Document:

Exhibit 10.4

 

IRONWOOD
PHARMACEUTICALS, INC.

 

2010
EMPLOYEE, DIRECTOR AND CONSULTANT EQUITY INCENTIVE PLAN

 

1.                                       DEFINITIONS.

 

Unless otherwise
specified or unless the context otherwise requires, the following terms, as
used in this Ironwood Pharmaceuticals, Inc. 2010 Employee, Director and
Consultant Equity Incentive Plan, have the following meanings:

 

Administrator means the Board of Directors, unless it
has delegated power to act on its behalf to the Committee, in which case the
Administrator means the Committee.

 

Affiliate means a corporation which, for purposes
of Section 424 of the Code, is a parent or subsidiary of the Company,
direct or indirect.

 

Agreement means an agreement between the Company
and a Participant delivered pursuant to the Plan and pertaining to a Stock
Right, in such form as the Administrator shall approve.

 

Board of Directors means the Board of Directors of the
Company.

 

Cause means, with respect to a Participant (a) dishonesty
with respect to the Company or any Affiliate, (b) insubordination,
substantial malfeasance or non-feasance of duty, (c) unauthorized
disclosure of confidential information, (d) breach by a Participant of any
provision of any employment, consulting, advisory, nondisclosure,
non-competition or similar agreement between the Participant and the Company or
any Affiliate, and (e) conduct substantially prejudicial to the business
of the Company or any Affiliate; provided, however, that any provision in an
agreement between a Participant and the Company or an Affiliate, which contains
a conflicting definition of Cause for termination and which is in effect at the
time of such termination, shall supersede this definition with respect to that
Participant.  The determination of the
Administrator as to the existence of Cause will be conclusive on the
Participant and the Company.

 

Code means the United States Internal Revenue
Code of 1986, as amended including any
successor statute, regulation and guidance thereto.

 

Committee means the committee of the Board of
Directors to which the Board of Directors has delegated power to act under or
pursuant to the provisions of the Plan.

 

Common Stock means shares of the Company’s Class A
Common Stock, $0.001 par value per share.

 

Company means Ironwood Pharmaceuticals, Inc.,
a Delaware corporation.

 

 

Consultant means any natural person who is an
advisor or consultant that provides bona fide services to the Company or its
Affiliates, provided that such services are not in connection with the offer or
sale of securities in a capital raising transaction, and do not directly or
indirectly promote or maintain a market for the Company’s or its Affiliates’
securities.

 

Disability or Disabled means permanent and
total disability as defined in Section 22(e)(3) of the Code.

 

Employee means any employee of the Company or of
an Affiliate (including, without limitation, an employee who is also serving as
an officer or director of the Company or of an Affiliate), designated by the
Administrator to be eligible to be granted one or more Stock Rights under the
Plan.

 

Exchange Act means the Securities Exchange Act of
1934, as amended.

 

Fair Market Value of a Share of Common Stock means:

 

(1)           If the Common Stock
is listed on a national securities exchange or traded in the over-the-counter
market and sales prices are regularly reported for the Common Stock, the
closing or, if not applicable, the last price of the Common Stock on the
composite tape or other comparable reporting system for the trading day on the
applicable date and if such applicable date is not a trading day, the last
market trading day prior to such date;

 

(2)           If the Common Stock
is not traded on a national securities exchange but is traded on the
over-the-counter market, if sales prices are not regularly reported for the
Common Stock for the trading day referred to in clause (1), and if bid and
asked prices for the Common Stock are regularly reported, the mean between the
bid and the asked price for the Common Stock at the close of trading in the
over-the-counter market for the trading day on which Common Stock was traded on
the applicable date and if such applicable date is not a trading day, the last
market trading day prior to such date; and

 

(3)           If the Common Stock
is neither listed on a national securities exchange nor traded in the over-the-counter
market, such value as the Administrator, in good faith, shall determine.

 

ISO means an option meant to qualify as an
incentive stock option under Section 422 of the Code.

 

Non-Qualified
Option means an
option which is not intended to qualify as an ISO.

 

Option means an ISO or Non-Qualified Option
granted under the Plan.

 

Participant means an Employee, director or
Consultant of the Company or an Affiliate to whom one or more Stock Rights are
granted under the Plan.  As used 

 

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herein, “Participant”
shall include “Participant’s Survivors” where the context requires.

 

Plan means this Ironwood Pharmaceuticals, Inc.
2010 Employee, Director and Consultant Equity Incentive Plan.

 

Securities Act means the Securities Act of 1933, as
amended.

 

Shares means shares of the Common Stock as to
which Stock Rights have been or may be granted under the Plan or any shares of
capital stock into which the Shares are changed or for which they are exchanged
within the provisions of Paragraph 3 of the Plan.  The Shares issued under the Plan may be
authorized and unissued shares or shares held by the Company in its treasury,
or both.

 

Stock-Based Award means a grant by the Company under the
Plan of an equity award or an equity based award which is not an Option or a
Stock Grant.

 

Stock Grant means a grant by the Company of Shares
under the Plan.

 

Stock Right means a right to Shares or the value of
Shares of the Company granted pursuant to the Plan — an ISO, a Non-Qualified
Option, a Stock Grant or a Stock-Based Award.

 

Survivor means a deceased Participant’s legal
representatives and/or any person or persons who acquired the Participant’s
rights to a Stock Right by will or by the laws of descent and distribution.

 

2.                                       PURPOSES OF THE PLAN.

 

The Plan is intended to
encourage ownership of Shares by Employees and directors of and certain
Consultants to the Company and its Affiliates in order to attract and retain
such people, to induce them to work for the benefit of the Company or of an
Affiliate and to provide additional incentive for them to promote the success
of the Company or of an Affiliate.  The
Plan provides for the granting of ISOs, Non-Qualified Options, Stock Grants and
Stock-Based Awards.

 

3.                                       SHARES SUBJECT TO THE PLAN.

 

(a)           The
number of Shares which may be issued from time to time pursuant to this Plan
shall be the sum of: (i) 6,000,000 shares of Common Stock and (ii) any
shares of Common Stock that are represented by awards granted under the Company’s
1998 Amended and Restated Stock Option Plan, the Amended and Restated 2002
Stock Incentive Plan, the 2002 California Stock Incentive Plan and the Amended
and Restated 2005 Stock Incentive Plan that are forfeited, expire or are
cancelled without delivery of shares of Common Stock or which result in the
forfeiture of shares of Common Stock back to the Company on or after the
effective date of this plan, or the equivalent of such number of Shares after
the Administrator, in its sole discretion, has interpreted the effect of any
stock split, stock dividend, combination, recapitalization or 

 

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similar transaction in accordance with Paragraph 19 of this Plan;
provided, however, that no more than 16,700,000 Shares shall be added to the
Plan pursuant to subsection (ii).

 

(b)           Notwithstanding
Subparagraph (a) above, on the first day of each fiscal year of the
Company during the period beginning in fiscal year 2011, and ending on the
second day of fiscal year 2019, the number of Shares that may be issued from
time to time pursuant to the Plan, shall be increased by an amount equal to the
lesser of (i) 6,600,000 or the equivalent of such number of Shares after
the Administrator, in its sole discretion, has interpreted the effect of any
stock split, stock dividend, combination, recapitalization or similar
transaction in accordance with Paragraph 19 of the Plan; (ii) 4% of the
number of outstanding shares of Common Stock on such date; and (iii) an
amount determined by the Board of Directors.  The increase in the number of Shares available
for issuance under this Plan set forth in this Subparagraph (b) shall be
subject to the approval of the Board of Directors and shall be effective upon
the first day of each applicable fiscal year; provided, however, that in the
event the Board of Directors has not approved an increase on or before the
first day of the applicable fiscal year, the number of Shares available for
issuance under this Plan shall remain the same until such time that the Board
of Directors approves an increase under this Paragraph (b).

 

(c)           If
an Option ceases to be “outstanding”, in whole or in part (other than by
exercise), or if the Company shall reacquire (at not more than its original
issuance price) any Shares issued pursuant to a Stock Grant or Stock-Based
Award, or if any Stock Right expires or is forfeited, cancelled, or otherwise
terminated or results in any Shares not being issued, the unissued or
reacquired Shares which were subject to such Stock Right shall again be available
for issuance from time to time pursuant to this Plan.  Notwithstanding the foregoing, if a Stock
Right is exercised, in whole or in part, by tender of Shares or if the Company
or an Affiliate’s tax withholding obligation is satisfied by withholding Shares,
the number of Shares deemed to have been issued under the Plan for purposes of
the limitation set forth in Paragraph 3(a) above shall be the number of
Shares that were subject to the Stock Right or portion thereof, and not the net
number of Shares actually issued. 
However, in the case of ISOs, the foregoing provisions shall be subject
to any limitations under the Code.

 

4.                                       ADMINISTRATION OF THE PLAN.

 

The Administrator of the
Plan will be the Board of Directors, except to the extent the Board of Directors
delegates its authority to the Committee, in which case the Committee shall be
the Administrator.  Subject to the
provisions of the Plan, the Administrator is authorized to:

 

(a)           Interpret the provisions of the Plan
and all Stock Rights and to make all rules and determinations which it
deems necessary or advisable for the administration of the Plan;

 

(b)           Determine which Employees, directors
and Consultants shall be granted Stock Rights;

 

(c)           Determine the number of Shares for
which a Stock Right or Stock Rights shall be granted, provided, however, that
in no event shall Stock Rights with respect to more than 1,000,000 Shares be
granted to any Participant in any fiscal year;

 

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(d)           Specify the terms and conditions upon
which a Stock Right or Stock Rights may be granted;

 

(e)           Make changes to any outstanding Stock
Right, including, without limitation, to reduce or increase the exercise price
or purchase price, accelerate the vesting schedule or extend the expiration
date, provided that no such change shall impair the rights of a Participant
under any grant previously made without such Participant’s consent;

 

(f)            Buy out for a payment in cash or Shares, a Stock Right
previously granted and/or cancel any such Stock Right and grant in substitution
therefor other Stock Rights, covering the same or a different number of Shares
and having an exercise price or purchase price per share which may be lower or
higher than the exercise price or purchase price of the cancelled Stock Right,
based on such terms and conditions as the Administrator shall establish and the
Participant shall accept; and

 

(g)           Adopt any sub-plans applicable to
residents of any specified jurisdiction as it deems necessary or appropriate in
order to comply with or take advantage of any tax or other laws applicable to
the Company, any Affiliate or to Participants or to otherwise facilitate the
administration of the Plan, which sub-plans may include additional restrictions
or conditions applicable to Stock Rights or Shares issuable pursuant to a Stock
Right;

 

provided, however, that
all such interpretations, rules, determinations, terms and conditions shall be
made and prescribed in the context of not causing any adverse tax consequences
under Section 409A of the Code and preserving the tax status under Section 422
of the Code of those Options which are designated as ISOs.  Subject to the foregoing, the interpretation
and construction by the Administrator of any provisions of the Plan or of any
Stock Right granted under it shall be final, unless otherwise determined by the
Board of Directors, if the Administrator is the Committee.  In addition, if the Administrator is the
Committee, the Board of Directors may take any action under the Plan that would
otherwise be the responsibility of the Committee.

 

To the extent permitted
under applicable law, the Board of Directors or the Committee may allocate all
or any portion of its responsibilities and powers to any one or more of its
members and may delegate all or any portion of its responsibilities and powers
to any other person selected by it.  The
Board of Directors or the Committee may revoke any such allocation or
delegation at any time.  Notwithstanding
the foregoing, only the Board of Directors or the Committee shall be authorized
to grant a Stock Right to any director of the Company or to any “officer” of
the Company (as defined by Rule 16a-1 under the Exchange Act).

 

5.                                       ELIGIBILITY FOR PARTICIPATION.

 

The Administrator will,
in its sole discretion, name the Participants in the Plan; provided, however,
that each Participant must be an Employee, director or Consultant of the
Company or of an Affiliate at the time a Stock Right is granted.  Notwithstanding the foregoing, the
Administrator may authorize the grant of a Stock Right to a person not then an
Employee, director or Consultant of the Company or of an Affiliate; provided,
however, that the actual grant of such Stock Right shall be conditioned upon
such person becoming eligible to become a 

 

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Participant at or prior
to the time of the execution of the Agreement evidencing such Stock Right.  ISOs may be granted only to Employees who are
deemed to be residents of the United States for tax purposes.  Non-Qualified Options, Stock Grants and
Stock-Based Awards may be granted to any Employee, director or Consultant of
the Company or an Affiliate.  The
granting of any Stock Right to any individual shall neither entitle that individual
to, nor disqualify him or her from, participation in any other grant of Stock
Rights or any grant under any other benefit plan established by the Company or
any Affiliate for Employees, directors or Consultants.

 

6.                                       TERMS AND CONDITIONS OF OPTIONS.

 

Each Option shall be set
forth in writing in an Option Agreement, duly executed by the Company and, to
the extent required by law or requested by the Company, by the
Participant.  The Administrator may
provide that Options be granted subject to such terms and conditions,
consistent with the terms and conditions specifically required under this Plan,
as the Administrator may deem appropriate including, without limitation,
subsequent approval by the shareholders of the Company of this Plan or any
amendments thereto.  The Option
Agreements shall be subject to at least the following terms and conditions:

 

(a)           Non-Qualified Options:  Each Option intended to be a Non-Qualified
Option shall be subject to the terms and conditions which the Administrator
determines to be appropriate and in the best interest of the Company, subject
to the following minimum standards for any such Non-Qualified Option:

 

(i)                                     Exercise Price: Each Option Agreement shall state the
exercise price (per share) of the Shares covered by each Option, which exercise
price shall be determined by the Administrator and shall be at least equal to the Fair Market Value per share of Common Stock on the
date of grant of the Option.

 

(ii)                                  Number of Shares: Each Option Agreement shall state the
number of Shares to which it pertains.

 

(iii)                               Option Periods: 
Each Option Agreement shall state the date or dates on which it first is
exercisable and the date after which it may no longer be exercised, and may
provide that the Option rights accrue or become exercisable in installments
over a period of months or years, or upon the occurrence of certain conditions
or the attainment of stated goals or events.

 

(iv)                              Option Conditions: 
Exercise of any Option may be conditioned upon the Participant’s
execution of a Share purchase agreement in form satisfactory to the
Administrator providing for certain protections for the Company and its other
shareholders, including requirements that:

 

A.                                   The Participant’s or the Participant’s
Survivors’ right to sell or transfer the Shares may be restricted; and

 

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B.                                     The Participant or the Participant’s
Survivors may be required to execute letters of investment intent and must also
acknowledge that the Shares will bear legends noting any applicable
restrictions.

 

(b)           ISOs:  Each Option intended to be an ISO shall be
issued only to an Employee who is deemed to be a resident of the United States
for tax purposes, and shall be subject to the following terms and conditions,
with such additional restrictions or changes as the Administrator determines
are appropriate but not in conflict with Section 422 of the Code and
relevant regulations and rulings of the Internal Revenue Service:

 

(i)                                     Minimum standards: 
The ISO shall meet the minimum standards required of Non-Qualified
Options, as described in Paragraph 6(a) above, except clause (i) thereunder.

 

(ii)                                  Exercise Price: 
Immediately before the ISO is granted, if the Participant owns, directly
or by reason of the applicable attribution rules in Section 424(d) of
the Code:

 

A.                                   10% or less of the total combined
voting power of all classes of stock of the Company or an Affiliate, the
exercise price per share of the Shares covered by each ISO shall not be less
than 100% of the Fair Market Value per share of the Common Stock on the date of
grant of the Option; or

 

B.                                     More than 10% of the total combined
voting power of all classes of stock of the Company or an Affiliate, the
exercise price per share of the Shares covered by each ISO shall not be less
than 110% of the Fair Market Value per share of the Common Stock on the date of
grant of the Option.

 

(iii)                               Term of Option: 
For Participants who own:

 

A.                                   10% or less of the total combined
voting power of all classes of stock of the Company or an Affiliate, each ISO
shall terminate not more than ten years from the date of the grant or at such
earlier time as the Option Agreement may provide; or

 

B.                                     More than 10% of the total combined
voting power of all classes of stock of the Company or an Affiliate, each ISO
shall terminate not more than five years from the date of the grant or at such
earlier time as the Option Agreement may provide.

 

(iv)                              Limitation on Yearly Exercise: 
The Option Agreements shall restrict the amount of ISOs which may become
exercisable in any calendar year (under this or any other ISO plan of the
Company or an Affiliate) so that the aggregate Fair Market Value (determined on
the date each ISO is granted) of the stock with respect to which ISOs are
exercisable for the 

 

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first time by the
Participant in any calendar year does not exceed $100,000.

 

7.                                       TERMS AND CONDITIONS OF STOCK GRANTS.

 

Each Stock Grant to a
Participant shall state the principal terms in an Agreement duly executed by
the Company and, to the extent required by law or requested by the Company, by
the Participant.  The Agreement shall be
in a form approved by the Administrator and shall contain terms and conditions
which the Administrator determines to be appropriate and in the best interest
of the Company, subject to the following minimum standards:

 

(a)           Each Agreement shall state the
purchase price per share, if any, of the Shares covered by each Stock Grant,
which purchase price shall be determined by the Administrator but shall not be
less than the minimum consideration required by the  Delaware
General Corporation Law, if any, on the date of the grant of the Stock Grant;

 

(b)           Each Agreement shall state the number
of Shares to which the Stock Grant pertains; and

 

(c)           Each Agreement shall include the
terms of any right of the Company to restrict or reacquire the Shares subject
to the Stock Grant, including the time and events upon which such rights shall
accrue and the purchase price therefor, if any.

 

8.                                       TERMS AND CONDITIONS OF OTHER STOCK-BASED
AWARDS.

 

The Administrator shall
have the right to grant other Stock-Based Awards based upon the Common Stock
having such terms and conditions as the Administrator may determine, including,
without limitation, the grant of Shares based upon certain conditions, the
grant of securities convertible into Shares and the grant of stock appreciation
rights, phantom stock awards or stock units. 
The principal terms of each Stock-Based Award shall be set forth in an
Agreement, duly executed by the Company and, to the extent required by law or
requested by the Company, by the Participant. 
The Agreement shall be in a form approved by the Administrator and shall
contain terms and conditions which the Administrator determines to be
appropriate and in the best interest of the Company.

 

The Company intends that
the Plan and any Stock-Based Awards granted hereunder be exempt from the
application of Section 409A of the Code or meet the requirements of
paragraphs (2), (3) and (4) of subsection (a) of Section 409A
of the Code, to the extent applicable, and be operated in accordance with Section 409A
so that any compensation deferred under any Stock-Based Award (and applicable
investment earnings) shall not be included in income under Section 409A of
the Code.  Any ambiguities in the Plan
shall be construed to effect the intent as described in this Paragraph 8.

 

9.                                       EXERCISE OF OPTIONS AND ISSUE OF SHARES.

 

An Option (or any part or
installment thereof) shall be exercised by giving written notice to the Company
or its designee (in a form acceptable to the Administrator, which may include
electronic notice), together with provision for payment of the aggregate
exercise price in 

 

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accordance with this
Paragraph 9 for the Shares as to which the Option is being exercised, and upon
compliance with any other condition(s) set forth in the Option
Agreement.  Such notice shall be signed
by the person exercising the Option (which signature may be provided
electronically in a form acceptable to the Administrator), shall state the
number of Shares with respect to which the Option is being exercised and shall
contain any representation required by the Plan or the Option Agreement.  Payment of the exercise price for the Shares
as to which such Option is being exercised shall be made (a) in United
States dollars in cash or by check, or (b) at the discretion of the
Administrator, through delivery of shares of Common Stock held for at least six months (if required to
avoid negative accounting treatment) having a Fair Market Value equal as
of the date of the exercise to the aggregate cash exercise price for the number
of Shares as to which the Option is being exercised, or (c) at the
discretion of the Administrator, by having the Company retain from the Shares
otherwise issuable upon exercise of the Option, a number of Shares having a
Fair Market Value equal as of the date of exercise to the aggregate exercise
price for the number of Shares as to which the Option is being exercised, or (d) at
the discretion of the Administrator, in accordance with a cashless exercise
program established with a securities brokerage firm, and approved by the
Administrator, or (e) at the discretion of the Administrator, by any
combination of (a), (b), (c) and (d) above or (f) at the
discretion of the Administrator, by payment of such other lawful consideration
as the Administrator may determine. Notwithstanding the foregoing, the
Administrator shall accept only such payment on exercise of an ISO as is
permitted by Section 422 of the Code.

 

The Company shall then
reasonably promptly deliver the Shares as to which such Option was exercised to
the Participant (or to the Participant’s Survivors, as the case may be).  In determining what constitutes “reasonably
promptly,” it is expressly understood that the issuance and delivery of the
Shares may be delayed by the Company in order to comply with any law or
regulation (including, without limitation, state securities or “blue sky” laws)
which requires the Company to take any action with respect to the Shares prior
to their issuance.  The Shares shall,
upon delivery, be fully paid, non-assessable Shares.

 

The Administrator shall
have the right to accelerate the date of exercise of any installment of any
Option; provided that the Administrator shall not accelerate the exercise date
of any installment of any Option granted to an Employee as an ISO (and not
previously converted into a Non-Qualified Option pursuant to Paragraph 22)
without the prior approval of the Employee if such acceleration would violate
the annual vesting limitation contained in Section 422(d) of the
Code, as described in Paragraph 6(b)(iv).

 

The Administrator may, in
its discretion, amend any term or condition of an outstanding Option provided (i) such
term or condition as amended is permitted by the Plan, (ii) any such
amendment shall be made only with the consent of the Participant to whom the
Option was granted, or in the event of the death of the Participant, the
Participant’s Survivors, if the
amendment is adverse to the Participant, and (iii) any such
amendment of any Option shall be made only after the Administrator determines
whether such amendment would constitute a “modification” of any Option which is
an ISO (as that term is defined in Section 424(h) of the Code) or
would cause any adverse tax consequences for the holder of any Option
including, but not limited to, pursuant to Section 409A of the Code.

 

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10.                                 ACCEPTANCE OF STOCK GRANTS AND
STOCK-BASED AWARDS AND ISSUE OF SHARES.

 

A Stock Grant or
Stock-Based Award (or any part or installment thereof) shall be accepted by
executing the applicable Agreement and delivering it to the Company or its
designee, together with provision for payment of the aggregate exercise price,
if any, in accordance with this Paragraph 10 for the Shares as to which such
Stock Grant or Stock-Based Award is being accepted, and upon compliance with
any other conditions set forth in the applicable Agreement.  Payment of the purchase price for the Shares
as to which such Stock Grant or Stock-Based Award is being accepted shall be
made (a) in United States dollars in cash or by check, or (b) at the
discretion of the Administrator, through delivery of shares of Common Stock held for at least six months (if required to avoid negative accounting treatment) and
having a Fair Market Value equal as of the date of acceptance of the Stock
Grant or Stock Based-Award to the purchase price of the Stock Grant or
Stock-Based Award, or (c) at the discretion of the Administrator, by any
combination of (a) and (b) above; or (d) at the discretion of
the Administrator, by payment of such other lawful consideration as the
Administrator may determine.

 

The Company shall then,
if required by the applicable Agreement, reasonably promptly deliver the Shares
as to which such Stock Grant or Stock-Based Award was accepted to the
Participant (or to the Participant’s Survivors, as the case may be), subject to
any escrow provision set forth in the applicable Agreement.  In determining what constitutes “reasonably
promptly,” it is expressly understood that the issuance and delivery of the
Shares may be delayed by the Company in order to comply with any law or
regulation (including, without limitation, state securities or “blue sky” laws)
which requires the Company to take any action with respect to the Shares prior
to their issuance.

 

The Administrator may, in
its discretion, amend any term or condition of an outstanding Stock Grant,
Stock-Based Award or applicable Agreement provided (i) such term or
condition as amended is permitted by the Plan, (ii) any such amendment
shall be made only with the consent of the Participant to whom the Stock Grant
or Stock-Based Award was made, if the
amendment is adverse to the Participant, and (iii) any such
amendment shall be made only after the Administrator determines whether such
amendment would cause any adverse tax consequences to the Participant,
including, but not limited to, pursuant to Section 409A of the Code.

 

11.                                 RIGHTS AS A SHAREHOLDER.

 

No Participant to whom a
Stock Right has been granted shall have rights as a shareholder with respect to
any Shares covered by such Stock Right, except after due exercise of the Option
or acceptance of the Stock Grant or as set forth in any Agreement, and tender
of the aggregate exercise or purchase price, if any, for the Shares being
purchased pursuant to such exercise or acceptance and registration of the
Shares in the Company’s share register in the name of the Participant.

 

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12.                                 ASSIGNABILITY AND TRANSFERABILITY OF
STOCK RIGHTS.

 

By its terms, a Stock Right granted to a Participant
shall not be transferable by the Participant other than (i) by will or by
the laws of descent and distribution, or (ii) as approved by the
Administrator in its discretion and set forth in the applicable Agreement
provided that no Stock Right may be transferred by a Participant for
value.  Notwithstanding the foregoing, an
ISO transferred except in compliance with clause (i) above shall no longer
qualify as an ISO.  The designation of a
beneficiary of a Stock Right by a Participant, with the prior approval of the
Administrator and in such form as the Administrator shall prescribe, shall not
be deemed a transfer prohibited by this Paragraph 12.  Except as provided above, a Stock Right shall
only be exercisable or may only be accepted, during the Participant’s lifetime,
by such Participant (or by his or her legal representative) and shall not be
assigned, pledged or hypothecated in any way (whether by operation of law or
otherwise) and shall not be subject to execution, attachment or similar
process.  Any attempted transfer, assignment,
pledge, hypothecation or other disposition of any Stock Right or of any rights
granted thereunder contrary to the provisions of this Plan, or the levy of any
attachment or similar process upon a Stock Right, shall be null and void.

 

13.                                 EFFECT ON OPTIONS OF TERMINATION OF
SERVICE OTHER THAN FOR CAUSE OR DEATH OR DISABILITY.

 

Except as otherwise
provided in a Participant’s Option Agreement, in the event of a termination of
service (whether as an Employee, director or Consultant) with the Company or an
Affiliate before the Participant has exercised an Option, the following rules apply:

 

(a)           A Participant who ceases to be an
Employee, director or Consultant of the Company or of an Affiliate (for any
reason other than termination for Cause, Disability, or death for which events
there are special rules in Paragraphs 14, 15, and 16, respectively), may
exercise any Option granted to him or her to the extent that the Option is
exercisable on the date of such termination of service, but only within such
term as the Administrator has designated in a Participant’s Option Agreement.

 

(b)           Except as provided in Subparagraph (c) below,
or Paragraph 15 or 16, in no event may an Option intended to be an ISO, be
exercised later than three months after the Participant’s termination of
employment.

 

(c)           The provisions of this Paragraph (c),
and not the provisions of Paragraph 15 or 16, shall apply to a Participant who
subsequently becomes Disabled or dies after the termination of employment,
director status or consultancy; provided, however, in the case of a Participant’s
Disability or death within three months after the termination of employment,
director status or consultancy, the Participant or the Participant’s Survivors
may exercise the Option within one year after the date of the Participant’s
termination of service, but in no event after the date of expiration of the
term of the Option.

 

(d)           Notwithstanding anything herein to
the contrary, if subsequent to a Participant’s termination of employment,
termination of director status or termination of consultancy, but prior to the
exercise of an Option, the Administrator determines that, either prior or
subsequent 

 

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to the Participant’s termination, the Participant
engaged in conduct which would constitute Cause, then such Participant shall
forthwith cease to have any right to exercise any Option.

 

(e)           A Participant to whom an Option has
been granted under the Plan who is absent from the Company or an Affiliate
because of temporary disability (any disability other than a Disability as
defined in Paragraph 1 hereof), or who is on leave of absence for any purpose,
shall not, during the period of any such absence, be deemed, by virtue of such
absence alone, to have terminated such Participant’s employment, director
status or consultancy with the Company or with an Affiliate, except as the
Administrator may otherwise expressly provide; provided, however, that, for
ISOs, any leave of absence granted by the Administrator of greater than ninety
days, unless pursuant to a contract or statute that guarantees the right to
reemployment, shall cause such ISO to become a Non-Qualified Option on the 181st day following
such leave of absence.

 

(f)            Except as required by law or as set
forth in a Participant’s Option Agreement, Options granted under the Plan shall
not be affected by any change of a Participant’s status within or among the
Company and any Affiliates, so long as the Participant continues to be an
Employee, director or Consultant of the Company or any Affiliate.

 

14.                                 EFFECT ON OPTIONS OF TERMINATION OF
SERVICE FOR CAUSE.

 

Except as otherwise
provided in a Participant’s Option Agreement, the following rules apply if
the Participant’s service (whether as an Employee, director or Consultant) with
the Company or an Affiliate is terminated for Cause prior to the time that all
his or her outstanding Options have been exercised:

 

(a)           All outstanding and unexercised
Options as of the time the Participant is notified that his or her service is
terminated for Cause will immediately be forfeited.

 

(b)           Cause is not limited to events which
have occurred prior to a Participant’s termination of service, nor is it
necessary that the Administrator’s finding of Cause occur prior to
termination.  If the Administrator
determines, subsequent to a Participant’s termination of service but prior to
the exercise of an Option, that either prior or subsequent to the Participant’s
termination the Participant engaged in conduct which would constitute Cause,
then the right to exercise any Option is forfeited.

 

15.                                 EFFECT ON OPTIONS OF TERMINATION OF
SERVICE FOR DISABILITY.

 

Except as otherwise
provided in a Participant’s Option Agreement:

 

(a)           A Participant who ceases to be an
Employee, director or Consultant of the Company or of an Affiliate by reason of
Disability may exercise any Option granted to him or her to the extent that the
Option has become exercisable but has not been exercised on the date of
Disability.

 

(b)           A Disabled Participant may exercise
the Option only within the period ending one year after the date of the
Participant’s termination due to Disability, notwithstanding that the
Participant might have been able to exercise the Option as to some or all of
the Shares on a later 

 

12

 

date if the Participant had not become Disabled and
had continued to be an Employee, director or Consultant or, if earlier, within
the originally prescribed term of the Option.

 

(c)           The Administrator shall make the
determination both of whether Disability has occurred and the date of its
occurrence (unless a procedure for such determination is set forth in another
agreement between the Company and such Participant, in which case such
procedure shall be used for such determination).  If requested, the Participant shall be
examined by a physician selected or approved by the Administrator, the cost of
which examination shall be paid for by the Company.

 

16.                                 EFFECT ON OPTIONS OF DEATH WHILE AN
EMPLOYEE, DIRECTOR OR CONSULTANT.

 

Except as otherwise
provided in a Participant’s Option Agreement:

 

(a)           In the event of the death of a
Participant while the Participant is an Employee, director or Consultant of the
Company or of an Affiliate, such Option may be exercised by the Participant’s
Survivors to the extent that the Option has become exercisable but has not been
exercised on the date of death.

 

(b)           If the Participant’s Survivors wish
to exercise the Option, they must take all necessary steps to exercise the
Option within one year after the date of death of such Participant,
notwithstanding that the decedent might have been able to exercise the Option
as to some or all of the Shares on a later date if he or she had not died and
had continued to be an Employee, director or Consultant or, if earlier, within
the originally prescribed term of the Option.

 

17.                                 PURCHASE FOR INVESTMENT.

 

Unless the offering and
sale of the Shares to be issued upon the particular exercise or acceptance of a
Stock Right shall have been effectively registered under the Securities Act,
the Company shall be under no obligation to issue the Shares covered by such
exercise unless and until the following conditions have been fulfilled:

 

(a)           The person who exercises or accepts
such Stock Right shall warrant to the Company, prior to the receipt of such
Shares, that such person is acquiring such Shares for his or her own account,
for investment, and not with a view to, or for sale in connection with, the
distribution of any such Shares, in which event the person acquiring such
Shares shall be bound by the provisions of the following legend (or a legend in
substantially similar form) which shall be endorsed upon the certificate
evidencing the Shares issued pursuant to such exercise or such grant:

 

“The shares represented
by this certificate have been taken for investment and they may not be sold or
otherwise transferred by any person, including a pledgee, unless (1) either
(a) a Registration Statement with respect to such shares shall be
effective under the Securities Act of 1933, as amended, or (b) the Company
shall have received an opinion of counsel satisfactory to it that an exemption
from registration under such Act is 

 

13

 

then available, and (2) there
shall have been compliance with all applicable state securities laws.”

 

(b)           At the discretion of the
Administrator, the Company shall have received an opinion of its counsel that
the Shares may be issued upon such particular exercise or acceptance in
compliance with the Securities Act without registration thereunder.

 

18.                                 DISSOLUTION OR LIQUIDATION OF THE
COMPANY.

 

Upon the dissolution or
liquidation of the Company, all Options granted under this Plan which as of
such date shall not have been exercised and all Stock Grants and Stock-Based
Awards which have not been accepted will terminate and become null and void;
provided, however, that if the rights of a Participant or a Participant’s
Survivors have not otherwise terminated and expired, the Participant or the
Participant’s Survivors will have the right immediately prior to such
dissolution or liquidation to exercise or accept any Stock Right to the extent
that the Stock Right is exercisable or subject to acceptance as of the date
immediately prior to such dissolution or liquidation.  Upon the dissolution or liquidation of the
Company, any outstanding Stock-Based Awards shall immediately terminate unless
otherwise determined by the Administrator or specifically provided in the
applicable Agreement.

 

19.                                 ADJUSTMENTS.

 

Upon the occurrence of
any of the following events, a Participant’s rights with respect to any Stock
Right granted to him or her hereunder shall be adjusted as hereinafter
provided, unless otherwise specifically provided in a Participant’s Agreement:

 

(a)           Stock Dividends and Stock Splits.  If (i) the shares of Common Stock shall
be subdivided or combined into a greater or smaller number of shares or if the
Company shall issue any shares of Common Stock as a stock dividend on its
outstanding Common Stock, or (ii) additional shares or new or different
shares or other securities of the Company or other non-cash assets are
distributed with respect to such shares of Common Stock, the number of shares
of Common Stock deliverable upon the exercise of an Option or acceptance of a
Stock Grant shall be appropriately increased or decreased proportionately, and
appropriate adjustments shall be made including, in the exercise or purchase
price per share, to reflect such events. 
The number of Shares subject to the limitations in Paragraphs 3(a), 3(b) and
4(c) shall also be proportionately adjusted upon the occurrence of such
events.

 

(b)           Corporate Transactions.  If the Company is to be consolidated with or
acquired by another entity in a merger, consolidation, or sale of all or
substantially all of the Company’s assets other than a transaction to merely
change the state of incorporation (a “Corporate Transaction”), the
Administrator or the board of directors of any entity assuming the obligations
of the Company hereunder (the “Successor Board”), shall, as to outstanding Options,
either (i) make appropriate provision for the continuation of such Options
by substituting on an equitable basis for the Shares then subject to such
Options either the consideration payable with respect to the outstanding shares
of Common Stock in connection with the Corporate Transaction or securities of
any successor or acquiring entity; or (ii) upon written notice to the
Participants, provide that such Options must be exercised (either (A) to
the extent then exercisable or, (B) at 

 

14

 

the discretion of the Administrator, any such Options
being made partially or fully exercisable for purposes of this Subparagraph
(b)), within a specified number of days of the date of such notice, at the end
of which period such Options which have not been exercised shall terminate; or (iii) terminate
such Options in exchange for payment of an amount equal to the consideration
payable upon consummation of such Corporate Transaction to a holder of the
number of shares of Common Stock into which such Option would
have been exercisable
(either (A) to the extent then exercisable or, (B) at the discretion
of the Administrator, any such Options being made partially or fully
exercisable for purposes of this Subparagraph (b)) less the aggregate exercise
price thereof.  For purposes of
determining the payments to be made pursuant to Subclause (iii) above, in
the case of a Corporate Transaction the consideration for which, in whole or in
part, is other than cash, the consideration other than cash shall be valued at
the fair value thereof as determined in good faith by the Board of Directors.

 

With respect to
outstanding Stock Grants, the Administrator or the Successor Board, shall make
appropriate provision for the continuation of such Stock Grants on the same
terms and conditions by substituting on an equitable basis for the Shares then
subject to such Stock Grants either the consideration payable with respect to
the outstanding Shares of Common Stock in connection with the Corporate
Transaction or securities of any successor or acquiring entity.  In lieu of the foregoing, in
connection with any Corporate Transaction, the Administrator may provide that,
upon consummation of the Corporate Transaction, each outstanding Stock Grant
shall be terminated in exchange for payment of an amount equal to the
consideration payable upon consummation of such Corporate Transaction to a
holder of the number of shares of Common Stock comprising such Stock Grant (to
the extent such Stock Grant is no longer subject to any forfeiture or
repurchase rights then in effect or, at the discretion of the Administrator,
all forfeiture and repurchase rights being waived upon such Corporate
Transaction).

 

In
taking any of the actions permitted under this Paragraph 19(b), the
Administrator shall not be obligated by the Plan to treat all Stock Rights, all
Stock Rights held by a Participant, or all Stock Rights of the same type,
identically.

 

(c)           Recapitalization or Reorganization.  In the event of a recapitalization or
reorganization of the Company other than a Corporate Transaction pursuant to
which securities of the Company or of another corporation are issued with
respect to the outstanding shares of Common Stock, a Participant upon
exercising an Option or accepting a Stock Grant after the recapitalization or
reorganization shall be entitled to receive for the price paid upon such
exercise or acceptance if any, the number of replacement securities which would
have been received if such Option had been exercised or Stock Grant accepted
prior to such recapitalization or reorganization.

 

(d)           Adjustments to Stock-Based Awards.  Upon the happening of any of the events
described in Subparagraphs (a), (b) or (c) above, any outstanding
Stock-Based Award shall be appropriately adjusted to reflect the events
described in such Subparagraphs.  The
Administrator or the Successor Board shall determine the specific adjustments
to be made under this Paragraph 19, including, but not limited to the effect of
any, Corporate Transaction and, subject to Paragraph 4, its determination shall
be conclusive.

 

15

 

(e)           Modification of Options.  Notwithstanding the foregoing, any
adjustments made pursuant to Subparagraph (a), (b) or (c) above with
respect to Options shall be made only after the Administrator determines
whether such adjustments would constitute a “modification” of any ISOs (as that
term is defined in Section 424(h) of the Code) or would cause any
adverse tax consequences for the holders of Options, including, but not limited
to, pursuant to Section 409A of the Code. 
If the Administrator determines that such adjustments made with respect
to Options would constitute a modification or other adverse tax consequence, it
may refrain from making such adjustments, unless the holder of an Option
specifically agrees in writing that such adjustment be made and such writing
indicates that the holder has full knowledge of the consequences of such “modification”
on his or her income tax treatment with respect to the Option.  This Subparagraph (e) shall not apply to
the acceleration of the vesting of any ISO that would cause any portion of the
ISO to violate the annual vesting limitation contained in Section 422(d) of
the Code, as described in Paragraph 6(b)(iv).

 

20.                                 ISSUANCES OF SECURITIES.

 

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 subject to Stock Rights. 
Except as expressly provided herein, no adjustments shall be made for
dividends paid in cash or in property (including without limitation,
securities) of the Company prior to any issuance of Shares pursuant to a Stock
Right.

 

21.                                 FRACTIONAL SHARES.

 

No fractional shares
shall be issued under the Plan and the person exercising a Stock Right shall
receive from the Company cash in lieu of such fractional shares equal to the
Fair Market Value thereof.

 

22.                                 CONVERSION OF ISOS INTO NON-QUALIFIED
OPTIONS; TERMINATION OF ISOS.

 

The Administrator, at the
written request of any Participant, may in its discretion take such actions as
may be necessary to convert such Participant’s ISOs (or any portions thereof)
that have not been exercised on the date of conversion into Non-Qualified
Options at any time prior to the expiration of such ISOs, regardless of whether
the Participant is an Employee of the Company or an Affiliate at the time of such
conversion.  At the time of such
conversion, the Administrator (with the consent of the Participant) may impose
such conditions on the exercise of the resulting Non-Qualified Options as the
Administrator in its discretion may determine, provided that such conditions
shall not be inconsistent with this Plan. 
Nothing in the Plan shall be deemed to give any Participant the right to
have such Participant’s ISOs converted into Non-Qualified Options, and no such
conversion shall occur until and unless the Administrator takes appropriate
action.  The Administrator, with the
consent of the Participant, may also terminate any portion of any ISO that has
not been exercised at the time of such conversion.

 

16

 

23.                                 WITHHOLDING.

 

In the event that any
federal, state, or local income taxes, employment taxes, Federal Insurance
Contributions Act (“F.I.C.A.”) withholdings or other amounts are required by
applicable law or governmental regulation to be withheld from the Participant’s
salary, wages or other remuneration in connection with the exercise or
acceptance of a Stock Right or in connection with a Disqualifying Disposition
(as defined in Paragraph 24) or upon the lapsing of any forfeiture provision or
right of repurchase or for any other reason required by law, the Company may
withhold from the Participant’s compensation, if any, or may require that the
Participant advance in cash to the Company, or to any Affiliate of the Company
which employs or employed the Participant, the statutory minimum amount of such
withholdings unless a different withholding arrangement, including the use of
shares of the Company’s Common Stock, is authorized by the Administrator (and
permitted by law).  For purposes hereof,
the fair market value of the shares withheld for purposes of payroll
withholding shall be determined in the manner set forth under the definition of
Fair Market Value provided in Paragraph 1 above, as of the most recent
practicable date prior to the date of exercise. 
If the Fair Market Value of the shares withheld is less than the amount
of payroll withholdings required, the Participant may be required to advance
the difference in cash to the Company or the Affiliate employer.  The Administrator in its discretion may
condition the exercise of an Option for less than the then Fair Market Value on
the Participant’s payment of such additional withholding.

 

24.                                 NOTICE TO COMPANY OF DISQUALIFYING
DISPOSITION.

 

Each Employee who
receives an ISO must agree to notify the Company in writing immediately after
the Employee makes a Disqualifying Disposition of any Shares acquired pursuant
to the exercise of an ISO.  A
Disqualifying Disposition is defined in Section 424(c) of the Code
and includes any disposition (including any sale or gift) of such Shares before
the later of (a) two years after the date the Employee was granted the
ISO, or (b) one year after the date the Employee acquired Shares by
exercising the ISO, except as otherwise provided in Section 424(c) of
the Code.  If the Employee has died
before such Shares are sold, these holding period requirements do not apply and
no Disqualifying Disposition can occur thereafter.

 

25.                                 TERMINATION OF THE PLAN.

 

The Plan will terminate
on December 17, 2019.  The Plan may
be terminated at an earlier date by vote of the shareholders or the Board of
Directors of the Company; provided, however, that any such earlier termination
shall not affect any Agreements executed prior to the effective date of such
termination.  Termination of the Plan
shall not affect any Stock Rights theretofore granted.

 

26.                                 AMENDMENT OF THE PLAN AND AGREEMENTS.

 

The Plan may be amended
by the shareholders of the Company.  The
Plan may also be amended by the Administrator, including, without limitation,
to the extent necessary to qualify any or all outstanding Stock Rights granted
under the Plan or Stock Rights to be granted under the Plan for favorable
federal income tax treatment as may be afforded incentive stock options under Section 422
of the Code (including deferral of taxation upon exercise), and to the extent 

 

17

 

necessary to qualify the
shares issuable upon exercise or acceptance of any outstanding Stock Rights
granted, or Stock Rights to be granted, under the Plan for listing on any
national securities exchange or quotation in any national automated quotation
system of securities dealers.  Any
amendment approved by the Administrator which the Administrator determines is
of a scope that requires shareholder approval shall be subject to obtaining
such shareholder approval.  Any
modification or amendment of the Plan shall not, without the consent of a
Participant, adversely affect
his or her rights under a Stock Right previously granted to him or her.  With the consent of the Participant affected,
the Administrator may amend outstanding Agreements in a manner which may be
adverse to the Participant but which is not inconsistent with the Plan.  In the discretion of the Administrator,
outstanding Agreements may be amended by the Administrator in a manner which is
not adverse to the Participant.

 

27.                                 EMPLOYMENT OR OTHER RELATIONSHIP.

 

Nothing in this Plan or
any Agreement shall be deemed to prevent the Company or an Affiliate from
terminating the employment, consultancy or director status of a Participant,
nor to prevent a Participant from terminating his or her own employment,
consultancy or director status or to give any Participant a right to be
retained in employment or other service by the Company or any Affiliate for any
period of time.

 

28.                                 GOVERNING LAW.

 

This Plan shall be
construed and enforced in accordance with the laws of the State of Delaware.

 

18Exhibit 10.5

 

IRONWOOD PHARMACEUTICALS, INC.

 

2010 EMPLOYEE STOCK PURCHASE PLAN

 

The following constitute the provisions of the 2010 Employee Stock
Purchase Plan (the “Plan”) of Ironwood Pharmaceuticals, Inc. (the “Company”).

 

1.             Purpose.  The purpose of the Plan is to provide
Employees of the Company and its Designated Subsidiaries with an opportunity to
purchase Common Stock of the Company.  It
is the intention of the Company to have the Plan qualify as an “Employee Stock
Purchase Plan” under Section 423 of the Code.  The provisions of the Plan shall,
accordingly, be construed so as to extend and limit participation in a manner
consistent with the requirements of that section of the Code.

 

2.             Definitions.

 

(a)           “Board” shall
mean the Board of Directors of the Company, or a committee of the Board of
Directors named by the Board to administer the Plan.

 

(b)           “Code” shall
mean the Internal Revenue Code of 1986, as amended.

 

(c)           “Common Stock”
shall mean the Class A Common Stock, $0.001 par value per share, of the
Company.

 

(d)           “Company”
shall mean Ironwood Pharmaceuticals, Inc., a Delaware corporation.

 

(e)           “Compensation”
shall mean total cash compensation received by the Employee from the Company or
a Designated Subsidiary that is taxable income for federal income tax purposes,
including, payments for overtime, shift premium, incentive compensation,
incentive payments, bonuses, commissions and other compensation received from
the Company or a Designated Subsidiary, but excluding relocation, expense
reimbursements, tuition or other reimbursements and income realized as a result
of participation in any stock option, stock purchase or similar plan of the
Company or a Designated Subsidiary.

 

(f)            “Continuous
Status as an Employee” shall mean the absence of any interruption or
termination of service as an Employee. 
Continuous Status as an Employee shall not be considered interrupted in
the case of a leave of absence agreed to in writing by the Company, provided
that such leave is for a period of not more than 90 days or reemployment upon
the expiration of such leave is guaranteed by contract or statute.

 

(g)           “Contributions”
shall mean all amounts credited to the account of a participant pursuant to the
Plan.

 

 

(h)           “Designated
Subsidiaries” shall mean the Subsidiaries which have been designated by the
Board from time to time in its sole discretion as eligible to participate in
the Plan.

 

(i)            “Employee”
shall mean any person who is employed by the Company or one of its Designated
Subsidiaries for tax purposes and who is customarily employed for at least 20 hours per week and more than five months in a calendar year by the
Company or one of its Designated Subsidiaries.

 

(j)            “Exercise Date”
shall mean the last business day of each Offering Period of the Plan.

 

(k)           “Exercise Price”
shall mean with respect to an Offering Period, an amount equal to 85% of the
fair market value (as defined in paragraph 7(b)) of a share of Common Stock on
the Offering Date or on the Exercise Date, whichever is lower.

 

(l)            “Offering Date”
shall mean the first business day of each Offering Period of the Plan.

 

(m)          “Offering Period”
shall mean a period of six months as set forth in paragraph 4 of the Plan.

 

(n)           “Plan” shall
mean this Ironwood Pharmaceuticals, Inc. 2010 Employee Stock Purchase
Plan.

 

(o)           “Subsidiary”
shall mean a corporation, domestic or foreign, of which not less than 50% of
the voting shares are held by the Company or a Subsidiary, whether or not such
corporation now exists or is hereafter organized or acquired by the Company or
a Subsidiary.

 

3.             Eligibility.

 

(a)           Any person who has
been continuously employed as an Employee for three months as of the Offering Date of a given Offering Period
shall be eligible to participate in such Offering Period under the Plan and
further, subject to the requirements of paragraph 5(a) and the limitations
imposed by Section 423(b) of the Code.  All Employees granted options under the Plan
with respect to any Offering Period will have the same rights and privileges.

 

(b)           Any provisions of
the Plan to the contrary notwithstanding, no Employee shall be granted an
option under the Plan (i) if, immediately after the grant, such Employee
(or any other person whose stock would be attributed to such Employee pursuant
to Section 424(d) of the Code) would own stock and/or hold
outstanding options to purchase stock possessing five percent (5%) or more of
the total combined voting power or value of all classes of stock of the Company
or of any Subsidiary of the Company, (ii) which permits his or her rights
to purchase stock under all employee stock purchase plans (described in Section 423
of the Code) of the Company and its Subsidiaries to accrue at a rate which
exceeds $25,000 of fair market value of such stock as defined in paragraph 7(b) (determined
at the time such option is granted) for each

 

2

 

calendar
year in which such option is outstanding at any time, or (iii) to purchase more than 2,500 shares
(subject to any adjustment pursuant to paragraph 18) of Common Stock in any one
Offering Period.  Any option
granted under the Plan shall be deemed to be modified to the extent necessary
to satisfy this paragraph 3(b).

 

4.             Offering Periods.  The Plan shall be implemented by a series of
Offering Periods, with a new Offering Period commencing on January 1 and July 1
of each year or the first business day thereafter (or at such other time or
times as may be determined by the Board).  The initial Offering Period shall commence July 1,
2010, or on such later date as determined by the Board.

 

5.             Participation.

 

(a)           An  eligible Employee may become a participant
in the Plan by completing an Enrollment Form provided by the Company and
filing it with the Company or its designee prior to the applicable Offering
Date, unless a later time for filing the Enrollment Form is set by the
Board for all eligible Employees with respect to a given Offering Period.  The Enrollment Form and its submission
may be electronic as directed by the Company. 
The Enrollment Form shall set forth the percentage of the
participant’s Compensation (which shall be not less than 1% and not more than 15%) to be paid as Contributions
pursuant to the Plan.

 

(b)           Payroll deductions
shall commence with the first payroll following the Offering Date, unless a
later time is set by the Board with respect to a given Offering Period, and
shall end on the last payroll paid on or prior to the Exercise Date of the
Offering Period to which the Enrollment Form is applicable, unless sooner
terminated as provided in paragraph 10.

 

6.             Method of
Payment of Contributions.

 

(a)           Each participant
shall elect to have payroll deductions made on each payroll during the Offering
Period in an amount not less than 1% and not more than 15% of such participant’s Compensation on each such payroll;
provided that the aggregate of such payroll deductions during the Offering
Period shall not exceed 15% of
the participant’s aggregate Compensation during said Offering Period (or such
other percentage as the Board may establish from time to time before an
Offering Date).  All payroll deductions
made by a participant shall be credited to his or her account under the
Plan.  A participant may not make any
additional payments into such account.

 

(b)           A participant may
discontinue his or her participation in the Plan as provided in paragraph 10,
or, on one occasion only during the Offering Period, may decrease, but may not
increase, the rate of his or her Contributions during the Offering Period by
completing and filing with the Company a new Enrollment Form authorizing a
change in the deduction rate.  The change
in rate shall be effective as of the beginning of the next payroll period
following the date of filing of the new Enrollment Form, if the Enrollment Form is
completed at least ten business days prior to such date, and, if not, as of the
beginning of the next succeeding payroll period.

 

3

 

(c)           Notwithstanding the
foregoing, to the extent necessary to comply with Section 423(b)(8) of
the Code and paragraph 3(b), a participant’s payroll deductions may be
decreased to 0% at such time during any Offering Period which is scheduled to
end during the current calendar year that the aggregate of all payroll
deductions accumulated with respect to such Offering Period and any other
Offering Period ending within the same calendar year equals $21,250.  Payroll deductions shall recommence at the
rate provided in such participant’s Enrollment Form at the beginning of
the first Offering Period which is scheduled to end in the following calendar
year, unless terminated by the participant as provided in paragraph 10.

 

7.             Grant of Option.

 

(a)           On the Offering Date
of each Offering Period, each eligible Employee participating in such Offering
Period shall be granted an option to purchase on the Exercise Date of such
Offering Period a number of shares of the Common Stock determined by dividing
such Employee’s Contributions accumulated prior to such Exercise Date and
retained in the participant’s account as of the Exercise Date by the applicable
Exercise Price; provided however, that such purchase shall be subject to the
limitations set forth in paragraphs 3(b) and 12.  The fair market value of a share of the
Common Stock shall be determined as provided in paragraph 7(b).

 

(b)           The fair market
value of the Common Stock on a given date shall be determined by the Board
based on (i) if the Common Stock is listed on a national securities
exchange or traded in the over-the-counter market and sales prices are
regularly reported for the Common Stock, the closing or last sale price of the
Common Stock for such date (or, in the event that the Common Stock is not
traded on such date, on the immediately preceding trading date), on the
composite tape or other comparable reporting system or (ii) if the Common
Stock is not listed on a national securities exchange and such price is not
regularly reported, the mean between the bid and asked prices per share of the
Common Stock at the close of trading in the over-the-counter market.

 

8.             Exercise of
Option.  Unless a participant
withdraws from the Plan as provided in paragraph 10, his or her option for the
purchase of shares will be exercised automatically on the Exercise Date of the
Offering Period, and the maximum number of full shares subject to the option
will be purchased for him or her at the applicable Exercise Price with the
accumulated Contributions in his or her account.  If a fractional number of shares results,
then such number shall be rounded down to the next whole number and any
unapplied cash shall be carried forward to the next Exercise Date, unless the
participant requests a cash payment.  The
shares purchased upon exercise of an option hereunder shall be deemed to be
transferred to the participant on the Exercise Date.  During a participant’s lifetime, a
participant’s option to purchase shares hereunder is exercisable only by him or
her.

 

9.             Delivery.  Upon the written request of a participant,
certificates representing the shares purchased upon exercise of an option will
be issued as promptly as practicable after the Exercise Date of each Offering
Period to participants who wish to hold their shares in certificate form.  Any payroll deductions accumulated in a
participant’s account which are not sufficient to purchase a full Share shall
be retained in the participant’s account for the subsequent Offering Period,
subject to earlier withdrawal by the participant as provided in paragraph 10
below.  Any

 

4

 

other
amounts left over in a participant’s account after an Exercise Date shall be
returned to the participant.

 

10.           Withdrawal;
Termination of Employment.

 

(a)           A participant may
withdraw all but not less than all the Contributions credited to his or her
account under the Plan at any time prior to the Exercise Date of the Offering
Period by giving written notice to the Company or its designee.  All of the participant’s Contributions
credited to his or her account will be paid to him or her promptly after
receipt of his or her notice of withdrawal and his or her option for the
current period will be automatically terminated, and no further Contributions
for the purchase of shares will be made during the Offering Period.

 

(b)           Upon termination of
the participant’s Continuous Status as an Employee prior to the Exercise Date
of the Offering Period for any reason, including retirement or death, the
Contributions credited to his or her account will be returned to him or her or,
in the case of his or her death, to the person or persons entitled thereto under
paragraph 14, and his or her option will be automatically terminated.

 

(c)           In the event an
Employee fails to remain in Continuous Status as an Employee for at least 20
hours per week during the Offering Period in which the Employee is a
participant, he or she will be deemed to have elected to withdraw from the Plan
and the Contributions credited to his or her account will be returned to him or
her and his or her option terminated.

 

(d)           A participant’s
withdrawal from an Offering Period will not have any effect upon his or her
eligibility to participate in a succeeding offering or in any similar plan
which may hereafter be adopted by the Company.

 

11.           Interest.  No interest shall accrue on the Contributions
of a participant in the Plan.

 

12.           Stock.

 

(a)           The maximum number
of shares of Common Stock which shall be made available for sale under the Plan
shall be 500,000 shares, plus an annual increase on the first day of each of
the Company’s fiscal years beginning in 2011, equal to the lesser of (i) 1,000,000  shares, (ii) 1 % of the shares of Common Stock
outstanding on the last day of the immediately preceding fiscal year, or (iii) such
lesser number of shares as is determined by the Board, subject to adjustment
upon changes in capitalization of the Company as provided in paragraph 18.  The increase in the number of shares of
Common Stock available for sale under this Plan set forth in this paragraph 12(a) shall
be subject to the approval of the Board and shall be effective upon the first
day of each fiscal year; provided, however, that in the event the Board has not
approved an increase on or before the first day of the applicable fiscal year,
the number of shares of Common Stock available for sale under this Plan shall remain
the same until such time that the Board approves an increase pursuant to this
Subparagraph 12(a).

 

If the total number of shares which would otherwise be subject to
options granted pursuant to paragraph 7(a) on the Offering Date of an
Offering Period exceeds the number of

 

5

 

shares
then available under the Plan (after deduction of all shares for which options
have been exercised), the Company shall make a pro rata allocation of the
shares remaining available for option grants in as uniform a manner as shall be
practicable and as it shall determine to be equitable.  Any amounts remaining in an Employee’s
account not applied to the purchase of shares pursuant to this paragraph 12
shall be refunded on or promptly after the Exercise Date.  In such event, the Company shall give written
notice of such reduction of the number of shares subject to the option to each
Employee affected thereby and shall similarly reduce the rate of Contributions,
if necessary.

 

(b)           The participant will
have no interest or voting right in shares covered by his or her option until
such option has been exercised.

 

13.           Administration.  The Board shall supervise and administer the
Plan and shall have full power to adopt, amend and rescind any rules deemed
desirable and appropriate for the administration of the Plan and not
inconsistent with the Plan, to construe and interpret the Plan, and to make all
other determinations necessary or advisable for the administration of the Plan.

 

14.           Designation of
Beneficiary.

 

(a)           A participant may
designate a beneficiary who is to receive any shares and cash, if any, from the
participant’s account under the Plan in the event of such participant’s death
subsequent to the end of the Offering Period but prior to delivery to him or
her of such shares and cash.  In
addition, a participant may designate a beneficiary who is to receive any cash
from the participant’s account under the Plan in the event of such participant’s
death prior to the Exercise Date of the Offering Period.  If a participant is married and the
designated beneficiary is not the spouse, spousal consent shall be required for
such designation to be effective. 
Beneficiary designations shall be made either in writing or by
electronic delivery as directed by the Company.

 

(b)           Such designation of
beneficiary may be changed by the participant (and his or her spouse, if any)
at any time by submission of the required notice, which may be electronic.  In the event of the death of a participant
and in the absence of a beneficiary validly designated under the Plan who is
living at the time of such participant’s death, the Company shall deliver such
shares and/or cash to the executor or administrator of the estate of the
participant, or if no such executor or administrator has been appointed (to the
knowledge of the Company), the Company, in its discretion, may deliver such
shares and/or cash to the spouse or to any one or more dependents or relatives
of the participant, or if no spouse, dependent or relative is known to the
Company, then to such other person as the Company may designate.

 

15.           Transferability.  Neither Contributions credited to a
participant’s account nor any rights with regard to the exercise of an option
or to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in paragraph 14) by the participant.  Any such attempt at assignment, transfer,
pledge or other disposition shall be without effect, except that the Company
may treat such act as an election to withdraw funds in accordance with
paragraph 10.

 

6

 

16.           Use of Funds.  All Contributions received or held by the
Company under the Plan may be used by the Company for any corporate purpose,
and the Company shall not be obligated to segregate such Contributions.

 

17.           Reports.  Individual accounts will be maintained for
each participant in the Plan.  Statements
of account will be given to participating Employees promptly following the
Exercise Date, which statements will set forth the amounts of Contributions,
the per share purchase price, the number of shares purchased and the remaining
cash balance, if any.

 

18.           Adjustments Upon
Changes in Capitalization.  Subject to
any required action by the stockholders of the Company, the number of shares of
Common Stock covered by unexercised options under the Plan and the number of
shares of Common Stock which have been authorized for issuance under the Plan
but are not yet subject to options set forth in paragraph 12(a), the number of
shares of Common Stock set forth in paragraph 12(a)(i) (collectively, the “Reserves”),
the maximum number of shares of Common Stock that may be purchased by a
participant in an Offering Period set forth in paragraph 3(b), as well as the
price per share of Common Stock covered by each unexercised option under the
Plan, 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. Such adjustment shall be made by the Board, whose determination in that
respect shall be final, binding and conclusive.

 

In the event of the proposed dissolution or liquidation of the Company,
an Offering Period then in progress will terminate immediately prior to the
consummation of such proposed action, unless otherwise provided by the
Board.  In the event of a proposed sale
of all or substantially all of the assets of the Company, or the merger,
consolidation or other capital reorganization of the Company with or into
another corporation, each option outstanding under the Plan shall be assumed or
an equivalent option shall be substituted by such successor corporation or a
parent or subsidiary of such successor corporation, unless the Board
determines, in the exercise of its sole discretion and in lieu of such
assumption or substitution, to shorten the Offering Period then in progress by
setting a new Exercise Date (the “New Exercise Date”).  If the Board shortens the Offering Period
then in progress in lieu of assumption or substitution in the event of a merger
or sale of assets, the Board shall notify each participant in writing, at least
ten days prior to the New Exercise Date, that the Exercise Date for his or her
option has been changed to the New Exercise Date and that his or her option
will be exercised automatically on the New Exercise Date, unless prior to such
date he or she has withdrawn from the Offering Period as provided in paragraph
10.  For purposes of this paragraph, an
option granted under the Plan shall be deemed to be assumed if, following the
sale of assets, merger or other reorganization, the option confers the right to
purchase, for each share of Common Stock subject to the option immediately
prior to the sale of assets, merger or other reorganization, the consideration
(whether stock, cash or other securities or property) received in the sale of
assets, merger or other reorganization by holders of Common Stock for each
share of Common Stock held on the effective date of such transaction (and if
such holders were offered a choice of consideration, the type of consideration
chosen by the holders of a majority of the outstanding shares of Common Stock);
provided, however, that if such consideration received in such transaction was
not solely common stock of the successor corporation or its parent (as defined
in

 

7

 

Section 424(e) of
the Code), the Board may, with the consent of the successor corporation,
provide for the consideration to be received upon exercise of 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 sale of assets, merger or other reorganization.

 

The Board may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the
price per share of Common Stock covered by each outstanding option, in the
event that the Company effects one or more reorganizations, recapitalizations,
rights offerings or other increases or reductions of shares of its outstanding
Common Stock, and in the event of the Company being consolidated with or merged
into any other corporation.

 

19.           Amendment or
Termination.

 

(a)           The Board may at any
time terminate or amend the Plan.  Except
as provided in paragraph 18, no such termination may affect options previously
granted, nor may an amendment make any change in any option theretofore granted
which adversely affects the rights of any participant provided that an Offering
Period may be terminated by the Board on an Exercise Date or by the Board’s
setting a new Exercise Date with respect to an Offering Period then in progress
if the Board determines that termination of the Offering Period is in the best
interests of the Company and the stockholders or if continuation of the
Offering Period would cause the Company to incur adverse accounting charges in
the generally-accepted accounting rules applicable to the Plan.  In addition, to the extent necessary to
comply with Section 423 of the Code (or any successor rule or
provision or any applicable law or regulation), the Company shall obtain stockholder
approval in such a manner and to such a degree as so required.

 

(b)           Without stockholder consent and
without regard to whether any participant rights may be considered to have been
adversely affected, the Board shall be entitled to change the Offering Periods,
limit the frequency and/or number of changes in the amount withheld during an
Offering Period, establish the exchange ratio applicable to amounts withheld in
a currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company’s processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant’s Compensation, and establish such other limitations or procedures
as the Board determines in its sole discretion advisable that are consistent
with the Plan.

 

20.           Notices.  All notices or other communications by a
participant to the Company under or in connection with the Plan shall be deemed
to have been duly given when received in the form specified by the Company at the
location, or by the person, designated by the Company for the receipt thereof.

 

8

 

21.           Conditions Upon
Issuance and Limitations on Dispositions of Shares.

 

(a)           Shares shall not be
issued with respect to an option unless the exercise of such option and the
issuance and delivery of such shares pursuant thereto shall comply with all
applicable provisions of law, domestic or foreign, including, without
limitation, the Securities Act of 1933, as amended, the Securities Exchange Act
of 1934, as amended, the rules and regulations promulgated thereunder, and
the requirements of any stock exchange upon which the shares may then be
listed, and shall be further subject to the approval of counsel for the Company
with respect to such compliance.

 

(b)           As a condition to
the exercise of an option, the Company 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 by any of the aforementioned
applicable provisions of law.

 

(c)           Shares of Common
Stock purchased under the Plan shall be subject to a six-month holding period
from the Exercise Date upon which the shares were purchased.  During this time, the shares may not be sold,
transferred, withdrawn, or moved; provided, however, that such prohibition will
not apply following the death of a participant.

 

22.           Information
Regarding Disqualifying Dispositions. 
By electing to participate in the Plan, each participant agrees to
provide any information about any transfer of shares of Common Stock acquired
under the Plan that occurs within two years after the first business day of the
Offering Period in which such shares were acquired as may be requested by the
Company or any Subsidiaries in order to assist it in complying with the tax
laws.

 

23.           Right to
Terminate Employment.  Nothing in the
Plan or in any agreement entered into pursuant to the Plan shall confer upon
any Employee the right to continue in the employment of the Company or any
Subsidiary, or affect any right which the Company or any Subsidiary may have to
terminate the employment of such Employee.

 

24.           Rights as a
Stockholder.  Neither the granting of
an option nor a deduction from payroll shall constitute an Employee the owner
of shares covered by an option.  No
Employee shall have any right as a stockholder unless and until an option has
been exercised, and the shares underlying the option have been registered in
the Company’s share register.

 

25.           Term of Plan.  The Plan became effective upon its adoption by the Board on December 17,
2009 and shall continue in effect for a term of twenty  years unless sooner terminated under paragraph 19.

 

26.           Applicable Law.  This Plan shall be governed in accordance
with the laws of the State of Delaware, applied without giving effect to any
conflict-of-law principles.

 

9

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