on or after the Listing Date shall be transferable to the extent provided in the Option Agreement.
If the Nonstatutory Stock Option does not provide for transferability, then the Nonstatutory Stock Option shall not be transferable except by will or by the laws of descent and distribution and shall
be exercisable during the lifetime of the Optionholder only by the Optionholder. Notwithstanding the foregoing provisions of this subsection 6(f), the Optionholder may, by delivering written notice to
the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionholder, shall thereafter be entitled to exercise the Option. 

        (g)    Vesting Generally.    The total number of shares of Common
Stock subject to an Option may, but need not, vest and therefore become exercisable in periodic installments which may, but need not, 

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be
equal. The Option may be subject to such other terms and conditions on the time or times when it may be exercised (which may be based on performance or other criteria) as the Board may deem
appropriate. The vesting provisions of individual Options may vary. The provisions of this subsection 6(g) are subject to any Option provisions governing the minimum number of shares as to which an
Option may be exercised. 

        (h)    Minimum Vesting Prior to the Listing Date.    Notwithstanding
the foregoing subsection 6(g), Options granted prior to the Listing Date shall provide for vesting of the total number of shares at a rate of at least twenty percent (20%) per year over five
(5) years from the date the Option was granted, subject to reasonable conditions such as continued employment. However, in the case of such Options granted to Officers, Directors or
Consultants, the Option may become fully exercisable, subject to reasonable conditions such as continued employment, at any time or during any period established by the Company; for example, the
vesting provision of the Option may provide for vesting of less than twenty percent (20%) per year of the total number of shares subject to the Option. 

        (i)    Termination of Continuous Service.    In the event an
Optionholder's Continuous Service terminates (other than upon the Optionholder's death or Disability), the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled
to exercise it as of the date of termination) but only within such period of time ending on the earlier of (i) the date three (3) months following the
termination of the Optionholder's Continuous Service (or such longer or shorter period specified in the Option Agreement, which, for Options granted prior to the Listing Date, shall not be less than
thirty (30) days, unless such termination is for cause), or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionholder
does not exercise his or her Option within the time specified in the Option Agreement, the Option shall terminate. 

        (j)    Extension of Termination Date.    An Optionholder's Option
Agreement may also provide that if the exercise of the Option following the termination of the Optionholder's Continuous Service (other than upon the Optionholder's death or Disability) would be
prohibited at any time solely because the issuance of shares would violate the registration requirements under the Securities Act, then the Option shall terminate on the earlier of (i) the
expiration of the term of the Option set forth in subsection 6(a) or (ii) the expiration of a period of three (3) months after the termination of the Optionholder's Continuous Service
during which the exercise of the Option would not be in violation of such registration requirements. 

        (k)    Disability of Optionholder.    In the event 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 it as of the
date of termination), but only within such period of time ending on the earlier of (i) the date twelve (12) months following such termination (or such longer or shorter period specified
in the Option Agreement, which, for Options granted prior to the Listing Date, shall not be less than six (6) months) or (ii) the expiration of the term of the Option as set forth in the
Option Agreement. If, after termination, the Optionholder does not exercise his or her Option within the time specified herein, the Option shall terminate. 

        (l)    Death of Optionholder.    In the event (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 the Option as of the date
of death) by the Optionholder's estate, by a person who acquired the right to exercise the Option by bequest or inheritance or by a person designated to exercise the option upon the Optionholder's
death pursuant to subsection 6(e) or 6(f), but only within the period ending on the earlier of (1) the date eighteen (18) months following the date of death (or such longer or shorter
period specified in the Option Agreement, which, for Options granted prior to the Listing Date, shall not be less than six (6) months) or (2) the expiration of the term of such Option as
set forth in 

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the
Option Agreement. If, after death, the Option is not exercised within the time specified herein, the Option shall terminate. 

        (m)    Early Exercise.    The Option may, but need not, include a
provision whereby the Optionholder may elect at any time before the Optionholder's Continuous Service terminates to exercise the Option as to any part or all of the shares subject to the Option prior
to the full vesting of the Option. Subject to the "Repurchase Limitation" in subsection 9(h), any unvested shares so purchased may be subject to an
unvested share repurchase option in favor of the Company or to any other restriction the Board determines to be appropriate. 

        (n)    Right of Repurchase.    Subject to the "Repurchase Limitation"
in subsection 9(h), the Option may, but need not, include a provision whereby the Company may elect, prior to the Listing Date, to repurchase all or any part of the vested shares acquired by the
Optionholder pursuant to the exercise of the Option. 

        (o)    Right of First Refusal.    The Option may, but need not,
include a provision whereby the Company may elect, prior to the Listing Date, to exercise a right of first refusal following receipt of notice from the Optionholder of the intent to transfer all or
any part of the shares exercised pursuant to the Option. Except as expressly provided in this subsection 6(o), such right of first refusal shall otherwise comply with any applicable provisions of the
Bylaws of the Company. 

        (p)    Re-Load Options.    Without in any way limiting the
authority of the Board to make or not to make grants of Options hereunder, the Board shall have the authority (but not an obligation) to include as part of any Option Agreement a provision entitling
the Optionholder to a further Option (a "Re-Load Option") in the event the Optionholder exercises the Option evidenced by the Option Agreement, in whole or in part, by surrendering other
shares of Common Stock in accordance with this Plan and the terms and conditions of the Option Agreement. Any such Re-Load Option shall (i) provide for a number of shares equal to
the number of shares surrendered as part or all of the exercise price of such Option; (ii) have an expiration date which is the same as the expiration date of the Option the exercise of which
gave rise to such Re-Load Option; and (iii) have an exercise price which is equal to one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the
Re-Load Option on the date of exercise of the original Option. Notwithstanding the foregoing, a Re-Load Option shall be subject to the same exercise price and term provisions
heretofore described for Options under the Plan. 

        Any
such Re-Load Option may be an Incentive Stock Option or a Nonstatutory Stock Option, as the Board may designate at the time of the grant of the original Option; provided,
however, that the designation of any Re-Load Option as an Incentive Stock Option shall be subject to the one hundred thousand dollars ($100,000) annual limitation on exercisability of
Incentive Stock Options described in subsection 9(d) and in Section 422(d) of the Code. There shall be no Re-Load Options on a Re-Load Option. Any such
Re-Load Option shall be subject to the availability of sufficient shares under subsection 4(a) and the "Section 162(m) Limitation" on the grants of Options under subsection 5(c) and
shall be subject to such other terms and conditions as the Board may determine which are not inconsistent with the express provisions of the Plan regarding the terms of Options. 

7.    COVENANTS OF THE COMPANY.    

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

        (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 Options and to issue and sell shares of Common Stock upon exercise of the
Options; provided, however, that this undertaking shall not require the Company to register under the Securities Act the Plan, any Option or any stock issued or issuable pursuant to any such Option.
If, after reasonable 

8

 

efforts,
the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of stock under the
Plan, the Company shall be relieved from any liability for failure to issue and sell stock upon exercise of such Options unless and until such authority is obtained. 

8.    USE OF PROCEEDS FROM STOCK.    

        Proceeds
from the sale of stock pursuant to Options shall constitute general funds of the Company. 

9.    MISCELLANEOUS.    

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

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

        (c)    No Employment or other Service Rights.    Nothing in the Plan
or any instrument executed or Option granted pursuant thereto shall confer upon any Optionholder any right to continue to serve the Company or an Affiliate in the capacity in effect at the time the
Option 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. 

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

        (e)    Investment Assurances.    The Company may require an
Optionholder, as a condition of exercising or acquiring stock under any Option, (i) to give written assurances satisfactory to the Company as to the Optionholder'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 Option; and (ii) to give written assurances satisfactory to the Company
stating that the Optionholder is acquiring the stock subject to the Option for the Optionholder's own account and not with any present intention of selling or otherwise distributing the stock. The
foregoing requirements, and any assurances given pursuant to such requirements, shall be inoperative if (iii) the issuance of the shares upon the exercise or acquisition of stock under the
Option has been registered under a then currently effective registration statement under the Securities Act or (iv) 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 stock. 

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        (f)    Withholding Obligations.    To the extent provided by the terms
of an Option Agreement, the Optionholder may satisfy any federal, state or local tax withholding obligation relating to the exercise or acquisition of stock under an Option by any of the following
means (in addition to the Company's right to withhold from any compensation paid to the Optionholder by the Company) or by a combination of such means: (i) tendering a cash payment;
(ii) authorizing the Company to withhold shares from the shares of the Common Stock otherwise issuable to the Optionholder as a result of the exercise or acquisition of stock under the Option;
or (iii) delivering to the Company owned and unencumbered shares of the Common Stock. 

        (g)    Information Obligation.    Prior to the Listing Date, to the
extent required by Section 260.140.46 of Title 10 of the California Code of Regulations, the Company shall deliver financial statements to Optionholders at least annually. This subsection 9(g)
shall not apply to key Employees whose duties in connection with the Company assure them access to equivalent information. 

        (h)    Repurchase Limitation.    The terms of any repurchase option
shall be specified in the Option and may be either at Fair Market Value at the time of repurchase or at not less than the original purchase price. To the extent required by Section 260.140.41
and Section 260.140.42 of Title 10 of the California Code of Regulations, any repurchase option contained in an Option granted prior to the Listing Date to a person who is not an Officer,
Director or Consultant shall be upon the terms described below: 

        (i)    Fair Market Value.    If the repurchase option gives the
Company the right to repurchase the shares upon termination of employment at not less than the Fair Market Value of the shares to be purchased on the date of termination of Continuous Service, then
(i) the right to repurchase shall be exercised for cash or cancellation of purchase money indebtedness for the shares within ninety (90) days of termination of Continuous Service (or in
the case of shares issued upon exercise of Options after such date of termination, within ninety (90) days after the date of the exercise) or such longer period as may be agreed to by the
Company and the Optionholder (for example, for purposes of satisfying the requirements of Section 1202(c)(3) of the Code regarding "qualified small business stock") and (ii) the right
terminates when the shares become publicly traded. 

        (ii)    Original Purchase Price.    If the repurchase option gives the
Company the right to repurchase the shares upon termination of Continuous Service at the original purchase price, then (i) the right to repurchase at the original purchase price shall lapse at
the rate of at least twenty percent (20%) of the shares per year over five (5) years from the date the Option is granted (without respect to the date the Option was exercised or became
exercisable) and (ii) the right to repurchase shall be exercised for cash or cancellation of purchase money indebtedness for the shares within ninety (90) days of termination of
Continuous Service (or in the case of shares issued upon exercise of Options after such date of termination, within ninety (90) days after the date of the exercise) or such longer period as may
be agreed to by the Company and the Optionholder (for example, for purposes of satisfying the requirements of Section 1202(c)(3) of the Code regarding "qualified small business stock"). 

10.    ADJUSTMENTS UPON CHANGES IN STOCK.    

        (a)    Capitalization Adjustments.    If any change is made in the
stock subject to the Plan, or subject to any Option, 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), the Board shall appropriately and proportionately adjust: (i) the class(es) and maximum number of securities subject to the Plan pursuant to subsection
4(a), (ii) the maximum number of securities subject to award to any person pursuant to subsection 5(c), and (iii) the class(es) and number of 

10

 

securities
and price per share of stock subject to the outstanding Options. The Board shall make such adjustments, and its determination shall be final, binding and conclusive. (The conversion of any
convertible securities of the Company shall not be treated as a transaction "without the receipt of consideration" by the Company.) 

        (b)    Change in Control—Dissolution or Liquidation.    In
the event of a dissolution or liquidation of the Company, then such Options shall be terminated if not exercised (if applicable) prior to such event. 

        (c)    Change in Control—Asset Sale, Merger, Consolidation or Reverse
Merger.    In the event of (i) a sale of substantially all of the assets of the Company, (ii) a merger or consolidation in which the Company is not the
surviving corporation or (iii) a reverse merger in which the Company is the surviving corporation but the shares of Common Stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities, cash or otherwise, then any surviving corporation or acquiring corporation shall assume any Options outstanding under the
Plan or shall substitute similar Options (including an option to acquire the same consideration paid to the shareholders in the transaction described in this subsection 10(c) for those outstanding
under the Plan. In the event any surviving corporation or acquiring corporation refuses to assume such Options or to substitute similar Options for those outstanding under the Plan, then with respect
to Options held by Optionholders whose Continuous Service has not terminated, the vesting of such Options shall be accelerated in full, and the Options shall terminate if not exercised at or prior to
such event. With respect to any other Options outstanding under the Plan, such Options shall terminate if not exercised prior to such event. 

11.    AMENDMENT OF THE PLAN AND OPTIONS.    

        (a)    Amendment of Plan.    The Board at any time, and from time to
time, may amend the Plan. However, except as provided in Section 10 relating to adjustments upon changes in stock, no amendment shall be effective unless approved by the shareholders of the
Company to the extent shareholder approval is necessary to satisfy the requirements of Section 422 of the Code, Rule 16b-3 or any Nasdaq or securities exchange listing
requirements. 

        (b)    Shareholder Approval.    The Board may, in its sole discretion,
submit any other amendment to the Plan for shareholder approval, including, but not limited to, amendments to the Plan intended to satisfy the requirements of 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 certain executive officers. 

        (c)    Contemplated Amendments.    It is expressly contemplated that
the Board may amend the Plan in any respect the Board deems necessary or advisable to provide eligible Employees with the maximum benefits provided or to be provided under the provisions of the Code
and the regulations promulgated thereunder relating to Incentive Stock Options and/or to bring the Plan and/or Incentive Stock Options granted under it into compliance therewith. 

        (d)    No Impairment of Rights.    Rights under any Option 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 Optionholder and (ii) the Optionholder consents in
writing. 

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

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12.    TERMINATION OR SUSPENSION OF THE PLAN.    

        (a)    Plan Term.    The Board may suspend or terminate the Plan at
any time. Unless sooner terminated, the Plan shall terminate on the day before the tenth (10th) anniversary of the date the Plan is adopted by the Board or approved by the shareholders of the Company,
whichever is earlier. No Options 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 Option granted while the Plan is in effect except with the written consent of the Optionholder. 

13.    EFFECTIVE DATE OF PLAN.    

        The
Plan shall become effective as determined by the Board, but no Option 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 date the Plan is adopted by the Board. 

12

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Exhibit 10.4  

 
 

EPOCRATES, INC.
  1999 STOCK OPTION PLAN    
    
    OPTION AGREEMENT
  (INCENTIVE STOCK OPTION OR NONSTATUTORY STOCK OPTION)

        Pursuant
to your Stock Option Grant Notice ("Grant Notice") and this Option Agreement,  EPOCRATES, INC. (the "Company") has granted you an option under its 1999 Stock Option Plan (the
"Plan") to purchase the number of shares of the Company's Common Stock indicated in your Grant Notice at the exercise price indicated in your Grant
Notice. Defined terms not explicitly defined in this Option Agreement but defined in the Plan shall have the same definitions as in the Plan. 

        The
details of your option are as follows: 

        1.    VESTING.    Subject to the limitations contained herein, your
option will vest as provided in your Grant Notice, provided that vesting will cease upon the termination of your Continuous Service. 

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

        3.    EXERCISE RESTRICTION FOR NON-EXEMPT EMPLOYEES.    In
the event that you are an Employee eligible for overtime compensation under the Fair Labor Standards Act of 1938, as amended (i.e., a
"Non-Exempt Employee"), you may not exercise your option until you have
completed at least six (6) months of Continuous Service measured from the Date of Grant specified in your Grant Notice, notwithstanding any other provision of your option. 

        4.    EXERCISE PRIOR TO VESTING ("EARLY EXERCISE").    If permitted in
your Grant Notice (i.e., the "Exercise Schedule" indicates "Early Exercise Permitted") and subject to the provisions of your option, you may elect at
any time that is both (i) during the period of your Continuous Service and (ii) during the term of your option, to exercise all or part of your option, including the nonvested portion of
your option; provided, however, that: 

        (a)   a partial exercise of your option shall be deemed to cover first vested shares of Common Stock and then the earliest
vesting installment of unvested shares of Common Stock; 

        (b)   any shares of Common Stock so purchased from installments that have not vested as of the date of exercise shall be
subject to the purchase option in favor of the Company as described in the Company's form of Early Exercise Stock Purchase Agreement; 

        (c)   you shall enter into the Company's form of Early Exercise Stock Purchase Agreement with a vesting schedule that will
result in the same vesting as if no early exercise had occurred; and 

        (d)   if your option is an Incentive Stock Option, then, to the extent that the aggregate Fair Market Value (determined at the
time of grant) of the shares of Common Stock with respect to which your option plus all other Incentive Stock Options you hold are exercisable for the first time by you during any calendar year (under
all plans of the Company and its Affiliates) exceeds one hundred thousand dollars ($100,000), your option(s) or portions thereof that exceed such limit (according to the order in which they were
granted) shall be treated as Nonstatutory Stock Options. 

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        5.    METHOD OF PAYMENT.    Payment of the exercise price is due in
full upon exercise of all or any part of your option. You may elect to make payment of the exercise price in cash or by check or in any other manner permitted by your Grant
Notice, which may include one or more of the following: 

        (a)   Provided that at the time of exercise the Common Stock is publicly traded and quoted regularly in  The Wall Street Journal, pursuant to a program
developed under Regulation T as promulgated by the Federal Reserve Board that, prior to the
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 aggregate exercise price to the Company from the sales proceeds. 

        (b)   Provided that at the time of exercise the Common Stock is publicly traded and quoted regularly in  The Wall Street Journal, by delivery to the
Company (either by actual delivery or attestation) of already-owned shares of Common Stock that are owned
free and clear of any liens, claims, encumbrances or security interests, and that are valued at Fair Market Value on the date of exercise. Notwithstanding the foregoing, you may not exercise your
option by tender to the Company of Common Stock to the extent such tender would violate the provisions of any law, regulation or agreement restricting the redemption of the Company's stock. 

        6.    WHOLE SHARES.    You may exercise your option only for whole
shares of Common Stock. 

        7.    SECURITIES LAW COMPLIANCE.    Notwithstanding anything to the
contrary contained herein, you may not exercise your option unless the shares of Common Stock issuable upon such exercise are then registered under the Securities Act or, if such shares of Common
Stock are not then so registered, the Company has determined that such exercise and issuance would be exempt from the registration requirements of the Securities Act. The exercise of your option also
must comply with other applicable laws and regulations governing your option, and you may not exercise your option if the Company determines that such exercise would not be in material compliance with
such laws and regulations. 

        8.    TERM.    You may not exercise your option before the
commencement or after the expiration of its term. The term of your option commences on the Date of Grant and expires upon the earliest of the following: 

        (a)   three (3) months after the termination of your Continuous Service for any reason other than your Disability or
death, provided that if during any part of such three (3) month period your option is not exercisable solely because of the condition set forth in the section above relating to "Securities Law
Compliance," your option shall not expire until the earlier of the Expiration Date or until it shall have been exercisable for an aggregate period of three (3) months after the termination of
your Continuous Service; 

        (b)   twelve (12) months after the termination of your Continuous Service due to your Disability; 

        (c)   eighteen (18) months after your death if you die either during your Continuous Service or within three
(3) months after your Continuous Service terminates; 

        (d)   the Expiration Date indicated in your Grant Notice; or 

        (e)   the day before the tenth (10th) anniversary of the Date of Grant. 

        If
your option is an Incentive Stock Option, note that to obtain the federal income tax advantages associated with an Incentive Stock Option, the Code requires that at all times
beginning on the date of grant of your option and ending on the day three (3) months before the date of your option's exercise, you must be an employee of the Company or an Affiliate, except in
the event of your death or your permanent and total disability, as defined in Section 22(e)(3) of the Code. (The definition of disability in Section 22(e)(3) of the Code is different
from the definition of the Disability under the Plan). The Company has provided for extended exercisability of your option under certain circumstances for your 

2

 

benefit
but cannot guarantee that your option will necessarily be treated as an Incentive Stock Option if you continue to provide services to the Company or an Affiliate as a Consultant or Director
after your employment terminates or if you otherwise exercise your option more than three (3) months after the date your employment with the Company or an Affiliate terminates. 

        9.    EXERCISE.    

        (a)   You may exercise the vested portion of your option (and the unvested portion of your option if your Grant Notice so
permits) during its term by delivering a Notice of Exercise (in a form designated by the Company) together with the exercise price to the Secretary of the Company, or to such other person as the
Company may designate, during regular business hours, together with such additional documents as the Company may then require. 

        (b)   By exercising your option you agree that, as a condition to any exercise of your option, the Company may require you to
enter into an arrangement providing for the payment by you to the Company of any tax withholding obligation of the Company arising by reason of (1) the exercise of your option, (2) the
lapse of any substantial risk of forfeiture to which the shares of Common Stock are subject at the time of exercise, or (3) the disposition of shares of Common Stock acquired upon such
exercise. 

        (c)   If your option is an Incentive Stock Option, by exercising your option you agree that you will notify the Company in
writing within fifteen (15) days after the date of any disposition of any of the shares of the Common Stock issued upon exercise of your option that occurs within two (2) years after the
date of your option grant or within one (1) year after such shares of Common Stock are transferred upon exercise of your option. 

        (d)   By exercising your option you agree that you shall not sell, dispose of, transfer, make any short sale of, grant any
option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, any shares of Common Stock or other securities of the Company held by you, for a
period of one hundred eighty (180) days following the effective date of a registration statement of the Company filed under the Securities Act or such longer period as necessary to permit
compliance with NASD Rule 2711 and similar or successor regulatory rules and regulations (the "Lock-Up Period");  provided, however, that
nothing contained in this section shall prevent the exercise of a repurchase option, if any, in favor of the Company during the
Lock-Up Period. You further agree to execute and deliver such other agreements as may be reasonably requested by the Company and/or the underwriter(s) that are consistent with the
foregoing or that are necessary to give further effect thereto. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to your shares of
Common Stock until the end of such period. The underwriters of the Company's stock are intended third party beneficiaries of this Section 9(d) and shall have the right, power and authority to
enforce the provisions hereof as though they were a party hereto. 

        10.    TRANSFERABILITY.    Your option is not transferable, except by
will or by the laws of descent and distribution, and is exercisable during your life only by you. Notwithstanding the foregoing, by delivering written notice to the Company, in a form satisfactory to
the Company, you may designate a third party who, in the event of your death, shall thereafter be entitled to exercise your option. In addition, if permitted by the Company you may transfer your
option to a trust if you are considered to be the sole beneficial owner (determined under Section 671 of the Code and applicable state law) while the option is held in the trust, provided that
you and the trustee enter into a transfer and other agreements required by the Company. 

        11.    RIGHT OF FIRST REFUSAL.    Shares of Common Stock that you
acquire upon exercise of your option are subject to any right of first refusal that may be described in the Company's bylaws in effect at such time the Company elects to exercise its right;  provided, however, that if your option is an 

3

 

Incentive
Stock Option and the right of first refusal described in the Company's bylaws in effect at the time the Company elects to exercise its right is more beneficial to you than the right of first
refusal described in the Company's bylaws on the Date of Grant, then the right of first refusal described in the Company's bylaws on the Date of Grant shall apply. The Company's right of first refusal
shall expire on the first date upon which any security of the Company is listed (or approved for listing) upon notice of issuance on a national securities exchange or quotation system. 

        12.    RIGHT OF REPURCHASE.    To the extent provided in the Company's
bylaws in effect at such time the Company elects to exercise its right, the Company shall have the right to repurchase all or any part of the shares of Common Stock you acquire pursuant to the
exercise of your option. 

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

        14.    WITHHOLDING OBLIGATIONS.    

        (a)   At the time you exercise your option, in whole or in part, or at any time thereafter as requested by the Company, you
hereby authorize withholding from payroll and any other amounts payable to you, and otherwise agree to make adequate provision for (including by means of a "cashless exercise" pursuant to a program
developed under Regulation T as promulgated by the Federal Reserve Board to the extent permitted by the Company), any sums required to satisfy the federal, state, local and foreign tax
withholding obligations of the Company or an Affiliate, if any, which arise in connection with the exercise of your option. 

        (b)   Upon your request and subject to approval by the Company, in its sole discretion, and compliance with any applicable
legal conditions or restrictions, the Company may withhold from fully vested shares of Common Stock otherwise issuable to you upon the exercise of your option a number of whole shares of Common Stock
having a Fair Market Value, determined by the Company as of the date of exercise, not in excess of the minimum amount of tax required to be withheld by law (or such lower amount as may be necessary to
avoid classification of your option as a liability for financial accounting purposes). If the date of determination of any tax withholding obligation is deferred to a date later than the date of
exercise of your option, share withholding pursuant to the preceding sentence shall not be permitted unless you make a proper and timely election under Section 83(b) of the Code, covering the
aggregate number of shares of Common Stock acquired upon such exercise with respect to which such determination is otherwise deferred, to accelerate the determination of such tax withholding
obligation to the date of exercise of your option. Notwithstanding the filing of such election, shares of Common Stock shall be withheld solely from fully vested shares of Common Stock determined as
of the date of exercise of your option that are otherwise issuable to you upon such exercise. Any adverse consequences to you arising in connection with such share withholding procedure shall be your
sole responsibility. 

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

        15.    NOTICES.    Any notices provided for in your option or the Plan
shall be given in writing and shall be deemed effectively given upon receipt or, in the case of notices delivered by mail by the 

4

 

Company
to you, five (5) days after deposit in the United States mail, postage prepaid, addressed to you at the last address you provided to the Company. 

        16.    GOVERNING PLAN DOCUMENT.    Your option is subject to all the
provisions of the Plan, the provisions of which are hereby made a part of your option, and is further subject to all interpretations, amendments, rules and regulations, which may from time to time be
promulgated and adopted pursuant to the Plan. In the event of any conflict between the provisions of your option and those of the Plan, the provisions of the Plan shall control. 

5

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EPOCRATES, INC. 1999 STOCK OPTION PLAN OPTION AGREEMENT (INCENTIVE STOCK OPTION OR NONSTATUTORY STOCK OPTION)

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