Document:

EXHIBIT 10.5

 

EXHIBIT
10.5

CADENCE PHARMACEUTICALS, INC.

2006 EQUITY INCENTIVE AWARD PLAN

ARTICLE 1

PURPOSE

     The purpose of the Cadence Pharmaceuticals, Inc. 2006 Equity Incentive Award Plan (the
“Plan”) is to promote the success and enhance the value of Cadence Pharmaceuticals, Inc.
(the “Company”) by linking the personal interests of the members of the Board, Employees,
and Consultants to those of Company stockholders and by providing such individuals with an
incentive for outstanding performance to generate superior returns to Company stockholders. The
Plan is further intended to provide flexibility to the Company in its ability to motivate, attract,
and retain the services of members of the Board, Employees, and Consultants upon whose judgment,
interest, and special effort the successful conduct of the Company’s operation is largely
dependent.

     All numbers of shares of Stock set forth in the Plan give effect to the reverse stock split to
be implemented by the Company in connection with its initial public offering.

ARTICLE 2

DEFINITIONS AND CONSTRUCTION

     Wherever the following terms are used in the Plan they shall have the meanings specified
below, unless the context clearly indicates otherwise. The singular pronoun shall include the
plural where the context so indicates.

     2.1 “Award” means an Option, a Restricted Stock award, a Stock Appreciation Right
award, a Performance Share award, a Performance Stock Unit award, a Dividend Equivalents award, a
Stock Payment award, a Deferred Stock award, a Restricted Stock Unit award, an Other Stock-Based
Award, a Performance Bonus Award, or a Performance-Based Award granted to a Participant pursuant to
the Plan.

     2.2 “Award Agreement” means any written agreement, contract, or other instrument or
document evidencing an Award.

     2.3 “Board” means the Board of Directors of the Company.

     2.4 “Change in Control” means and includes each of the following:

          (a) A transaction or series of transactions (other than an offering of Stock to the general
public through a registration statement filed with the Securities and Exchange Commission) whereby
any “person” or related “group” of “persons” (as such terms are used in Sections 13(d) and 14(d)(2)
of the Exchange Act) (other than the Company, any of its subsidiaries, an employee benefit plan
maintained by the Company or any of its subsidiaries or a “person” that, prior to such transaction,
directly or indirectly controls, is controlled by, or is

 

under common control with, the Company) directly or indirectly acquires beneficial ownership
(within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company possessing
more than 50% of the total combined voting power of the Company’s securities outstanding
immediately after such acquisition; or

          (b) During any period of two consecutive years, individuals who, at the beginning of such
period, constitute the Board together with any new director(s) (other than a director designated by
a person who shall have entered into an agreement with the Company to effect a transaction
described in Section 2.4(a) or Section 2.4(c)) whose election by the Board or nomination for
election by the Company’s stockholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the beginning of the two year period or
whose election or nomination for election was previously so approved, cease for any reason to
constitute a majority thereof; or

          (c) The consummation by the Company (whether directly involving the Company or indirectly
involving the Company through one or more intermediaries) of (x) a merger, consolidation,
reorganization, or business combination or (y) a sale or other disposition of all or substantially
all of the Company’s assets or (z) the acquisition of assets or stock of another entity, in each
case other than a transaction:

               (i) Which results in the Company’s voting securities outstanding immediately before the
transaction continuing to represent (either by remaining outstanding or by being converted into
voting securities of the Company or the person that, as a result of the transaction, controls,
directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of
the Company’s assets or otherwise succeeds to the business of the Company (the Company or such
person, the “Successor Entity”)) directly or indirectly, at least a majority of the
combined voting power of the Successor Entity’s outstanding voting securities immediately after the
transaction, and

               (ii) After which no person or group beneficially owns voting securities representing 50% or
more of the combined voting power of the Successor Entity; provided, however, that no person or
group shall be treated for purposes of this Section 2.4(c)(ii) as beneficially owning 50% or more
of combined voting power of the Successor Entity solely as a result of the voting power held in the
Company prior to the consummation of the transaction.

     2.5
“Code” means the Internal Revenue Code of 1986, as
amended.

     2.6 “Committee” means the committee of the Board described in Article 12.

     2.7 “Consultant” means any consultant or adviser if:

          (a) The consultant or adviser renders bona fide services to the Company or any Parent or
Subsidiary;

          (b) The services rendered by the consultant or adviser are not in connection with the offer or
sale of securities in a capital-raising transaction and do not directly or indirectly promote or
maintain a market for the securities of the Company or of any Parent or Subsidiary; and

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          (c) The consultant or adviser is a natural person.

     2.8 “Covered Employee” means an Employee who is, or could be, a “covered employee”
within the meaning of Section 162(m) of the Code.

     2.9 “Deferred Stock” means a right to receive a specified number of shares of Stock
during specified time periods pursuant to Article 8.

     2.10 “Disability” means “disability,” as such term is defined in Section 22(e)(3) of
the Code.

     2.11 “Dividend Equivalents” means a right granted to a Participant pursuant to Article
8 to receive the equivalent value (in cash or Stock) of dividends paid on Stock.

     2.12 “Effective Date” shall have the meaning set forth in Section 13.1.

     2.13 “Eligible Individual” means any person who is an Employee, a Consultant or a
member of the Board, as determined by the Committee.

     2.14 “Employee” means any officer or other employee (as defined in accordance with
Section 3401(c) of the Code) of the Company or of any Parent or Subsidiary.

     2.15 “Exchange Act” means the Securities Exchange Act of 1934, as amended.

     2.16 “Fair Market Value” means, as of any given date, the fair market value of a share
of Stock on the date determined by such methods or procedures as may be established from time to
time by the Committee. Unless otherwise determined by the Committee, the Fair Market Value of a
share of Stock as of any date shall be the closing sales price for a share of Stock as reported on
the NASDAQ National Market (or on any national securities exchange on which the Stock is then
listed) for the date or, if no such prices are reported for that date, the average of the high and
low trading prices on the next preceding date for which such prices were reported.

     2.17 “Incentive Stock Option” means an Option that is intended to meet the
requirements of Section 422 of the Code or any successor provision thereto.

     2.18 “Independent Director” means a member of the Board who is not an Employee of the
Company or of any Parent or Subsidiary.

     2.19 “Non-Employee Director” means a member of the Board who qualifies as a
“Non-Employee Director” as defined in Rule 16b-3(b)(3) of the Exchange Act, or any successor
definition adopted by the Board.

     2.20 “Non-Qualified Stock Option” means an Option that is not intended to be an
Incentive Stock Option.

     2.21 “Option” means a right granted to a Participant pursuant to Article 5 of the Plan
to purchase a specified number of shares of Stock at a specified price during specified time
periods. An Option may be either an Incentive Stock Option or a Non-Qualified Stock Option.

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     2.22 “Other Stock-Based Award” means an Award granted or denominated in Stock or units
of Stock pursuant to Section 8.7 of the Plan.

     2.23 “Parent” means any “parent corporation, as defined in Section 424(e) of the Code
and any applicable regulations promulgated thereunder, of the Company or any other entity which
beneficially owns, directly or indirectly, a majority of the outstanding voting stock or voting
power of the Company.

     2.24 “Participant” means any Eligible Individual who, as a member of the Board,
Consultant or Employee, has been granted an Award pursuant to the Plan.

     2.25 “Performance-Based Award” means an Award granted to selected Covered Employees
pursuant to Articles 6 and 8, but which is subject to the terms and conditions set forth in Article
9. All Performance-Based Awards are intended to qualify as Qualified Performance-Based
Compensation.

     2.26 “Performance Bonus Award” has the meaning set forth in Section 8.8.

     2.27 “Performance Criteria” means the criteria that the Committee selects for purposes
of establishing the Performance Goal or Performance Goals for a Participant for a Performance
Period. The Performance Criteria that will be used to establish Performance Goals are limited to
the following: net earnings (either before or after interest, taxes, depreciation and
amortization), economic value-added (as determined by the Committee), sales or revenue, net income
(either before or after taxes), operating earnings, cash flow (including, but not limited to,
operating cash flow and free cash flow), cash flow return on capital, return on net assets, return
on stockholders’ equity, return on assets, return on capital, stockholder returns, return on sales,
gross or net profit margin, productivity, expense, margins, operating efficiency, customer
satisfaction, working capital, earnings per share of Stock, price per share of Stock, and market
share, any of which may be measured either in absolute terms or as compared to any incremental
increase or as compared to results of a peer group. To the extent an Award is intended to be
Qualified Performance-Based Compensation, the Committee shall, within the time prescribed by
Section 162(m) of the Code, define in an objective fashion the manner of calculating the
Performance Criteria it selects to use for such Performance Period for such Participant.

     2.28 “Performance Goals” means, for a Performance Period, the goals established in
writing by the Committee for the Performance Period based upon the Performance Criteria. Depending
on the Performance Criteria used to establish such Performance Goals, the Performance Goals may be
expressed in terms of overall Company performance or the performance of a division, business unit,
or an individual. To the extent an Award is intended to be Qualified Performance-Based
Compensation, the Committee, in its discretion, may, within the time prescribed by Section 162(m)
of the Code, adjust or modify the calculation of Performance Goals for such Performance Period in
order to prevent the dilution or enlargement of the rights of Participants (a) in the event of, or
in anticipation of, any unusual or extraordinary corporate item, transaction, event, or
development, or (b) in recognition of, or in anticipation of, any other unusual or nonrecurring
events affecting the Company, or the financial statements of the Company, or in response to, or in
anticipation of, changes in applicable laws, regulations, accounting principles, or business
conditions.

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     2.29 “Performance Period” means the one or more periods of time, which may be of
varying and overlapping durations, as the Committee may select, over which the attainment of one or
more Performance Goals will be measured for the purpose of determining a Participant’s right to,
and the payment of, a Performance-Based Award.

     2.30 “Performance Share” means a right granted to a Participant pursuant to Article 8,
to receive Stock, the payment of which is contingent upon achieving certain Performance Goals or
other performance-based targets established by the Committee.

     2.31 “Performance Stock Unit” means a right granted to a Participant pursuant to
Article 8, to receive Stock, the payment of which is contingent upon achieving certain Performance
Goals or other performance-based targets established by the Committee.

     2.32 “Plan” means this Cadence Pharmaceuticals, Inc. 2006 Incentive Award Plan, as it
may be amended from time to time.

     2.33 “Public Trading Date” means the first date upon which Stock is listed (or
approved for listing) upon notice of issuance on any securities exchange or designated (or approved
for designation) upon notice of issuance as a national market security on an interdealer quotation
system.

     2.34 “Qualified Performance-Based Compensation” means any compensation that is
intended to qualify as “qualified performance-based compensation” as described in Section
162(m)(4)(C) of the Code.

     2.35 “Restricted Stock” means Stock awarded to a Participant pursuant to Article 6
that is subject to certain restrictions and may be subject to risk of forfeiture.

     2.36 “Restricted Stock Unit” means an Award granted pursuant to Section 8.6.

     2.37 “Securities Act” shall mean the Securities Act of 1933, as amended.

     2.38 “Stock” means the common stock of the Company, par value $0.0001 per share, and
such other securities of the Company that may be substituted for Stock pursuant to Article 11.

     2.39 “Stock Appreciation Right” or “SAR” means a right granted pursuant to
Article 7 to receive a payment equal to the excess of the Fair Market Value of a specified number
of shares of Stock on the date the SAR is exercised over the Fair Market Value on the date the SAR
was granted as set forth in the applicable Award Agreement.

     2.40 “Stock Payment” means (a) a payment in the form of shares of Stock, or (b) an
option or other right to purchase shares of Stock, as part of any bonus, deferred compensation or
other arrangement, made in lieu of all or any portion of the compensation, granted pursuant to
Article 8.

     2.41 “Subsidiary” means any “subsidiary corporation” as defined in Section 424(f) of
the Code and any applicable regulations promulgated thereunder or any other entity of which a

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majority of the outstanding voting stock or voting power is beneficially owned directly or
indirectly by the Company.

ARTICLE 3

SHARES SUBJECT TO THE PLAN

     3.1 Number of Shares.

          (a) Subject to Article 11 and Section 3.1(b), the aggregate number of shares of Stock which
may be issued or transferred pursuant to Awards under the Plan shall be the sum of: (i) 2,100,000
shares of Stock; plus (ii) the number of shares of Stock remaining available for issuance and not
subject to awards granted under the Cadence Pharmaceuticals, Inc. 2004 Equity Incentive Award Plan
(the “Existing Plan”) as of the Effective Date; plus (iii) with respect to awards granted
under the Existing Plan on or before the Effective Date that expire or are canceled without having
been exercised in full or shares of Stock that are forfeited or repurchased pursuant to the terms
of awards granted under the Existing Plan, the number of shares of Stock subject to each such award
as to which such award was not exercised prior to its expiration or cancellation or which are
forfeited or repurchased by the Company. The aggregate number of shares of Stock authorized for
issuance under the Existing Plan was [                    ] shares of Stock and, accordingly, the total number
of shares of Stock under clauses (ii) and (iii) in the preceding sentence shall not exceed
[                    ] shares of Stock. In addition, subject to Article 11, commencing on January 1, 2008, and
on each January 1 thereafter during the term of the Plan, the number of shares of Stock which shall
be made available for sale under the Plan shall be increased by that number of shares of Stock
equal to the least of: (i) 4% of the Company’s outstanding shares of Stock on the applicable
January 1; and (ii) a lesser number of shares of Stock as determined by the Board. Accordingly,
the number of shares of Stock which shall be available for sale under the Plan shall be subject to
increase under the preceding sentence only on January 1, 2008 and on each subsequent January 1
through and including January 1, 2016. Notwithstanding anything in this Section 3.1(a) to the
contrary, the number of shares of Stock that may be issued or transferred pursuant to Awards under
the Plan shall not exceed an aggregate of 20,000,000 shares of Stock, subject to Article 11. In
order that the applicable regulations under the Code relating to Incentive Stock Options be
satisfied, the maximum number of shares of Stock that may be delivered upon exercise of Incentive
Stock Options shall be the number specified in the preceding sentence, and, if necessary to satisfy
such regulations, such maximum limit shall apply to the number of shares of Stock that may be
delivered in connection with each other type of Award under the Plan (applicable separately to each
type of Award).

          (b) To the extent that an Award terminates, expires, or lapses for any reason, any shares of
Stock subject to the Award shall again be available for the grant of an Award pursuant to the Plan.
Additionally, any shares of Stock tendered or withheld to satisfy the grant or exercise price or
tax withholding obligation pursuant to any Award shall again be available for the grant of an Award
pursuant to the Plan. To the extent permitted by applicable law or any exchange rule, shares of
Stock issued in assumption of, or in substitution for, any outstanding awards of any entity
acquired in any form of combination by the Company or any Parent or Subsidiary shall not be counted
against shares of Stock available for grant pursuant to this Plan.

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The payment of Dividend Equivalents in conjunction with any outstanding Awards shall not be
counted against the shares of Stock available for issuance under the Plan.

     3.2 Stock Distributed. Any shares of Stock distributed pursuant to an Award may
consist, in whole or in part, of authorized and unissued Stock, treasury Stock or Stock purchased
on the open market.

     3.3 Limitation on Number of Shares Subject to Awards. Notwithstanding any provision
in the Plan to the contrary, and subject to Article 11, the maximum number of shares of Stock with
respect to one or more Awards that may be granted to any one Participant during any fiscal year of
the Company (measured from the date of any grant) shall be 1,000,000; provided, however, that the
foregoing limitation shall not apply prior to the Public Trading Date and, following the Public
Trading Date, the foregoing limitation shall not apply until the earliest of: (a) the first
material modification of the Plan (including any increase in the number of shares of Stock reserved
for issuance under the Plan in accordance with Section 3.1); (b) the issuance of all of the shares
of Stock reserved for issuance under the Plan; (c) the expiration of the Plan; (d) the first
meeting of stockholders at which members of the Board are to be elected that occurs after the close
of the third calendar year following the calendar year in which occurred the first registration of
an equity security of the Company under Section 12 of the Exchange Act; or (e) such other date
required by Section 162(m) of the Code and the rules and regulations promulgated thereunder.

ARTICLE 4

ELIGIBILITY AND PARTICIPATION

     4.1 Eligibility. Each Eligible Individual shall be eligible to be granted one or more
Awards pursuant to the Plan.

     4.2 Participation. Subject to the provisions of the Plan, the Committee may, from
time to time, select from among all Eligible Individuals, those to whom Awards shall be granted and
shall determine the nature and amount of each Award. No Eligible Individual shall have any right
to be granted an Award pursuant to this Plan.

     4.3 Foreign Participants. In order to assure the viability of Awards granted to
Participants employed in foreign countries, the Committee may provide for such special terms as it
may consider necessary or appropriate to accommodate differences in local law, tax policy, or
custom. Moreover, the Committee may approve such supplements to, or amendments, restatements, or
alternative versions of, the Plan as it may consider necessary or appropriate for such purposes
without thereby affecting the terms of the Plan as in effect for any other purpose; provided,
however, that no such supplements, amendments, restatements, or alternative versions shall increase
the limitations on the number of shares of Stock (a) issued or transferred pursuant to Awards under
the Plan, as detailed in Section 3.1, and (b) issued or transferred pursuant to Awards granted to
any one Participant during any fiscal year of the Company, as detailed in Section 3.3 of the Plan.

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ARTICLE 5

STOCK OPTIONS

     5.1 General. The Committee is authorized to grant Options to Participants on the
following terms and conditions:

          (a) Exercise Price. The exercise price per share of Stock subject to an Option shall
be determined by the Committee and set forth in the Award Agreement; provided that the exercise
price for any Option shall not be less than par value of a share of Stock on the date of grant.

          (b) Time and Conditions of Exercise. The Committee shall determine the time or times
at which an Option may be exercised in whole or in part. The Committee shall also determine the
performance or other conditions, if any, that must be satisfied before all or part of an Option may
be exercised.

          (c) Payment. The Committee shall determine the methods by which the exercise price of
an Option may be paid, the form of payment, including, without limitation: (i) cash, (ii)
promissory note bearing interest at no less than such rate as shall then preclude the imputation of
interest under the Code, (iii) shares of Stock held for such period of time as may be required by
the Committee in order to avoid adverse accounting consequences and having a Fair Market Value on
the date of delivery equal to the aggregate exercise price of the Option or exercised portion
thereof, or (iv) other property acceptable to the Committee (including through the delivery of a
notice that the Participant has placed a market sell order with a broker with respect to shares of
Stock then issuable upon exercise of the Option, and that the broker has been directed to pay a
sufficient portion of the net proceeds of the sale to the Company in satisfaction of the Option
exercise price; provided that payment of such proceeds is then made to the Company upon settlement
of such sale), and the methods by which shares of Stock shall be delivered or deemed to be
delivered to Participants. Notwithstanding any other provision of the Plan to the contrary, no
Participant who is a member of the Board or an “executive officer” of the Company within the
meaning of Section 13(k) of the Exchange Act shall be permitted to pay the exercise price of an
Option in any method which would violate Section 13(k) of the Exchange Act.

          (d) Evidence of Grant. All Options shall be evidenced by a written Award Agreement
between the Company and the Participant. The Award Agreement shall include such additional
provisions as may be specified by the Committee.

     5.2 Incentive Stock Options. The terms of any Incentive Stock Options granted
pursuant to the Plan must comply with the conditions and limitations contained in Section 13.2 and
this Section 5.2.

          (a) Eligibility. Incentive Stock Options may be granted only to Employees.

          (b) Exercise Price. The exercise price per share of Stock shall be set by the
Committee; provided that subject to Section 5.2(e) the exercise price for any Incentive Stock
Option shall not be less than 100% of the Fair Market Value on the date of grant.

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          (c) Expiration. Subject to Section 5.2(e), an Incentive Stock Option may not be
exercised to any extent by anyone after the tenth anniversary of the date it is granted, unless an
earlier time is set in the Award Agreement.

          (d) Individual Dollar Limitation. The aggregate Fair Market Value (determined as of
the time the Option is granted) of all shares of Stock with respect to which Incentive Stock
Options are first exercisable by a Participant in any calendar year may not exceed $100,000 or such
other limitation as imposed by Section 422(d) of the Code, or any successor provision. To the
extent that Incentive Stock Options are first exercisable by a Participant in excess of such
limitation, the excess shall be considered Non-Qualified Stock Options.

          (e) Ten Percent Owners. An Incentive Stock Option shall be granted to any individual
who, at the date of grant, owns stock possessing more than ten percent of the total combined voting
power of all classes of Stock of the Company only if such Option is granted at a price that is not
less than 110% of Fair Market Value on the date of grant and the Option is exercisable for no more
than five years from the date of grant.

          (f) Notice of Disposition. The Participant shall give the Company prompt notice of
any disposition of shares of Stock acquired by exercise of an Incentive Stock Option within (i) two
years from the date of grant of such Incentive Stock Option or (ii) one year after the transfer of
such shares of Stock to the Participant.

          (g) Right to Exercise. During a Participant’s lifetime, an Incentive Stock Option may
be exercised only by the Participant.

     5.3 Substitution of Stock Appreciation Rights. The Committee may provide in the Award
Agreement evidencing the grant of an Option that the Committee, in its sole discretion, shall have
to right to substitute a Stock Appreciation Right for such Option at any time prior to or upon
exercise of such Option, subject to the provisions of Section 7.2 hereof; provided that such Stock
Appreciation Right shall be exercisable with respect to the same number of shares of Stock for
which such substituted Option would have been exercisable.

     5.4 Paperless Exercise. In the event that the Company establishes, for itself or
using the services of a third party, an automated system for the exercise of Options, such as a
system using an internet website or interactive voice response, then the paperless exercise of
options by a Participant may be permitted through the use of such an automated system.

ARTICLE 6

RESTRICTED STOCK AWARDS

     6.1 Grant of Restricted Stock. The Committee is authorized to make Awards of
Restricted Stock to any Participant selected by the Committee in such amounts and subject to such
terms and conditions as determined by the Committee. All Awards of Restricted Stock shall be
evidenced by a written Restricted Stock Award Agreement.

     6.2 Issuance and Restrictions. Restricted Stock shall be subject to such restrictions
on

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transferability and other restrictions as the Committee may impose (including, without
limitation, limitations on the right to vote Restricted Stock or the right to receive dividends on
the Restricted Stock). These restrictions may lapse separately or in combination at such times,
pursuant to such circumstances, in such installments, or otherwise, as the Committee determines at
the time of the grant of the Award or thereafter.

     6.3 Forfeiture. Except as otherwise determined by the Committee at the time of the
grant of the Award or thereafter, upon termination of employment or service during the applicable
restriction period, Restricted Stock that is at that time subject to restrictions shall be
forfeited; provided, however, that the Committee may (a) provide in any Restricted Stock Award
Agreement that restrictions or forfeiture conditions relating to Restricted Stock will be waived in
whole or in part in the event of terminations resulting from specified causes, and (b) in other
cases waive in whole or in part restrictions or forfeiture conditions relating to Restricted Stock.

     6.4 Certificates for Restricted Stock. Restricted Stock granted pursuant to the Plan
may be evidenced in such manner as the Committee shall determine. If certificates representing
shares of Restricted Stock are registered in the name of the Participant, certificates must bear an
appropriate legend referring to the terms, conditions, and restrictions applicable to such
Restricted Stock, and the Company may, at its discretion, retain physical possession of the
certificate until such time as all applicable restrictions lapse.

ARTICLE 7

STOCK APPRECIATION RIGHTS

     7.1 Grant of Stock Appreciation Rights. A Stock Appreciation Right may be granted to
any Participant selected by the Committee. A Stock Appreciation Right shall be subject to such
terms and conditions not inconsistent with the Plan as the Committee shall impose and shall be
evidenced by an Award Agreement.

     7.2 Stock Appreciation Rights.

          (a) A Stock Appreciation Right (“SAR”) shall have a term set by the Committee. A SAR
shall be exercisable in such installments as the Committee may determine. A SAR shall cover such
number of shares of Stock as the Committee may determine. The exercise price per share of Stock
subject to each SAR shall be set by the Committee; provided, however, that the Committee in its
sole and absolute discretion may provide that the SAR may be exercised subsequent to a termination
of employment or service, as applicable, or following a Change in Control of the Company, or
because of the Participant’s retirement, death or disability, or otherwise.

          (b) A SAR shall entitle the Participant (or other person entitled to exercise the SAR pursuant
to the Plan) to exercise all or a specified portion of the SAR (to the extent then exercisable
pursuant to its terms) and to receive from the Company an amount determined by multiplying the
difference obtained by subtracting the exercise price per share of the SAR from the Fair Market
Value of a share of Stock on the date of exercise of the SAR by the number of shares of Stock with
respect to which the SAR shall have been exercised, subject to any limitations the Committee may
impose.

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     7.3 Payment and Limitations on Exercise.

          (a) Payment of the amounts determined under Section 7.2(b) above shall be in cash, in Stock
(based on its Fair Market Value as of the date the SAR is exercised) or a combination of both, as
determined by the Committee.

          (b) To the extent any payment under Section 7.2(b) is effected in Stock it shall be made
subject to satisfaction of all provisions of Article 5 above pertaining to Options.

ARTICLE 8

OTHER TYPES OF AWARDS

     8.1 Performance Share Awards. Any Participant selected by the Committee may be
granted one or more Performance Share awards which shall be denominated in a number of shares of
Stock and which may be linked to any one or more of the Performance Criteria or other specific
performance criteria determined appropriate by the Committee, in each case on a specified date or
dates or over any period or periods determined by the Committee. In making such determinations,
the Committee shall consider (among such other factors as it deems relevant in light of the
specific type of award) the contributions, responsibilities and other compensation of the
particular Participant.

     8.2 Performance Stock Units. Any Participant selected by the Committee may be granted
one or more Performance Stock Unit awards which shall be denominated in units of value including
dollar value of shares of Stock and which may be linked to any one or more of the Performance
Criteria or other specific performance criteria determined appropriate by the Committee, in each
case on a specified date or dates or over any period or periods determined by the Committee. In
making such determinations, the Committee shall consider (among such other factors as it deems
relevant in light of the specific type of award) the contributions, responsibilities and other
compensation of the particular Participant.

     8.3 Dividend Equivalents.

          (a) Any Participant selected by the Committee may be granted Dividend Equivalents based on the
dividends declared on the shares of Stock that are subject to any Award, to be credited as of
dividend payment dates, during the period between the date the Award is granted and the date the
Award is exercised, vests or expires, as determined by the Committee. Such Dividend Equivalents
shall be converted to cash or additional shares of Stock by such formula and at such time and
subject to such limitations as may be determined by the Committee.

          (b) Dividend Equivalents granted with respect to Options or SARs that are intended to be
Qualified Performance-Based Compensation shall be payable, with respect to pre-exercise periods,
regardless of whether such Option or SAR is subsequently exercised.

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     8.4 Stock Payments. Any Participant selected by the Committee may receive Stock
Payments in the manner determined from time to time by the Committee. The number of shares of
Stock or the number of options or other rights to purchase shares of Stock subject to a Stock
Payment shall be determined by the Committee and may be based upon the Performance Criteria or
other specific performance criteria determined appropriate by the Committee, determined on the date
such Stock Payment is made or on any date thereafter.

     8.5 Deferred Stock. Any Participant selected by the Committee may be granted an award
of Deferred Stock in the manner determined from time to time by the Committee. The number of
shares of Deferred Stock shall be determined by the Committee and may be linked to the Performance
Criteria or other specific performance criteria determined to be appropriate by the Committee, in
each case on a specified date or dates or over any period or periods determined by the Committee.
Stock underlying a Deferred Stock award will not be issued until the Deferred Stock award has
vested, pursuant to a vesting schedule or performance criteria set by the Committee. Unless
otherwise provided by the Committee, a Participant awarded Deferred Stock shall have no rights as a
Company stockholder with respect to such Deferred Stock until such time as the Deferred Stock Award
has vested and the Stock underlying the Deferred Stock Award has been issued.

     8.6 Restricted Stock Units. The Committee is authorized to make Awards of Restricted
Stock Units to any Participant selected by the Committee in such amounts and subject to such terms
and conditions as determined by the Committee. At the time of grant, the Committee shall specify
the date or dates on which the Restricted Stock Units shall become fully vested and nonforfeitable,
and may specify such conditions to vesting as it deems appropriate. At the time of grant, the
Committee shall specify the maturity date applicable to each grant of Restricted Stock Units which
shall be no earlier than the vesting date or dates of the Award and may be determined at the
election of the grantee. On the maturity date, the Company shall, subject to Section 10.5(b),
transfer to the Participant one unrestricted, fully transferable share of Stock for each Restricted
Stock Unit scheduled to be paid out on such date and not previously forfeited. The Committee shall
specify the purchase price, if any, to be paid by the grantee to the Company for such shares of
Stock.

     8.7 Other Stock-Based Awards. Any Participant selected by the Committee may be
granted one or more Awards that provide Participants with shares of Stock or the right to purchase
shares of Stock or that have a value derived from the value of, or an exercise or conversion
privilege at a price related to, or that are otherwise payable in shares of Stock and which may be
linked to any one or more of the Performance Criteria or other specific performance criteria
determined appropriate by the Committee, in each case on a specified date or dates or over any
period or periods determined by the Committee. In making such determinations, the Committee shall
consider (among such other factors as it deems relevant in light of the specific type of Award) the
contributions, responsibilities and other compensation of the particular Participant.

     8.8 Performance Bonus Awards. Any Participant selected by the Committee may be
granted one or more Performance-Based Awards in the form of a cash bonus (a “Performance Bonus
Award”) payable upon the attainment of Performance Goals that are established by the Committee
and relate to one or more of the Performance Criteria, in each case on a specified date

12

 

or dates or over any period or periods determined by the Committee. Any such Performance
Bonus Award paid to a Covered Employee shall be based upon objectively determinable bonus formulas
established in accordance with Article 9. The maximum amount of any Performance Bonus Award
payable to a Covered Employee with respect to any fiscal year of the Company shall not exceed
$1,000,000.

     8.9 Term. Except as otherwise provided herein, the term of any Award of Performance
Shares, Performance Stock Units, Dividend Equivalents, Stock Payments, Deferred Stock, Restricted
Stock Units or Other Stock-Based Award shall be set by the Committee in its discretion.

     8.10 Exercise or Purchase Price. The Committee may establish the exercise or purchase
price, if any, of any Award of Performance Shares, Performance Stock Units, Deferred Stock, Stock
Payments, Restricted Stock Units or Other Stock-Based Award; provided, however, that such price
shall not be less than the par value of a share of Stock on the date of grant, unless otherwise
permitted by applicable state law.

     8.11 Exercise Upon Termination of Employment or Service. An Award of Performance
Shares, Performance Stock Units, Dividend Equivalents, Deferred Stock, Stock Payments, Restricted
Stock Units and Other Stock-Based Award shall only be exercisable or payable while the Participant
is an Employee, Consultant or a member of the Board, as applicable; provided, however, that the
Committee in its sole and absolute discretion may provide that an Award of Performance Shares,
Performance Stock Units, Dividend Equivalents, Stock Payments, Deferred Stock, Restricted Stock
Units or Other Stock-Based Award may be exercised or paid subsequent to a termination of employment
or service, as applicable, or following a Change in Control of the Company, or because of the
Participant’s retirement, death or disability, or otherwise; provided, however, that any such
provision with respect to Performance Shares or Performance Stock Units shall be subject to the
requirements of Section 162(m) of the Code that apply to Qualified Performance-Based Compensation.

     8.12 Form of Payment. Payments with respect to any Awards granted under this Article
8 shall be made in cash, in Stock or a combination of both, as determined by the Committee.

     8.13 Award Agreement. All Awards under this Article 8 shall be subject to such
additional terms and conditions as determined by the Committee and shall be evidenced by a written
Award Agreement.

ARTICLE 9

PERFORMANCE-BASED AWARDS

     9.1 Purpose. The purpose of this Article 9 is to provide the Committee the ability to
qualify Awards other than Options and SARs and that are granted pursuant to Articles 6 and 8 as
Qualified Performance-Based Compensation. If the Committee, in its discretion, decides to grant a
Performance-Based Award to a Covered Employee, the provisions of this Article 9 shall control over
any contrary provision contained in Articles 6 or 8; provided, however, that the

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Committee may in its discretion grant Awards to Covered Employees that are based on
Performance Criteria or Performance Goals but that do not satisfy the requirements of this Article
9.

     9.2 Applicability. This Article 9 shall apply only to those Covered Employees
selected by the Committee to receive Performance-Based Awards. The designation of a Covered
Employee as a Participant for a Performance Period shall not in any manner entitle the Participant
to receive an Award for the period. Moreover, designation of a Covered Employee as a Participant
for a particular Performance Period shall not require designation of such Covered Employee as a
Participant in any subsequent Performance Period and designation of one Covered Employee as a
Participant shall not require designation of any other Covered Employees as a Participant in such
period or in any other period.

     9.3 Procedures with Respect to Performance-Based Awards. To the extent necessary to
comply with the Qualified Performance-Based Compensation requirements of Section 162(m)(4)(C) of
the Code, with respect to any Award granted under Articles 6 and 8 which may be granted to one or
more Covered Employees, no later than ninety (90) days following the commencement of any fiscal
year in question or any other designated fiscal period or period of service (or such other time as
may be required or permitted by Section 162(m) of the Code), the Committee shall, in writing, (a)
designate one or more Covered Employees, (b) select the Performance Criteria applicable to the
Performance Period, (c) establish the Performance Goals, and amounts of such Awards, as applicable,
which may be earned for such Performance Period, and (d) specify the relationship between
Performance Criteria and the Performance Goals and the amounts of such Awards, as applicable, to be
earned by each Covered Employee for such Performance Period. Following the completion of each
Performance Period, the Committee shall certify in writing whether the applicable Performance Goals
have been achieved for such Performance Period. In determining the amount earned by a Covered
Employee, the Committee shall have the right to reduce or eliminate (but not to increase) the
amount payable at a given level of performance to take into account additional factors that the
Committee may deem relevant to the assessment of individual or corporate performance for the
Performance Period.

     9.4 Payment of Performance-Based Awards. Unless otherwise provided in the applicable
Award Agreement, a Participant must be employed by the Company or a Parent or Subsidiary on the day
a Performance-Based Award for such Performance Period is paid to the Participant. Furthermore, a
Participant shall be eligible to receive payment pursuant to a Performance-Based Award for a
Performance Period only if the Performance Goals for such period are achieved.

     9.5 Additional Limitations. Notwithstanding any other provision of the Plan, any
Award which is granted to a Covered Employee and is intended to constitute Qualified
Performance-Based Compensation shall be subject to any additional limitations set forth in Section
162(m) of the Code (including any amendment to Section 162(m) of the Code) or any regulations or
rulings issued thereunder that are requirements for qualification as qualified performance-based
compensation as described in Section 162(m)(4)(C) of the Code, and the Plan shall be deemed amended
to the extent necessary to conform to such requirements.

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ARTICLE 10

PROVISIONS APPLICABLE TO AWARDS

     10.1 Stand-Alone and Tandem Awards. Awards granted pursuant to the Plan may, in the
discretion of the Committee, be granted either alone, in addition to, or in tandem with, any other
Award granted pursuant to the Plan. Awards granted in addition to or in tandem with other Awards
may be granted either at the same time as or at a different time from the grant of such other
Awards.

     10.2 Award Agreement. Awards under the Plan shall be evidenced by Award Agreements
that set forth the terms, conditions and limitations for each Award which may include the term of
an Award, the provisions applicable in the event the Participant’s employment or service
terminates, and the Company’s authority to unilaterally or bilaterally amend, modify, suspend,
cancel or rescind an Award.

     10.3 Limits on Transfer. No right or interest of a Participant in any Award may be
pledged, encumbered, or hypothecated to or in favor of any party other than the Company, a Parent,
or a Subsidiary, or shall be subject to any lien, obligation, or liability of such Participant to
any other party other than the Company, a Parent, or a Subsidiary. Except as otherwise provided by
the Committee, no Award shall be assigned, transferred, or otherwise disposed of by a Participant
other than by will or the laws of descent and distribution. The Committee by express provision in
the Award or an amendment thereto may permit an Award (other than an Incentive Stock Option) to be
transferred to, exercised by and paid to certain persons or entities related to the Participant,
including but not limited to members of the Participant’s family, charitable institutions, or
trusts or other entities whose beneficiaries or beneficial owners are members of the Participant’s
family and/or charitable institutions, or to such other persons or entities as may be expressly
approved by the Committee, pursuant to such conditions and procedures as the Committee may
establish. Any permitted transfer shall be subject to the condition that the Committee receive
evidence satisfactory to it that the transfer is being made for estate and/or tax planning purposes
(or to a “blind trust” in connection with the Participant’s termination of employment or service
with the Company, a Parent, or a Subsidiary to assume a position with a governmental, charitable,
educational or similar non-profit institution) and on a basis consistent with the Company’s lawful
issue of securities.

     10.4 Beneficiaries. Notwithstanding Section 10.3, a Participant may, in the manner
determined by the Committee, designate a beneficiary to exercise the rights of the Participant and
to receive any distribution with respect to any Award upon the Participant’s death. A beneficiary,
legal guardian, legal representative, or other person claiming any rights pursuant to the Plan is
subject to all terms and conditions of the Plan and any Award Agreement applicable to the
Participant, except to the extent the Plan and Award Agreement otherwise provide, and to any
additional restrictions deemed necessary or appropriate by the Committee. If the Participant is
married and resides in a community property state, a designation of a person other than the
Participant’s spouse as his or her beneficiary with respect to more than 50% of the Participant’s
interest in the Award shall not be effective without the prior written consent of the Participant’s
spouse. If no beneficiary has been designated or survives the Participant, payment shall be made
to the person entitled thereto pursuant to the Participant’s will or the laws of descent and

15

 

distribution. Subject to the foregoing, a beneficiary designation may be changed or revoked
by a Participant at any time provided the change or revocation is filed with the Committee.

     10.5 Stock Certificates; Book Entry Procedures.

          (a) Notwithstanding anything herein to the contrary, the Company shall not be required to
issue or deliver any certificates evidencing shares of Stock pursuant to the exercise of any Award,
unless and until the Board has determined, with advice of counsel, that the issuance and delivery
of such certificates is in compliance with all applicable laws, regulations of governmental
authorities and, if applicable, the requirements of any exchange on which the shares of Stock are
listed or traded. All Stock certificates delivered pursuant to the Plan are subject to any
stop-transfer orders and other restrictions as the Committee deems necessary or advisable to comply
with federal, state, or foreign jurisdiction, securities or other laws, rules and regulations and
the rules of any national securities exchange or automated quotation system on which the Stock is
listed, quoted, or traded. The Committee may place legends on any Stock certificate to reference
restrictions applicable to the Stock. In addition to the terms and conditions provided herein, the
Board may require that a Participant make such reasonable covenants, agreements, and
representations as the Board, in its discretion, deems advisable in order to comply with any such
laws, regulations, or requirements. The Committee shall have the right to require any Participant
to comply with any timing or other restrictions with respect to the settlement or exercise of any
Award, including a window-period limitation, as may be imposed in the discretion of the Committee.

          (b) Notwithstanding any other provision of the Plan, unless otherwise determined by the
Committee or required by any applicable law, rule or regulation, the Company shall not deliver to
any Participant certificates evidencing shares of Stock issued in connection with any Award and
instead such shares of Stock shall be recorded in the books of the Company (or, as applicable, its
transfer agent or stock plan administrator).

ARTICLE 11

CHANGES IN CAPITAL STRUCTURE

     11.1 Adjustments.

          (a) In the event of any stock dividend, stock split, combination or exchange of shares,
merger, consolidation, spin-off, recapitalization, distribution of Company assets to stockholders
(other than normal cash dividends), or any other corporate event affecting the Stock or the share
price of the Stock, the Committee may make such proportionate adjustments, if any, as the Committee
in its discretion may deem appropriate to reflect such changes with respect to1
(i) the aggregate number and type of shares that may be issued under the Plan (including, but
not limited to, adjustments of the limitations in Sections 3.1 and 3.3); (ii) the terms and
conditions of any outstanding Awards (including, without limitation, any applicable performance
targets or criteria with respect thereto); and (iii) the grant or exercise price per share for any
outstanding Awards under the Plan. Any adjustment affecting an Award intended as Qualified
Performance-Based Compensation shall be made consistent with the requirements of Section 162(m) of
the

 

			
	1	 	Provision should be reviewed by the
Company’s accountants.

16

 

Code.

          (b) In the event of any transaction or event described in Section 11.1(a) or any unusual or
nonrecurring transactions or events affecting the Company, any affiliate of the Company, or the
financial statements of the Company or any affiliate (including without limitation any Change in
Control), or of changes in applicable laws, regulations or accounting principles, the Committee, in
its sole discretion and on such terms and conditions as it deems appropriate, either by amendment
of the terms of any outstanding Awards or by action taken prior to the occurrence of such
transaction or event, is hereby authorized to take any one or more of the following actions
wherever the Committee determines that action is appropriate in order to prevent the dilution or
enlargement of the benefits or potential benefits intended to be made available under the Plan or
with respect to any Award under the Plan, to facilitate such transactions or events or to give
effect to such changes in laws, regulations or principles:

                    (i) To provide for either (A) termination of any such Award in exchange for an amount of cash
and/or other property, if any, equal to the amount that would have been attained upon the exercise
of such Award or realization of the Participant’s rights (and, for the avoidance of doubt, if as of
the date of the occurrence of the transaction or event described in this Section 11.1(b) the
Committee determines in good faith that no amount would have been attained upon the exercise of
such Award or realization of the Participant’s rights, then such Award may be terminated by the
Company without payment) or (B) the replacement of such Award with other rights or property
selected by the Committee in its sole discretion;

                    (ii) To provide that such Award be assumed by the successor or survivor corporation, or a
parent or subsidiary thereof, or shall be substituted for by similar options, rights or awards
covering the stock of the successor or survivor corporation, or a parent or subsidiary thereof,
with appropriate adjustments as to the number and kind of shares and prices; and

                    (iii) To make adjustments in the number and type of shares of Stock (or other securities or
property) subject to outstanding Awards, and in the number and kind of outstanding Restricted Stock
or Deferred Stock and/or in the terms and conditions of (including the grant or exercise price),
and the criteria included in, outstanding options, rights and awards and options, rights and awards
which may be granted in the future;

                    (iv) To provide that such Award shall be exercisable or payable or fully vested with respect
to all shares covered thereby, notwithstanding anything to the contrary in the Plan or the
applicable Award Agreement; and

                    (v) To provide that the Award cannot vest, be exercised or become payable after such event.

     11.2 Acceleration Upon a Change in Control. Notwithstanding Section 11.1, and except
as may otherwise be provided in any applicable Award Agreement or other written agreement entered
into between the Company, a Parent, a Subsidiary, or other Company affiliate and a Participant, if
a Change in Control occurs and a Participant’s Awards are not converted, assumed, or replaced by a
successor entity, then immediately prior to the Change in Control such

17

 

Awards shall become fully exercisable and all forfeiture restrictions on such Awards shall
lapse. Upon, or in anticipation of, a Change in Control, the Committee may cause any and all
Awards outstanding hereunder to terminate at a specific time in the future, including but not
limited to the date of such Change in Control, and shall give each Participant the right to
exercise such Awards during a period of time as the Committee, in its sole and absolute discretion,
shall determine. In the event that the terms of any agreement between the Company, a Parent, a
Subsidiary, or other Company affiliate and a Participant contains provisions that conflict with and
are more restrictive than the provisions of this Section 11.2, this Section 11.2 shall prevail and
control and the more restrictive terms of such agreement (and only such terms) shall be of no force
or effect.

     11.3 Outstanding Awards – Other Changes. In the event of any other change in the
capitalization of the Company or corporate change other than those specifically referred to in this
Article 11, the Committee may, in its absolute discretion, make such adjustments in the number and
kind of shares or other securities subject to Awards outstanding on the date on which such change
occurs and in the per share grant or exercise price of each Award as the Committee may consider
appropriate to prevent dilution or enlargement of rights.

     11.4 No Other Rights. Except as expressly provided in the Plan, no Participant shall
have any rights by reason of any subdivision or consolidation of shares of stock of any class, the
payment of any dividend, any increase or decrease in the number of shares of stock of any class or
any dissolution, liquidation, merger, or consolidation of the Company or any other corporation.
Except as expressly provided in the Plan or pursuant to action of the Committee under the Plan, no
issuance by the Company of shares of stock of any class, or securities convertible into shares of
stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect
to, the number of shares of Stock subject to an Award or the grant or exercise price of any Award.

ARTICLE 12

ADMINISTRATION

     12.1 Committee. Unless and until the Board delegates administration of the Plan to a
Committee as set forth below, the Plan shall be administered by the full Board, and for such
purposes the term “Committee” as used in this Plan shall be deemed to refer to the Board. The
Board, at its discretion or as otherwise necessary to comply with the requirements of Section
162(m) of the Code, Rule 16b-3 promulgated under the Exchange Act or to the extent required by any
other applicable rule or regulation, shall delegate administration of the Plan to a Committee. The
Committee shall consist solely of two or more members of the Board each of whom is a Non-Employee
Director, and with respect to awards that are intended to be Performance-Based Awards, an “outside
director” within the meaning of Section 162(m) of the Code. Notwithstanding the foregoing: (a) the
full Board, acting by a majority of its members in office, shall conduct the general administration
of the Plan with respect to all Awards granted to Independent Directors and for purposes of such
Awards the term “Committee” as used in this Plan shall be deemed to refer to the Board and (b) the
Committee may delegate its authority hereunder to the extent permitted by Section 12.5.
Appointment of Committee members shall be effective upon acceptance of appointment. The Board may
abolish the Committee at any time

18

 

and revest in the Board the administration of the Plan. Committee members may resign at any
time by delivering written notice to the Board. Vacancies in the Committee may only be filled by
the Board.

     12.2 Action by the Committee. A majority of the Committee shall constitute a quorum.
The acts of a majority of the members present at any meeting at which a quorum is present, and acts
approved in writing by a majority of the Committee in lieu of a meeting, shall be deemed the acts
of the Committee. Each member of the Committee is entitled to, in good faith, rely or act upon any
report or other information furnished to that member by any officer or other employee of the
Company or of any Parent or Subsidiary, the Company’s independent certified public accountants, or
any executive compensation consultant or other professional retained by the Company or any Parent
or Subsidiary to assist in the administration of the Plan.

     12.3 Authority of Committee. Subject to any specific designation in the Plan, the
Committee has the exclusive power, authority and discretion to:

          (a) Designate Participants to receive Awards;

          (b) Determine the type or types of Awards to be granted to each Participant;

          (c) Determine the number of Awards to be granted and the number of shares of Stock to which an
Award will relate;

          (d) Determine the terms and conditions of any Award granted pursuant to the Plan, including,
but not limited to, the exercise price, grant price, or purchase price, any reload provision, any
restrictions or limitations on the Award, any schedule for lapse of forfeiture restrictions or
restrictions on the exercisability of an Award, and accelerations or waivers thereof, any
provisions related to non-competition and recapture of gain on an Award, based in each case on such
considerations as the Committee in its sole discretion determines; provided, however, that the
Committee shall not have the authority to accelerate the vesting or waive the forfeiture of any
Performance-Based Awards;

          (e) Determine whether, to what extent, and pursuant to what circumstances an Award may be
settled in, or the exercise price of an Award may be paid in, cash, Stock, other Awards, or other
property, or an Award may be canceled, forfeited, or surrendered;

          (f) Prescribe the form of each Award Agreement, which need not be identical for each
Participant;

          (g) Decide all other matters that must be determined in connection with an Award;

          (h) Establish, adopt, or revise any rules and regulations as it may deem necessary or
advisable to administer the Plan;

          (i) Interpret the terms of, and any matter arising pursuant to, the Plan or any Award
Agreement; and

19

 

          (j) Make all other decisions and determinations that may be required pursuant to the Plan or
as the Committee deems necessary or advisable to administer the Plan.

     12.4 Decisions Binding. The Committee’s interpretation of the Plan, any Awards
granted pursuant to the Plan, any Award Agreement and all decisions and determinations by the
Committee with respect to the Plan are final, binding, and conclusive on all parties.

     12.5 Delegation of Authority. To the extent permitted by applicable law, the
Committee may from time to time delegate to a committee of one or more members of the Board or one
or more officers of the Company the authority to grant or amend Awards to Participants other than
(a) senior executives of the Company who are subject to Section 16 of the Exchange Act, (b) Covered
Employees, or (c) officers of the Company (or members of the Board) to whom authority to grant or
amend Awards has been delegated hereunder. Any delegation hereunder shall be subject to the
restrictions and limits that the Committee specifies at the time of such delegation, and the
Committee may at any time rescind the authority so delegated or appoint a new delegatee. At all
times, the delegatee appointed under this Section 12.5 shall serve in such capacity at the pleasure
of the Committee.

     12.6 Amendment or Exchange of Awards. The Committee may (i) amend any Award to reduce
the per share exercise price of such an Award below the per share exercise price as of the date the
Award is granted and (ii) grant an Award in exchange for, or in connection with, the cancellation
or surrender of an Award having a higher per share exercise price.

ARTICLE 13

EFFECTIVE AND EXPIRATION DATE

     13.1 Effective Date. The Plan is effective as of the day prior to the Public Trading
Date (the “Effective Date”).

     13.2 Expiration Date. The Plan will expire on, and no Incentive Stock Option or other
Award may be granted pursuant to the Plan after, the tenth anniversary of the date this Plan is
approved by the Board. Any Awards that are outstanding on the tenth anniversary of the Effective
Date shall remain in force according to the terms of the Plan and the applicable Award Agreement.

ARTICLE 14

AMENDMENT, MODIFICATION, AND TERMINATION

     14.1 Amendment, Modification, And Termination. With the approval of the Board, at any
time and from time to time, the Committee may terminate, amend or modify the Plan; provided,
however, that (a) to the extent necessary and desirable to comply with any applicable law,
regulation, or stock exchange rule, the Company shall obtain stockholder approval of any Plan
amendment in such a manner and to such a degree as required, and (b) stockholder approval is
required for any amendment to the Plan that increases the number of shares of Stock available under
the Plan.

20

 

     14.2 Awards Previously Granted. No termination, amendment, or modification of the
Plan shall adversely affect in any material way any Award previously granted pursuant to the Plan
without the prior written consent of the Participant.

ARTICLE 15

GENERAL PROVISIONS

     15.1 No Rights to Awards. No Eligible Individual or other person shall have any claim
to be granted any Award pursuant to the Plan, and neither the Company nor the Committee is
obligated to treat Eligible Individuals, Participants or any other persons uniformly.

     15.2 No Stockholders Rights. Except as otherwise provided herein, a Participant shall
have none of the rights of a stockholder with respect to shares of Stock covered by any Award until
the Participant becomes the record owner of such shares of Stock.

     15.3 Withholding. The Company or any Parent or Subsidiary shall have the authority
and the right to deduct or withhold, or require a Participant to remit to the Company, an amount
sufficient to satisfy federal, state, local and foreign taxes (including the Participant’s FICA
obligation) required by law to be withheld with respect to any taxable event concerning a
Participant arising as a result of this Plan. The Committee may in its discretion and in
satisfaction of the foregoing requirement allow a Participant to elect to have the Company withhold
shares of Stock otherwise issuable under an Award (or allow the return of shares of Stock) having a
Fair Market Value equal to the sums required to be withheld. Notwithstanding any other provision
of the Plan, the number of shares of Stock which may be withheld with respect to the issuance,
vesting, exercise or payment of any Award (or which may be repurchased from the Participant of such
Award within six months (or such other period as may be determined by the Committee) after such
shares of Stock were acquired by the Participant from the Company) in order to satisfy the
Participant’s federal, state, local and foreign income and payroll tax liabilities with respect to
the issuance, vesting, exercise or payment of the Award shall be limited to the number of shares of
Stock which have a Fair Market Value on the date of withholding or repurchase equal to the
aggregate amount of such liabilities based on the minimum statutory withholding rates for federal,
state, local and foreign income tax and payroll tax purposes that are applicable to such
supplemental taxable income.

     15.4 No Right to Employment or Services. Nothing in the Plan or any Award Agreement
shall interfere with or limit in any way the right of the Company or any Parent or Subsidiary to
terminate any Participant’s employment or services at any time, nor confer upon any Participant any
right to continue in the employ or service of the Company or any Parent or Subsidiary.

     15.5 Unfunded Status of Awards. The Plan is intended to be an “unfunded” plan for
incentive compensation. With respect to any payments not yet made to a Participant pursuant to an
Award, nothing contained in the Plan or any Award Agreement shall give the Participant any rights
that are greater than those of a general creditor of the Company or any Parent or Subsidiary.

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     15.6 Indemnification. To the extent allowable pursuant to applicable law, each member
of the Committee or of the Board shall be indemnified and held harmless by the Company from any
loss, cost, liability, or expense that may be imposed upon or reasonably incurred by such member in
connection with or resulting from any claim, action, suit, or proceeding to which he or she may be
a party or in which he or she may be involved by reason of any action or failure to act pursuant to
the Plan and against and from any and all amounts paid by him or her in satisfaction of judgment in
such action, suit, or proceeding against him or her; provided he or she gives the Company an
opportunity, at its own expense, to handle and defend the same before he or she undertakes to
handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be
exclusive of any other rights of indemnification to which such persons may be entitled pursuant to
the Company’s Certificate of Incorporation or Bylaws, as a matter of law, or otherwise, or any
power that the Company may have to indemnify them or hold them harmless.

     15.7 Relationship to other Benefits. No payment pursuant to the Plan shall be taken
into account in determining any benefits pursuant to any pension, retirement, savings, profit
sharing, group insurance, welfare or other benefit plan of the Company or any Parent or Subsidiary
except to the extent otherwise expressly provided in writing in such other plan or an agreement
thereunder.

     15.8 Expenses. The expenses of administering the Plan shall be borne by the Company
and its Subsidiaries.

     15.9 Titles and Headings. The titles and headings of the Sections in the Plan are for
convenience of reference only and, in the event of any conflict, the text of the Plan, rather than
such titles or headings, shall control.

     15.10 Fractional Shares. No fractional shares of Stock shall be issued and the
Committee shall determine, in its discretion, whether cash shall be given in lieu of fractional
shares of Stock or whether such fractional shares of Stock shall be eliminated by rounding up or
down as appropriate.

     15.11 Limitations Applicable to Section 16 Persons. Notwithstanding any other
provision of the Plan, the Plan, and any Award granted or awarded to any Participant who is then
subject to Section 16 of the Exchange Act, shall be subject to any additional limitations set forth
in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to
Rule 16b-3 of the Exchange Act) that are requirements for the application of such exemptive rule.
To the extent permitted by applicable law, the Plan and Awards granted or awarded hereunder shall
be deemed amended to the extent necessary to conform to such applicable exemptive rule.

     15.12 Government and Other Regulations. The obligation of the Company to make payment
of awards in Stock or otherwise shall be subject to all applicable laws, rules, and regulations,
and to such approvals by government agencies as may be required. The Company shall be under no
obligation to register pursuant to the Securities Act of 1933, as amended, any of the shares of
Stock paid pursuant to the Plan. If the shares of Stock paid pursuant to the Plan may in certain
circumstances be exempt from registration pursuant to the Securities Act of 1933,

22

 

as amended, the Company may restrict the transfer of such shares of Stock in such manner as it
deems advisable to ensure the availability of any such exemption.

     15.13 Section 409A. To the extent that the Committee determines that any Award
granted under the Plan is subject to Section 409A of the Code, the Award Agreement evidencing such
Award shall incorporate the terms and conditions required by Section 409A of the Code. To the
extent applicable, the Plan and Award Agreements shall be interpreted in accordance with Section
409A of the Code and Department of Treasury regulations and other interpretive guidance issued
thereunder, including without limitation any such regulations or other guidance that may be issued
after the adoption of the Plan. Notwithstanding any provision of the Plan to the contrary, in the
event that following the adoption of the Plan the Committee determines that any Award may be
subject to Section 409A of the Code and related Department of Treasury guidance (including such
Department of Treasury guidance as may be issued after the adoption of the Plan), the Committee may
adopt such amendments to the Plan and the applicable Award Agreement or adopt other policies and
procedures (including amendments, policies and procedures with retroactive effect), or take any
other actions, that the Committee determines are necessary or appropriate to (a) exempt the Award
from Section 409A of the Code and/or preserve the intended tax treatment of the benefits provided
with respect to the Award, or (b) comply with the requirements of Section 409A of the Code and
related Department of Treasury guidance.

     15.14 Governing Law. The Plan and all Award Agreements shall be construed in
accordance with and governed by the laws of the State of Delaware.

23

 

CADENCE PHARMACEUTICALS, INC.

2006 EQUITY INCENTIVE AWARD PLAN

STOCK OPTION GRANT NOTICE AND 

STOCK OPTION AGREEMENT 

STOCK OPTION GRANT NOTICE

     Cadence Pharmaceuticals, Inc., a Delaware corporation (the “Company”), pursuant to its 2006
Equity Incentive Award Plan (the “Plan”), hereby grants to the holder listed below (“Participant”),
an option to purchase the number of shares of the Company’s common stock, par value $0.0001
(“Stock”), set forth below (the “Option”). This Option is subject to all of the terms and
conditions set forth herein and in the Stock Option Agreement attached hereto as Exhibit A
(the “Stock Option Agreement”) and the Plan, which are incorporated herein by reference. Unless
otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in
this Grant Notice and the Stock Option Agreement.

	 	 	 	 	 	 	 	 	 
	Participant:
	 	 	 	 	 	 	 	 
	 

	 	 
	 	 	 	 	 	 
	Grant Date:
	 	 	 	 	 	 	 	 
	 

	 	 
	 	 	 	 	 	 
	Exercise Price per Share:

	 	$

 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Total Exercise Price:

	 	$

 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 
	Total Number of Shares
Subject to the Option:

	 	shares 
	 	
	 	 
	 

	 	 
	 	 	 	 	 	 
	Expiration Date:
	 	 	 	 	 	 	 	 
	 

	 	 
	 	 	 	 	 	 

	 	 	 	 	 
	Type of Option:

	 	o           Incentive Stock Option
	o  	 Non-Qualified Stock Option
	 
	 	 	 	 
	Vesting Schedule:

	 	[To be specified in individual agreements]
	

     By his or her signature, the Participant agrees to be bound by the terms and conditions of the
Plan, the Stock Option Agreement and this Grant Notice. The Participant has reviewed the Stock
Option Agreement, the Plan and this Grant Notice in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Grant Notice and fully understands all
provisions of this Grant Notice, the Stock Option Agreement and the Plan. Participant hereby
agrees to accept as binding, conclusive and final all decisions or interpretations of the Committee
upon any questions arising under the Plan or relating to the Option.
	 	 	 	 	 	 	 	 	 	 	 	 	 
	CADENCE PHARMACEUTICALS, INC.	 	 	 	PARTICIPANT	 	 	 	 
	 
	By:

	 	 	 	 	 	By:	 	 	 	 	 	 
	 

	 	 

	 	 	 	 
	 	 

	 	 	 	 
	Print Name:

	 	 	 	 	 	Print Name:	 	 	 	 	 	 
	 

	 	 

	 	 	 	 
	 	 

	 	 	 	 
	Title:
	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 

	 	 	 	 	 	 	 	 	 	 
	Address:

	 	 	 	 	 	Address:	 	 	 	 	 	 
	 

	 	 

	 	 	 	 
	 	 

	 	 	 	 
	 

	 	 	 	 	 	 	 	 

	 	 	 	 

 

EXHIBIT A

TO STOCK OPTION GRANT NOTICE

STOCK OPTION AGREEMENT

     Pursuant to the Stock Option Grant Notice (the “Grant Notice”) to which this Stock Option
Agreement (this “Agreement”) is attached, Cadence Pharmaceuticals, Inc., a Delaware corporation
(the “Company”), has granted to the Participant an Option under the Company’s 2006 Equity Incentive
Award Plan (the “Plan”) to purchase the number of shares of Stock indicated in the Grant Notice.

ARTICLE I.

GENERAL

     1.1 Defined Terms. Wherever the following terms are used in this Agreement they
shall have the meanings specified below, unless the context clearly indicates otherwise.
Capitalized terms not specifically defined herein shall have the meanings specified in the Plan and
the Grant Notice.

          (a) “Administrator” shall mean the Committee responsible for conducting the general
administration of the Plan in accordance with Article 12 of the Plan; provided that if the
Participant is an Independent Director, “Administrator” shall mean the Board.

          (b) “Termination of Consultancy” shall mean the time when the engagement of the Participant as
a Consultant to the Company or to a Parent or Subsidiary is terminated for any reason, with or
without cause, including, but not by way of limitation, by resignation, discharge, death or
retirement, but excluding: (a) terminations where there is a simultaneous employment or continuing
employment of the Participant by the Company or any Parent or Subsidiary, and (b) terminations
where there is a simultaneous reestablishment of a consulting relationship or continuing consulting
relationship between the Participant and the Company or any Parent or Subsidiary. The
Administrator, in its absolute discretion, shall determine the effect of all matters and questions
relating to Termination of Consultancy, including, but not by way of limitation, the question of
whether a particular leave of absence constitutes a Termination of Consultancy. Notwithstanding
any other provision of the Plan, the Company or any Parent or Subsidiary has an absolute and
unrestricted right to terminate a Consultant’s service at any time for any reason whatsoever, with
or without cause, except to the extent expressly provided otherwise in writing.

          (c) “Termination of Directorship” shall mean the time when the Participant, if he or she is or
becomes an Independent Director, ceases to be a Director for any reason, including, but not by way
of limitation, a termination by resignation, failure to be elected, death or retirement. The
Board, in its sole and absolute discretion, shall determine the effect of all matters and questions
relating to Termination of Directorship with respect to Independent Directors.

          (d) “Termination of Employment” shall mean the time when the employee-employer relationship
between the Participant and the Company or any Parent or Subsidiary is terminated for any reason,
with or without cause, including, but not by way of limitation, a termination by resignation,
discharge, death, Disability or retirement; but excluding: (a) terminations where there is a
simultaneous reemployment or continuing employment of the Participant by the Company or any Parent
or Subsidiary, and (b) terminations where there is a simultaneous establishment of a consulting
relationship or continuing consulting relationship between the Participant and the Company or any
Parent or Subsidiary. The Administrator, in its absolute discretion, shall determine the effect of
all matters and questions relating to Termination of Employment, including, but not by way of
limitation, the question of

B-1

 

whether a particular leave of absence constitutes a Termination of Employment; provided,
however, that, if this Option is an Incentive Stock Option, unless otherwise determined by the
Administrator in its discretion, a leave of absence, change in status from an employee to an
independent contractor or other change in the employee-employer relationship shall constitute a
Termination of Employment if, and to the extent that, such leave of absence, change in status or
other change interrupts employment for the purposes of Section 422(a)(2) of the Code and the then
applicable regulations and revenue rulings under said Section.

          (e) “Termination of Services” shall mean the Participant’s Termination of Consultancy,
Termination of Directorship or Termination of Employment, as applicable.

     1.2 Incorporation of Terms of Plan. The Option is subject to the terms and conditions
of the Plan which are incorporated herein by reference. In the event of any inconsistency between
the Plan and this Agreement, the terms of the Plan shall control.

ARTICLE II.

GRANT OF OPTION

     2.1 Grant of Option. In consideration of the Participant’s past and/or continued
employment with or service to the Company or a Parent or Subsidiary and for other good and valuable
consideration, effective as of the Grant Date set forth in the Grant Notice (the “Grant Date”), the
Company irrevocably grants to the Participant the Option to purchase any part or all of an
aggregate of the number of shares of Stock set forth in the Grant Notice, upon the terms and
conditions set forth in the Plan, the Grant Notice and this Agreement. Unless designated as a
Non-Qualified Stock Option in the Grant Notice, the Option shall be an Incentive Stock Option to
the maximum extent permitted by law.

     2.2 Exercise Price. The exercise price of the shares of Stock subject to the Option
shall be as set forth in the Grant Notice, without commission or other charge; provided, however,
that the price per share of the shares of Stock subject to the Option shall not be less than 100%
of the Fair Market Value of a share of Stock on the Grant Date. Notwithstanding the foregoing, if
this Option is designated as an Incentive Stock Option and the Participant owns (within the meaning
of Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of
stock of the Company or any “subsidiary corporation” of the Company or any “parent corporation” of
the Company (each within the meaning of Section 424 of the Code), the price per share of the shares
of Stock subject to the Option shall not be less than 110% of the Fair Market Value of a share of
Stock on the Grant Date.

     2.3 Consideration to the Company. In consideration of the grant of the Option by the
Company, the Participant agrees to render faithful and efficient services to the Company or any
Parent or Subsidiary. Nothing in the Plan, the Grant Notice, or this Agreement shall confer upon
the Participant any right to continue in the employ or service of the Company or any Parent or
Subsidiary or shall interfere with or restrict in any way the rights of the Company and any Parent
or Subsidiary, which rights are hereby expressly reserved, to discharge or terminate the services
of the Participant at any time for any reason whatsoever, with or without cause, except to the
extent expressly provided otherwise in a written agreement between the Company or a Parent or
Subsidiary and the Participant.

B-2

 

ARTICLE III.

PERIOD OF EXERCISABILITY

     3.1 Commencement of Exercisability.

          (a) Subject to Sections 3.2, 3.3, 5.8 and 5.10, the Option shall become vested and exercisable
in such amounts and at such times as are set forth in the Grant Notice.

          (b) No portion of the Option which has not become vested and exercisable at the date of the
Participant’s Termination of Employment, Termination of Directorship or Termination of Consultancy
shall thereafter become vested and exercisable, except as may be otherwise provided by the
Administrator or as set forth in a written agreement between the Company and the Participant.

     3.2 Duration of Exercisability. The installments provided for in the vesting schedule
set forth in the Grant Notice are cumulative. Each such installment which becomes vested and
exercisable pursuant to the vesting schedule set forth in the Grant Notice shall remain vested and
exercisable until it becomes unexercisable under Section 3.3.

     3.3 Expiration of Option. The Option may not be exercised to any extent by anyone
after the first to occur of the following events:

          (a) The expiration of [ten years] from the Grant Date;

          (b) If this Option is designated as an Incentive Stock Option and the Participant owned
(within the meaning of Section 424(d) of the Code), at the time the Option was granted, more than
10% of the total combined voting power of all classes of stock of the Company or any “subsidiary
corporation” of the Company or any “parent corporation” of the Company (each within the meaning of
Section 424 of the Code), the expiration of five years from the Grant Date;

          (c) The expiration of [three months] from the date of the Participant’s Termination of
Services, unless such termination occurs by reason of the Participant’s death or Disability; or

          (d) The expiration of [one year] from the date of the Participant’s Termination of Services by
reason of the Participant’s death or Disability.

     [The Participant acknowledges that an Incentive Stock Option exercised more that three months
after the Participant’s Termination of Employment, other than by reason of death or Disability,
will be taxed as a Non-Qualified Stock Option.]

     3.4 Special Tax Consequences. The Participant acknowledges that, to the extent that
the aggregate Fair Market Value (determined as of the time the Option is granted) of all shares of
Stock with respect to which Incentive Stock Options, including the Option, are exercisable for the
first time by the Participant in any calendar year exceeds $100,000, the Option and such other
options shall be Non-Qualified Stock Options to the extent necessary to comply with the limitations
imposed by Section 422(d) of the Code. The Participant further acknowledges that the rule set
forth in the preceding sentence shall be applied by taking the Option and other “incentive stock
options” into account in the order in which they were granted, as determined under Section 422(d)
of the Code and the Treasury Regulations thereunder.

B-3

 

ARTICLE IV.

EXERCISE OF OPTION

     4.1 Person Eligible to Exercise. Except as provided in Section 5.2(b), during
the lifetime of the Participant, only the Participant may exercise the Option or any portion
thereof. After the death of the Participant, any exercisable portion of the Option may, prior to
the time when the Option becomes unexercisable under Section 3.3, be exercised by the Participant’s
personal representative or by any person empowered to do so under the deceased the Participant’s
will or under the then applicable laws of descent and distribution.

     4.2 Partial Exercise. Any exercisable portion of the Option or the entire Option, if
then wholly exercisable, may be exercised in whole or in part at any time prior to the time when
the Option or portion thereof becomes unexercisable under Section 3.3.

     4.3 Manner of Exercise. The Option, or any exercisable portion thereof, may be
exercised solely by delivery to the Secretary of the Company (or any third party administrator or
other person or entity designated by the Company) of all of the following prior to the time when
the Option or such portion thereof becomes unexercisable under Section 3.3:

          (a) An exercise notice in a form specified by the Administrator, stating that the Option or
portion thereof is thereby exercised, such notice complying with all applicable rules established
by the Administrator;

          (b) The receipt by the Company of full payment for the shares of Stock with respect to which
the Option or portion thereof is exercised, including payment of any applicable withholding tax,
which may be in one or more of the forms of consideration permitted under Section 4.4;

          (c) Any other written representations as may be required in the Administrator’s reasonable
discretion to evidence compliance with the Securities Act or any other applicable law, rule, or
regulation; and

          (d) In the event the Option or portion thereof shall be exercised pursuant to Section 4.1 by
any person or persons other than the Participant, appropriate proof of the right of such person or
persons to exercise the Option.

Notwithstanding any of the foregoing, the Company shall have the right to specify all conditions of
the manner of exercise, which conditions may vary by country and which may be subject to change
from time to time.

     4.4 Method of Payment. Payment of the exercise price shall be by any of the
following, or a combination thereof, at the election of the Participant:

          (a) Cash;

          (b) Check;

          (c) With the consent of the Administrator, delivery of a notice that the Participant has
placed a market sell order with a broker with respect to shares of Stock then issuable upon
exercise of the Option, and that the broker has been directed to pay a sufficient portion of the
net proceeds of the sale

B-4

 

to the Company in satisfaction of the aggregate exercise price; provided, that payment of such
proceeds is then made to the Company upon settlement of such sale;

          (d) With the consent of the Administrator, surrender of other shares of Stock which (A) in the
case of shares of Stock acquired from the Company, have been owned by the Participant for more than
six (6) months on the date of surrender, and (B) have a Fair Market Value on the date of surrender
equal to the aggregate exercise price of the shares of Stock with respect to which the Option or
portion thereof is being exercised;

          (e) With the consent of the Administrator, surrendered shares of Stock issuable upon the
exercise of the Option having a Fair Market Value on the date of exercise equal to the aggregate
exercise price of the shares of Stock with respect to which the Option or portion thereof is being
exercised; or

          (f) With the consent of the Administrator, property of any kind which constitutes good and
valuable consideration.

     4.5 Conditions to Issuance of Stock Certificates. The shares of Stock deliverable
upon the exercise of the Option, or any portion thereof, may be either previously authorized but
unissued shares of Stock or issued shares of Stock which have then been reacquired by the Company.
Such shares of Stock shall be fully paid and nonassessable. The Company shall not be required to
issue or deliver any shares of Stock purchased upon the exercise of the Option or portion thereof
prior to fulfillment of all of the following conditions:

          (a) The admission of such shares of Stock to listing on all stock exchanges on which such
Stock is then listed;

          (b) The completion of any registration or other qualification of such shares of Stock under
any state or federal law or under rulings or regulations of the Securities and Exchange Commission
or of any other governmental regulatory body, which the Administrator shall, in its absolute
discretion, deem necessary or advisable;

          (c) The obtaining of any approval or other clearance from any state or federal governmental
agency which the Administrator shall, in its absolute discretion, determine to be necessary or
advisable;

          (d) The receipt by the Company of full payment for such shares of Stock, including payment of
any applicable withholding tax, which may be in one or more of the forms of consideration permitted
under Section 4.4; and

          (e) The lapse of such reasonable period of time following the exercise of the Option as the
Administrator may from time to time establish for reasons of administrative convenience.

     4.6 Rights as Stockholder. The holder of the Option shall not be, nor have any of the
rights or privileges of, a stockholder of the Company in respect of any shares of Stock purchasable
upon the exercise of any part of the Option unless and until such shares of Stock shall have been
issued by the Company to such holder (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company). No adjustment will be made for a
dividend or other right for which the record date is prior to the date the shares of Stock are
issued, except as provided in Section 11.1 of the Plan.

B-5

 

ARTICLE V.

OTHER PROVISIONS

     5.1 Administration. The Administrator shall have the power to interpret the
Plan, the Grant Notice and this Agreement and to adopt such rules for the administration,
interpretation and application of the Plan as are consistent therewith and to interpret, amend or
revoke any such rules. All actions taken and all interpretations and determinations made by the
Administrator in good faith shall be final and binding upon Participant, the Company and all other
interested persons. No member of the Committee or the Board shall be personally liable for any
action, determination or interpretation made in good faith with respect to the Plan, the Grant
Notice, this Agreement or the Option.

     5.2 Option Not Transferable.

          (a) Unless determined otherwise by the Administrator, the Option may not be sold, pledged,
assigned or transferred in any manner other than by will or the laws of descent and distribution,
unless and until the shares of Stock underlying the Option have been issued, and all restrictions
applicable to such shares of Stock have lapsed. Neither the Option nor any interest or right
therein shall be liable for the debts, contracts or engagements of Participant or his or her
successors in interest or shall be subject to disposition by transfer, alienation, anticipation,
pledge, encumbrance, assignment or any other means whether such disposition be voluntary or
involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or
equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null
and void and of no effect, except to the extent that such disposition is permitted by the preceding
sentence.

          (b) Unless determined otherwise by the Administrator, during the lifetime of Participant, only
Participant may exercise the Option or any portion thereof. After the death of Participant, any
exercisable portion of the Option may, prior to the time when the Option becomes unexercisable
under Section 3.3, be exercised by Participant’s personal representative or by any person empowered
to do so under the deceased Participant’s will or under the then applicable laws of descent and
distribution.

     5.3 Adjustments. The Participant acknowledges that the Option is subject to
modification and termination in certain events as provided in this Agreement and Article 11 of the
Plan.

     5.4 Notices. Any notice to be given under the terms of this Agreement to the Company
shall be addressed to the Company in care of the Secretary of the Company at the address given
beneath the signature of the Company’s authorized officer on the Grant Notice, and any notice to be
given to Participant shall be addressed to Participant at the address given beneath Participant’s
signature on the Grant Notice. By a notice given pursuant to this Section 5.4, either party may
hereafter designate a different address for notices to be given to that party. Any notice which is
required to be given to Participant shall, if Participant is then deceased, be given to the person
entitled to exercise his or her Option pursuant to Section 4.1 by written notice under this Section
5.4. Any notice shall be deemed duly given when sent via email or when sent by certified mail
(return receipt requested) and deposited (with postage prepaid) in a post office or branch post
office regularly maintained by the United States Postal Service.

     5.5 Titles. Titles are provided herein for convenience only and are not to serve as a
basis for interpretation or construction of this Agreement.

B-6

 

     5.6 Governing Law; Severability. The laws of the State of Delaware shall govern the
interpretation, validity, administration, enforcement and performance of the terms of this
Agreement regardless of the law that might be applied under principles of conflicts of laws.

     5.7 Conformity to Securities Laws. The Participant acknowledges that the Plan, the
Grant Notice and this Agreement are intended to conform to the extent necessary with all provisions
of the Securities Act and the Exchange Act and any and all regulations and rules promulgated by the
Securities and Exchange Commission thereunder, and state securities laws and regulations.
Notwithstanding anything herein to the contrary, the Plan shall be administered, and the Option is
granted and may be exercised, only in such a manner as to conform to such laws, rules and
regulations. To the extent permitted by applicable law, the Plan, the Grant Notice and this
Agreement shall be deemed amended to the extent necessary to conform to such laws, rules and
regulations.

     5.8 Amendments, Suspension and Termination. To the extent permitted by the Plan, this
Agreement may be wholly or partially amended or otherwise modified, suspended or terminated at any
time or from time to time by the Committee or the Board, provided, that, except as may otherwise be
provided by the Plan, no amendment, modification, suspension or termination of this Agreement shall
adversely effect the Option in any material way without the prior written consent of the
Participant.

     5.9 Successors and Assigns. The Company may assign any of its rights under this
Agreement to single or multiple assignees, and this Agreement shall inure to the benefit of the
successors and assigns of the Company. Subject to the restrictions on transfer herein set forth in
Section 5.2, this Agreement shall be binding upon Participant and his or her heirs, executors,
administrators, successors and assigns.

     5.10 Notification of Disposition. If this Option is designated as an Incentive Stock
Option, Participant shall give prompt notice to the Company of any disposition or other transfer of
any shares of Stock acquired under this Agreement if such disposition or transfer is made (a)
within two years from the Grant Date with respect to such shares of Stock or (b) within one year
after the transfer of such shares of Stock to the Participant. Such notice shall specify the date
of such disposition or other transfer and the amount realized, in cash, other property, assumption
of indebtedness or other consideration, by Participant in such disposition or other transfer.

     5.11 Limitations Applicable to Section 16 Persons. Notwithstanding any other
provision of the Plan or this Agreement, if Participant is subject to Section 16 of the Exchange
Act, the Plan, the Option and this Agreement shall be subject to any additional limitations set
forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any
amendment to Rule 16b-3 of the Exchange Act) that are requirements for the application of such
exemptive rule. To the extent permitted by applicable law, this Agreement shall be deemed amended
to the extent necessary to conform to such applicable exemptive rule.

     5.12 Not a Contract of Employment. Nothing in this Agreement, the Grant Notice, or
the Plan shall confer upon the Participant any right to continue to serve as an employee or other
service provider of the Company or any Parent or Subsidiary.

     5.13 Entire Agreement. The Plan, the Grant Notice and this Agreement (including all
exhibits thereto) constitute the entire agreement of the parties and supersede in their entirety
all prior undertakings and agreements of the Company and Participant with respect to the subject
matter hereof.

     5.14 Section 409A. Notwithstanding any other provision of the Plan, this Agreement or
the Grant Notice, the Plan, this Agreement and the Grant Notice shall be interpreted in accordance
with, and

B-7

 

incorporate the terms and conditions required by, Section 409A of the U.S. Internal Revenue
Code of 1986, as amended (together with any Department of Treasury regulations and other
interpretive guidance issued thereunder, including without limitation any such regulations or other
guidance that may be issued after the date hereof, “Section 409A”). The Committee may, in its
discretion, adopt such amendments to the Plan, this Agreement or the Grant Notice or adopt other
policies and procedures (including amendments, policies and procedures with retroactive effect), or
take any other actions, as the Committee determines are necessary or appropriate to comply with the
requirements of Section 409A.

B-8Exhibit 10.6

 

EXHIBIT 10.6

Cadence Pharmaceuticals, Inc.

Amended and Restated Restricted 

Common Stock Purchase Agreement

 

 

Table of Contents

	 	 	 	 	 	 	 
	 	 	 	 	Page
	I.
	 	Purchase of Shares

	 	 	1	 
	 	 	 
	 	 	 	 
	 	 	1.1 Purchase

	 	 	1	 
	 	 	1.2 Payment

	 	 	1	 
	 	 	 
	 	 	 	 
	II.
	 	Securities Law Compliance

	 	 	1	 
	 	 	 
	 	 	 	 
	 	 	2.1 Restricted Securities

	 	 	1	 
	 	 	2.2 Disposition of Shares

	 	 	2	 
	 	 	2.3 Restrictive Legends

	 	 	3	 
	 	 	 
	 	 	 	 
	III.
	 	Transfer Restrictions

	 	 	3	 
	 	 	 
	 	 	 	 
	 	 	3.1 Restriction on Transfer

	 	 	3	 
	 	 	3.2 Transferee Obligations

	 	 	3	 
	 	 	3.3 Definition of Owner

	 	 	4	 
	 	 	3.4 Market Stand-Off Provisions

	 	 	4	 
	 	 	 
	 	 	 	 
	IV.
	 	Right of First Refusal

	 	 	4	 
	 	 	 
	 	 	 	 
	 	 	4.1 Grant

	 	 	4	 
	 	 	4.2 Notice of Intended Disposition

	 	 	4	 
	 	 	4.3 Exercise of Right

	 	 	4	 
	 	 	4.4 Non-Exercise of Right

	 	 	5	 
	 	 	4.5 Partial Exercise of Right

	 	 	5	 
	 	 	4.6 Recapitalization

	 	 	5	 
	 	 	4.7 Lapse

	 	 	5	 
	 	 	 
	 	 	 	 
	V.
	 	Marital Dissolution or Legal Separation

	 	 	6	 
	 	 	 
	 	 	 	 
	 	 	5.1 Grant

	 	 	6	 
	 	 	5.2 Notice of Decree or Agreement

	 	 	6	 
	 	 	5.3 Exercise of the Special Purchase Right

	 	 	6	 
	 	 	5.4 Lapse

	 	 	7	 
	 	 	 
	 	 	 	 
	VI.
	 	Repurchase Option

	 	 	7	 
	 	 	 
	 	 	 	 
	 	 	6.1 Repurchase Option

	 	 	7	 
	 	 	6.2 Release of Shares From Repurchase Option

	 	 	7	 
	 	 	6.3 Escrow of Shares

	 	 	9	 
	 	 	6.4 Tax Consequences

	 	 	9	 
	 	 	 
	 	 	 	 
	VII.
	 	General Provisions

	 	 	10	 
	 	 	 
	 	 	 	 
	 	 	7.1 Assignment

	 	 	10	 
	 	 	7.2 Definitions

	 	 	10	 
	 	 	7.3 Notices

	 	 	10	 
	 	 	7.4 No Waiver

	 	 	10	 

i

 

	 	 	 	 	 	 	 
	 	 	 	 	Page
	VIII.
	 	Miscellaneous Provisions

	 	 	10	 
	 	 	 
	 	 	 	 
	 	 	8.1 Purchaser Undertaking

	 	 	10	 
	 	 	8.2 Agreement is Entire Contract

	 	 	10	 
	 	 	8.3 Governing Law

	 	 	11	 
	 	 	8.4 Counterparts

	 	 	11	 
	 	 	8.5 Successors and Assigns

	 	 	11	 
	 	 	8.6 Amendment and Waiver

	 	 	11	 
	 	 	8.7 Arbitration

	 	 	11	 
	 	 	8.8 Acknowledgement

	 	 	11	 

Exhibit A — Joint Escrow Instructions

Exhibit B —  Assignment Separate From Certificate 

ii

 

Amended and Restated Restricted Common Stock Purchase Agreement

          This Amended and Restated Restricted Common Stock Purchase Agreement (the
“Agreement”) is made as of this ___ day of November, 2004, by and between Cadence Pharmaceuticals,
Inc., a Delaware corporation (formerly known as Strata Pharmaceuticals, Inc.) (the “Company”), and
[PURCHASER] (“Purchaser”).

Recitals

          A. On July 6, 2004, the Purchaser and the Company entered into a Restricted Common Stock
Purchase Agreement (the “Prior Agreement”) pursuant to which the Purchaser purchased certain shares
of the Company’s Common Stock.

          B. The Company and the Purchaser desire to amend and restate the Prior Agreement to grant the
Company a Repurchase Option with respect to the Purchaser’s Shares (as such terms are defined
below).

          C. Pursuant to the terms of the Prior Agreement, the Prior Agreement may be amended with the
consent of a majority of the Company’s Board of Directors, which consent has been obtained by the
Company, and the Purchaser.

Agreement

          NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants and
agreements herein contained, the parties, intending to be legally bound, hereby agree as follows:

I. Purchase of Shares

     1.1 Purchase. Pursuant to the terms of the Prior Agreement, the Purchaser
purchased, and the Company sold to Purchaser, [NUMBER OF SHARES OF COMMON STOCK] shares of the
Company’s Common Stock (the “Shares”) at a purchase price of $0.001 per share (the “Purchase
Price”), or $[PURCHASE PRICE] in the aggregate.

     1.2 Payment. As of the date of the Prior Agreement, the Purchaser delivered
to the Corporate Secretary of the Company the aggregate Purchase Price payable for the Shares in
cash, cancellation of indebtedness or transfer of property. Concurrently with the execution of
this Agreement, the Purchaser shall deliver to the Corporate Secretary of the Company (i) duly
executed Joint Escrow Instructions (in the form attached hereto as Exhibit A), and (ii) a
duly executed blank Assignment Separate from Certificate (in the form attached hereto as
Exhibit B).

II. Securities Law Compliance

     2.1 Restricted Securities.

          (a) Purchaser hereby confirms that Purchaser has been informed that the Shares are restricted
securities under the Securities Act of 1933, as amended (“1933 Act”), and may not

1

 

be resold or
transferred unless the Shares are first registered under the federal securities laws or unless an
exemption from such registration is available. Accordingly, Purchaser hereby acknowledges that
Purchaser is prepared to hold the Shares for an indefinite period and that Purchaser is aware that
Rule 144 of the Securities and Exchange Commission (“SEC”) issued under the 1933 Act is not
presently available to exempt the sale of the Shares from the registration requirements of the 1933
Act.

          (b) Upon the expiration of the ninety (90)-day period immediately following the date on which
the Company first becomes subject to the reporting requirements of the Securities Exchange Act of
1934, as amended (the “Exchange Act”), the Shares may be sold (without registration) pursuant to
the applicable requirements of Rule 144. If Purchaser is at the time of such sale an affiliate of
the Company for purposes of Rule 144 or was such an affiliate during the preceding three (3)
months, then the sale must comply with all the requirements of Rule 144 (including the volume
limitation on the number of shares sold, the broker/market-maker sale requirement and the requisite
notice to the SEC). If Purchaser is not at the time of the sale an affiliate of the Company nor
was such an affiliate during the preceding three (3) months, then none of the requirements of Rule
144 (other than the broker/market-maker sale requirement for Shares held for fewer than two (2)
years following payment in cash of the Purchase Price therefor) will be applicable to the sale.
The requirements of Rule 144 are subject to change at any time.

     2.2 Disposition of Shares. Subject to the terms of this Agreement,
Purchaser hereby agrees that Purchaser shall make no disposition of the Shares (other than a
permitted transfer under paragraph 3.1) unless and until there is compliance with all of the
following requirements:

          (a) Purchaser shall have notified the Company of the proposed disposition and provided a
written summary of the terms and conditions of the proposed disposition;

          (b) Purchaser shall have complied with all requirements of this Agreement applicable to the
disposition of the Shares;

          (c) Purchaser shall have provided the Company with written assurances, in form and substance
satisfactory to the Company, that (i) the proposed disposition does not require registration of the
Shares under the 1933 Act or (ii) all appropriate action necessary for compliance with the
registration requirements of the 1933 Act or of any exemption from registration available under the
1933 Act (including Rule 144) has been taken; and

          (d) Purchaser shall have provided the Company with written assurances, in form and substance
satisfactory to the Company, that the proposed disposition will not result in the contravention of
any transfer restrictions applicable to the Shares.

          The Company shall not be required (i) to transfer on its books any Shares which have
been sold or transferred in violation of the provisions of this Article II nor (ii) to
treat as the owner of the Shares, or otherwise to accord voting or dividend rights to, any
transferee to whom the Shares have been transferred in contravention of this Agreement.

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     2.3 Restrictive Legends. In order to reflect the restrictions on
disposition of the Shares, the stock certificates for the Shares will be endorsed with restrictive
legends, including one or more of the following legends:

          (a) “THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (“ACT”), NOR HAVE THEY BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF
ANY STATE. NO TRANSFER OF SUCH SECURITIES WILL BE PERMITTED UNLESS A REGISTRATION STATEMENT UNDER
THE ACT IS IN EFFECT AS TO SUCH TRANSFER, THE TRANSFER IS MADE IN ACCORDANCE WITH RULE 144 UNDER
THE ACT, OR IN THE OPINION OF COUNSEL (WHICH MAY BE COUNSEL FOR THE COMPANY) REGISTRATION UNDER THE
ACT IS UNNECESSARY IN ORDER FOR SUCH TRANSFER TO COMPLY WITH THE ACT AND WITH APPLICABLE STATE
SECURITIES LAWS.”

          (b) “THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN ACCORDANCE
WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE
WITH THE SECRETARY OF THE COMPANY.”

III. Transfer Restrictions

     3.1 Restriction on Transfer. Except for the escrow described below in
Article VI, none of the Shares or any beneficial interest therein shall be transferred, assigned,
encumbered or otherwise made the subject of disposition until the release of such Shares from the
Repurchase Option in accordance with the provisions of this Agreement. In addition, the Shares
shall not be transferred, assigned, encumbered or otherwise made the subject of disposition in
contravention of the Company’s First Refusal Right under Article IV or Special Purchase Right under
Article V or as otherwise limited herein. The restrictions on transfer set forth under Article IV
and Article V, however, shall not be applicable to (i) a gratuitous transfer of the Shares
made to the [EXECUTIVE OFFICER ONLY: Purchaser’s] siblings, spouse, lineal descendent or
antecedent, including adopted children and stepchildren, [DIRECTOR ONLY: of the Director (as
defined below)] or to a trust for the exclusive benefit of the [EXECUTIVE OFFICER ONLY: Purchaser]
[DIRECTOR ONLY: Director] or the [EXECUTIVE OFFICER ONLY: Purchaser’s] [DIRECTOR ONLY: Director’s]
siblings, spouse or issue, provided and only if the Purchaser obtains the Company’s prior written
consent to such transfer and such transferee agrees to be bound by the terms of this Agreement,
(ii) a transfer of title to the Shares effected pursuant to the Purchaser’s will or the laws of
intestate succession or (iii) a transfer to the Company in pledge as security for any
purchase-money indebtedness incurred by the Purchaser in connection with the acquisition of the
Shares [DIRECTOR ONLY: or (iv) to any affiliate of the Purchaser].

     3.2 Transferee Obligations. Each person (other than the Company) to whom
the Shares are transferred by means of one of the permitted transfers specified in paragraph 3.1
must, as a condition precedent to the validity of such transfer, acknowledge in writing to the
Company that such person is bound by the provisions of this Agreement and that the transferred
shares are subject to (i) the Company’s First Refusal Right and Special Purchase Right granted
hereunder and (ii) the market stand-off provisions of paragraph 3.4, to the same extent such Shares
would be so subject if retained by the Purchaser.

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     3.3 Definition of Owner. For purposes of this Agreement, the term “Owner”
shall include the Purchaser and all subsequent holders of the Shares who derive their chain of
ownership through a permitted transfer from the Purchaser in accordance with paragraph 3.1.

     3.4 Market Stand-Off Provisions.

          (a) In connection with any underwritten public offering by the Company of its equity
securities pursuant to an effective registration statement filed under the 1933 Act, Owner shall
not sell, make any short sale of, loan, hypothecate, pledge, grant any option for the purchase of,
or otherwise dispose or transfer for value or otherwise agree to engage in any of the foregoing
transactions with respect to, any Shares without the prior written consent of the Company or its
underwriters. Such limitations shall be in effect for such period of time from and after the
effective date of such registration statement as may be requested by the Company or such
underwriters; provided, however, that in no event shall such period exceed one hundred-eighty (180)
days.

          (b) Owner shall be subject to the market stand-off provisions of this paragraph 3.4 provided
and only if the executive officers and directors of the Company are also subject to similar
arrangements.

          (c) In the event of any stock dividend, stock split, recapitalization or other change
affecting the Company’s outstanding Common Stock effected without receipt of consideration, then
any new, substituted or additional securities distributed with respect to the Shares shall be
immediately subject to the provisions of this paragraph 3.4, to the same extent the Shares are at
such time covered by such provisions.

          (d) In order to enforce the limitations of this paragraph 3.4, the Company may impose
stop-transfer instructions with respect to the Shares until the end of the applicable stand-off
period.

IV. Right of First Refusal

     4.1 Grant. The Company is hereby granted the right of first refusal (the
“First Refusal Right”), exercisable in connection with any proposed transfer of the Shares. For
purposes of this
Article IV, the term “transfer” shall include any sale, assignment, pledge, encumbrance or
other disposition for value of the Shares intended to be made by the Owner, but shall exclude any
of the permitted transfers under paragraph 3.1.

     4.2 Notice of Intended Disposition. In the event the Owner desires to
accept a bona fide third-party offer for any or all of the Shares (the shares subject to such offer
to be hereinafter called the “Target Shares”), Owner shall promptly (i) deliver to the Corporate
Secretary of the Company written notice (the “Disposition Notice”) of the terms and conditions of
the offer, including the purchase price and the identity of the third-party offeror and (ii)
provide satisfactory proof that the disposition of the Target Shares to such third-party offeror
would not be in contravention of the provisions set forth in Articles II and III of this Agreement.

     4.3 Exercise of Right. The Company (or its assignees) shall, for a period
of twenty-five (25) days following receipt of the Disposition Notice, have the right to repurchase
any or all

4

 

of the Target Shares specified in the Disposition Notice upon substantially the same
terms and conditions specified therein. Such right shall be exercisable by delivery of written
notice (the “Exercise Notice”) to Owner prior to the expiration of the twenty-five (25) day
exercise period. If such right is exercised with respect to all the Target Shares specified in the
Disposition Notice, then the Company (or its assignees) shall effect the repurchase of the Target
Shares, including payment of the purchase price, not more than five (5) business days after
delivery of the Exercise Notice; and at such time Owner shall deliver to the Company the
certificates representing the Target Shares to be repurchased, each certificate to be properly
endorsed for transfer.

     4.4 Non-Exercise of Right. In the event the Exercise Notice is not given to
Owner within twenty-five (25) days following the date of the Company’s receipt of the Disposition
Notice, Owner shall have a period of thirty (30) days thereafter in which to sell or otherwise
dispose of the Target Shares to the third-party offeror identified in the Disposition Notice upon
terms and conditions (including the purchase price) no more favorable to such third-party offeror
than those specified in the Disposition Notice; provided, however, that any such sale or
disposition must not be effected in contravention of the provisions of Article II of this
Agreement. The acquired shares shall remain subject to (i) the securities law restrictions under
Article II, (ii) the market stand-off provisions of paragraph 3.4, (iii) the Company’s First
Refusal Rights hereunder and (iv) Article V.

     4.5 Partial Exercise of Right. In the event the Company (or its assignees)
makes a timely exercise of the First Refusal Right with respect to a portion, but not all, of the
Target Shares specified in the Disposition Notice, Owner shall have the option, exercisable by
written notice to the Company delivered within thirty (30) days after the date of the Disposition
Notice, to effect the sale of the Target Shares pursuant to one of the following alternatives:

          (a) sale or other disposition of all the Target Shares to the third-party offeror identified
in the Disposition Notice, but in full compliance with the requirements of paragraph 4.4, as if the
Company did not exercise the First Refusal Right hereunder; or

          (b) sale to the Company (or its assignees) of the portion of the Target Shares which the
Company (or its assignees) has elected to purchase, such sale to be effected in substantial
conformity with the provisions of paragraph 4.3.

          Failure of Owner to deliver timely notification to the Company under this paragraph 4.5 shall
be deemed to be an election by Owner to sell the Target Shares pursuant to alternative (a) above.

     4.6 Recapitalization. In the event of any stock dividend, stock split,
recapitalization or other transaction affecting the Company’s outstanding Common Stock as a class
effected without receipt of consideration, then any new, substituted or additional securities or
other property which is by reason of such transaction distributed with respect to the Shares shall
be immediately subject to the Company’s First Refusal Right hereunder, but only to the extent the
Shares are at the time covered by such right.

     4.7 Lapse. The First Refusal Right under this Article IV shall remain in
effect under all circumstances but shall lapse and cease to have effect upon the earliest
to occur of (i) the first

5

 

date on which shares of the Company’s Common Stock are held of record by
more than five hundred (500) persons, (ii) a determination is made by the Company’s Board of
Directors that a public market exists for the outstanding shares of the Company’s Common Stock,
(iii) an underwritten public offering pursuant to an effective registration statement under the
1933 Act or (iv) a Change of Control (as defined below). However, the market stand-off provisions
of paragraph 4.4 shall continue to remain in full force and effect following the lapse of the First
Refusal Right hereunder.

V. Marital Dissolution or Legal Separation

     5.1 Grant. Notwithstanding anything in this Agreement to the contrary, in
connection with the dissolution of Owner’s marriage or the legal separation of Owner and Owner’s
spouse, the Company shall have the right (the “Special Purchase Right”) [DIRECTOR ONLY: if
applicable,] to purchase from Owner’s spouse, in accordance with the provisions of this Article V,
all or any portion of the Shares which would otherwise be awarded to such spouse in settlement of
any community property or other marital property rights such spouse may have in such shares.

     5.2 Notice of Decree or Agreement. Owner shall promptly provide the Company with written notice (the “Dissolution Notice”) of (i)
the entry of any judicial decree or order resolving the property rights of Owner and Owner’s spouse
in connection with their marital dissolution or legal separation or (ii) the execution of any
contract or agreement relating to the distribution or division of such property rights. The
Dissolution Notice shall be accompanied by a copy of the actual decree or order of dissolution or
contract or agreement between Owner and Owner’s spouse which provides for the award to the spouse
of one or more Shares in settlement of any community property or other marital property rights such
spouse may have in such shares.

     5.3 Exercise of the Special Purchase Right. The Special Purchase Right
shall be exercisable by delivery of written notice (the “Purchase Notice”) to Owner and Owner’s
spouse within forty-five (45) days after the Company’s receipt of the Dissolution Notice. The
Purchase Notice shall indicate the number of Shares to be purchased by the Company, the date such
purchase is to be effected (such date to be not less than five (5) business days, nor more than
fifteen (15) business days, after the date of the Purchase Notice) and the fair market value to be
paid for such Shares. Owner (or Owner’s spouse, to the extent such spouse has physical possession
of the Shares) shall, prior to the close of business on the date specified for the purchase,
deliver to the Company the certificates representing the shares to be purchased. The Company
shall, concurrently with the receipt of the stock certificates, pay to Owner’s spouse (in cash or
cash equivalents) an amount equal to the fair market value specified for such shares in the
Purchase Notice.

          If Owner’s spouse does not agree with the fair market value specified for the Shares in the
Purchase Notice, then the spouse shall promptly notify the Company in writing of such disagreement
and the fair market value of such Shares shall thereupon be determined by an appraiser of
recognized standing selected by the Company and the spouse. If they cannot agree on an appraiser
within fifteen (15) days after the date of the Purchase Notice, each shall select an appraiser of
recognized standing, and the two (2) appraisers shall designate a third appraiser of recognized
standing whose appraisal shall be determinative of such value. The cost of the

6

 

appraisal shall be
shared equally by the Company and Owner’s spouse. The closing shall then be held on the fifteenth
(15th) business day following the completion of such appraisal; provided, however, that if the
appraised value is more than twenty-five percent (25%) greater than the fair market value specified
for the Shares in the Purchase Notice, the Company shall have the right, exercisable prior to the
expiration of such fifteen (15) business-day period, to rescind the exercise of the Special
Purchase Right and thereby revoke its election to purchase the Shares awarded to the spouse.

     5.4 Lapse. The Special Purchase Right shall lapse upon the earlier
to occur of (i) the lapse of the First Refusal Right or (ii) the expiration of the exercise period
specified in this Article V, to the extent the Special Purchase Right is not timely exercised in
accordance with such paragraph.

VI. Repurchase Option

     6.1 Repurchase Option. In the event of any voluntary or involuntary termination of the [EXECUTIVE OFFICER ONLY:
Purchaser’s employment by, or services to,] [DIRECTOR ONLY: service of [RELATED DIRECTOR] (the
“Director”) as a director of] the Company for any or no reason (including death or disability)
before all of the Shares are released from the Company’s Repurchase Option (as defined below), the
Company shall, upon the date of such termination (as reasonably fixed and determined by the
Company), have an irrevocable, exclusive option, but not the obligation, for a period of 90 days
from such date to repurchase all or any portion of the Unreleased Shares (as defined below in
paragraph 6.2) at such time (the “Repurchase Option”) at the original purchase price per share (the
“Repurchase Price”). The Repurchase Option shall be exercisable by the Company by written notice to
the Purchaser or the Purchaser’s executor and shall be exercisable by delivery to the Purchaser or
the Purchaser’s executor of cash, check or wire transfer in an amount equal to the Repurchase Price
times the number of Shares to be repurchased (the “Aggregate Repurchase Price”). Upon delivery of
such notice and the payment of the Aggregate Repurchase Price, the Company shall become the legal
and beneficial owner of the Shares being repurchased and all rights and interests therein or
relating thereto, and the Company shall have the right to retain and transfer to its own name the
number of Shares being repurchased by the Company.

     6.2 Release of Shares From Repurchase Option.

          (a) The Shares shall be released from the Company’s Repurchase Option pursuant to the
following schedule:

25% of the Shares are immediately released from, and shall
not be subject to, the Repurchase Option. As of July 6,
2004 (the “Vesting Commencement Date”), the remaining 75% of
the Shares shall be subject to the Repurchase Option.
1/48th of such Shares shall be released from the Repurchase
Option on each monthly anniversary of the Vesting
Commencement Date thereafter, such that all Shares shall be
released from the Repurchase Option on the

7

 

four (4) year
anniversary of the Vesting Commencement Date.

          Any of the Shares which, from time to time, have not yet been released from the Repurchase
Option are referred to herein as “Unreleased Shares.” The number of Shares released each month
and/or year, as applicable, from the Repurchase Option shall be rounded down to the next whole
number of Option Shares, except in the last month of the four (4) year period when all Unreleased
Shares shall be released from the Repurchase Option.

          (b) Upon an Acceleration Event (as defined below), the Repurchase Option shall lapse for 100%
of the Unreleased Shares (if any). An “Acceleration Event” shall mean any of the following:

               (1) The termination by the Company of the [EXECUTIVE OFFICER ONLY: Purchaser’s employment
with] [DIRECTOR ONLY: Director’s service as a director of] the Company for any reason other than
Cause (as defined below). [EXECUTIVE OFFICER
ONLY: Unless otherwise defined in an employment or services agreement between the Purchaser
and the Company (which definition will control),] “Cause” shall mean dishonesty, fraud, misconduct,
unauthorized use or disclosure of confidential information or trade secrets, or conviction or
confession of a crime punishable by law (except minor violations), in each case as determined by
the Board of Directors of the Company, and its determination shall be conclusive and binding; or

               (2) [EXECUTIVE OFFICER ONLY: The termination by the Purchaser of the Purchaser’s employment
with the Company for Good Reason (as defined below). Unless otherwise defined in an employment or
services agreement between the Purchaser and the Company (which definition will control), “Good
Reason” shall mean the occurrence of any of the following events or conditions and the failure of
the Company or any successor corporation, as applicable, to cure such event or condition within
thirty (30) days after receipt of written notice from the Purchaser:

                    (i) a change in the Purchaser’s position or responsibilities (including reporting
responsibilities) that represents a substantial reduction in the position or responsibilities as in
effect immediately prior thereto; the assignment to the Purchaser of any duties or responsibilities
that are materially inconsistent with such position or responsibilities; or any removal of the
Purchaser from or failure to reappoint or reelect the Purchaser to any of such positions, except in
connection with the termination of the Purchaser’s employment for Cause, as a result of his or her
disability or death, or by the Purchaser other than for Good Reason;

                    (ii) a material reduction in the Purchaser’s annual base salary, except in connection with a
general reduction in the compensation of all personnel of the Company and its parent and
subsidiaries, if any;

                    (iii) the Company requiring the Purchaser (without the Purchaser’s consent) to be based at any
place outside a 50-mile radius of his or her principal place of employment with the Company, except
for reasonably required travel on the Company’s business;

8

 

                    (iv) a material reduction in the Purchaser’s aggregate benefits (in terms of benefit levels
and/or reward opportunities) provided for under each material employee benefit plan, program and
practice of the Company, except in connection with a general reduction in the benefits of all
personnel of the Company and its parent and subsidiaries, if any; or

                    (v) any material breach by the Company of its obligations to the Purchaser under any
applicable employment or services agreement between the Purchaser and the Company.]

          (c) In the event of a Change of Control, the Repurchase Option shall lapse for (i) [EXECUTIVE
OFFICER ONLY: 50%] [DIRECTOR ONLY: 100%] of the Unreleased Shares (if any) at the time of the
Change of Control [EXECUTIVE OFFICER ONLY: and (ii) the remaining Unreleased Shares (if any) on the
twelve month anniversary of the Change of Control. In the event an Acceleration Event occurs
between the Change of Control and the twelve month
anniversary of the Change of Control the provisions of paragraph 6.2(b) above shall apply.] A
“Change of Control” shall mean (1) a merger or consolidation of the Company with or into any other
corporation or other entity or person or (2) a sale, lease, exchange or other transfer in one
transaction or a series of related transactions of all or substantially all the Company’s
outstanding securities or all or substantially all the Company’s assets; provided that the
following events shall not constitute a “Change of Control”: (A) a merger or consolidation of the
Company in which the holders of the voting securities of the Company immediately prior to the
merger or consolidation hold at least a majority of the voting securities in the successor
corporation immediately after the merger or consolidation; (B) a sale, lease, exchange or other
transaction in one transaction or a series of related transactions of all or substantially all of
the Company’s assets to a wholly owned subsidiary corporation; (C) a mere reincorporation of the
Company; or (D) a transaction undertaken for the sole purpose of creating a holding company that
will be owned in substantially the same proportion by the persons who held the Company’s securities
immediately before such transaction.

          (d) Subject to paragraph 6.3, the Shares which have been released from the Repurchase Option
shall be delivered to the Purchaser at the Purchaser’s request.

     6.3 Escrow of Shares. Pursuant to the terms of the Joint Escrow
Instructions attached hereto as Exhibit A, the Shares issued under this Agreement shall be
held by the Escrow Agent (as defined in such Joint Escrow Instructions) along with a stock
assignment executed by the Purchaser in blank in the form attached hereto as Exhibit B.
Notwithstanding the vesting set forth in paragraph 6.2 above, neither the Company nor the Escrow
Agent shall be required to release or issue certificates evidencing the Shares to the Purchaser
more frequently than twice in any calendar year.

     6.4 Tax Consequences. The Purchaser has reviewed with the Purchaser’s own
tax advisors the federal, state, local and foreign tax consequences of the transactions
contemplated by this Agreement. The Purchaser is relying solely on such advisors and not on any
statements or representations of the Company or any of its agents. The Purchaser understands that
the Purchaser (and not the Company) shall be responsible for the Purchaser’s own tax liability that
may arise as a result of the transactions contemplated by this Agreement.

9

 

VII. General Provisions

     7.1 Assignment. The Company may assign its First Refusal Right under
Article IV and/or its Special Purchase Rights under Article V and/or its Repurchase Option under
Article VI to any person or entity selected by the Company’s Board of Directors, including (without
limitation) one or more stockholders of the Company.

     7.2 Definitions. For purposes of this Agreement, the following provisions shall be applicable in determining
the parent and subsidiary corporations of the Company:

          (1) any corporation (other than the Company) in an unbroken chain of corporations ending with
the Company shall be considered to be a parent corporation of the Company, provided each such
corporation in the unbroken chain (other than the Company) owns, at the time of the determination,
stock possessing fifty percent (50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain, and

          (2) each corporation (other than the Company) in an unbroken chain of corporations beginning
with the Company shall be considered to be a subsidiary of the Company, provided each such
corporation (other than the last corporation) in the unbroken chain owns, at the time of the
determination, stock possessing fifty percent (50%) or more of the total combined voting power of
all classes of stock in one of the other corporations in such chain.

     7.3 Notices. Any notice required in connection with (i) the First Refusal
Right, Special Purchase Right or the Repurchase Option or (ii) the disposition of any Shares
covered thereby shall be given in writing and shall be deemed effective upon personal delivery or
upon deposit in the United States mail, registered or certified, postage prepaid and addressed to
the party entitled to such notice at the address indicated below such party’s signature line on
this Agreement or at such other address as such party may designate by ten (10) days’ advance
written notice under this paragraph 7.3 to all other parties to this Agreement.

     7.4 No Waiver. The failure of the Company (or its assignees) in any
instance to exercise the First Refusal Right, Special Purchase Right or the Repurchase Option shall
not constitute a waiver of any other repurchase right and/or right of first refusal that may
subsequently arise under the provisions of this Agreement or any other agreement between the
Company and the Purchaser or the Purchaser’s spouse. No waiver of any breach or condition of this
Agreement shall be deemed to be a waiver of any other or subsequent breach or condition, whether of
like or different nature.

VIII. Miscellaneous Provisions

     8.1 Purchaser Undertaking. Purchaser hereby agrees to take whatever
additional action and execute whatever additional documents the Company may in its judgment deem
necessary or advisable in order to carry out or effect one or more of the obligations or
restrictions imposed on either the Purchaser or the Shares pursuant to the express provisions of
this Agreement.

     8.2 Agreement is Entire Contract. This Agreement constitutes the entire
contract between the parties hereto with regard to the subject matter hereof.

10

 

     8.3 Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California, as such laws are applied to contracts entered
into and performed in such State without resort to that State’s conflict-of-laws rules.

     8.4 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original, but all of which together shall constitute one and the
same instrument.

     8.5 Successors and Assigns. The provisions of this Agreement shall inure to
the benefit of, and be binding upon, the Company and its successors and assigns and the Purchaser
and the Purchaser’s legal representatives, heirs, legatees, distributees, assigns and transferees
by operation of law, whether or not any such person shall have become a party to this Agreement and
have agreed in writing to join herein and be bound by the terms and conditions hereof.

     8.6 Amendment and Waiver. This Agreement shall not be amended nor any
Section hereof waived by the Company in the absence of approval of such amendment or waiver by a
majority of the Company’s Board of Directors.

     8.7 Arbitration. Any controversy between the parties hereto involving any
claim arising out of or relating to this Agreement shall be finally settled by arbitration in San
Diego, California, in accordance with the then current Employment ADR Rules of the American
Arbitration Association, and judgment upon the award rendered by the arbitrators may be entered in
any court having jurisdiction thereof.

     8.8 Acknowledgement. PURCHASER ACKNOWLEDGES AND AGREES THAT THE LAPSING OF
THE REPURCHASE OPTION PURSUANT TO ARTICLE VI HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS AN “AT
WILL” EMPLOYEE AND/OR DIRECTOR, AS APPLICABLE, OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING
HIRED OR PURCHASING SHARES HEREUNDER). PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT THIS
AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE REPURCHASE OPTION SCHEDULE SET FORTH
HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS AN EMPLOYEE
AND/OR DIRECTOR FOR SUCH PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH THE
COMPANY’S RIGHT TO TERMINATE PURCHASER’S EMPLOYMENT AND/OR SERVICE WITH THE COMPANY AT ANY TIME,
WITH OR WITHOUT CAUSE.

[Remainder of Page Intentionally Left Blank]

11

 

          In Witness Whereof, the parties have executed this Agreement on the day and year
first indicated above.

	 	 	 	 	 
	 	THE COMPANY:

Cadence Pharmaceuticals, Inc.

 	 
	 	By:  	 	 
	 	Name:  	 	 
	 	Title:  	 	 
	 	Address: 	12730 High Bluff Drive
Suite 410
San Diego, CA 92130	 	 
	 

	 	 	 	 	 
	 	PURCHASER:

 	 
	 	By:  	 	 
	 	Name:  	 
	 	 
	 
	 	Address: 	 
	 	 
	 
	 
	 	 	 	 	 	 	 	 
	 	 
	 

 

 

	 	 	 	 	 

Schedule to Exhibit 10.6: The form of Amended and Restated Restricted Common Stock Purchase
Agreement above was executed by the following persons or entities with respect to the number of
shares and purchase prices listed:

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	NUMBER OF SHARES	 	PURCHASE	 	RELATED
	PURCHASER	 	OF COMMON STOCK	 	PRICE	 	DIRECTOR
	Theodore R. Schroeder
	 	 	1,000,000	 	 	$	1,000.00	 	 	 	N/A	 
	David A. Socks
	 	 	850,000	 	 	$	850.00	 	 	 	N/A	 
	Garner Investments, LLC
	 	 	1,750,000	 	 	$	1,750.00	 	 	Cam L. Garner

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