Document:

Exhibit 10.11

 

QUARK BIOTECH, INC.

fka EXPRESSION SYSTEMS, INC.

 

1997 STOCK PLAN

(Amended as of July 20, 2000)

 

1.             Purposes of the
Plan. The purposes of this Stock Plan are to attract and retain the best
available personnel for positions of substantial responsibility, to provide
additional incentive to Employees, Directors and Consultants and to promote the
success of the Company’s business. Options granted under the Plan may be
Incentive Stock Options or Nonstatutory Stock Options, as determined by the Administrator
at the time of grant. Stock Purchase Rights may also be granted under the Plan.

 

2.             Definitions. As
used herein, the following definitions shall apply:

 

(a)           “Administrator”
means the Board or any of its Committees as shall be administering the Plan in
accordance with Section 4 hereof.

 

(b)           “Applicable Laws”
means the requirements relating to the administration of stock option plans
under U.S. state corporate laws, U.S. federal and state securities laws, the
Code, any stock exchange or quotation system on which the Common Stock is
listed or quoted and the applicable laws of any other country or jurisdiction
where Options or Stock Purchase Rights are granted under the Plan.

 

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

 

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

 

(e)           “Committee”
means a committee of Directors appointed by the Board in accordance with
Section 4 hereof.

 

(f)            “Common Stock”
means the Common Stock of the Company.

 

(g)           “Company” means
Quark Biotech, Inc., fka Expression Systems, Inc., a California corporation.

 

(h)           “Consultant”
means any person who is engaged by the Company or any Parent or Subsidiary to
render consulting or advisory services to such entity.

 

(i)            “Director”
means a member of the Board of Directors of the Company.

 

(j)            “Disability”
means total and permanent disability as defined in Section 22(e)(3) of the
Code.

 

(k)           “Employee” means
any person, including Officers and Directors, employed by the Company or any
Parent or Subsidiary of the Company. A Service Provider shall not cease to be
an Employee in the case of (i) any leave of absence approved by the Company or
(ii) transfers between locations of the Company or between the Company, its 

 

 

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Parent, any Subsidiary, or any successor. For purposes
of Incentive Stock Options, no such leave may exceed ninety days, unless
reemployment upon expiration of such leave is guaranteed by statute or contract.
If reemployment upon expiration of a leave of absence approved by the Company
is not so guaranteed, on the 181st day of such leave any Incentive Stock Option
held by the Optionee shall cease to be treated as an Incentive Stock Option and
shall be treated for tax purposes as a Nonstatutory Stock Option. Neither
service as a Director nor payment of a director’s fee by the Company shall be
sufficient to constitute “employment” by the Company.

 

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

 

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

 

(i)            If the Common Stock is
listed on any established stock exchange or a national market system, including
without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of
The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price
for such stock (or the closing bid, if no sales were reported) as quoted on
such exchange or system for the last market trading day prior to the time of
determination, as reported in The Wall Street Journal
or such other source as the Administrator deems reliable;

 

(ii)           If the Common Stock is
regularly quoted by a recognized securities dealer but selling prices are not
reported, its Fair Market Value shall be the mean between the high bid and low
asked prices for the Common Stock on the last market trading day prior to the
day of determination; or

 

(iii)          In the absence of an
established market for the Common Stock, the Fair Market Value thereof shall be
determined in good faith by the Administrator.

 

(n)           “Incentive Stock
Option” means an Option intended to qualify as an incentive stock option
within the meaning of Section 422 of the Code.

 

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

 

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

 

(q)           “Option” means a
stock option granted pursuant to the Plan.

 

(r)            “Option Agreement”
means a written or electronic agreement between the Company and an Optionee
evidencing the terms and conditions of an individual Option grant. The Option
Agreement is subject to the terms and conditions of the Plan.

 

(s)           “Option Exchange
Program” means a program whereby outstanding Options are exchanged for
Options with a lower exercise price.

 

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(t)            “Optioned Stock”
means the Common Stock subject to an Option or a Stock Purchase Right.

 

(u)           “Optionee” means
the holder of an outstanding Option or Stock Purchase Right granted under the
Plan.

 

(v)           “Parent” means a
“parent corporation,” whether now or hereafter existing, as defined in Section
424(e) of the Code.

 

(w)          “Plan” means this
1997 Stock Plan.

 

(x)            “Restricted Stock”
means shares of Common Stock acquired pursuant to a grant of a Stock Purchase
Right under Section 11 below.

 

(y)           “Section 16(b)”
means Section 16(b) of the Securities Exchange Act of 1934, as amended.

 

(z)            “Service Provider”
means an Employee, Director or Consultant.

 

(aa)         “Share” means a
share of the Common Stock, as adjusted in accordance with Section 12 below.

 

(bb)         “Stock Purchase Right”
means a right to purchase Common Stock pursuant to Section 11 below.

 

(cc)         “Subsidiary” means
a “subsidiary corporation,” whether now or hereafter existing, as defined in
Section 424(f) of the Code.

 

3.             Stock Subject to
the Plan. Subject to the provisions of Section 12 of the Plan, the maximum
aggregate number of Shares which may be subject to option and sold under the
Plan and the Company’s 1994 Stock Option Plan (“1994 Plan”), is that number of
shares equal to: (I) 5,000,000 Shares plus (ii) any Shares returned to the 1994
Plan as a result of termination of options under the 1994 Plan. The Shares may
be authorized but unissued, or reacquired Common Stock.

 

If an Option or Stock
Purchase Right expires or becomes unexercisable without having been exercised
in full, or is surrendered pursuant to an Option Exchange Program, the
unpurchased Shares which were subject thereto shall become available for future
grant or sale under the Plan (unless the Plan has terminated). However, Shares
that have actually been issued under the Plan, upon exercise of either an
Option or Stock Purchase Right, shall not be returned to the Plan and shall not
become available for future distribution under the Plan, except that if Shares
of Restricted Stock are repurchased by the Company at their original purchase
price, such Shares shall become available for future grant under the Plan.

 

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4.             Administration of
the Plan.

 

(a)           Administrator. The
Plan shall be administered by the Board or a Committee appointed by the Board,
which Committee shall be constituted to comply with Applicable Laws.

 

(b)           Powers of the
Administrator. Subject to the provisions of the Plan and, in the case of a
Committee, the specific duties delegated by the Board to such Committee, and
subject to the approval of any relevant authorities, the Administrator shall
have the authority in its discretion:

 

(i)            to determine the Fair
Market Value;

 

(ii)           to select the Service
Providers to whom Options and Stock Purchase Rights may from time to time be
granted hereunder;

 

(iii)          to determine the number
of Shares to be covered by each such award granted hereunder;

 

(iv)          to approve forms of
agreement for use under the Plan;

 

(v)           to determine the terms
and conditions, of any Option or Stock Purchase Right granted hereunder. Such
terms and conditions include, but are not limited to, the exercise price, the
time or times when Options or Stock Purchase Rights may be exercised (which may
be based on performance criteria), any vesting acceleration or waiver of
forfeiture restrictions, and any restriction or limitation regarding any Option
or Stock Purchase Right or the Common Stock relating thereto, based in each
case on such factors as the Administrator, in its sole discretion, shall
determine;

 

(vi)          to determine whether and
under what circumstances an Option may be settled in cash under subsection 9(e)
instead of Common Stock;

 

(vii)         to reduce the exercise
price of any Option to the then current Fair Market Value if the Fair Market
Value of the Common Stock covered by such Option has declined since the date
the Option was granted;

 

(viii)        to initiate an Option
Exchange Program;

 

(ix)           to prescribe, amend and
rescind rules and regulations relating to the Plan, including rules and
regulations relating to sub-plans established for the purpose of qualifying for
preferred tax treatment under foreign tax laws;

 

(x)            to allow Optionees to
satisfy withholding tax obligations by electing to have the Company withhold
from the Shares to be issued upon exercise of an Option or Stock Purchase Right
that number of Shares having a Fair Market Value equal to the amount required
to be withheld. The Fair Market Value of the Shares to be withheld shall be
determined on the date that the amount of tax to be withheld is to be
determined. All elections by Optionees to have Shares withheld for this purpose
shall be made in such form and under such conditions as the Administrator may
deem necessary or advisable; and

 

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(xi)           to construe and
interpret the terms of the Plan and awards granted pursuant to the Plan.

 

(c)           Effect of Administrator’s
Decision. All decisions, determinations and interpretations of the
Administrator shall be final and binding on all Optionees.

 

5.             Eligibility.

 

(a)           Nonstatutory Stock
Options and Stock Purchase Rights may be granted to Service Providers. Incentive
Stock Options may be granted only to Employees.

 

(b)           Each Option shall be
designated in the Option Agreement as either an Incentive Stock Option or a
Nonstatutory Stock Option. However, notwithstanding such designation, to the
extent that the aggregate Fair Market Value of the Shares with respect to which
Incentive Stock Options are exercisable for the first time by the Optionee
during any calendar year (under all plans of the Company and any Parent or
Subsidiary) exceeds $100,000, such Options shall be treated as Nonstatutory
Stock Options. For purposes of this Section 5(b), Incentive Stock Options shall
be taken into account in the order in which they were granted. The Fair Market
Value of the Shares shall be determined as of the time the Option with respect
to such Shares is granted.

 

(c)           Neither the Plan nor
any Option or Stock Purchase Right shall confer upon any Optionee any right
with respect to continuing the Optionee’s relationship as a Service Provider
with the Company, nor shall it interfere in any way with his or her right or
the Company’s right to terminate such relationship at any time, with or without
cause.

 

6.             Term of Plan. The
Plan shall become effective upon its adoption by the Board. It shall continue
in effect for a term of ten (10) years unless sooner terminated under Section
14 of the Plan.

 

7.             Term of Option.
The term of each Option shall be stated in the Option Agreement; provided,
however, that the term shall be no more than ten (10) years from the date of
grant thereof. In the case of an Incentive Stock Option granted to an Optionee
who, at the time the Option is granted, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the term of the Option shall be five (5) years from the
date of grant or such shorter term as may be provided in the Option Agreement.

 

8.             Option Exercise
Price and Consideration.

 

(a)           The per share exercise
price for the Shares to be issued upon exercise of an Option shall be such
price as is determined by the Administrator, but shall be subject to the
following:

 

(i)            In the case of an
Incentive Stock Option

 

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(A)          granted to an Employee
who, at the time of grant of such Option, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.

 

(B)           granted to any other
Employee, the per Share exercise price shall be no less than 100% of the Fair
Market Value per Share on the date of grant.

 

(ii)           In the case of a
Nonstatutory Stock Option

 

(A)          granted to a Service
Provider who, at the time of grant of such Option, owns stock representing more
than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the exercise price shall be no less than
110% of the Fair Market Value per Share on the date of grant.

 

(B)           granted to any other
Service Provider, the per Share exercise price shall be no less than 85% of the
Fair Market Value per Share on the date of grant.

 

(iii)          Notwithstanding the
foregoing, Options may be granted with a per Share exercise price other than as
required above pursuant to a merger or other corporate transaction.

 

(b)           The consideration to be
paid for the Shares to be issued upon exercise of an Option, including the
method of payment, shall be determined by the Administrator (and, in the case
of an Incentive Stock Option, shall be determined at the time of grant). Such
consideration may consist of (1) cash, (2) check, (3) promissory note, (4)
other Shares which (x) in the case of Shares acquired upon exercise of an
Option, have been owned by the Optionee for more than six months on the date of
surrender, and (y) have a Fair Market Value on the date of surrender equal to
the aggregate exercise price of the Shares as to which such Option shall be
exercised, (5) consideration received by the Company under a cashless exercise
program implemented by the Company in connection with the Plan, or (6) any
combination of the foregoing methods of payment. In making its determination as
to the type of consideration to accept, the Administrator shall consider if acceptance
of such consideration may be reasonably expected to benefit the Company.

 

9.             Exercise of
Option.

 

(a)           Procedure for
Exercise; Rights as a Shareholder. Any Option granted hereunder shall be
exercisable according to the terms hereof at such times and under such
conditions as determined by the Administrator and set forth in the Option
Agreement. Except in the case of Options granted to Officers, Directors and
Consultants, Options shall become exercisable at a rate of no less than 20% per
year over five (5) years from the date the Options are granted. Unless the
Administrator provides otherwise, vesting of Options granted hereunder shall be
tolled during any unpaid leave of absence. An Option may not be exercised for a
fraction of a Share.

 

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An Option shall be deemed
exercised when the Company receives: (i) written or electronic notice of
exercise (in accordance with the Option Agreement) from the person entitled to
exercise the Option, and (ii) full payment for the Shares with respect to which
the Option is exercised. Full payment may consist of any consideration and
method of payment authorized by the Administrator and permitted by the Option
Agreement and the Plan. Shares issued upon exercise of an Option shall be
issued in the name of the Optionee or, if requested by the Optionee, in the
name of the Optionee and his or her spouse. Until the Shares are issued (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company), no right to vote or receive
dividends or any other rights as a shareholder shall exist with respect to the
Shares, notwithstanding the exercise of the Option. The Company shall issue (or
cause to be issued) such Shares promptly after the Option is exercised. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the Shares are issued, except as provided in Section 12 of
the Plan.

 

Exercise of an Option in
any manner shall result in a decrease in the number of Shares thereafter
available, both for purposes of the Plan and for sale under the Option, by the
number of Shares as to which the Option is exercised.

 

(b)           Termination of
Relationship as a Service Provider. If an Optionee ceases to be a Service
Provider, such Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement (of at least thirty (30) days) to
the extent that the Option is vested on the date of termination (but in no event
later than the expiration of the term of the Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for three (3) months following the Optionee’s
termination. If, on the date of termination, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall revert to the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified by the Administrator, the
Option shall terminate, and the Shares covered by such Option shall revert to
the Plan.

 

(c)           Disability of
Optionee. If an Optionee ceases to be a Service Provider as a result of the
Optionee’s Disability, the Optionee may exercise his or her Option within such
period of time as is specified in the Option Agreement (of at least six (6)
months) to the extent the Option is vested on the date of termination (but in
no event later than the expiration of the term of such Option as set forth in
the Option Agreement). In the absence of a specified time in the Option
Agreement, the Option shall remain exercisable for twelve (12) months following
the Optionee’s termination. If, on the date of termination, the Optionee is not
vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified herein,
the Option shall terminate, and the Shares covered by such Option shall revert
to the Plan.

 

(d)           Death of Optionee.
If an Optionee dies while a Service Provider, the Option may be exercised
within such period of time as is specified in the Option Agreement (of at least
six (6) months) to the extent that the Option is vested on the date of death
(but in no event later than the expiration of the term of such Option as set
forth in the Option Agreement) by the Optionee’s estate or by a person who
acquires the right to exercise the Option by bequest or inheritance. In the
absence of a specified time in the Option Agreement, the Option shall remain
exercisable for twelve (12) months following the Optionee’s termination. If, at
the time 

 

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of death, the Optionee is not vested as to the entire
Option, the Shares covered by the unvested portion of the Option shall
immediately revert to the Plan. If the Option is not so exercised within the
time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.

 

(e)           Buyout Provisions.
The Administrator may at any time offer to buy out for a payment in cash or
Shares, an Option previously granted, based on such terms and conditions as the
Administrator shall establish and communicate to the Optionee at the time that
such offer is made.

 

10.           Non-Transferability
of Options and Stock Purchase Rights. The Options and Stock Purchase Rights
may not be sold, pledged, assigned, hypothecated, transferred, or disposed of
in any manner other than by will or by the laws of descent or distribution and
may be exercised, during the lifetime of the Optionee, only by the Optionee.

 

11.           Stock Purchase
Rights.

 

(a)           Rights to Purchase.
Stock Purchase Rights may be issued either alone, in addition to, or in tandem
with other awards granted under the Plan and/or cash awards made outside of the
Plan. After the Administrator determines that it will offer Stock Purchase
Rights under the Plan, it shall advise the offeree in writing or electronically
of the terms, conditions and restrictions related to the offer, including the
number of Shares that such person shall be entitled to purchase, the price to
be paid, and the time within which such person must accept such offer. The
terms of the offer shall comply in all respects with Section 260.140.42 of
Title 10 of the California Code of Regulations. The offer shall be accepted by
execution of a Restricted Stock purchase agreement in the form determined by
the Administrator.

 

(b)           Repurchase Option.
Unless the Administrator determines otherwise, the Restricted Stock purchase
agreement shall grant the Company a repurchase option exercisable upon the
voluntary or involuntary termination of the purchaser’s service with the
Company for any reason (including death or disability). The purchase price for
Shares repurchased pursuant to the Restricted Stock purchase agreement shall be
the original price paid by the purchaser and may be paid by cancellation of any
indebtedness of the purchaser to the Company. The repurchase option shall lapse
at such rate as the Administrator may determine. Except with respect to Shares
purchased by Officers, Directors and Consultants, the repurchase option shall
in no case lapse at a rate of less than 20% per year over five (5) years from
the date of purchase.

 

(c)           Other Provisions.
The Restricted Stock purchase agreement shall contain such other terms,
provisions and conditions not inconsistent with the Plan as may be determined
by the Administrator in its sole discretion.

 

(d)           Rights as a
Shareholder. Once the Stock Purchase Right is exercised, the purchaser
shall have rights equivalent to those of a shareholder and shall be a
shareholder when his or her purchase is entered upon the records of the duly
authorized transfer agent of the Company. No adjustment shall be made for a
dividend or other right for which the record date is prior to the date the
Stock Purchase Right is exercised, except as provided in Section 12 of the
Plan.

 

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12.           Adjustments Upon
Changes in Capitalization, Merger or Asset Sale.

 

(a)           Changes in
Capitalization. Subject to any required action by the shareholders of the
Company, the number of shares of Common Stock covered by each outstanding
Option or Stock Purchase Right, and the number of shares of Common Stock which
have been authorized for issuance under the Plan but as to which no Options or
Stock Purchase Rights have yet been granted or which have been returned to the
Plan upon cancellation or expiration of an Option or Stock Purchase Right, as
well as the price per share of Common Stock covered by each such outstanding
Option or Stock Purchase Right, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company. The conversion of any convertible securities of
the Company shall not be deemed to have been “effected without receipt of
consideration.” Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an Option or Stock Purchase Right.

 

(b)           Dissolution or
Liquidation. In the event of the proposed dissolution or liquidation of the
Company, the Administrator shall notify each Optionee as soon as practicable prior
to the effective date of such proposed transaction. The Administrator in its
discretion may provide for an Optionee to have the right to exercise his or her
Option until fifteen (15) days prior to such transaction as to all of the
Optioned Stock covered thereby, including Shares as to which the Option would
not otherwise be exercisable. In addition, the Administrator may provide that
any Company repurchase option applicable to any Shares purchased upon exercise
of an Option or Stock Purchase Right shall lapse as to all such Shares,
provided the proposed dissolution or liquidation takes place at the time and in
the manner contemplated. To the extent it has not been previously exercised, an
Option or Stock Purchase Right will terminate immediately prior to the
consummation of such proposed action.

 

(c)           Merger or Asset Sale.
In the event of a merger of the Company with or into another corporation, or
the sale of substantially all of the assets of the Company, each outstanding
Option and Stock Purchase Right shall be assumed or an equivalent option or
right substituted by the successor corporation or a Parent or Subsidiary of the
successor corporation. In the event that the successor corporation refuses to
assume or substitute for the Option or Stock Purchase Right, the Optionee shall
fully vest in and have the right to exercise the Option or Stock Purchase Right
as to all of the Optioned Stock, including Shares as to which it would not
otherwise be vested or exercisable. If an Option or Stock Purchase Right becomes
fully vested and exercisable in lieu of assumption or substitution in the event
of a merger or sale of assets, the Administrator shall notify the Optionee in
writing or electronically that the Option or Stock Purchase Right shall be
fully exercisable for a period of fifteen (15) days from the date of such
notice, and the Option or Stock Purchase Right shall terminate upon the
expiration of such period. For the purposes of this paragraph, the Option or
Stock Purchase Right shall be considered assumed if, following the merger or
sale of assets, the option or right confers the right to purchase or receive,
for each Share of Optioned Stock subject to the Option or Stock Purchase 

 

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Right immediately prior to the merger or sale of
assets, the consideration (whether stock, cash, or other securities or
property) received in the merger or sale of assets by holders of Common Stock
for each Share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares); provided, however, that if
such consideration received in the merger or sale of assets is not solely
common stock of the successor corporation or its Parent, the Administrator may,
with the consent of the successor corporation, provide for the consideration to
be received upon the exercise of the Option or Stock Purchase Right, for each
Share of Optioned Stock subject to the Option or Stock Purchase Right, to be
solely common stock of the successor corporation or its Parent equal in fair
market value to the per share consideration received by holders of Common Stock
in the merger or sale of assets.

 

13.           Time of Granting
Options and Stock Purchase Rights. The date of grant of an Option or Stock
Purchase Right shall, for all purposes, be the date on which the Administrator
makes the determination granting such Option or Stock Purchase Right, or such
other date as is determined by the Administrator. Notice of the determination
shall be given to each Employee to whom an Option or Stock Purchase Right is so
granted within a reasonable time after the date of such grant.

 

14.           Amendment and
Termination of the Plan.

 

(a)           Amendment and
Termination. The Board may at any time amend, alter, suspend or terminate
the Plan.

 

(b)           Shareholder Approval.
The Board shall obtain shareholder approval of any Plan amendment to the extent
necessary and desirable to comply with Applicable Laws.

 

(c)           Effect of Amendment
or Termination. No amendment, alteration, suspension or termination of the
Plan shall impair the rights of any Optionee, unless mutually agreed otherwise
between the Optionee and the Administrator, which agreement must be in writing
and signed by the Optionee and the Company. Termination of the Plan shall not
affect the Administrator’s ability to exercise the powers granted to it
hereunder with respect to Options granted under the Plan prior to the date of
such termination.

 

15.           Conditions Upon
Issuance of Shares.

 

(a)           Legal Compliance.
Shares shall not be issued pursuant to the exercise of an Option unless the
exercise of such Option and the issuance and delivery of such Shares shall
comply with Applicable Laws and shall be further subject to the approval of
counsel for the Company with respect to such compliance.

 

(b)           Investment
Representations. As a condition to the exercise of an Option, the
Administrator may require the person exercising such Option to represent and
warrant at the time of any such exercise that the Shares are being purchased
only for investment and without any present intention to sell or distribute
such Shares if, in the opinion of counsel for the Company, such a
representation is required.

 

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16.           Inability to Obtain
Authority. The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company’s
counsel to be necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in respect of the failure to issue
or sell such Shares as to which such requisite authority shall not have been
obtained.

 

17.           Reservation of
Shares. The Company, during the term of this Plan, shall at all times
reserve and keep available such number of Shares as shall be sufficient to
satisfy the requirements of the Plan.

 

18.           Shareholder Approval.
The Plan shall be subject to approval by the shareholders of the Company within
twelve (12) months after the date the Plan is adopted. Such shareholder
approval shall be obtained in the degree and manner required under Applicable
Laws.

 

19.           Information to
Optionees and Purchasers. The Company shall provide to each Optionee and to
each individual who acquires Shares pursuant to the Plan, not less frequently
than annually during the period such Optionee or purchaser has one or more
Options or Stock Purchase Rights outstanding, and, in the case of an individual
who acquires Shares pursuant to the Plan, during the period such individual
owns such Shares, copies of annual financial statements. The Company shall not
be required to provide such statements to key employees whose duties in
connection with the Company assure their access to equivalent information.

 

11Exhibit 10.12

 

QUARK BIOTECH, INC.

 

1997 STOCK PLAN FOR ISRAELI EMPLOYEES

 

1.             Scope of the Plan.
This Plan is a sub-plan created under and pursuant to the Quark Biotech, Inc.
1997 Stock Plan (the “U.S. Plan”), which has been approved by the shareholders
of Quark Biotech, Inc., and which provides that Israeli employees may benefit
under this Plan. Options shall be granted under the Plan at the discretion of
the Administrator and as reflected in terms of written option agreements, and
are intended to qualify for preferred treatment under Israeli tax laws. Unless
otherwise defined herein, the terms defined in the 1997 Plan shall have the
same defined meanings in this Plan.

 

2.             Purposes of the
Plan. The purposes of this Stock Plan are to attract and retain the best
available personnel for positions of substantial responsibility, to provide
additional incentive to Employees and Directors of the Company’s subsidiary QBI
Ltd. and to promote the success and business of QBI Ltd. and the Company. With
respect to employees of QBI Ltd., Options granted under the Plan and the Shares
issuable thereunder shall be held in escrow by a trustee to be approved by the
Israeli Tax Authorities pursuant to Section 102 of the Israeli Income Tax
Ordinance.

 

3.             Definitions. As
used herein, the following definitions shall apply:

 

(1)           “Administrator”
means the Board or any of its Committees as shall be administering the Plan in
accordance with Section 5 hereof.

 

(2)           “Applicable Laws”
means the requirements relating to the administration of stock option plans
under Israeli law, the Ordinance, or U.S. State corporate laws, U.S. federal
and state securities laws, the Code, any stock exchange or quotation system on
which the Common Stock is listed or quoted and/or the applicable laws of any other
country or jurisdiction where Options are granted under the Plan.

 

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

 

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

 

(5)           “Committee”
means a Committee of Directors appointed by the Board in accordance with
Section 5 hereof.

 

(6)           “Common Stock”
means the Common Stock of the Company.

 

(7)           “Company” means
Quark Biotech, Inc., a California corporation and its Subsidiaries including
QBI Enterprises Ltd.

 

1

 

(8)           “Director” means
a member of the Board of Directors of the Company.

 

(9)           “Employee” means
any person, including Officers and Directors, employed by the Company or any
Parent or Subsidiary of the Company. An Employee shall not cease to be an
Employee in the case of (i) any leave of absence approved by the Company or
(ii) transfers between locations of the Company, its Parent, any Subsidiary, or
any successor. Neither service as a Director nor payment of a director’s fee by
the Company shall be sufficient to constitute “employment” by the Company.

 

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

 

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

 

(i)            If the Common Stock is
listed on any established stock exchange or a national market system, including
without limitation the National Market System of the National Association of
Securities Dealers, Inc. Automated Quotation (“NASDAQ”) System, its Fair Market
Value shall be the closing sales price for such stock (or the closing bid, if
no sales were reported, as quoted on such exchange or system for the last
market trading day prior to the time of determination) as reported in The Wall
Street Journal or such other source as the Administrator deems reliable;

 

(ii)           If the Common Stock is
quoted on the NASDAQ System (but not on the National Market System thereof) or
regularly quoted by a recognized securities dealer but selling prices are not
reported, its Fair Market Value shall be the mean between the high bid and low
asked prices for the Common Stock on the last market trading day prior to the
day of determination; or

 

(iii)          In the absence of an
established market for the Common Stock, the Fair Market Value thereof shall be
determined in good faith by the Administrator.

 

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

 

(13)         “Option” means a
stock option granted pursuant to the Plan. Options granted under the Plan shall
be nonstatutory stock options and shall not qualify as incentive stock options
under Sections 421 and 422 of the Code.

 

(14)         “Option Agreement”
means a written or electronic agreement between the Company and an Optionee
evidencing the terms and conditions of an individual Option grant. The Option
Agreement is subject to the terms and conditions of the Plan.

 

(15)         “Option Exchange
Program” means a program whereby outstanding Options are exchanged for
Options with a lower exercise price.

 

2

 

(16)         “Optioned Stock”
means the Common Stock subject to an Option.

 

(17)         “Optionee” means
the holder of an outstanding Option granted under the Plan.

 

(18)         “Option Shares”
means Shares issued upon exercise of Options.

 

(19)         “Ordinance” means
the Israeli Income Tax Ordinance (New Version), as amended.

 

(20)         “Parent” means a “parent
corporation,” whether now or hereafter existing, as defined in Section 424(e)
of the Code.

 

(21)         “Plan” means this
1997 Stock Plan for Israeli Employees.

 

(22)         “QBI Ltd.” means
QBI Enterprises Ltd., an Israeli company.

 

(23)         “Rules” means the
Income Tax Rules (Tax Reliefs on Issuance of Shares to Employees) 5749-1989
promulgated pursuant to Section 102, as amended.

 

(24)         “Section 16(b)”
means Section 16(b) of the Securities Exchange Act of 1934, as amended.

 

(25)         “Section 102”
means Section 102 of the Ordinance, as amended.

 

(26)         “Share” means a
share of the Common Stock of the Company, as adjusted in accordance with
Section 13 below.

 

(27)         “Subsidiary” means
a “subsidiary corporation,” whether now or hereafter existing, as defined in
Section 424(f) of the Code.

 

(28)         “Trustee” means a
trustee to be approved by the Israeli Tax Authorities pursuant to Section 102
and the Rules.

 

4.             Stock Subject to
the Plan. Subject to the provisions of Section 13 of the Plan, the maximum
aggregate number of Shares which may be subject to option and sold under the
Plan is that number of shares equal to: (i) 1,370,000 Shares plus (ii) any
Shares returned to the Company’s 1994 Stock Option Plan (the “1994 Plan”) as a
result of termination of options under the 1994 Plan less the number of Shares
issued under the U.S. Plan and any other subplans promulgated thereunder. The
Shares may be authorized but unissued, or reacquired Common Stock.

 

If an
Option should expire or become unexercisable for any reason without having been
exercised in full, or is surrendered pursuant to an Option Exchange Program,
the unpurchased Shares which were subject thereto shall become available for
future grant or sale under the Plan (unless the Plan has terminated). However,
Shares that have actually been issued under the Plan 

 

3

 

upon exercise of an Option shall not be returned to
the Plan and shall not become available for future distribution under the Plan.

 

5.             Application of
Section 102; The Trustee.

 

(1)           It is the intention of
QBI Ltd. and the Company that the provisions and tax benefits of Section 102
apply to the Options and Option Shares issued pursuant to the Plan to employees
of QBI Ltd. The Options issued to employees of QBI Ltd. shall comply with the
provisions of Section 102, the Rules and of the Escrow Agreement to be entered into
between the Trustee and QBI (or the Company).

 

(2)           In accordance with the
provisions of Section 102, the Options and the Option Shares for employees of
QBI Ltd. shall be issued to a Trustee and held by him for the benefit of the
Optionees who are QBI Ltd. employees for a period of not less than two years
from the date of issuance.

 

(3)           After the two year
holding period the Trustee shall not release or transfer such Options or the
Options Shares before (i) withholding any applicable tax due pursuant to the
Ordinance and the Rules; or (ii) receipt of an authorization from the Israeli
Tax Authorities certifying that all such applicable taxes have been paid.

 

(4)           The Options and Option
Shares for employees of QBI Ltd. will be subject to the Terms and Conditions of
Section 102 and the Rules.

 

6.             Administration of
the Plan.

 

(1)           Administrator. The
Plan shall be administered by the Board or a Committee appointed by the Board,
which Committee shall be constituted to comply with Applicable Laws.

 

(2)           Powers of the
Administrator. Subject to the provisions of the Plan and, in the case of a
Committee, the specific duties delegated by the Board to such Committee, and
subject to the approval of any relevant authorities, the Administrator shall
have the authority in its discretion:

 

(i)            to determine the Fair
Market Value;

 

(ii)           to select the Employees
to whom Options may from time to time be granted hereunder;

 

(iii)          to determine the number
of Shares to be covered by each such award granted hereunder;

 

(iv)          to approve forms of
agreement for use under the Plan;

 

4

 

(v)           to determine the terms
and conditions, of any Option granted hereunder. Such terms and conditions
include, but are not limited to, the exercise price, the time or times when
Options may be exercised (which may be based on performance criteria), any
vesting acceleration or waiver of forfeiture restrictions, and any restriction
or limitation regarding any Option or the Common Stock relating thereto, based
in each case on such factors as the Administrator, in its sole discretion,
shall determine;

 

(vi)          to determine whether and
under what circumstances an Option may be settled in cash under subsection
11(5) instead of Common Stock;

 

(vii)         to reduce the exercise
price of any Option to the then current Fair Market Value if the Fair Market
Value of the Common Stock covered by such Option has declined since the date
the Option was granted;

 

(viii)        to initiate an Option
Exchange Program;

 

(ix)           to prescribe, amend and
rescind rules and regulations relating to the Plan, including rules and
regulations relating to sub-plans established for the purpose of qualifying for
preferred tax treatment under foreign tax laws;

 

(x)            to allow Optionees to
satisfy withholding tax obligations by electing to have the Company withhold
from the Shares to be issued upon exercise of an Option that number of Shares
having a Fair Market Value equal to the amount required to be withheld. The
Fair Market Value of the Shares to be withheld shall be determined on the date
that the amount of tax to be withheld is to be determined. All elections by
Optionees to have Shares withheld for this purpose shall be made in such form
and under such conditions as the Administrator may deem necessary or advisable
and subject to the Applicable Laws; and

 

(xi)           to construe and
interpret the terms of the Plan and awards granted pursuant to the Plan.

 

(3)           Effect of
Administrator’s Decision. All decisions, determinations and interpretations
of the Administrator shall be final and binding on all Optionees.

 

7.             Eligibility.

 

(1)           The persons eligible to
participate in this Plan are Employees.

 

(2)           Controlling
Shareholders (as that term is defined in Section 5 of the Rules, Section 32(9)
of the Ordinance) will not be eligible to participate in the Plan.

 

(3)           Neither the Plan nor
any Option shall confer upon any Optionee any right with respect to continuing
the Optionees’ relationship as an Employee of or with the Company, nor shall it
interfere in any way with his or her right or the Company’s right to terminate
such relationship at any time, with or without cause.

 

5

 

8.             Term of Plan. The
Plan shall become effective upon its adoption by the Board and by the Board of
Directors of QBI Ltd. It shall continue in effect for a term of ten (10) years
unless sooner terminated under Section 15 of the Plan.

 

9.             Term of Option.
The term of each Option shall be the term stated in the Option Agreement;
provided, however, that the term shall be no more than ten (10) years from the
date of grant thereof.

 

10.           Option Exercise
Price and Consideration.

 

(1)           The per share exercise
price for the Shares to be issued pursuant to exercise of an Option shall be
such price as is determined by the Administrator, but shall be subject to the
following:

 

(i)            In the case of an
Option

 

(1)           granted to an Employee
who, at the time of the grant of such Option, owns stock representing more than
ten percent (10%) of the voting power of all classes of stock of the Company or
any Parent or Subsidiary, the per Share exercise price shall be no less than
110% of the Fair Market Value per Share on the date of the grant.

 

(2)           granted to any other
Employee, the per Share exercise price shall be no less than 85% of the Fair
Market Value per Share on the date of grant.

 

(2)           The consideration to be
paid for the Option Shares to be issued upon exercise of an Option, including
the method of payment, shall be determined by the Administrator and may consist
entirely of (1) cash, (2) check, (3) promissory note, (4) other Shares which
(x) in the case of Shares acquired upon exercise of an Option have been owned
by the Optionee for more than six months on the date of surrender and (y) have
a Fair Market Value on the date of surrender equal to the aggregate exercise
price of the Shares as to which said Option shall be exercised, (5) delivery of
a properly executed exercise notice together with such other documentation as
the Administrator and the broker, if applicable, shall require to effect an
exercise of the Option and delivery to the Company of the sale or loan proceeds
required to pay the exercise price, or (6) any combination of the foregoing
methods of payment. In making its determination as to the type of consideration
to accept, the Board shall consider if acceptance of such consideration may be
reasonably expected to benefit the Company.

 

11.           Exercise of Option.

 

(1)           Procedure for
Exercise; Rights as a Shareholder. Any Option granted hereunder shall be
exercisable at such times and under such conditions as determined by the
Administrator and set forth in the Option Agreement.

 

6

 

Except in the case of Options granted to Officers and
Directors, Options shall become exercisable at a rate of no less than 20% per
year over five (5) years from the date the Options are granted. Unless the
Administrator provides otherwise, vesting of Options granted to Officers and
Directors hereunder shall be tolled during any unpaid leave of absence.

 

An Option may not be exercised for a fraction of a
Share.

 

An Option shall be deemed to be exercised when the
Company receives: (i) written or electronic notice of exercise (in accordance
with the Option Agreement) from the person entitled to exercise the Option and
full payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by
the Administrator and permitted by the Option Agreement and the Plan. Shares
issued upon exercise of an Option shall be issued in the name of the Trustee
(if issued on exercise of Options held by the Trustee at the time of Exercise)
or in the name of the Optionee or; if requested by the Optionee, in the name of
the Optionee and his or her spouse (if issued on exercise of Options which were
released and transferred with the provisions of Section 5(d) of the Plan. Until
the Shares are issued (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or
any other rights as a shareholder shall exist with respect to the Shares,
notwithstanding the exercise of the Option. The Company shall issue (or cause
to be issued) such Shares promptly upon exercise of the Option. No adjustment
will be made for a dividend or other right for which the record date is prior
to the date the Share are issued, except as provided in Section 13 of the Plan.

 

Exercise of an Option shall result in a decrease in
the number of Shares thereafter available, both for purposes of the Plan and
for sale under the Option, by the number of Shares as to which the Option is
exercised.

 

(2)           Termination of
Relationship as an Employee. Subject to the provision of Section 102, if an
Optionee ceases to be an employee, such Optionee may exercise his or her Option
within such period of time as is specified in the Option Agreement (of at least
thirty (30) days) to the extent that the Option is vested on the date of
termination (but in no event later than the expiration of the term of the
Option as set forth in the Option Agreement). In the absence of a specified
time in the Option Agreement, the Option shall remain exercisable for twelve
(12) months following the Optionee’s termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares coved by the unvested portion of the Option shall revert to the Plan. If,
after termination, the Optionee does not exercise his or her Option within the
time specified by the Administrator, the Option shall terminate, and the Shares
covered by such Option shall revert to the Plan.

 

(3)           Disability of
Optionee. Subject to the provision of Section 102, if an Optionee ceases to
be an Employee as a result of the Optionee’s disability, the Optionee may
exercise the Option within such period of time as is specified in the Option
Agreement (of at least six months) to the extent the Option is vested on the
date of termination (but in no event later than the expiration of the term of
such Option as set forth in the Option Agreement). In the 

 

7

 

absence of a specified time in the Option Agreement,
the Option shall remain exercisable for twelve (12) months following the
Optionee’s termination. To the extent that Optionee is not entitled to exercise
the Option at the date of termination, or if Optionee does not exercise such
Option to the extent so entitled within the time specified herein, the Option
shall terminate, and the Shares covered by such Option shall revert to the
Plan.

 

(4)           Death of Optionee.
Subject to the provision of Section 102, if an Optionee dies while an Employee,
the Option may be exercised at any time within twelve (12) months following the
date of death (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant), by the Optionee’s estate or by a
person who acquired the right to exercise the Option by bequest or inheritance,
but only to the extent that the Optionee was entitled to exercise the Option at
the date of death. If, at the time of death, the Optionee is not vested as to
the entire Option, the Shares covered by the unvested portion of the Option
shall immediately revert to the Plan. If, after death, the Optionee’s estate or
a person who acquired the right to exercise the Option by bequest or
inheritance does not exercise the Option within the time specified herein, the
Option shall terminate, and the Shares covered by such Option shall revert to
the Plan.

 

(5)           Buyout Provisions.
Subject to the provision of Section 102, the Administrator may at any time
offer to buy out for a payment in cash or Shares, an Option previously granted,
based on such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time that such offer is made.

 

12.           Non-Transferability
of Options. Options may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee.

 

13.           Adjustments Upon
Changes in Capitalization or Merger.

 

(1)           Changes in
Capitalization. Subject to any required action by the shareholders of the
Company, the number of shares of Common Stock covered by each outstanding
Option, and the number of shares of Common Stock which have been authorized for
issuance under the Plan but as to which no Options have yet been granted or
which have been returned to the Plan upon cancellation or expiration of an
Option, as well as the price per share of Common Stock covered by each such
outstanding Option, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock, or any other increase or decrease in the number of issued
shares of Common Stock effected without receipt of consideration by the
Company; provided, however, that conversion of any convertible securities of
the Company shall not be deemed to have been “effected without receipt of
consideration.” Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an Option.

 

8

 

(2)           Dissolution or
Liquidation. In the event of the proposed dissolution or liquidation of the
Company, the Administrator shall notify each Optionee as soon as practicable
prior to the effective date of such proposed transaction. The Administrator in
its discretion may provide for an Optionee to have the right to exercise his or
her Option until fifteen (15) days prior to such transaction as to all of the
Optioned Stock covered thereby, including Shares as to which the Option would
not otherwise be exercisable. In addition, the Administrator may provide that
any Company repurchase option applicable to any Shares purchased upon exercise
of an Option shall lapse as to all such Shares, provided the proposed
dissolution or liquidation takes place at the time and in the manner
contemplated. To the extent it has not been previously exercised, an Option
will terminate immediately prior to the consummation of such proposed action.

 

(3)           Merger or Asset Sale.
In the event of a merger of the Company with or another corporation, or the
sale of substantially all of the assets of the Company, each outstanding Option
shall be assumed or an equivalent option substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the
event that the successor corporation refuses to assume or substitute for the
Option, the Optionee shall fully vest in and have the right to exercise the
Option as to all of the Optioned Stock, including Shares as to which it would
not otherwise be vested or exercisable. If an Option becomes fully vested and
exercisable in lieu of assumption or substitution in the event of a merger or sale
of assets, the Administrator shall notify the Optionee in writing or
electronically that the Option shall be fully exercisable for a period of
fifteen (15) days from the date of such notice, and the Option shall terminate
upon the expiration of such period. For the purposes of this paragraph, the
Option shall be considered assumed if, following the merger or sale of assets,
the option confers the right to purchase or receive, for each Share of Optioned
Stock subject to the Option immediately prior to the merger or sale of assets,
the consideration (whether stock, cash, or other securities or property)
received in the merger or sale of assets by holders of Common Stock for each
Share held on the effective date of the transaction (and if holders were offered
a choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding Shares); provided, however, that if such
consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option, for each Share of Optioned Stock
subject to the Option, to be solely common stock of the successor corporation
or its Parent equal in fair market value to the per share consideration
received by holders of Common Stock in the merger or sale of assets.

 

14.           Time of Granting
Options. The date of grant of an Option shall, for all purposes, be the
date on which the Administrator makes the determination granting such Option,
or such other date as is determined by the Administrator. Notice of the
determination shall be given to each Employee to whom an Option is so granted
within a reasonable time after the date of such grant.

 

9

 

15.           Amendment and
Termination of the Plan.

 

(1)           Amendment and
Termination. The Board may at any time amend, alter, suspend or terminate
the Plan.

 

(2)           Shareholder Approval.
The Board shall obtain Shareholder approval of any Plan amendment to the extent
necessary and desirable to comply with Applicable Laws.

 

(3)           Effect of Amendment
or Termination. No amendment, alteration, suspension or termination of the
Plan shall impair the rights of any Optionee, unless mutually agreed otherwise
between the Optionee and the Administrator, which agreement must be in writing
and signed by the Optionee and the Company. Termination of the Plan shall not
affect the Administrator’s ability to exercise the powers granted to it
hereunder with respect to Options granted under the Plan prior to the date of
such termination.

 

16.           Conditions Upon
Issuance of Shares.

 

(1)           Legal Compliance.
Shares shall not be issued pursuant to the exercise of an Option unless the
exercise of such Option and the issuance and delivery of such Shares shall
comply with Applicable Laws and shall be further subject to the approval of
counsel for the Company with respect to such compliance.

 

(2)           Investment
Representations. As a condition to the exercise of an Option, the
Administrator may require the person exercising such Option to represent and
warrant at the time of any such exercise that the Shares are being purchased
only for investment and without any present intention to sell or distribute
such Shares if, in the opinion of counsel for the Company, such a
representation is required.

 

17.           Inability to Obtain
Authority. The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company’s
counsel to be necessary to the lawful issuance and sale of any Shares
hereunder, shall relieve the Company of any liability in respect of the failure
to issue or sell such Shares as to which such requisite authority shall not
have been obtained.

 

18.           Reservation of
Shares. The Company, during the term of this Plan, shall at all times
reserve and keep available such number of Shares as shall be sufficient to
satisfy the requirements of the Plan.

 

19.           Shareholder Approval.
The Plan shall be subject to approval by the shareholders of the Company within
twelve (12) months after the date the Plan is adopted. Such shareholder
approval shall be obtained in the degree and manner required under Applicable
Laws.

 

20.           Information to Optionees
and Purchasers. The Company shall provide to each Optionee and to each
individual who acquires Shares pursuant to the Plan, not less frequently than
annually during the period such Optionee or purchaser has one or more Options
outstanding, and, in the case of an individual who acquires Shares pursuant to
the Plan, during 

 

10

 

the period such individual owns such Shares, copies of
annual financial statements. The Company shall not be required to provide such
statements to key employees whose duties in connection with the Company assure
their access to equivalent information.

 

21.           Taxes. The
Optionee shall bear and timely pay any and all taxes levied in connection with
the granting of the Options and the Option Shares. The Company, QBI Ltd. and/or
the Trustee will have the right to withhold any such taxes which are not duly
paid by the Optionee or which are to be withheld pursuant to any Applicable
Law.

 

11

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