Document:

Exhibit 10.63

 

AVI BIOPHARMA, INC.

 

EMPLOYMENT AGREEMENT

 

This Employment Agreement (the “Agreement”), made on this 8th day of
February, 2008 (the “Effective Date”) by and between AVI BioPharma, Inc.,
an Oregon corporation, with its principal office at 1 SW Columbia
Street, Suite 1105, Portland, OR 
97258 (the “Company”), and Leslie Hudson, Ph.D. (the “Executive”).

 

RECITALS:

 

The Company desires to hire the Executive as Chief Executive Officer,
and the Executive desires to accept such position under the terms and
conditions stated herein.

 

NOW, THEREFORE, in consideration of the mutual benefits contained
herein, the sufficiency of which the parties acknowledge, the parties hereby
agree as follows:

 

AGREEMENT:

 

1.                                      Employment
Term.

 

The term of employment (the “Term”) shall commence on the Effective
Date and shall continue until terminated in accordance with Section 12.  This Agreement establishes an “at will”
employment relationship between the Company and the Executive as such term is
defined and used under Oregon law.

 

2.                                      Duties.

 

(a)                                The Executive shall have all of the authority, duties and
responsibilities commensurate with being the Chief Executive Officer of
a public company of the size and nature of the Company and such other duties
commensurate with his position as may be assigned to him from time to time by
the Board of Directors of the Company (the “Board”).

 

(b)                               The Executive shall
devote substantially all of his business time to the service of the Company
throughout the Term.  Notwithstanding
anything to the contrary herein, the Executive and the Company acknowledge and
agree that (i) the Executive may hold certain offices and directorships
within certain for-profit entities as set forth on Exhibit A to
this Agreement, (ii) the Executive’s devotion of reasonable amounts of
time in such capacities, so 

 

 

long as it does not materially
interfere with his performance of services hereunder, shall not conflict with
the terms of this Agreement, and (iii) Exhibit A may be
amended from time to time by agreement of the parties.  The Executive may also be involved in
charitable and professional activities and manage his personal investments so
long as such activities, as determined by the Board in good faith, do not materially
interfere with the Executive’s duties hereunder.  If the Board determines any activities
described in this paragraph materially interfere with the Executive’s duties,
the Board shall provide written notice to the Executive and a reasonable time
period for the Executive to reduce such activities to the extent necessary to
reduce such interference to a level reasonably acceptable to the Board with due
regard for Executive’s fiduciary duties to such other organizations.

 

3.                                      Compensation.

 

(a)                                Base Compensation.  During the Term the Company shall compensate
the Executive at an initial annual salary of four hundred eighty thousand
dollars ($480,000.00), payable in accordance with the Company’s payroll
practices in effect from time to time, and less amounts required to be withheld
under applicable law and requested to be withheld by the Executive (as
increased from time to time, “Base Compensation”). The Executive’s Base
Compensation shall be subject to review for potential increase (but not
decrease) on an annual basis. Except as otherwise provided in this Agreement,
the Base Compensation shall be prorated for any period of service less than a
full month.

 

(b)                               Bonuses.  The Executive shall be eligible for an annual
bonus.  The Board shall set performance
objectives to achieve the bonus compensation. 
The payment amount will be determined in good faith by the Board based
on the Executive’s and the Company’s performance.  The bonus target shall be sixty percent (60
%) of the Base Compensation.  The bonus,
if any, shall be paid within two and one-half (2-1/2) months after the end of
the period to which it relates.

 

(c)                                Equity Compensation.  On the Effective Date, the Executive will be
granted options to purchase six hundred sixty-seven thousand (667,000) shares
of the Company’s common stock (the “Options”) under the Company’s 2002 Equity
Incentive Plan (the “Plan”), with an exercise price at the fair market value of
the Company common stock on the Effective Date. 
Subject to accelerated vesting or termination as set forth herein, the
Options shall vest in equal annual installments over four (4) years.  In addition, on the Effective Date, the
Executive shall be issued three hundred thirty-three thousand (333,000) shares
of the Company’s common stock (the “Restricted Stock”) under the Plan.  Subject to the following vesting schedule,
and acceleration as provided herein, the Restricted Stock shall be subject to
forfeiture upon termination of this Agreement: 100,000 shares of Restricted
Stock shall become 100% vested on the Effective Date and the remaining 233,000
shares of Restricted Stock shall vest in equal annual installments over four
years commencing on the Effective Date. The exercise price of the Options, the
issuance price of the Restricted Stock and all other terms and conditions
associated with the Options and Restricted Stock shall be determined in
accordance with the Plan and grants (the forms of which are annexed hereto as
Exhibits B and C). To the maximum extent possible, the Options shall be
Incentive Stock Options.

 

 

4.                                      Expenses.

 

The Company will reimburse the Executive for all expenses reasonably
incurred by him in discharging his duties for the Company, conditioned upon the
Executive’s submission of written documentation in support of claimed
reimbursement of such expenses, and consistent with the Company’s expense
reimbursement policies in effect from time to time.

 

5.                                      Benefits.

 

In addition to the compensation set forth above, the Executive shall be
entitled to the following benefits:

 

(a)                                During the Term of this
Agreement, the Company shall, at the Executive’s direction, either reimburse
the Executive monthly or pay on the Executive’s behalf monthly the monthly
premiums required to be paid by the Executive from time to time to the Pfizer
healthcare provider for Pfizer retiree healthcare coverage for the Executive
and the Executive’s spouse.

 

(b)                               Upon execution of this
Agreement, the Company shall promptly pay to the Executive’s counsel up to
twenty-five thousand dollars ($25,000.00) for legal fees reasonably incurred by
the Executive in connection with the negotiation of this Agreement.

 

(c)                                The Company shall pay
to the Executive monthly a living allowance in the amount of four thousand five
hundred dollars ($4,500.00) per month. 
To the extent that these costs associated with the living allowance are
not tax deductible under Section 217 of the Internal Revenue Code (“Code”),
the Company agrees to provide the Executive with a Gross-Up Payment, as defined
and in accordance with Section 14 of this Agreement.  Only four thousand dollars ($4,000.00) per
month of this amount will be subject to the Gross-Up Payment provisions of Section 14.  This living allowance shall be provided for a
period of twelve (12) months beginning one month after the Effective Date.  If, following a review period of approximately
six (6) months after the Effective Date, the
Company’s Board decides to relocate the Company’s headquarters to a state other
than Oregon, the amount set forth in this paragraph (c) will be extended
for an additional six (6) months. 
In addition, the Executive shall be reimbursed for one month of
temporary living expenses during his transition to Portland, Oregon.

 

(d)                               The Company will provide
the Executive monthly with a car allowance of one thousand dollars ($1,000.00)
per month.  The Executive shall also
receive a Gross-Up Payment in accordance with Section 14 of this
Agreement with regard to such allowance.

 

(e)                                Within twenty-four (24)
months of the Effective Date, the Company will reimburse the Executive for the
reasonable and customary costs of selling a residence in Princeton, New Jersey
(but not vacant home carrying costs), shipment of personal effects to Portland,
Oregon or other headquarters location, and the customary closing costs
associated with the purchase of a residence in Portland, Oregon or the new
headquarters location.  In addition,
Executive and his spouse will each be entitled during 2008 to receive two
round-trip economy 

 

 

fare airplane tickets for
house-hunting purposes. To the extent that these costs associated with relocation
are not tax deductible under Section 217 of the Code, the Company agrees
to provide the Executive with a Gross-Up Payment in accordance with Section 14
of this Agreement.

 

(f)                                  During the first year
of employment, beginning one month after the Effective Date, the Executive
shall be reimbursed for up to four (4) round trip economy plane tickets
per month for travel actually incurred between Portland, Oregon and Bend,
Oregon.  If the Company’s headquarters
are relocated outside the state of Oregon during this period, this benefit
shall be extended to apply to travel actually incurred between the new
headquarters location and Bend, Oregon. 
If the headquarters are relocated outside the state of Oregon during the
first year of employment, this benefit shall be extended up to eighteen (18)
months beginning one month after the Effective Date.

 

(g)                               Subject to eligibility
requirements, the Executive shall be entitled to participate in such benefit
plans and programs as are generally available to all employees or executives as
adopted by the Company from time to time, including participation in the
Company’s pre-tax spending account (if any), stock purchase plan (if any),
disability and life insurance programs, and retirement plans (qualified and
non-qualified).  Without limiting the
foregoing, the Company shall cover the Executive as an insured under the
Company’s standard directors and officers insurance policy insuring the
Executive against liability arising out of the performance of his duties, and
shall indemnify and hold the Executive harmless from liability arising out of
his services hereunder to the fullest extent allowed under Oregon law,
including but not limited to advancement of legal fees.  The provisions of the prior sentence shall
survive any termination of employment.

 

(h)                               The Executive shall be
entitled to four (4) weeks of paid vacation each calendar year.  The Executive shall also be entitled to the
same standard paid holidays given by the Company to senior executives
generally, all as determined from time to time by the Board.  Vacation time shall accrue according to
Company policy.

 

(i)                                   The Executive shall
be entitled to nine thousand five hundred dollars ($9,500.00) per year for
reasonable expenses incurred in connection with preparation of Executive’s
federal and state income tax returns and investment advice.  Such amount shall be paid in March of
each year during the Term, and shall be adjusted after good faith review by the
Board each year to reflect reasonable increases in the preparation of the
returns and investment advice.

 

(j)                                   Upon the Effective
Date, the Executive will be appointed to the Board and shall be renominated to
the Board each time his term would otherwise expire.  For the purposes of “Good Reason” being on
the Board shall be part of the Executive’s “position”.

 

6.                                      Confidentiality.

 

(a)                          In the course of his
employment with the Company, it is anticipated that the Executive may acquire
knowledge (both orally and in writing) regarding confidential affairs of the
Company and confidential or proprietary information including: (i) matters
of a technical nature, such as know-how, Inventions, processes, products,
designs, chemicals, compounds, 

 

 

materials, drawings, concepts,
formulas, trade secrets, secret processes or machines, Inventions or research
projects; (ii) matters of a business nature, such as information about
costs, profits and pricing policies; (iii) markets, sales, suppliers,
customers, plans for future development, plans for future products, marketing
plans or strategies; and (iv) other information of a similar nature which
is not generally disclosed by the Company to the public, referred to
collectively hereafter as “Confidential Information.” “Confidential Information”
shall not include information generally available to the public. The Executive
agrees that during the Term of this Agreement and thereafter, other than in the
good faith performance of his duties, he (1) will keep secret and retain
in the strictest confidence all Confidential Information, (2) not disclose
Confidential Information to anyone except employees of the Company authorized
to receive it and third parties to whom such disclosure is specifically
authorized, and (3) not use any Confidential Information for any purpose
other than performance of services under this Agreement without prior written
permission from the Company.

 

(b)                               If the Executive is
served with any subpoena or other compulsory judicial or administrative process
calling for production or disclosure of Confidential Information or if the Executive
is otherwise required by law or regulation to disclose Confidential
Information, he may comply with it, but the Executive will immediately, and to
the extent feasible, prior to production or disclosure, notify the Company and
provide it with such information as may be in his possession as may be
reasonably requested by the Company in order that the Company may take such
action as it deems necessary to protect its interest.

 

(c)                                  The
provisions of this Section 6 shall survive termination of this
Agreement.

 

7.             Non-competition;
Non-solicitation.

 

(a)                                The Executive agrees
that for a two (2) year period from the effective date of the termination
of the Executive’s employment with the Company, the Executive shall not
directly or indirectly engage in or have any ownership interest in, or
participate in the financing, operation, management or control of, persons,
firms, corporations or businesses to the extent such entity (collectively, the “Specified
Entities”) engages in any activity that competes with any of the Company’s
business activities (“Competitors”) at the time of such termination; provided however, that there shall be no more than five (5) Specified
Entities at any one time.  The Company
shall promptly notify the Executive of the Specified Entities after the
Effective Date in writing, and at any time up to sixty (60) days prior to the
effective date of any termination of the Executive’s employment the Company may
amend such list of Specified Entities by written notice to the Executive so
long so as at no time shall it include more than five (5) Competitors.  This provision shall not prohibit the
Executive from owning up to five percent (5%) of any class of outstanding
bonds, preferred stock or shares of common stock of any such entity (whether or
not such entity is a Competitor).

 

(b)                               For a period of two (2) years
following termination of employment with the Company for any reason, except
with the express written consent of the Company, the Executive agrees to
refrain from directly or indirectly recruiting, hiring or assisting anyone else
to hire, or otherwise counseling to discontinue employment with the Company,
any person then employed 

 

 

by the Company or its
subsidiaries or affiliates, provided that the foregoing shall not be violated
by general advertising not targeted at Company employees or by serving as a
reference.

 

(c)                                In the event that the
provisions of this Section 7 should ever be deemed to exceed the
duration or geographic limitations or scope permitted by applicable law, then
such provisions shall be reformed to the maximum time or geographic limitations
or scope, as the case may be, permitted by applicable laws.

 

(d)                               The provisions of this Section 7
shall survive termination of this Agreement and the term of employment.

 

8.                                              Covered
Work.

 

(a)                                All rights, title and
interest to any Covered Work that the Executive makes or conceives (whether
alone or with others) while employed by the Company, belong to the Company.
This Agreement operates as an actual assignment of all rights in Covered Work
to the Company. “Covered Work” means products and Inventions that relate to the
actual or anticipated business of the Company or any of its subsidiaries or
affiliates, or that result from or are suggested by a task assigned to the
Executive or work performed by the Executive on behalf of the Company or any of
its subsidiaries or affiliates, or that were developed in whole or in part on
the Company time or using the Company’s equipment, supplies or facilities. “Inventions”
mean ideas, improvements, designs, computer software, technologies, techniques,
processes, products, chemicals, compounds, materials, concepts, drawings,
authored works or discoveries, whether or not patentable or copyrightable, as
well as other newly discovered or newly applied information or concepts. The
foregoing does not cover any product or Invention in which the Executive had or
has any right, title or interest prior to the Effective Date.

 

(b)                               The Executive shall
promptly reveal all information relating to Covered Work and Confidential
Information to an appropriate officer of the Company and shall cooperate with
the Company, and execute such documents (prepared at Company expense) as may be
necessary, in the event that the Company desires to seek copyright, patent or
trademark protection thereafter relating to same.

 

(c)                                In the event that the
Company requests that the Executive assist in efforts to defend any legal
claims to Covered Works or Inventions, the Company agrees to reimburse the
Executive for any reasonable expenses the Executive may incur in connection
with such assistance. This obligation to reimburse shall survive termination of
this Agreement and the term of employment.

 

(d)                               The provisions of this Section 8
shall survive termination of this Agreement and the term of employment.

 

9.                                              Return
of Inventions, Products and Documents.

 

The Executive acknowledges and agrees that all Inventions, all products
of the Company and all originals and copies of records, reports, documents,
lists, drawings, memoranda, notes, proposals, contracts and other documentation
related to the business of the Company or 

 

 

containing any information described in this Section 9
shall be the sole and exclusive property of the Company and shall be returned
to the Company immediately upon termination of the Executive’s employment with
the Company or upon the written request of the Company.  The foregoing shall not include Executive’s
rolodex and other address books (whether hard copy or electronic).  The Executive shall also be entitled to
retain his cell phone number and the Company shall cooperate, as necessary, to
transfer it to Executive upon termination.

 

10.                                Injunction.

 

The Executive agrees that it would be difficult to measure damages to
the Company from any breach by the Executive of Sections 6, 7, 8,
and/or 9 of this Agreement, and that monetary damages would be an
inadequate remedy for any such breach. Accordingly, the Executive agrees that
if the Executive shall breach Sections 6, 7, 8, and/or 9
of this Agreement, the Company shall be entitled, in addition to all other
remedies it may have at law or in equity, to an injunction or other appropriate
orders to restrain any such breach without showing or proving any actual damage
sustained by the Company.

 

11.                               Obligations
to Others.

 

Except for items disclosed to the Company, the Executive represents and
warrants to the Company that (i) the Executive’s employment by the Company
does not violate any agreement with any prior employer or other person or
entity, and (ii) the Executive is not subject to any existing
confidentiality or non-competition agreement or obligation, or any agreement
relating to the assignment of Inventions except as has been fully disclosed in
writing to the Company.  The Company
acknowledges that the Executive has informed it of limitations with regard to
prior employers and where he is or has served as a director.

 

12.                               Termination.

 

(a)                                  During the first year
of employment the Executive may voluntarily terminate his employment with the
Company with or without Good Reason upon giving the Company not less than
ninety (90) days written notice. 
Thereafter, such written notice will be reduced to not less than thirty
(30) days.

 

(b)                                 The Company may
terminate the Executive’s employment without Cause and other than in connection
with a Change of Control (in both cases as defined below) upon giving the
Executive thirty (30) days’ written notice of termination.

 

(c)                                  The Executive’s
employment with the Company shall terminate upon the occurrence of any one of
the following:

 

(i)                             The
Executive’s death;

 

(ii)                          The
Executive’s Disability, which is defined as the Board’s determination made in
good faith and after consultation with a qualified physician selected by the
Board, that the Executive is incapable of performing his 

 

 

duties under
this Agreement, with or without reasonable accommodation because of a physical
or mental incapacity that has prevented the Executive from performing his
full-time duties for a period of ninety (90) consecutive calendar days and the
determination that such incapacity is likely to continue for at least another
ninety (90) days.  Termination under this
paragraph (c)(ii) shall be effective on the date specified in the notice
of termination; or

 

(iii)                               The
effective date of a notice sent to the Executive terminating the Executive’s
employment for Cause.

 

(d)                                 “Cause” means the
occurrence of one or more of the following events:

 

(i)                                     The
Executive’s willful and repeated failure or refusal to attempt in good faith to
(x) comply in any material respect with the reasonable lawful direction of
the Board, or (y) to perform his duties in accordance with this
Agreement after notice to the Executive of such failure or refusal;

 

(ii)                                  The
Executive being indicted for, convicted of, or pleading guilty or nolo
contendere to, a felony;

 

(iii)                               The
Executive engages in willful misconduct that is materially detrimental to the
reputation, character or standing of the Company; or

 

(iv)                              The
Executive’s willful and material breach of Sections 6, 7 and 8
in this Agreement.

 

No act shall be deemed detrimental if taken in good faith that such act
is not adverse to the best interests of the Company.

 

(e)                                  “Good Reason” means
the termination by the Executive upon the occurrence of any of the below
described events.  The Executive must
provide notice to the Company of the existence of such event within ninety (90)
days of the first occurrence of such event, and the Company will have thirty
(30) days to remedy the condition, in which case no Good Reason shall
exist.  If the Company fails to remedy
the condition within such thirty (30) day period, the Executive must terminate
employment within two (2) years of the first occurrence of such
event.  The events which constitute a
Good Reason termination are:

 

(i)            A material reduction in the
Executive’s Base Compensation;

 

(ii)           A
material reduction in the Executive’s duties or responsibilities or budget
authority, including without limitation requiring the Executive to report to a
corporate officer rather than directly to the Board;

 

(iii)          Relocation
of the Company’s headquarter offices at which the Executive performs the
substantial portion of his services to more than fifty (50) miles from its then
location, other than (x) to a location, even if in excess of 50 miles from
its then location, recommended in writing, or consented to, by the Executive ,
or (y) a relocation which results in the Company’s headquarter offices
being closer to the Executive’s primary residence than prior to such
relocation; provided however, that this clause (iii) shall
not 

 

 

apply to the
first relocation, if any, of the Company’s headquarters following the Effective
Date; or;

 

(iv)                    A
material breach of this Agreement.

 

13.                               Termination
Compensation.

 

(a)                      Upon
the Executive’s voluntary termination of employment (other than with Good Reason)
or termination of the Executive’s employment for Cause, the Company shall pay
the Executive all Base Compensation, unpaid reimbursements, Gross-Up Payments
and other unpaid expenses due through the effective date of termination and any
unused vacation accrued according to the Company’s policies at such times as
such amounts would otherwise be due hereunder. 
The Executive shall not be entitled to any other compensation, including
without limitation the right to receive benefits under Section 5 or
any bonus relating to the year in which such termination is effective.

 

(b)                                 Upon
the Executive’s death, the Company shall pay to the Executive’s estate or such
other party who shall be legally entitled thereto, all Base Compensation,
earned but unpaid bonuses, unpaid reimbursements, Gross-Up Payments and other
unpaid expenses due at the date of death at such times as such amounts would
otherwise be due hereunder, plus a continuation of Base Compensation and
benefits under Section 5 (a) and (h) at the rate set forth
in this Agreement following the date of death for six (6) months following
the end of the month in which the death occurs. 
The Executive’s estate or such other party who shall be legally entitled
thereto shall have six (6) months to exercise all vested stock Options.

 

(c)                                  Upon
the Executive’s Disability (as defined above), the Company shall pay to the
Executive all Base Compensation, earned but unpaid bonuses, and unpaid
reimbursements, Gross-Up Payments and other unpaid expenses due at the
effective date of termination because of Disability, accrued but unused
vacation in accordance with Company policy at such times as such amounts would
otherwise be due hereunder, plus a continuation of Base Compensation and
benefits under Section 5 (a) and (h) at the rate set
forth in this Agreement from such effective date of termination for six (6) months
following the end of the month in which the Executive’s termination for
Disability occurs.  Any such party who
shall be legally entitled thereto shall have six (6) months to exercise
vested stock Options.

 

(d)                                 Upon
termination of the Executive’s employment by the Company without Cause  or by the Executive for Good Reason where no
Change of Control under Section 13(e) has occurred, the
Company shall pay to the Executive (i) all Base Compensation and earned
but unpaid bonuses, and unpaid reimbursements, Gross-Up Payments and other
unpaid expenses due at the effective date of termination at such time as such
amounts would otherwise be due hereunder and (ii) an amount equal to the
sum of (x) two (2) years of Base Compensation, (y) two (2) years
of bonus compensation based on the average of the past two years’ bonuses
actually paid or if only one year’s bonus has been paid, such bonus or if no
bonus has been paid, 50% of the target 
bonus for the current year, and (z) two (2) times the then
current annual cost of the benefits under Section 5(a).  The sum of the amounts set forth in (ii)(x), (y) and
(z) in the preceding sentence shall be paid in equal monthly installments
over a period of twenty-four (24) months from the date of termination provided
that during the first six (6) months after 

 

 

termination, Executive shall be
paid the lesser of (A) one fourth of such amount and (B) the
permitted amount under Treasury Regulation Section 1.409A-1(b)(9)(iii) and
any amounts paid under the foregoing formula prior to March 15 of the
calendar year following the calendar year of termination (the “Non-Delayed
Amounts”).  Any other amount due during
such six (6) month period shall be subject to Section 26 hereof.  If termination under this Section 13(d) occurs
before the second anniversary of the Effective Date, fifty percent (50%) of
unvested Options and fifty percent (50%) of unvested shares of Restricted Stock
shall immediately become fully vested and exercisable.  If termination under this Section 13(d) occurs
on or after the second anniversary of the Effective Date, all unvested Options
and all shares of Restricted Stock shall immediately become fully vested and
exercisable.  The exercise period of all
vested Options granted to the Executive pursuant to the Company’s 2002 Equity
Incentive Plan, or successor plan, shall be the earlier of their original
expiration date or six (6) months from the effective date of
termination.  Executive agrees and
acknowledges that if Executive chooses not to exercise vested Options within
three (3) months following the date of termination, such unexercised
Options become non-qualified options under applicable law.

 

(e)                                  Upon
termination of the Executive’s employment by the Company without Cause or by
the Executive for Good Reason that occurs within twelve (12) months of a Change
of Control, the Company shall pay to the Executive (i) all Base
Compensation, earned but unpaid bonuses, and unpaid reimbursements, Gross-Up
Payments and other unpaid expenses due at the effective date of termination at
such time as such amounts would otherwise be due and (ii) an amount equal
to the sum of (x) two (2) years of Base Compensation, (y) two (2) times
the Executive’s target annual bonus at the effective time of such termination
and (z) two (2) times the then current annual cost of the benefits
under Section 5(a), (d), (g) and (i) plus the amount of the
benefits remaining to be paid under Section 5(c). The sum of the amounts
set forth in (ii)(x),(y) and (z) in the preceding sentence shall be
paid in equal monthly installments over a period of twenty-four (24) months
from the date of termination, provided that during the first six (6) months
after termination, Executive shall be paid the lesser of (A) one fourth of
such amount and (B) the Non-Delayed Amounts.  Any other amount due during the six (6) month
period shall be subject to Section 26 hereof.  In addition, all unvested Options and all
shares of Restricted Stock shall immediately become fully vested and
exercisable and all such vested Options may be exercised for a period of the
earlier of their original expiration date or six (6) months from the
effective day of termination.

 

(f)                                    As
used herein, “Change of Control” shall mean a change in ownership or effective
control of the Company or a change in the ownership of a substantial portion of
the assets of the company within the meaning of Treasury Regulation Section 1.409A-3(k)(5),
with the following modifications: (i) with respect to a change in
ownership of a substantial portion of the Company’s assets, a Change of Control
shall mean the sale of all or substantially all the assets of the Company (as
opposed to forty percent (40%) of such assets) and (ii) the criteria
described in Treasury Regulation 1.409A-3(i)(5)(vi)(A)(1) shall be changed
from thirty percent (30%) to fifty percent (50%).

 

(g)                                 As
a condition of payment of the amounts set forth in this Section 13,
if requested by the Company, the Executive agrees to enter into a Separation
and Release Agreement substantially in the form attached hereto as Exhibit C.

 

 

(h)                                 Amounts payable under
this Section 13 shall be net of amounts required to be withheld
under applicable law and amounts requested to be withheld by the Executive.

 

14.                               Gross-Up
Payments.

 

(a)                                  If
at any time it shall be determined that:

 

(i)                             any
payment or distribution by the Company to the Executive or for his benefit,
whether paid or payable or distributed or distributable pursuant to the terms
of this Agreement or any other plan, arrangement or otherwise (the “Compensation
Payment”) is or will be subject to an excise tax imposed by Section 4999
of the Code, as an “excess parachute payment” within the meaning of Section 280G
of the Code; or

 

(ii)                              any
Compensation Payment is or will be subject to the additional twenty percent
(20%) tax and interest under Section 409A(a)(1)(B) of the Code; or

 

(iii)                           the value of the living allowance defined in Section 5(c), the vehicle
allowance defined in Section 5(d), and the relocation expense
reimbursement defined in Section 5(e), whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement
or any other plan, arrangement or otherwise (the “Reimbursement Payment”) is or
will be subject to an income tax imposed because it is or will be included into
the Executive’s gross income; then

 

(iv)                          the
Company shall pay the Executive an additional amount (the “Gross-Up Payments”)
such that the net amount retained by the Executive:  after deduction of any taxes under Sections
14(a)(i) and (ii), and any federal, state and local income and
employment tax and excise tax imposed upon the Gross-Up Payments, shall be
equal to the Compensation Payment less any federal, state, local income and
employment tax on the Compensation Payment; and after deduction of any taxes
under Sections 14(a)(iii), and any federal, state and local income and
employment tax and excise tax imposed upon the Gross-Up Payments, shall be
equal to the Reimbursement Payment. For purposes of determining the amount of
the Gross-Up Payments, the Executive shall be deemed to pay federal income tax
and employment taxes at the highest marginal rate of federal income and
employment taxation in the calendar year in which the Gross-Up Payments is to
be made and state and local income taxes at the highest marginal rate of
taxation in the state and locality of the Executive’s residence (or, if
greater, the state and locality in which the Executive is required to file a
nonresident income tax return with respect to the Compensation or Reimbursement
Payment) on the date of the Compensation or Reimbursement Payment, net of the 

 

 

maximum
reduction in federal income taxes that may be obtained from the deduction of
such state and local taxes.

 

(b)                                 All
determinations to be made under this Section 14 shall be made by
the Company’s independent public accountant (the “Accounting Firm”) at the
Company’s sole expense. The Accounting Firm shall provide its determinations
and any supporting calculations both to the Company and the Executive within
thirty (30) days of the event requiring a Gross-Up Payment. Any such
determination by the Accounting Firm shall be binding upon the Company and the
Executive. Within five (5) days after the Accounting Firm’s determination,
the Company shall pay (or cause to be paid) or distribute (or cause to be
distributed) to or for the benefit of the Executive such amounts as are then
due to the Executive under this Section 14.

 

(c)                                  In
the event that the amounts under Section 14(a) are
subsequently determined by the Accounting Firm to be less than the amount taken
into account at the time a Gross-Up Payment is made, the Executive shall repay
to the Company, at the time that the amount of such reduction in the excise tax
is finally determined, the portion of the prior Gross-Up Payment attributable
to such reduction (plus the portion of the Gross-Up Payment attributable to the
excise tax and federal, state and local income tax imposed on the portion of
the Gross-Up Payment being repaid by the Executive if such repayment results in
a reduction in excise tax or federal, state and local income tax
deduction).  If Executive’s obligation to
provide such refund violates the prohibited loan provisions of the
Sarbanes-Oxley Act, no refund shall be required.

 

(d)                                 The Executive shall notify the Company in writing
of any claim by the Internal Revenue Service that, if successful, would require
the payment by the Company of the Gross-Up Payments. Such notification shall be
given as soon as practicable but no later than fifteen (15) business days after
the Executive knows of such claim and shall apprise the Company of the nature
of such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the thirty (30)
day period following the date on which the Executive gives such notice to the
Company (or such shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies the Executive in
writing prior to the expiration of such period that it desires to contest such
claim, the Executive shall: (i) give the Company any information
reasonably requested by the Company relating to such claim; (ii) take such
action in connection with contesting such claim as the Company shall reasonably
request in writing from time to time, including, without limitation, accepting
legal representation with respect to such claim by an attorney reasonably
selected by the Company; (iii) reasonably cooperate with the Company in
good faith in order to effectively contest such claim; and (iv) permit the
Company to participate in any proceedings relating to such claim. The Company
shall bear and pay directly all costs and expenses (including additional
interest and penalties) incurred in connection with such contest and shall
indemnify and hold the Executive harmless, on an after-tax basis, for any
excise tax, income tax or employment tax, including interest and penalties,
with respect thereto, imposed as a result of such representation and payment of
costs and expenses. Without limitation on the foregoing provisions, the Company
shall control all proceedings taken in connection with such contest and, at its
sole option, may pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect of
such claim. The Company’s control of the contest shall be limited to issues
with respect to which a Gross-Up Payments would be payable 

 

 

hereunder
and the Executive shall be entitled to settle or contest, as the case may be,
any other issue raised by the Internal Revenue Service or any other taxing
authority.

 

(e)                                  Any and all of the fees and expenses of the
Accounting Firm in performing the determinations referred to in this Section 14
shall be borne solely by the Company. In addition, in the event the Executive
seeks any accounting, financial or legal services in connection with this Section 14,
any and all fees and expenses by such accountants, financial advisors or counsel
shall be fully reimbursed by the Company.

 

(f)                                    If at any time it appears that a tax may become
due and owing under this Section 14, then the Company and the
Executive shall consult with each other to determine if there is a mutually
agreeable method of reducing such tax.

 

(g)                                 Any Gross-Up Payments made by the Company under
this Section 14 shall be made by the end of the year following the
year in which the Executive pays the related tax.

 

15.          Notice.

 

Unless otherwise provided herein, any notice, request, certificate or
instrument required or permitted under this Agreement shall be in writing and
shall be deemed “given” upon personal delivery to the party to be notified or
three (3) business days after deposit with the United States Postal
Service, by registered or certified mail, addressed to the party to receive
notice at the address set forth above, postage prepaid. Either party may change
its address by notice to the other party given in the manner set forth in this Section 15.

 

If to the Executive, to:

 

Leslie Hudson, Ph.D.

(at the latest home address shown in the Company’s records)

 

If to the
Company, to:

 

AVI BioPharma, Inc.

1 SW Columbia
Street, Suite 1105

Portland, OR
97258

Attention:
Chairman of the Board of Directors

 

With a copy (which shall not constitute notice) to:

 

Davis Wright Tremaine LLP

1300 SW Fifth Avenue, Suite 2300

Portland, OR 97201

Facsimile: 503.778.5299

Attn: Michael C. Phillips

 

 

16.          Entire Agreement.

 

This Agreement constitutes the entire agreement between the parties and
contains all the agreements between them with respect to the subject matter
hereof. It also supersedes any and all other agreements or contracts, either
oral or written, between the parties with respect to the subject matter hereof;
provided, however, in the event any of Sections
6, 7, 8, 9, or 10 of this Agreement is found
unenforceable in any way, then the Sections 6, 7, 8, 9
or 10 shall be amended to conform with the applicable law.

 

17.                               Modification.

 

Except as otherwise specifically provided, the terms and conditions of
this Agreement may be amended at any time by mutual agreement of the parties,
provided that before any amendment shall be valid or effective, it shall have
been reduced to writing and signed by an authorized representative of the Company
and the Executive.

 

18.                               No
Waiver.

 

The failure of any party hereto to exercise any right, power or remedy
provided under this Agreement or otherwise available in respect hereof at law
or in equity, or to insist upon compliance by any other party hereto with its
obligations, shall not be a waiver by such party of its right to exercise any
such or other right, power or remedy or to demand compliance.

 

19.                               Severability.

 

In the event that any section or provision of this Agreement shall be
held to be illegal or unenforceable, such section or provision shall be severed
from this Agreement and the entire Agreement shall not fail as a result, but
shall otherwise remain in full force and effect.

 

20.                               Assignment.

 

This Agreement shall be binding upon and inure to the benefit of the
Company and its successors and assigns, and shall be binding upon the
Executive, his administrators, executors, legatees, and heirs. In that this
Agreement is a personal services contract, it shall not be assigned by the
Executive.  The Company may assign its
rights and obligations under this Agreement to a successor-in-interest to all
or substantially all of its assets of the Company, provided the Company shall
provide the Executive written notice of the assignee’s agreement to assume the
obligations of the Company hereunder (accompanied by a copy of such
assumption).  The Company shall not
otherwise assign it rights and obligations under this Agreement without the
Executive’s prior written consent (which may be provided in the sole and
absolute discretion of the Executive).

 

21.                               Dispute
Resolution; Attorney Fees.

 

Except as otherwise provided in Section 10, the Company and
the Executive agree that any dispute between the Executive and the Company
shall be submitted to a mediator for 

 

 

nonbinding, confidential
mediation. If the matter cannot be resolved with the aid of the mediator, the
Company and the Executive mutually agree to arbitration of the dispute. The
arbitration shall be in accordance with the then-current Employment Dispute
Resolution Rules of the American Arbitration Association (the “AAA”)
before an arbitrator who is licensed to practice law in the State of the
Company’s then headquarters. The arbitration shall take place in or near the
Company’s headquarters. The Executive and the Company will share the cost of
the arbitration equally, but each will bear their own costs and legal fees
associated with the arbitration. However, if the arbitrator determines that the
Executive has prevailed in the matter the arbitrator shall award the Executive
his reasonable attorneys’ fees and expenses and his portion of the costs of the
arbitration, which amount shall be paid by the Company with ninety (90) days of
it being made.  The Company and the
Executive agree that the procedures outlined in this provision are the
exclusive method of dispute resolution.

 

22.                               Applicable
Law.

 

This Agreement shall be construed and
enforced under and in accordance with the laws of the State of Oregon.

 

23.                               Counterparts.

 

This Agreement may be signed in two
counterparts, each of which shall be deemed an original and both of which shall
together constitute one agreement.

 

24.                               Right
to Change Business.

 

This Agreement and any rights or privileges
granted to the Executive hereunder shall not prevent the Company or any of the
Company’s subsidiaries from exercising its corporate powers to modify the
business operations or activities of such entity.

 

25.                               Headings.

 

The headings contained in this Agreement are
for the convenience of reference only and shall not define or limit the
provision hereof.

 

26.                               Section 409A.

 

(a)                    It
is the intention of the parties to this Agreement that no payment or
entitlement pursuant to this Agreement will give rise to any adverse tax
consequences to Executive or the Company with regard to Section 409A of
the Code. This Agreement shall be interpreted to that end and consistent with
that objective. The Company and the Executive shall, to the extent necessary to
comply with Section 409A of the Code and permitted thereunder, agree to
act reasonably and in good faith to mutually reform the provisions of this
Agreement to avoid the application of the additional tax and interest under Section 409A(a)(1)(B) of
the Code, provided that any such reformation shall not negatively impact the
economics of the Company or the Executive hereunder. Notwithstanding any other
provision herein, if Executive is a “specified employee,” as defined in, and
pursuant to, Treasury Regulation Section 1.409A-1(i) or any successor
regulation, on the date 

 

 

of termination, no payment of
any “deferred compensation”, as defined under Treasury Regulation Section 1.409A
or any successor regulation, shall be made to Executive during the period
lasting until the earlier of six (6) months from the date of termination
or upon Executive’s death.  If any
payment to Executive is delayed pursuant to the foregoing sentence, such
payment instead shall be made on the first business day following the
expiration of the six (6) month period referred to in the prior sentence
or, if in the case of Executive’s death, promptly thereafter.

 

(b)                   Except as otherwise specifically
provided in this Agreement, if any reimbursement to which the Executive is
entitled under this Agreement would constitute deferred compensation subject to
Section 409A of the Code, the following additional rules shall
apply:  (i) the reimbursable expense
must have been incurred, except as otherwise expressly provided in this
Agreement, during the term of this Agreement; (ii) the amount of expenses
eligible for reimbursement during any calendar year will not affect the amount
of expenses eligible for reimbursement in any other calendar year; (iii) the
reimbursement shall be made not later than December 31 of the calendar
year following the calendar year in which the expense was incurred; and (iv) the
Executive’s entitlement to reimbursement shall not be subject to liquidation or
exchange for another benefit.

 

(c)                    With regard to any installment
payment, each installment thereof shall be deemed a separate payment for
purposes of Section 409A of the Code.

 

[SIGNATURE
PAGE FOLLOWS]

 

 

IN WITNESS WHEREOF, AVI BioPharma, Inc.
has caused this Agreement to be signed by its duly authorized representative,
and the Executive has hereunder set his name as of the date of this Agreement.

 

 

	
  COMPANY:

  	
   

  	
  AVI BioPharma, Inc.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ K. Michael Forrest

  
	
   

  	
   

  	
   

  	
  K. Michael Forrest, Interim Chief Executive Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  EXECUTIVE:

  	
   

  	
   

  	
  /s/ Leslie Hudson

  
	
   

  	
   

  	
   

  	
  Leslie Hudson, Ph.D.

  

 

 

Exhibit A

 

List of
Offices and Directorships Held

 

Chief Executive
Officer, Director of AVI BioPharma, Inc.

 

Boards of
Directors of Nabi Bio Pharmaceutical

 

and

 

Hooper Holmes
Inc.

 

 

Exhibit B

 

Form of
Option Grant

 

AVI BIOPHARMA, INC.

STOCK OPTION AGREEMENT

 

Incentive Stock Option

 

This STOCK OPTION AGREEMENT is entered into
the 8th day of February ,2008 (the “Grant Date”) by and between
AVI BIOPHARMA, INC., an Oregon corporation (the “Company”), and Leslie Hudson,
Ph.D. (the “Optionee”), pursuant to the Company’s 2002 Equity Incentive Plan
(the “Plan”).  The Company and the
Optionee agree as follows:

 

1.         Option
Grant.  The Company hereby grants to
the Optionee on the terms and conditions of this Agreement the right and the
option (the “Option”) to purchase all or any part of 667,000 shares of the
Company’s Common Stock at a purchase price of $1.09 per share.  To the maximum extent possible, the Option is
intended to be and shall be treated as an Incentive Stock Option, as defined in
Section 422A of the Internal Revenue Code of 1986, as amended (the “Code”).  To the extent the Option may not be treated
as an Incentive Stock Option under the Code, the Option shall be treated as a
non-qualified option under the Code.

 

2.         Terms
and Conditions. The terms and conditions of the Option are as set forth in
the Plan, a copy of which is attached hereto as Exhibit A and as
set forth in that certain Employment Agreement dated February  8, 2008, by
and between the Company and Optionee, a copy of which is attached hereto as Exhibit B
(the “Employment Agreement”).  In the
event of a conflict between the Plan and the Employment Agreement, the terms
and conditions of the Employment Agreement shall control.

 

 

	
  AVI BIOPHARMA, INC.

  	
   

  	
  OPTIONEE

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ K. Michael Forrest

  	
   

  	
   

  	
  /s/ Leslie Hudson

  	
   

  
	
   

  	
   

  	
   

  
	
  Name: K. Michael Forrest

  	
   

  	
  Leslie Hudson, Ph.D.

  
	
   

  	
   

  	
   

  
	
  Title: Interim Chief Executive Officer

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  4575 SW Research Way  

  	
   

  	
  4575 SW Research Way

  
	
  Suite 200

  	
   

  	
  Suite 200

  
	
  Corvallis, OR  97333

  	
   

  	
  Corvallis, OR  97333

  
						

 

 

Exhibit C

 

Form of
Restricted Stock Grant

 

AVI BIOPHARMA, INC

RESTRICTED STOCK GRANT AGREEMENT

 

This
Restricted Stock Grant Agreement (this “Agreement”) is entered into by and
between AVI BioPharma, Inc. (“Company”), and Leslie Hudson, Ph.D. (“Recipient”),
effective February 8, 2008.

 

RECITALS

 

A.                                        WHEREAS,
Company has adopted the AVI BioPharma, Inc. 2002 Equity Incentive Plan
(the “Plan”), a copy of which is attached hereto as Exhibit A, to
enable it to attract and retain experienced and able directors, officers,
employees and other key contributors and to provide an additional incentive to
these individuals to exert their best efforts for Company and its shareholders;

 

B.                                          WHEREAS,
Company’s Board of Directors (the “Board”) has the authority under the Plan to
grant restricted stock;

 

C.                                          WHEREAS,
in connection with that certain Employment Agreement by and between the Company
and Recipient dated the date hereof (the “Employment Agreement”), a coy of
which is attached hereto as Exhibit B, the Board has determined to
grant restricted stock to Recipient, pursuant to the terms of the Plan and the
Employment Agreement, and Recipient desires to accept the grant on those terms.

 

NOW,
THEREFORE, for good and valuable consideration, the sufficiency of which is
hereby acknowledged, the parties agree as follows:

AGREEMENT

 

1.                               Stock
Subject to this Agreement.  The stock
subject to this Agreement shall be Company’s common stock (the “Common Stock”),
presently authorized but unissued or subsequently acquired by Company.

 

2.                               Grant
of Shares.  Company hereby grants to
Recipient, and Recipient accepts from Company, 333,333 shares of Common Stock
(the “Shares”).  Recipient shall be the
sole owner of the Shares, subject to the provisions of the Plan, the Employment
Agreement and this Agreement, and Company shall list Recipient as a shareholder
on its corporate books and records.

 

3.                               Shares
Subject to Restrictions on Transfer. 
Unless and until the Shares have vested in the manner set forth in Section 4,
the Shares may not be sold, transferred or otherwise disposed of, and will not
be pledged or otherwise hypothecated. 
Company may instruct the 

 

 

transfer agent for its Common
Stock to place a legend on the certificates representing the Shares, or
otherwise note its corporate records, as to the restrictions on transfer set
forth in this Agreement.

 

4.                               Terms
and Conditions.  The terms and
conditions relating to Shares, including with respect to vesting, are set forth
in the Plan and the Employment Agreement. 
In the event of a conflict between the Plan, this Agreement and the
Employment Agreement, the terms and conditions of the Employment Agreement
shall control.

 

5.                               Forfeiture.  Upon forfeiture, if any, in accordance with
the Employment Agreement, Recipient’s unvested Shares shall automatically
transfer back to Company, without payment from Company.  Recipient hereby appoints the Company as
Recipient’s true and lawful attorney-in-fact with irrevocable power and
authority in the name and on behalf of Recipient to take any action and execute
all documents and instruments, including, without limitation, stock powers
which may be necessary to transfer the certificate (or certificates) evidencing
the unvested Shares to Company upon any forfeiture.

 

6.               Tax
Filing; Tax Withholding.  In
connection with receiving the Shares, Recipient may elect to file an election
under section 83(b) of the Internal Revenue Code of 1986, as amended (the “Code”),
which election is intended to accelerate the tax consequences of the transfer,
regardless of the potential effect of the vesting schedule of Section 4 or
the risk of forfeiture set forth in Section 5.  The choice to file an 83(b) election is
entirely at Recipient’s discretion. 
Election under section 83(b) may be made by Recipient on the form
attached hereto as Exhibit C.

 

RECIPIENT UNDERSTANDS THAT TO BE VALID, AN ELECTION
UNDER SECTION 83(b) OF THE CODE MUST BE FILED WITH THE IRS WITHIN 30
DAYS OF THE DATE OF GRANT, A COPY OF THE ELECTION MUST BE PROVIDED TO THE
COMPANY, AND A COPY OF THE ELECTION MUST BE ATTACHED TO RECIPIENT’S FEDERAL
(AND POSSIBLY STATE) INCOME TAX RETURN FOR THE YEAR OF THE ELECTION.  RECIPIENT ACKNOWLEDGES THAT IF HE CHOOSES TO
FILE AN ELECTION UNDER SECTION 83(B) OF THE CODE, IT IS RECIPIENT’S
SOLE RESPONSIBILITY, AND NOT THE COMPANY’S, TO MAKE A VALID AND TIMELY
ELECTION.

 

7.                                       Status
as Shareholder.  Except as expressly
stated in this Agreement, Recipient shall have the rights and privileges of a
shareholder of Company with respect to all the Shares, regardless of their
vested or unvested status, including the right to vote such Shares and receive
all dividends and distributions on such Shares.

 

8.                                       Changes
in Shares.  In the event of any
merger, reorganization, consolidation, recapitalization, separation,
liquidation, stock dividend, split-up, Share combination, or other change in
the corporate structure of Company affecting the Shares, the Shares will be
increased, reduced or otherwise changed, and by virtue of any such change
Recipient will, in the capacity as owner of all the Shares, including any
unvested portion of the Shares, be entitled to new or additional or different
shares of stock, cash or securities, in the same manner as other shareholders
of Common Stock, provided that the new securities replacing the unvested Shares
will be subject to all of the conditions and restrictions that were applicable
to the unvested Shares 

 

 

pursuant
to this Agreement.  Company in its
absolute discretion at any time may accelerate the vesting of all or any
portion of such new or additional shares of stock, cash or securities, rights
or warrants to purchase securities or shares or other securities acquired by
the exercise of such rights or warrants.

 

 

9.                                       No
Employment Rights.  Nothing in this Agreement
will confer upon Recipient any right to continue in the employ or service of
Company or affect the right of Company to terminate the employment of Recipient
at any time with or without cause.  All
such rights are set forth in the Employment Agreement.

 

10.                                 Governing
Law.  This Agreement shall be
governed by and construed with accordance the laws of the State of Oregon.

 

11.                                 Integration.  This Agreement, when read in conjunction with
the Plan and the Employment Agreement, contains the entire agreement and
understanding of the parties with respect to the subjects discussed above,
including but not limited to the topics of employment and equity ownership in
Company.  The parties agree that this
Agreement expressly supersedes all prior agreements or understandings, written
or oral, provided that if there is any disagreement between the terms of this
Agreement, the Plan and the Employment Agreement, the terms of the Employment
Agreement shall control.

 

IN
WITNESS WHEREOF, the parties have signed this Agreement, effective as of the
date set forth in the first paragraph of this Agreement.

 

 

	
  COMPANY:  

  	
  RECIPIENT:  

  
	
   

  	
   

  
	
  AVI BioPharma, Inc.

  	
  Leslie Hudson, Ph.D.

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ K. Michael Forrest

  	
   

  	
  /s/  Leslie
  Hudson

  
	
   

  	
   

  
	
  Name: K. Michael Forrest

  	
   

  
	
   

  	
   

  
	
  Its: Interim Chief Executive Officer 

  	
   

  
	
   

  	
   

  
	
  Date: February 8, 2008

  	
  Date:  February 8, 2008

  
				

 

 

AVI
BIOPHARMA, INC.

RESTRICTED
STOCK GRANT AGREEMENT

 

EXHIBIT C

 

Election
Under Internal Revenue Code Section 83(b)

 

The undersigned hereby elects pursuant to §83(b) of the Internal
Revenue Code with respect to the property described below and supplies the
following information in accordance with the regulations promulgated
thereunder:

 

	
  1.

  	
   

  	
  The name, address and taxpayer identification number of the
  undersigned is:

  
	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
                                                                                              

  
	
  Address:

  	
   

  	
                                                                                               

  
	
  SSN:

  	
   

  	
                                                                                               

  
	
   

  	
   

  	
   

  
	
  2.

  	
   

  	
  Description of property with respect to which the election is made:

  
	
   

  	
   

  	
   

  
	
                                      
  (              )
  shares of common stock of AVI BioPharma, Inc. (the “Company”).

  
	
   

  	
   

  	
   

  
	
  3.

  	
   

  	
  The property was transferred during the calendar year                 .

  
	
   

  	
   

  	
   

  
	
  4.

  	
   

  	
  The nature of the restrictions to which property is subject are:

  
							

 

Pursuant to the terms of the AVI BioPharma, Inc. 2002 Equity
Incentive Plan and a corresponding Restricted Stock Grant Agreement (“Agreement”)
between Company and the undersigned dated as of          ,
the Shares shall vest as follows: [          ].  To the extent that Recipient’s employment
with Company terminates for Cause (as defined in the Agreement) or without Good
Reason (as defined in the Agreement), Recipient’s unvested Shares shall be
forfeited and automatically transfer back to Company, without payment from
Company.

 

	
  5.

  	
   

  	
  Fair market value of the property is $              .

  
	
   

  	
   

  	
   

  
	
  6.

  	
   

  	
  The amount paid for the property was $             .

  
	
   

  	
   

  	
   

  
	
  7.

  	
   

  	
  A copy of this statement was reported to Company.

  
	
   

  	
   

  	
   

  

 

	
   

  	
   

  	
   

  	
  Dated:                  ,
  200   .

  
	
  Signature

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

	
   

  
	
  Print Name

  

 

 

Exhibit D

Form of
Separation and Release Agreement

 

SEPARATION AND RELEASE AGREEMENT

 

THIS SEPARATION AND RELEASE
AGREEMENT (the “Agreement”) is between Leslie Hudson, Ph.D. (the “Executive”)
and AVI BioPharma, Inc. (the “Employer”), and is effective eight (8) days
after the Executive signs this Agreement (the “Effective Date”).

 

The parties agree as follows:

 

1.           Resignation. The
Executive resigned his position as Employer’s Chief Executive Officer effective
[effective date of termination] (the “Resignation Date”).  The Executive has been paid his salary and
other compensation due on or before the Resignation Date other than           ,
less all lawful or required deductions either as a result of a termination.

 

2.           Consideration.   In consideration of  the
Executive’s agreements hereunder, the Employer shall pay to the Executive the
amounts set forth and described in that certain Employment Agreement dated
effective the 8th day of February 2008 (the “Employment
Agreement”).

 

3.           Return of Company Property. The Executive represents that he has returned all Employer property in
his possession or under his control, including but not limited to keys, credit
cards, files, laptop computer and any and all Company documents, which shall
not include rolodex or address books (whether in hard copy or electronic) or
cell phone number.

 

4.           Release.

 

4.1            In exchange for the consideration
paid to the Executive as set forth in this Agreement, the Executive forever
releases and discharges the Employer, any of the Employer-sponsored employee
benefit plans in which the Executive participates, or was participating in, (collectively
the “Plans”) and all of their respective officers, members, managers, partners,
directors, trustees, agents, employees, and all of their successors and assigns
(in such capacities collectively the “Releasees”) from any and all claims,
actions, causes of action, rights, or damages, including costs and attorneys’
fees (collectively the “Claims”) which the Executive may have arising out of
his employment (including Claims that may arise out of the Executive’s
employment agreement), on behalf of himself, known, unknown, or later
discovered which arose prior to the date the Executive signs this
Agreement.  This release includes but is
not limited to, any Claims under any local, state, or federal laws prohibiting
discrimination in employment, including without limitation the federal civil
rights acts, Oregon Revised Statutes Chapter 
659A, the Americans with Disabilities Act, the Age Discrimination in
Employment Act, or Claims under the Employee Retirement Income Security Act, or
Claims alleging any legal restriction on the Employer’s right to terminate its
employees, any Claims the Executive has relating to his rights to or against
any of the Plans, or personal injury Claims, including without limitation
wrongful discharge, breach of contract, defamation, tortious interference with
business expectancy, constructive discharge, or infliction of emotional
distress.  The Executive represents that
he has not filed any Claim against the Employer or its Releasees, he has no
knowledge of any facts that would support any Claim by 

 

 

the Executive against the
Employer or by a third party against the Employer, and that he will file a
Claim at any time in the future concerning Claims released in this Agreement;
provided, however, that this will not limit the Executive from filing a Claim
to enforce the terms of this Agreement or the Employment Agreement.  This release does not cover your rights of
indemnification, to be held harmless, to contribution or to directors and officers
insurance coverage or with regard to vested benefits or equity.

 

4.2           In consideration of the promises of
the Executive as set forth herein and subject to any claims surviving the
termination of the Employment Agreement, the Employer does hereby, and for its
successors and assigns, release, acquit and forever discharge the Executive
from any and all actions, causes of action, obligations, costs, expenses,
damages, losses, claims, liabilities, suits, debts, and demands (including
attorneys’ fees and costs actually incurred), of whatever character in law or
in equity known or unknown, suspected or unsuspected, from the beginning of
time to the date of execution hereof.

 

5.             Non-disparagement. The Executive and the Employer each agree
for three (3) years not to make disparaging statements about each other,
except in the case of statements that are required under applicable federal or
state securities laws or applicable rules and regulations of any exchange
on which the Employer’s stock is traded, to comply with legal process, normal
competitive type statements or to rebut statements of the other.

 

6.             Consideration and Revocation Periods. The Executive
understands and acknowledges the significance and consequences of this
Agreement, that it is voluntary, that it has not been given as a result of any coercion,
and expressly confirms that it is to be given full force and effect according
to all of its terms, including those relating to unknown Claims.  The Executive was hereby advised of his right
to seek the advice of an attorney prior to signing this Agreement.  The Executive acknowledges that he has signed
this Agreement only after full reflection and analysis. Although he is free to
sign this Agreement before then, the Executive acknowledges he was given at least
21 days after receipt of this document in which to consider it (the “Consideration
Period”).  If the Executive executes this
Agreement prior to the end of the Consideration Period, the Executive hereby
waives any rights associated therewith. The Executive may revoke this Agreement
seven (7) days after signing it and forfeit all benefits described in Section 2
of this Agreement. The Executive and the Employer agree that any changes made
to this Agreement during the Consideration Period as a result of negotiations
between the parties do not restart the running of the Consideration Period.

 

7.             No Liability. This
Agreement shall not be construed as an admission by either party that it acted
wrongfully with respect to the other.

 

8.             Severability. If any of the provisions of this Agreement are
held to be invalid or unenforceable, the remaining provisions will nevertheless
continue to be valid and enforceable.

 

9.             Entire Agreement. This Agreement represents and contains the
entire understanding between the parties in connection with its subject matter.  All other prior written or oral agreements or
understandings are merged into and superseded by this Agreement.  The Executive acknowledges that in signing
this Agreement, he has not relied upon any representation or statement not set
forth in this Agreement made by the Employer or any of its representatives.

 

 

10.           Arbitration and Attorney Fees. Section 21 of the
Employment Agreement shall govern any disputes with regard to this Agreement.

 

11.           Choice of Law. This Agreement is made and shall be construed
and performed under the laws of the State of Oregon.

 

PLEASE READ CAREFULLY.  THIS
AGREEMENT INCLUDES A RELEASE OF CERTAIN KNOWN OR UNKNOWN CLAIMS.

 

 

	
  DATED this     day of   , 200X.

  	
  DATED this    day of      ,
  200X.

  
	
   

  	
   

  
	
   

  	
   

  
	
  AVI BioPharma, Inc. 

  	
   

  
	
   

  	
   

  
	
  By: 

  	
   

  	
   

  	
   

  	
   

  
	
  Name:

  	
  Leslie Hudson, Ph.D.

  
	
  Title:Exhibit 10.1

 

CUBIST PHARMACEUTICALS,
INC.

 

AMENDED AND RESTATED

2000 EQUITY INCENTIVE PLAN

 

(Adopted by the Board of Directors on December 15, 2000, and
amended and restated by the Board of Directors on March 5, 2002, and
effective upon ratification and approval by the stockholders of the Company on June 13,
2002.  First Amendment effective upon
approval by the Board of Directors on August 5, 2005.  Amended and restated again by the Board of
Directors on March 10, 2008 and April 9, 2008.)

 

The options granted under this Amended and Restated 2000 Equity
Incentive Plan are not intended
to be treated as “incentive stock options” within the meaning of Section 422
of the Code.

 

1.             Definitions.  As used in this Amended and
Restated 2000 Equity Incentive Plan of Cubist Pharmaceuticals, Inc., the
following terms shall have the following meanings:

 

1.1.         Accelerate, Accelerated, and Acceleration, when used with respect
to an Option, means that as of the relevant time of reference such Option will
become exercisable with respect to some or all of the shares of Stock for which
it was not then otherwise exercisable by its terms and, when used with respect
to Restricted Stock, means that the Risk of Forfeiture otherwise applicable to
such Restricted Stock shall expire with respect to some or all of such
Restricted Stock, and when used with respect to a Restricted Stock Unit Award,
means that as of the relevant time of reference such Restricted Stock Unit
Award will become vested with respect to some or all of such Restricted Stock
Units for which it was not then otherwise vested by its terms.

 

1.2          Award means the grant or sale pursuant to the Plan of Restricted Stock,
Restricted Stock Units, Stock Grants or Options.

 

1.3.         Award  Agreement means an agreement between the Company and the
recipient of an Award, setting forth the terms and conditions of an Option or
of a grant or sale of Restricted Stock, Restricted Stock Units or of a Stock
Grant.

 

1.4.         Board means the Company’s Board of Directors.

 

1.5.         Change  in  Corporate  Control means (1) the closing
of (A) any consolidation or merger of the Company in which the Company is
not the continuing or surviving corporation or pursuant to which Shares would
be converted into cash, securities or other property, other than a merger or
consolidation in which the holders of Stock immediately prior to the merger or
consolidation will have the same proportionate ownership of common stock of the
surviving corporation immediately after the merger or consolidation as before
the merger or consolidation, or (B) any sale, lease, exchange, or other
transfer in a single

 

 

transaction or a series of related
transactions of all or substantially all of the assets of the Company, or (2) the
date on which any “person” (as defined in Section 13(d) of the Exchange
Act), other than the Company or a Subsidiary or employee benefit plan or trust
maintained by the Company or any of its Subsidiaries shall become (together
with its “affiliates” and “associates,” as defined in Rule 12b-2 under the
Exchange Act) the “beneficial owner” (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of 100% of the Stock outstanding at the
time, with the prior approval of the Board, or (3) a Hostile Change in
Corporate Control.

 

1.6.         Code means the United States Internal Revenue Code of 1986, as amended.

 

1.7.         Company means Cubist Pharmaceuticals, Inc., a Delaware corporation.

 

1.8.         Compensation  Committee means a committee comprised
of two or more Outside Directors, appointed by the Board, and vested by the Board
with the power and authority to administer the Plan in accordance with the
provisions of Section 5.

 

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

 

1.10.       Fair  Market  Value
means on any date (i) if the Stock is traded on a stock exchange, the
closing price on the date in question or, if no trades were reported on such
date, the closing price on the most recent trading day preceding such date on
which a trade occurred, and (ii) if the Stock is not traded on a stock
exchange, the value of a Share on such date as determined by the Board or the
Compensation Committee.

 

1.11.       Grant  Date
means the date as of which an Option is granted.

 

1.12.       Holder means, with respect to any Award, (i) the person to whom such
Award shall have been granted under the Plan, or (ii) any transferee of
such Award to whom such Award shall have been transferred in accordance with
the provisions of Sections 7.7, 8.3(e), 8.3(f) or 8.4(d).

 

1.13.       Hostile
Change  in  Corporate  Control means the date on which any “person” (as defined in Section 13(d) of
the Exchange Act), other than the Company or a Subsidiary or employee benefit
plan or trust maintained by the Company or any of its Subsidiaries shall become
(together with its “affiliates” and “associates,” as defined in Rule 12b-2
under the Exchange Act) the “beneficial owner” (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of more than 25% of the Stock
outstanding at the time, without the prior approval of the Board.

 

1.14.       Incentive  Option
means an “incentive stock option” within the meaning of Section 422 of the
Code.

 

1.15.       Incumbent  Directors means, in the case of a Hostile Change in
Corporate Control, those individuals who were members of the Company’s Board of
Directors immediately prior to such Hostile Change in Corporate Control.

 

2

 

1.16.       Option means an
option granted under the Plan to purchase Shares.

 

1.17.       Option  Price
means the price paid by an Optionee for a Share upon exercise of an Option.

 

1.18.       Optionee means a
person eligible to receive an Option, to whom an Option shall have been granted
under the Plan.

 

1.19.       Outside
Director shall mean a member of
the Board who is not an officer, employee or consultant of the Company or any
Subsidiary.

 

1.20.       Plan means this Amended and Restated 2000 Equity Incentive Plan of the
Company, as amended from time to time.

 

1.21.       Restricted  Stock means an Award pursuant to Section 8
below of shares of Stock subject to restrictions or other forfeiture
conditions.

 

1.22.       Restricted  Stock
Units means an Award pursuant to Section 8 below of the right to
receive Shares upon attainment of vesting conditions set forth in the Award
Agreement.

 

1.23.       Restriction  Period
means the period established by the Compensation Committee and set forth in the
applicable Award Agreement during which the Risk of Forfeiture applicable to
shares of Restricted Stock remains in effect.

 

1.24.       Risk  of  Forfeiture
means a limitation on the right of the Holder to retain an Award of Restricted
Stock, including a right for the Company to reacquire the Shares at less than
their then Fair Market Value, arising because of the occurrence or
non-occurrence of specified events or conditions.

 

1.25.       Retirement means,
with respect to any Optionee that is an employee of the Company, the voluntary
retirement of such Optionee as an employee of the Company at any time after age
65 or such earlier age as the Compensation Committee shall determine.

 

1.26.       Secondary  NIC means
secondary national insurance contributions as defined in the SSCBA.

 

1.27.       Securities  Act
means the United States Securities Act of 1933, as amended.

 

1.28.       Shares means shares
of Stock.

 

1.29.       SSCBA means the Social
Security Contributions and Benefit Act 1992 of the United Kingdom.

 

1.30.       Stock means common
stock, $.001 par value per share, of the Company.

 

3

 

1.31.       Stock  Equivalent
means as of the date in question, any securities of the Company exercisable,
exchangeable or convertible into shares of Stock.

 

1.32.       Stock  Grant
means an Award pursuant to Section 9 below of shares of Stock not subject
to restrictions or other forfeiture conditions.

 

1.33.       Subsidiary means any
corporation which qualifies as a subsidiary of the Company under the definition
of “subsidiary corporation” in Section 424(f) of the Code.

 

1.34.       UK  Option
means an Option granted to an employee of the UK Subsidiary who is a resident
of the United Kingdom or any Option giving rise to the UK Subsidiary’s liability
for Secondary NIC.

 

1.35.       UK  Subsidiary
means Cubist Pharmaceuticals (UK) Ltd., a company organized under the laws of
Wales and England.

 

2.             Purpose.  This Plan is intended to
encourage ownership of Stock by officers, employees and consultants to the Company
and its Subsidiaries and to provide additional incentives for them to promote
the success of the Company’s business. 
The Plan is not intended
to be an incentive stock option plan within the meaning of Section 422 of
the Code.  None of the Options granted
hereunder will be Incentive Options.

 

3.             Term  of  the  Plan. 
Awards may be granted hereunder at any time in the period commencing
upon the effectiveness of the Plan pursuant to Section 19 and ending on December 15,
2010.

 

4.             Stock  Subject  to the  Plan.  Subject to the provisions of Section 13
of the Plan, at no time shall the number of Shares issued pursuant to or
subject to outstanding Awards granted under the Plan exceed 11,535,764
Shares.  The Shares of Stock to be issued
under the Plan, will be made available, at the discretion of the Compensation
Committee, from authorized but unissued Shares or Shares held by the Company in
its treasury.  Options awarded shall
reduce the number of Shares available for Awards by one Share for every Share
so awarded.  Each Stock Grant Award and
each Award of Restricted Stock or Restricted Stock Units shall reduce the
number of Shares available for Awards by two Shares for every one Share so
awarded.  If any Option expires,
terminates or is cancelled for any reason without having been exercised in
full, or if any Award other than an Option is forfeited by the recipient or
repurchased by the Company at less than its Fair Market Value, the Shares not
purchased by the Optionee or forfeited by the recipient or repurchased by the
Company shall again be available for Awards to be granted under the Plan.

 

5.             Administration. Subject to the provisions set forth below
in this Section 5, the Plan shall be administered by the Compensation
Committee.  Subject to the provisions of
the Plan, the Compensation Committee shall have complete authority, in its
discretion, to make or to select the manner of making all needful
determinations with respect to each Award to be granted by the Company in
addition to any other determination allowed the

 

4

 

Compensation Committee under the Plan,
including:  (a) the officer,
employee or consultant to receive such Award; (b) whether the Award will
be an Option, Restricted Stock, Restricted Stock Unit or Stock Grant, (c) the
time of granting the Award; (d) the number of Shares subject to the Award;
(e) the Option Price of any Option or purchase price of any other Award; (f) the
option period of any Option; (g) the exercise date or dates or, if the
Option is immediately exercisable in full on its Grant Date or if the
exercisability of the Option is accelerated by the Compensation Committee in
whole or in part at any time following its Grant Date, the vesting schedule, if
any, applicable to the Shares issuable upon the exercise of the Option; (h) the
Restriction Period and the terms of the Risk of Forfeiture applicable to an
Award of Restricted Stock; (i) the vesting schedule applicable to an Award
of Restricted Stock Units; (j) the effect of termination of employment,
consulting or association with the Company on the subsequent exercisability of
the Option or the recipient’s retention of any Award; and (k) whether the
Option, Restricted Stock or Restricted Stock Units may be transferred by the
Holder to a third party.  In making such
determinations, the Compensation Committee may take into account the nature of
the services rendered by the respective officers, employees and consultants,
their present and potential contributions to the success of the Company and its
Subsidiaries, and such other factors as the Compensation Committee in its
discretion shall deem relevant.  Subject
to the provisions of the Plan, the Compensation Committee shall also have
complete authority to interpret the Plan, to prescribe, amend and rescind rules and
regulations relating to it, to determine the terms and provisions of the
respective Award Agreements (which need not be identical), and to make all
other determinations necessary or advisable for the administration of the Plan.  The Compensation Committee’s determinations
on the matters referred to in this Section 5 shall be final, binding and
conclusive on all persons having or claiming any interest under the Plan or an
Award made pursuant hereto. 
Notwithstanding anything expressed or implied in the Plan to the
contrary, (i) at any time and on any one or more occasions, the Board may
itself exercise any of the powers and responsibilities assigned to the
Compensation Committee under the Plan and when so acting shall have the benefit
of all of the provisions of this Plan pertaining to the Compensation Committee’s
exercise of its authorities hereunder, and (ii) in compliance with
applicable law, the Compensation Committee may delegate to the Chief Executive
Officer of the Company the authority to make Awards under the Plan to employees
who are not officers, and to consultants who are not officers, in accordance
with guidelines established by the Compensation Committee or the Board at any
time and from time to time.

 

6.             Eligibility.  An Award may be granted only
to an employee, officer or consultant of one or more of the Company and its
Subsidiaries.  In no event shall the
number of Shares covered by Options or other Awards granted under the Plan to
any one person in any one calendar year exceed 500,000, as may be adjusted from
time to time in accordance with Section 13.

 

7.             Options.

 

7.1.         Time  of  Granting  Options.  The granting of an Option shall take place at
the time specified by the Compensation Committee.  Only if expressly so provided in the
applicable Award Agreement shall the Grant Date be the date on which an Award

 

5

 

Agreement shall have been duly executed and
delivered by the Company and the Optionee.

 

7.2.         Option  Price.  The Option Price
under each Option shall be determined by the Compensation Committee, provided
that each Option granted to an Optionee under this Section 7 shall have an
Option Price equal to at least 100% of the Fair Market Value of the Stock on
the applicable Grant Date.

 

7.3.         Option  Period. The option period for any Option granted pursuant to
this Section 7 shall be no longer than ten years from the Grant Date.

 

7.4.         Vesting.  An
Option may be immediately exercisable or become exercisable in such
installments, cumulative or non-cumulative, as the Compensation Committee may
determine. Notwithstanding anything in this Section 7 or any applicable
Award Agreement to the contrary, in the case of an Option not otherwise
immediately exercisable in full, the Compensation Committee may Accelerate the
exercisability of such Option in whole or in part at any time.  In the event that the Compensation Committee
Accelerates the exercisability of any Option in whole or in part at any time,
the Compensation Committee may require as a condition precedent to the
effectiveness of any such Acceleration that the holder of such Option shall
enter into a written agreement with the Company providing, among other things,
that the Shares subject to such Option shall, following their issuance upon
exercise of such Option, be subject to a repurchase option in favor of the
Company upon such terms as the Compensation Committee shall determine in its
sole and absolute discretion.

 

7.5.         UK  Option.  To the extent
that it is lawful to do so, a UK Option may be granted subject to a condition
that any liability of the UK Subsidiary (as employer of the relevant Optionee)
to pay Secondary NIC in respect of the exercise of such UK Option shall be the
liability of the relevant Optionee and payable by or recoverable from that
Optionee in accordance with Section 12(c) of this Plan, provided
that the Compensation Committee may in its discretion at any time or times
release the Optionee from this liability or reduce his liability hereunder
unless an election in the form envisaged in Paragraph 3B(1) of Schedule 1
to SSCBA has been entered into between the UK Subsidiary and that Optionee and
that election (or the legislation which provides for such an election to be
effective) does not allow for such an election to be subsequently varied.

 

7.6.         Termination  of  Association  with  the  Company.  Unless the Compensation Committee shall
provide otherwise with respect to any Option, if an Optionee ceases to be an
employee or consultant of the Company and its Subsidiaries for any reason other
than Retirement or death of such Optionee, any Option held by such Optionee
and/or any subsequent Holder may be exercised by such Optionee and/or such
subsequent Holder at any time within 90 days after the termination of such
relationship, but only to the extent exercisable at termination and in no event
after the applicable option period.  If
an Optionee enters Retirement or dies, any Option held by such Optionee and/or
any subsequent Holder may be exercised by such Optionee, such subsequent Holder
and/or the executor or administrator of such Optionee or such subsequent Holder
at any time within the shorter of the applicable option period or 12 months
after the date of the Optionee’s Retirement or

 

6

 

death, but only to the extent exercisable at the time of such Optionee’s
Retirement or death.  Options which are
not exercisable at the time of termination of employment or consultancy, as the
case may be, between the Company and the Optionee or which are so exercisable
but are not exercised within the time periods described above shall
terminate.  Notwithstanding the
foregoing, in the event that (i) the applicable Award Agreement with
respect to an Option shall contain specific provisions governing the effect
that any such termination shall have on the exercisability of such Option, or (ii) the
Board, shall at any time adopt specific provisions governing the effect that
any such termination shall have on the exercisability of such Option, then such
provisions shall, to the extent that they are inconsistent with the provisions
of this Section 7.6, control and be deemed to supersede the provisions of
this Section 7.6.   For purposes of
this Section 7.6, military or sick leave shall not be deemed a termination
of employment, provided that it does not exceed the longer of 90 days or
the period during which the absent Optionee’s reemployment rights, if any, are
guaranteed by statute or by contract.

 

7.7.         Transferability  of  Options. Options shall not
be transferable; provided, however, that Options shall be transferable by
will or the laws of descent and distribution; and provided, further, that Options
may be transferred to a third party if and to the extent authorized and
permitted by the Compensation Committee at the time of grant of such Options or
at any time thereafter.  In granting its
authorization and permission to any proposed transfer of an Option to a third
party, the Compensation Committee may impose conditions or requirements that
must be satisfied by the transferor or the third party transferee prior to or
in connection with such transfer, including, without limitation, any conditions
or requirements that may be necessary or desirable, in the sole and absolute
discretion of the Compensation Committee, to ensure that such proposed transfer
complies with applicable securities laws or to prevent the Company, such
transferor or such third party transferee from violating or otherwise not be in
compliance with applicable securities laws as a result of such transfer.  The Compensation Committee may at any time
and from time to time delegate to one or more officers of the Company the
authority to permit transfers of Options to third parties pursuant to this Section 7.7,
which authorization shall be exercised by such officer or officers in
accordance with guidelines established by the Compensation Committee at any
time and from time to time.  The
restrictions on transferability set forth in this Section 7.7 shall in no
way preclude any Holder from effecting “cashless” exercises of an Option
pursuant to, and in accordance with, Section 7.8(b) hereof.

 

7.8.         Exercise  of  Option.

 

(a)           An Option may be exercised only by giving
written notice, in the manner provided in Section 17 hereof, specifying
the number of Shares as to which the Option is being exercised, accompanied
(except as otherwise provided in paragraphs (b) and (c) of this Section 7.8)
by full payment for such Shares in the form of a check or bank draft payable to
the order of the Company or other Shares with a current Fair Market Value equal
to the Option Price of the Shares to be purchased.  Receipt by the Company of such notice and
payment shall constitute the exercise of the Option or a part thereof.  Upon receipt by the Company of any such
notice of exercise with respect to a UK Option, the Company shall

 

7

 

immediately deliver a copy thereof to the UK Subsidiary (as employer of
the relevant Optionee).  Subject to the
provisions of the Plan (including, without limitation, Sections 10, 11 and 12)
or any applicable Award Agreement, within 30 days after receipt of such notice
and payment, the Company shall deliver or cause to be delivered to the Holder
the number of Shares then being purchased by the Holder.  Such Shares shall be fully paid and
nonassessable.

 

(b)           In lieu of payment by check, bank draft or
other Shares accompanying the written notice of exercise as described in
paragraph (a) of this Section 7.8, a Holder may, unless prohibited by
applicable law, elect to effect payment by including with the written notice
referred to in paragraph (a) of this Section 7.8 irrevocable
instructions to deliver for sale to a registered securities broker acceptable
to the Company that number of Shares subject to the Option being exercised
sufficient, after brokerage commissions, to cover the aggregate exercise price
of such Option and, if the Holder further elects, the withholding obligations
of the Optionee and/or such Holder pursuant to Section 12 with respect to
such exercise, together with irrevocable instructions to such broker to sell
such Shares and to remit directly to the Company such aggregate exercise price
and, if the Holder has so elected, the amount of such withholding obligation.  The Company shall not be required to deliver
to such securities broker any such Shares until it has received from the broker
such exercise price and, if the Holder has so elected, the amount of such
withholding obligation.

 

(c)           No Holder shall be permitted to effect
payment of any amount of the Option Price of the Shares to be purchased by
executing and delivering to the Company a promissory note.

 

(d)           The right of the Holder to exercise an Option
pursuant to any provision of this Section 7.8, and the obligation of the
Company to issue Shares upon any exercise of an Option pursuant to this Section 7.8,
is subject to compliance with all of the other provisions of the Plan
(including, without limitation, Sections 10, 11 and 12) or any applicable Award
Agreement.

 

7.9          Limitation  of  Rights  in  Stock.  A Holder shall not be deemed for any purpose
to be a stockholder of the Company with respect to any of the Shares covered by
an Option, except to the extent that the Option shall have been exercised with
respect thereto and, in addition, the Company shall have issued and delivered
to the Holder or his agent such Shares.

 

8.             Restricted  Stock  and  Restricted  Stock  Units

 

8.1.         Provision
for Grant.  Restricted Stock and
Restricted Stock Units may be granted either alone or in addition to other Options
granted under the Plan at such price, if any, as the Compensation Committee may
determine.  The Compensation Committee
shall condition the grant of Restricted Stock and Restricted Stock Units upon
the completion of additional service, attainment of specified performance goals
or such other factors as the Compensation Committee may determine.

 

8

 

8.2          Awards.  The prospective recipient of a Restricted
Stock or Restricted Stock Unit Award shall not have any rights with respect to
such Award, unless and until such recipient has executed an agreement
evidencing the Award, has delivered a fully executed copy thereof to the
Company, and has otherwise complied with the applicable terms and conditions of
such Award.

 

8.3          Additional
Terms  and  Conditions  of  Restricted  Stock.  Grants of Restricted Stock may be made under
the following additional terms and conditions and such other terms and
conditions, not inconsistent with the terms of the Plan, as the Compensation
Committee may prescribe:

 

(a)           Purchase  Price.  Shares of Restricted Stock shall be issued
under the Plan for such consideration, in cash, other property or services, as
is determined by the Compensation Committee.

 

(b)           Acceptance  of
Awards.  Awards of Restricted
Stock must be accepted within a period of 60 days (or such shorter period as
the Compensation Committee may specify at grant) after the Award date, by
executing an Award Agreement for Restricted Stock and paying whatever price (if
any) is required pursuant to the terms of the Award.

 

(c)           Issuance  of
Certificates.  Subject to
subsection (d) below, each Holder receiving an Award of Restricted Stock shall
be issued a stock certificate in respect of the Shares covered by such Award of
Restricted Stock.  Such certificate shall
be registered in the name of such Holder, and, if applicable, shall bear an
appropriate legend referring to the terms, conditions, and restrictions
applicable to such Award substantially in the following form:

 

The transferability of this certificate and the
shares represented by this certificate are subject to the terms and conditions
of the Cubist Pharmaceuticals, Inc. Amended and Restated 2000 Equity
Incentive Plan and an Award Agreement entered into by the registered owner and
Cubist Pharmaceuticals, Inc.  Copies
of such Plan and Agreement are on file in the offices of Cubist Pharmaceuticals, Inc.
at 65 Hayden Avenue, Lexington, Massachusetts 02421.

 

(d)           Escrow
of  Shares.  The
Compensation Committee may require that the stock certificates evidencing
shares of Restricted Stock be held in custody by an officer of the Company, the
designated escrow agent, until the restrictions thereon shall have lapsed, and
that the Holder deliver a stock power, endorsed in blank, relating to the
Shares covered by such Award.

 

(e)           Restrictions
and  Restriction  Period. 
During the Restriction Period applicable to shares of Restricted Stock,
such shares shall be subject to limitations on transferability and a Risk of
Forfeiture arising on the basis of such conditions, related to the performance
of service, Company or Subsidiary performance or otherwise, as 

 

9

 

the Compensation Committee may determine.  Any such Risk of Forfeiture may be waived or
terminated, in whole or in part, and/or the Restriction Period shortened, at
any time by the Compensation Committee on such basis as it deems appropriate.

 

(f)            Transferability.  Upon any permitted transfer of shares of
Restricted Stock without violating any restriction on transfer imposed pursuant
to Section 8.3(e), such shares shall remain subject to any applicable terms,
provisions, restrictions and limitations of such Restricted Stock, including
any applicable restriction on transfer and Risk of Forfeiture.

 

(g)           Rights  Pending  Lapse  of
Restrictions  or  Forfeiture  of  Award.  Except as provided in this subsection (g) and
subsections (e) and (f) above, the Holder shall have, with respect to the
shares of Restricted Stock, all of the rights of a stockholder of the Company,
including the right to vote the shares, and the right to receive any cash
dividends.  The Compensation Committee,
as determined at the time of Award, may permit or require the payment of cash
dividends to be deferred and, if the Compensation Committee so determines,
reinvested in additional Restricted Stock to the extent shares are available
under Section 4.

 

(h)           Effect  of  Termination  Of
Employment  Or  Association. 
Unless otherwise determined by the Compensation Committee (either at the
time of grant of the Award or at any time thereafter) and subject to the
applicable provisions of the Award Agreement and this Section 8, upon
termination of a Holder’s employment or other association with the Company and
its Subsidiaries for any reason during the Restriction Period including on an
entity ceasing to be a Subsidiary of the Company, all Shares still subject to
the Risk of Forfeiture shall be forfeited or otherwise subject to return to or
repurchase by the Company on the terms specified in the Award Agreement; provided,
however, that military or sick leave or other bona fide leave shall not
be deemed a termination of employment or other association, if it does not
exceed the longer of 90 days or the period during which the absent recipient’s
reemployment rights, if any, are guaranteed by statute or by contract.

 

(i)            Lapse  of  Restrictions.  If and when the Restriction Period expires
without a prior forfeiture of the Restricted Stock subject to such Restriction
Period, the certificates for such Shares shall be delivered to the Holder
promptly if not theretofore so delivered.

 

8.4          Additional
Terms  and  Conditions  of  Restricted  Stock
Units.  Grants of Restricted Stock
Units may be made under the following additional terms and conditions and such
other terms and conditions, not inconsistent with the terms of the Plan, as the
Compensation Committee may prescribe:

 

(a)           Purchase  Price.  Shares issued pursuant to an Award of
Restricted Stock Units shall be issued under the Plan for such consideration,
if any, in cash, other property or services, as is determined by the
Compensation Committee.

 

10

 

(b)           Issuance  of  Shares.  Following the 
vesting of an Award of Restricted Stock Units, the Holder shall be
issued the Shares underlying such Award in accordance with the terms, and at
the time or times, set forth in the applicable Award Agreement.  Such Shares when issued shall be registered
in the name of the Holder, and, if applicable and certificated, shall bear an
appropriate legend referring to the terms, conditions and restrictions
applicable to such Award.

 

(c)           Vesting.  The Restricted Stock Units shall vest in such
installments, cumulative or non-cumulative, as the Compensation Committee may
determine or upon conditions, related to the performance or service, Company or
Subsidiary performance or otherwise, as the Compensation Committee may
determine.  Notwithstanding anything in
this Section 8 or any applicable Award Agreement to the contrary, the
Compensation Committee may Accelerate the vesting of Restricted Stock Units in
whole or in part at any time on such basis as it deems appropriate.  In the event that the Compensation Committee
Accelerates the vesting of any Restricted Stock Unit Award in whole or in part
at any time, the Compensation Committee may require as a condition precedent to
the effectiveness of any such Acceleration that the Holder shall enter into a written
agreement with the Company providing, among other things, that the Shares
subject to such Restricted Stock Unit Award shall, following their issuance
upon vesting of such Restricted Stock Unit Award, be subject to a repurchase
option in favor of the Company upon such terms as the Compensation Committee
shall determine in its sole and absolute discretion.

 

(d)           Transferability.    Restricted Stock Units shall not be transferable; provided,
however, that Restricted Stock Units shall be transferable by will or
the laws of descent and distribution; and provided, further, that
Restricted Stock Units may be transferred to a third party if and to the extent
authorized and permitted by the Compensation Committee at the time of grant of
such Restricted Stock Units or at any time thereafter.  In granting its authorization and permission
to any proposed transfer of Restricted Stock Units to a third party, such Award
shall remain subject to any applicable terms, provisions, restrictions and
limitations, including vesting, and the Compensation Committee may impose
additional conditions or requirements that must be satisfied by the transferor
or the third party transferee prior to or in connection with such transfer,
including, without limitation, any conditions or requirements that may be
necessary or desirable, in the sole and absolute discretion of the Compensation
Committee, to ensure that such proposed transfer complies with applicable
securities laws as a result of such transfer. 
The Compensation Committee may at any time and from time to time
delegate to one or more officers of the Company the authority to permit
transfers of Restricted Stock Units to third parties pursuant to this Section 8.4(d),
which authorization shall be exercised by such officer or officers in
accordance with guidelines established by the Compensation Committee at any
time and from time to time.

 

(e)           Limitations  of  Rights  in
Stock.  A Holder shall not be
deemed for any purpose to be a stockholder of the Company with respect to any
of the Shares covered by an Award of Restricted Stock Units, except to the
extent that the Restricted Stock 

 

11

 

Units shall have vested and, in addition, the Shares shall have been
issued therefore and delivered to the Holder or his agent.  If so provided pursuant to the terms of the
Award Agreement, the Holder of an Award of Restricted Stock Units shall be
entitled to receive, following the vesting of the Award, payments equivalent to
any dividends declared with respect to Shares underlying the Award.  Unless the Award Agreement shall provide
otherwise, any such dividend equivalents shall be paid, if at all, without
interest or other earnings.

 

(f)            Effect  of  Termination  of
Employment  or  Association. 
Unless otherwise determined by the Compensation Committee (either at the
time of grant of the Award or at any time thereafter) and subject to the
applicable provisions of the Award Agreement and this Section 8, upon
termination of a Holder’s employment or other association with the Company and
its Subsidiaries for any reason during the vesting period including on an
entity ceasing to be a Subsidiary of the Company, all unvested Shares still
subject to the Restricted Stock Unit Award shall be forfeited on the terms
specified in the Award Agreement; provided, however, that
military or sick leave or other bona fide leave shall not be deemed a
termination of employment or other association, if it does not exceed the
longer of 90 days or the period during which the absent recipient’s
reemployment rights, if any, are guaranteed by statute or by contract.

 

9.             Stock
Grants

 

In recognition
of significant contributions to the success of the Company or its Subsidiaries,
in lieu of compensation otherwise already due and in such other limited
circumstances as the Compensation Committee deems appropriate, shares of Stock
may be issued either alone or in addition to other Awards granted under the
Plan at such price, if any, as the Compensation Committee may determine. Stock
Grant Awards shall be made without forfeiture conditions of any kind and
otherwise pursuant to such terms and conditions as the Compensation Committee
may determine.

 

10.          Restrictions  on
Issue  of  Shares.

 

(a)           Notwithstanding any other provision of the
Plan, if, at any time, in the reasonable opinion of the Company the issuance of
Shares covered by an Award may constitute a violation of law, then the Company
may delay such issuance and the delivery of such Shares until (i) approval
shall have been obtained from such governmental agencies, other than the
Securities and Exchange Commission, as may be required under any applicable
law, rule, or regulation; and (ii) in the case where such issuance would
constitute a violation of a law administered by or a regulation of the Securities
and Exchange Commission, one of the following conditions shall have been
satisfied:

 

(1)           the Shares are at the time of the issue of
such Shares effectively registered under the Securities Act; or

 

(2)           the Company shall have determined, on such
basis as it deems appropriate

 

12

 

(including an opinion of counsel or a no-action letter, each in form
and substance reasonably satisfactory to the Company) that the sale, transfer,
assignment, pledge, encumbrance or other disposition of such shares or such
beneficial interest, as the case may be, does not require registration under
the Securities Act or any applicable state securities laws.

 

The Company shall make all reasonable efforts to bring about the
occurrence of said events.

 

(b)           If the Company shall deem it necessary or
desirable to register under the Securities Act or other applicable statutes any
Shares with respect to which an Award shall have been granted, or to qualify
any such Shares for exemption from the Securities Act or other applicable
statutes, then the Company shall take such action at its own expense.  The Company may require from each recipient
of an Award, or each holder of Shares acquired pursuant to the Plan, such
information in writing for use in any registration statement, prospectus,
preliminary prospectus or offering circular as is reasonably necessary for such
purpose and may require reasonable indemnity to the Company and its officers
and directors from such holder against all losses, claims, damage and
liabilities arising from such use of the information so furnished and caused by
any untrue statement of any material fact therein or caused by the omission to
state a material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under which they were
made.

 

(c)           All Shares or other securities delivered
under the Plan shall be subject to such stop-transfer orders and other
restrictions as the Compensation Committee may deem advisable under the rules,
regulations, and other requirements of any stock exchange upon which the Stock
is then listed, and any applicable federal or state securities law, and the
Compensation Committee may, if certificated, cause a legend or legends to be
put on any such certificates to make appropriate reference to such
restrictions.

 

11.          Purchase  for
Investment.

 

(a)           Without limiting the
generality of Section 10 hereof, if the Shares to be issued pursuant to
Awards granted under the Plan have not been effectively registered under the
Securities Act, the Company shall be under no obligation to issue any Shares
covered by any Award unless the Holder shall have made such written
representations and covenants to the Company (upon which the Company believes
it may reasonably rely) as the Company may deem necessary or appropriate for
purposes of ensuring that the issuance of such Shares will be exempt from the
registration requirements of the Securities Act and any applicable state
securities laws and otherwise in compliance with all applicable laws, rules and
regulations, including but not limited to written representations that the
Holder is acquiring the shares for his or her own account for the purpose of
investment and not with a view to, or for sale in connection with, the
distribution of any such Shares.

 

(b)           Each Share to be issued
pursuant to Awards granted pursuant to this Plan may bear a reference to the
investment representation made in accordance with this Section 11 and to
the fact that no registration statement has been filed with the Securities and
Exchange Commission in respect to such Shares of Stock.

 

13

 

12.          Withholding; Notice
of  Disposition  of  Stock  Prior  to  Expiration
of  Specified  Holding  Period.

 

(a)           Whenever Shares are to
be issued in satisfaction of an Award granted hereunder, the Company shall have
the right to require the recipient of such Award and/or any subsequent Holder
to remit to the Company an amount sufficient to satisfy federal, state, local,
employment or other tax withholding requirements if, when and to the extent
required by law (whether so required to secure for the Company an otherwise
available tax deduction or otherwise) prior to the delivery of any such Shares.  The obligations of the Company under the Plan
shall be conditional on such payment and the Company shall, to the extent
permitted by law, have the right to deduct any such taxes from any payment of
any kind otherwise due to the recipient of an Award.

 

(b)           The Compensation
Committee may, at or after grant, permit the recipient and/or subsequent Holder
to satisfy any tax withholding requirements pertaining to the issuance of
Shares to satisfy an Award by delivery to the Company of Shares (including,
without limitation, Shares retained from the exercise or grant of the Award
that is creating the tax obligation) having a value equal to the amount to be
withheld.  The value of Shares to be so
delivered shall be based on the Compensation Committee’s determination of the
Fair Market Value of a Share on the date the amount of tax to be withheld is to
be determined.

 

(c)           If a UK Option is
exercised and the Optionee is required under Section 7.5 hereof to either
bear the cost of all or part of the Secondary NIC or to enter into an election
in the form envisaged in Paragraph 3B(1) of Schedule 1 to SSCBA, then the
Optionee shall by having delivered a notice of exercise with respect to such UK
Option be deemed to have granted to the UK Subsidiary (as employer of the
relevant Optionee) the irrevocable authority, as agent of the Optionee and on
his behalf, to sell or procure the sale of sufficient Shares subject to such UK
Option so that the net proceeds payable to the UK Subsidiary are so far as
possible equal to but not less than the amount of the Secondary NIC which the
Optionee is liable for and the UK Subsidiary shall account to the Optionee for
any balance. No Shares subject to any such
UK Option shall be issued to the Optionee until the UK Subsidiary has received
payment of the amount of Secondary NIC for which such Optionee is liable as a
result of the exercise of such UK Option.

 

13.          Adjustment
Provisions.

 

13.1        Adjustment
for  Corporate  Actions. All of the share numbers set forth
in the Plan reflect the capital structure of the Company as of April 9,
2008.  If subsequent to such date the
outstanding shares of Stock (or any other securities covered by the Plan by
reason of the prior application of this Section) are increased, decreased, or
exchanged for a different number or kind of shares or other securities or
property (including cash), or if subsequent to such date additional shares or
new or different shares or other securities or property (including cash) are
distributed with respect to or in exchange for shares of Stock or other
securities upon the merger, consolidation, sale of all or substantially all the
property or assets of the Company, sale of all of the outstanding Stock of the
Company, reorganization,

 

14

 

recapitalization, reclassification, stock dividend, stock split,
reverse stock split, or other distribution with respect to shares of Stock, or
other securities, (each of the foregoing events an “Adjustment Event”) an
appropriate and proportionate adjustment will be made in (i) the maximum
number and kind of shares or other securities subject to the provisions of Section 4,
(ii)  the numbers and kinds of shares or other securities or property
(including cash) subject to the then outstanding Options, Restricted Stock and
Restricted Stock Unit Awards, (iii) the exercise price for each share or
other unit of any other securities subject to then outstanding Options (without
change in the aggregate purchase price as to which such Options remain
exercisable), and (iv) the repurchase price of each share of Restricted
Stock then subject to a Risk of Forfeiture in the form of a Company repurchase
right.  Without limiting the generality
of the foregoing provisions of this Section 13.1, upon the occurrence of
an Adjustment Event, Holders of Options outstanding immediately prior to such
Adjustment Event shall upon exercise of such Options at any time following such
Adjustment Event be entitled to receive the shares of stock, other securities
or property (including cash) that such Holders would have received as a result
of such Adjustment Event if such Holders had exercised such Options immediately
prior to such Adjustment Event.  The
provisions of this Section 13.1 (including, without limitation, the
immediately preceding sentence) shall apply successively with respect to
multiple Adjustment Events that occur over time.

 

13.2        Change  in  Corporate  Control.
Subject to any provisions of then outstanding Awards granting greater rights to
the holders thereof, in the event of a Change in Corporate Control (a) any
then Restricted Stock and Restricted Stock Units shall Accelerate, and (b) any
then outstanding Options shall Accelerate. 
For the purposes of the preceding sentence, (i) in the case of a
Change in Corporate Control that is not a Hostile Change in Corporate Control,
the Board (and not the Compensation Committee, notwithstanding the
responsibilities assigned to the Compensation Committee pursuant to Section 5)
shall have the discretion to exclude any such Change in Corporate Control from
the application of the provisions of the immediately preceding sentence, and (ii) in
the case of a Hostile Change in Corporate Control, a majority of the Incumbent
Directors prior to such Hostile Change in Corporate Control shall have the
discretion to exclude any such Change in Corporate Control from the application
of the provisions of the immediately preceding sentence.  To the extent Options, Restricted Stock and
Restricted Stock Units are not assumed, substituted or replaced upon a Change
in Corporate Control that is not a Hostile Change in Corporate Control, the
Board (and not the Compensation Committee, notwithstanding the responsibilities
assigned to the Compensation Committee pursuant to Section 5) shall have
the discretion to terminate such outstanding Options to the extent not
exercised prior to or simultaneously with such Change in Corporate Control and
to terminate such outstanding Restricted Stock and Restricted Stock Units to
the extent not vested prior to or simultaneously with such Change in Corporate
Control.  Upon a Change in Corporate
Control, each outstanding Option, Restricted Stock and Restricted Stock Unit
will be appropriately adjusted simultaneously with such Change in Corporate
Control in accordance with Section 13.1.

 

13.3        Dissolution
or  Liquidation.  Upon
dissolution or liquidation of the Company each outstanding Restricted Stock
Award and Restricted Stock Unit Award shall terminate

15

 

and each Option shall terminate, but the Optionee (if at the time in
the employ of or otherwise associated with the Company or any of its
Subsidiaries) shall have the right, immediately prior to such dissolution or
liquidation, to exercise the Option to the extent exercisable on the date of
such dissolution or liquidation.

 

13.4        Related
Matters.  Any adjustment in Awards
made pursuant to this Section 13 shall be determined and made, if at all, by
the Compensation Committee and shall include any correlative modification of
terms, including of Option Prices, purchase prices, Risks of Forfeiture and
applicable repurchase prices for Restricted Stock, which the Compensation
Committee may deem necessary or appropriate so as to ensure the rights of the
Holders in their respective Awards are not substantially diminished nor
enlarged as a result of the adjustment and corporate action other than as
expressly contemplated in this Section 13. 
No fraction of a share shall be purchasable or deliverable upon
exercise, but in the event any adjustment hereunder of the number of shares
covered by an Award shall cause such number to include a fraction of a share,
such number of shares shall be adjusted to the nearest smaller whole number of
shares.

 

14.          Reservation  of
Stock.  The Company shall at all
times during the term of the Plan and, without duplication, of any outstanding
Awards, reserve or otherwise keep available such number of Shares as will be
sufficient to satisfy the requirements of the Plan (if not then terminated) and
such outstanding Awards and shall pay all fees and expenses necessarily
incurred by the Company in connection therewith.

 

15.          No  Special
Employment  or  Other  Rights.  Any Stock issued pursuant to Awards shall be
subject to all restrictions upon the transfer thereof which may be now or
hereafter imposed by the Certificate of Incorporation, and the By-laws of the
Company, if any.  Nothing contained in
the Plan or in any Award Agreement shall confer upon any recipient of an Award
any right with respect to the continuation of his or her employment or other
association with the Company (or any Subsidiary), or interfere in any way with
the right of the Company (or any Subsidiary), subject to the terms of any
separate employment or consulting agreement or provision of law or corporate
articles or by-laws to the contrary, at any time to terminate such employment,
consulting or advisory relationship or to increase or decrease the compensation
of the recipient of an Award from the rate in existence at the time of the
grant of an Award.

 

16.          Termination  and
Amendment  of  the  Plan. The Board may at any time
terminate the Plan or make such modifications of the Plan as it shall deem
advisable.  Any termination of the Plan
shall not affect the terms of any Award outstanding on the date of such termination.  Unless the Board otherwise expressly provides
and except to the extent otherwise provided in the next sentence, amendments of
the Plan shall apply to all Awards outstanding on the date of such amendments
to the same extent as if such amendments had been in effect at the time that
each of such outstanding Awards were made or granted.  Notwithstanding the foregoing, no amendment
of the Plan may, without the consent of any recipient of an Award outstanding
on the date of such amendment, (i) reduce the number of shares of Stock
subject to such Award, (ii) increase the Option Price or the purchase
price, as the case may be, of such Award, or (iii) change the vesting
schedule or the Risk of

 

16

 

Forfeiture, as the case may be, of such Award in a manner that
adversely affects the rights of the recipient under such Award.  The Compensation Committee may amend the
terms of any Award theretofore granted, prospectively or retroactively, provided
that the Award as amended is consistent with the terms of the Plan, and provided,
further, that no such amendment of such Award may, without the consent
of any recipient of such Award hereunder, (x) reduce the number of shares
of Stock subject to such Award, (y) increase the Option Price or the
purchase price, as the case may be, of such Award, or (z) change the
vesting schedule or the Risk of Forfeiture, as the case may be, of such Award
in a manner that adversely affects the rights of the recipient under such
Award.  Notwithstanding the foregoing or
anything to the contrary in the Plan, no repricing of outstanding Awards shall
be permitted under the Plan without first receiving approval from the holders
of Stock representing not less than a majority of the then outstanding Shares.  For
this purpose, the term “repricing” shall mean any of the following or any other
action that has the same effect:  (i) lowering the Option Price of an
Option after it is granted, (ii) buying-out an outstanding Option at a
time when its Option Price exceeds the Fair Market Value of the Stock for cash
or shares, (iii) any other action that is treated as a repricing under
generally accepted accounting principles, or (iv) canceling an Option at a
time when its Option Price exceeds the Fair Market Value of the Stock in
exchange for another Option, Restricted Stock, Restricted Stock Units, a Stock
Grant or other equity of the Company, unless the cancellation and exchange
occurs in connection with a Change in Corporate Control.  Notwithstanding anything in this Section 16
to the contrary, the consent of the recipient of an Award to an amendment of
the Plan or of the Award shall not be required if the Board or Compensation
Committee, as the case may be, determines in its sole discretion and prior to
the date of any Change in Corporate Control that such amendment either is
required or advisable in order for the Company, the Plan or the Award to
satisfy any law or regulation, including without limitation, the provisions of Section 409A
of the Code (and any successor provisions of the Code) and the regulations and
other guidance issued thereunder, or to meet the requirements of or avoid
adverse financial accounting consequences under any accounting standard.

 

17.          Notices  and
Other  Communications.  All
notices and other communications required or permitted under the Plan shall be
effective if in writing and if delivered or sent by certified or registered
mail, return receipt requested (a) if to the Holder, at his or her
residence address last filed with the Company, and (b) if to the Company,
at 65 Hayden Avenue, Lexington, Massachusetts 02421, Attention: General Counsel
or to such other persons or addresses as the Holder or the Company may specify
by a written notice to the other from time to time.  Copies of all notices sent to any Holder that
is not the recipient of an Award shall also be sent to the Holder in the manner
set forth in this Section 17.

 

18.          Exemption  From  or  Compliance
with  Section 409A  of  the  Code.  The Company intends that the Plan and any
Awards granted hereunder either 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 (and any successor
provisions of the Code) and the regulations and other guidance issued
thereunder (the “Requirements”), to the extent applicable, and be operated in
accordance with such Requirements, so that any compensation payable under any
Award (including any dividends and dividend equivalents)

 

17

 

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 Section 18.

 

19.          Effectiveness. The Plan, originally
called the 2000 Nonstatutory Stock Option Plan, was originally adopted on December 15,
2000 by the Board.  The Plan was amended
and restated by the Board on March 5, 2002, and the Plan, as so amended
and restated, was ratified and approved by the stockholders of the Company on June 13,
2002.  The Plan was amended by the Board
on August 5, 2005 and further amended and restated by the Board on March 10,
2008 and April 9, 2008.

 

18

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