Document:

exv10w1

 

Exhibit 10.1

CYGNUS, INC.

1999 STOCK INCENTIVE PLAN

(As Amended and Restated March 22, 2005)

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 
	 	 	 	 	Page	 
	SECTION 1.
	 	INTRODUCTION	 	 	1	 
	

	 	 	 	 	 	 
	SECTION 2.
	 	DEFINITIONS	 	 	1	 
	

	 	 	 	 	 	 
	SECTION 3.
	 	ADMINISTRATION	 	 	4	 
	

	 	 	 	 	 	 
	 
	 	          (a) Committee Composition	 	 	4	 
	

	 	 	 	 	 	 
	 
	 	          (b) Authority of the Committee	 	 	5	 
	

	 	 	 	 	 	 
	SECTION 4.
	 	ELIGIBILITY	 	 	5	 
	

	 	 	 	 	 	 
	 
	 	          (a) General Rules	 	 	5	 
	

	 	 	 	 	 	 
	 
	 	          (b) Incentive Stock Options	 	 	5	 
	

	 	 	 	 	 	 
	SECTION 5.
	 	SHARES SUBJECT TO PLAN	 	 	5	 
	

	 	 	 	 	 	 
	 
	 	          (a) Basic Limitations	 	 	5	 
	

	 	 	 	 	 	 
	 
	 	          (b) Additional Shares	 	 	5	 
	

	 	 	 	 	 	 
	 
	 	          (c) Dividend Equivalents	 	 	6	 
	

	 	 	 	 	 	 
	SECTION 6.
	 	TERMS AND CONDITIONS FOR AWARDS OF RESTRICTED STOCK AND STOCK UNITS	 	 	6	 
	

	 	 	 	 	 	 
	 
	 	          (a) Time, Amount and Form of Awards	 	 	6	 
	

	 	 	 	 	 	 
	 
	 	          (b) Payment for Awards	 	 	6	 
	

	 	 	 	 	 	 
	 
	 	          (c) Vesting Conditions	 	 	6	 
	

	 	 	 	 	 	 
	 
	 	           (d) Form and Time of Settlement of Stock Units	 	 	6	 
	

	 	 	 	 	 	 
	 
	 	          (e) Death of Recipient	 	 	6	 
	

	 	 	 	 	 	 
	 
	 	          (f) Creditors’ Rights	 	 	7	 
	

	 	 	 	 	 	 
	 
	 	          (g) Effect of a Change in Control	 	 	7	 
	

	 	 	 	 	 	 
	SECTION 7.
	 	TERMS AND CONDITIONS OF OPTIONS	 	 	7	 
	

	 	 	 	 	 	 
	 
	 	          (a) Stock Option Agreement	 	 	7	 
	

	 	 	 	 	 	 
	 
	 	          (b) Number of Shares	 	 	7	 
	

	 	 	 	 	 	 
	 
	 	          (c) Exercise Price	 	 	7	 
	

	 	 	 	 	 	 
	 
	 	          (d) Exercisability and Term	 	 	7	 
	

	 	 	 	 	 	 
	 
	 	          (e) Effect of a Change in Control	 	 	8	 
	

	 	 	 	 	 	 
	 
	 	          (f) Modifications or Assumption of Options	 	 	8	 
	

	 	 	 	 	 	 
	 
	 	          (g) Transferability of Options	 	 	8	 
	

	 	 	 	 	 	 
	 
	 	          (h) No Rights as a Stockholder	 	 	8	 
	

	 	 	 	 	 	 
	 
	 	          (i) Restrictions on Transfer	 	 	8	 
	

	 	 	 	 	 	 
	 
	 	          (j) Automatic Option Grants to Non-Employee Directors	 	 	8	 

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TABLE OF CONTENTS

(continued)

	 	 	 	 	 	 	 
	 	 	 	 	Page	 
	SECTION 8.
	 	PAYMENT FOR OPTION SHARES	 	 	9	 
	

	 	 	 	 	 	 
	 
	 	          (a) General Rule	 	 	9	 
	

	 	 	 	 	 	 
	 
	 	          (b) Surrender of Stock	 	 	10	 
	

	 	 	 	 	 	 
	 
	 	          (c) Promissory Note	 	 	10	 
	

	 	 	 	 	 	 
	 
	 	          (d) Cashless Exercise	 	 	10	 
	

	 	 	 	 	 	 
	 
	 	          (e) Other Forms of Payment	 	 	10	 
	

	 	 	 	 	 	 
	SECTION 9.
	 	STOCK APPRECIATION RIGHTS	 	 	10	 
	

	 	 	 	 	 	 
	 
	 	          (a) SAR Agreement	 	 	10	 
	

	 	 	 	 	 	 
	 
	 	          (b) Number of Shares	 	 	10	 
	

	 	 	 	 	 	 
	 
	 	          (c) Exercise Price	 	 	10	 
	

	 	 	 	 	 	 
	 
	 	          (d) Exercisability and Term	 	 	10	 
	

	 	 	 	 	 	 
	 
	 	          (e) Effect of Change in Control	 	 	11	 
	

	 	 	 	 	 	 
	 
	 	          (f) Exercise of SARs	 	 	11	 
	

	 	 	 	 	 	 
	 
	 	          (g) Modification or Assumption of SARs	 	 	11	 
	

	 	 	 	 	 	 
	SECTION 10.
	 	PROTECTION AGAINST DILUTION	 	 	11	 
	

	 	 	 	 	 	 
	 
	 	          (a) Adjustments	 	 	11	 
	

	 	 	 	 	 	 
	 
	 	          (b) Reorganizations	 	 	12	 
	

	 	 	 	 	 	 
	SECTION 11.
	 	VOTING AND DIVIDEND RIGHTS	 	 	12	 
	

	 	 	 	 	 	 
	 
	 	          (a) Restricted Stock	 	 	12	 
	

	 	 	 	 	 	 
	 
	 	          (b) Stock Units	 	 	12	 
	

	 	 	 	 	 	 
	SECTION 12.
	 	AWARDS UNDER OTHER PLANS	 	 	12	 
	

	 	 	 	 	 	 
	SECTION 13.
	 	LIMITATIONS ON RIGHTS	 	 	12	 
	

	 	 	 	 	 	 
	 
	 	          (a) Retention Rights	 	 	12	 
	

	 	 	 	 	 	 
	 
	 	          (b) Stockholders’ Rights	 	 	13	 
	

	 	 	 	 	 	 
	 
	 	          (c) Regulatory Requirements	 	 	13	 
	

	 	 	 	 	 	 
	SECTION 14.
	 	WITHHOLDING TAXES	 	 	13	 
	

	 	 	 	 	 	 
	 
	 	          (a) General	 	 	13	 
	

	 	 	 	 	 	 
	 
	 	          (b) Share Withholding	 	 	13	 
	

	 	 	 	 	 	 
	SECTION 15.
	 	ASSIGNMENT OR TRANSFER OF AWARDS	 	 	13	 
	

	 	 	 	 	 	 
	 
	 	          (a) General	 	 	13	 
	

	 	 	 	 	 	 
	 
	 	          (b) Trusts	 	 	13	 

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TABLE OF CONTENTS

(continued)

	 	 	 	 	 	 	 
	 	 	 	 	Page	 
	SECTION 16.
	 	DURATION AND AMENDMENTS	 	 	14	 
	

	 	 	 	 	 	 
	 
	 	          (a)  Term of the Plan	 	 	14	 
	

	 	 	 	 	 	 
	 
	 	          (b)  Right to Amend or Terminate the Plan	 	 	14	 
	

	 	 	 	 	 	 
	SECTION 17.
	 	EXECUTION	 	 	14	 

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CYGNUS, INC.

1999 STOCK INCENTIVE PLAN

As Amended and Restated March 18, 2003

SECTION 1. INTRODUCTION.

     The purpose of the Plan is to promote the long-term success of the Company and the creation of
stockholder value by offering Key Employees an opportunity to acquire a proprietary interest in the
success of the Company, or to increase such interest, and to encourage such selected persons to
continue to provide services to the Company or its Subsidiaries and to attract new individuals with
outstanding qualifications.

     The Plan seeks to achieve this purpose by providing for Awards in the form of Restricted
Stock, Stock Units, Options (which may constitute Incentive Stock Options or Nonstatutory Stock
Options) or Stock Appreciation Rights.

     The Plan shall be governed by, and construed in accordance with, the laws of the State of
California (except its choice-of-law provisions). Capitalized terms shall have the meaning
provided in Section 2 unless otherwise provided in this Plan, or in the applicable Stock Award
Agreement, SAR Agreement or Stock Option Agreement.

SECTION 2. DEFINITIONS.

(a) “Award” means any award of an Option, SAR, Restricted Stock or Stock Unit under the
Plan.

(b) “Board” means the Board of Directors of the Company, as constituted from time to time.

(c) “Change in Control” means a change in control of a nature that would be required to be
reported (assuming such event has not been “previously reported”) in response to Item 1(a)
of the Current Report on Form 8-K, as in effect on the date hereof, pursuant to Section 13
or 15(d) of the Exchange Act; provided that, without limitation, such a change in control
shall be deemed to have occurred at such time as (a) any person is or becomes the
“beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of 50% or more of the combined voting power of the Company’s voting securities;
or (b) individuals who constitute the Board on the date hereof (the “Incumbent Board”) cease
for any reason to constitute at least a majority thereof, provided that any person becoming
a director subsequent to the date hereof whose election, or nomination for election by the
Company’s stockholders, was approved by a vote of at least three quarters of the directors
comprising the Incumbent Board (either by a specific vote or by approval of the proxy
statement of the Company in which such person is named as a nominee for director, without
objection to such nomination) shall be, for purposes of this clause (b), considered as
though such person were a member of the Incumbent Board.

 

 

A transaction shall not constitute a Change in Control if its sole purpose is to change the
state of the Company’s incorporation or to create a holding company that will be owned in
substantially the same proportions by the persons who held the Company’s securities
immediately before such transaction.

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

(e) “Committee” means a committee consisting of one or more members of the Board that is
appointed by the Board (as described in Section 3) to administer the Plan.

(f) “Common Stock” means the Company’s common stock.

(g) “Company” means Cygnus, Inc. a Delaware corporation.

(h) “Consultant” means an individual who performs bona fide services to the Company or a
Subsidiary other than as an Employee or Director or Non-Employee Director.

(i) “Director” means a member of the Board who is also a common-law employee of the Company
or Subsidiary.

(j) “Disability” means that the Key Employee is unable to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment.

(k) “Employee” means any individual who is a common-law employee of the Company or
Subsidiary.

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

(m) “Exercise Price” in the case of an Option, means the amount for which a Share may be
purchased upon exercise of such Option, as specified in the applicable Stock Option
Agreement. “Exercise Price,” in the case of a SAR, means an amount, as specified in the
applicable SAR Agreement, which is subtracted from the Fair Market Value of a Share in
determining the amount payable upon exercise of such SAR.

(n) “Fair Market Value” means the market price of Shares, determined by the Committee as
follows:

     (i) If the Shares were traded over-the-counter on the date in question but were not
classified as a national market issue, then the Fair Market Value shall be equal to the mean
between the last reported representative bid and asked prices quoted by the NASDAQ system
for such date;

     (ii) If the Shares were traded over-the-counter on the date in question and were
classified as a national market issue, then the Fair Market Value shall be equal to the
last-transaction price quoted by the NASDAQ system for such date;

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     (iii) If the Shares were traded on a stock exchange on the date in question, then the
Fair Market Value shall be equal to the closing price reported by the applicable composite
transactions report for such date; and

     (iv) If none of the foregoing provisions is applicable, then the Fair Market Value
shall be determined by the Committee in good faith or by an independent third party
valuation on such basis as it deems appropriate.

Whenever possible, the determination of Fair Market Value by the Committee shall be based on
the prices reported in the Western Edition of The Wall Street Journal. Such
determination shall be conclusive and binding on all persons.

(o) “Grant” means any grant of an Option under the Plan.

(p) “Incentive Stock Option” or “ISO” means an incentive stock option described in Code
section 422(b).

(q) “Key Employee” means an Employee, Director, Non-Employee Director or Consultant who has
been selected by the Committee to receive an Award under the Plan.

(r) “Non-Employee Director” means a member of the Board who is not a common-law employee of
the Company or Subsidiary.

(s) “Nonstatutory Stock Option” or “NSO” means a stock option that is not an ISO.

(t) “Option” means an ISO or NSO granted under the Plan entitling the Optionee to purchase
Shares.

(u) “Optionee” means an individual or estate or other entity that holds an Option or SAR.

(v) “Participant” means an individual or estate or other entity that holds an Award.

(w) “Plan” means this Cygnus, Inc. 1999 Stock Incentive Plan as it may be amended from time
to time.

(x) “Restricted Stock” means a Share awarded under the Plan.

(y) “SAR Agreement” means the agreement between the Company and an Optionee which contains
the terms, conditions and restrictions pertaining to his or her SAR.

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

(aa) “Service” means service as an Employee, Director, Non-Employee Director or Consultant.

(bb) “Share” means one share of Common Stock.

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(cc) “Stock Appreciation Right” or “SAR” means a stock appreciation right awarded under the
Plan.

(dd) “Stock Award Agreement” means the agreement between the Company and the recipient of a
Restricted Stock or Stock Unit award which contains the terms, conditions and restrictions
pertaining to such Restricted Stock or Stock Unit Award.

(ee) “Stock Option Agreement” means the agreement between the Company and an Optionee that
contains the terms, conditions and restrictions pertaining to his or her Option.

(ff) “Stock Unit” means a bookkeeping entry representing the equivalent of a Share, as
awarded under the Plan.

(gg) “Subsidiary” means any corporation (other than the Company) in an unbroken chain of
corporations beginning with the Company, if each of the corporations other than the last
corporation in the unbroken chain owns 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. A corporation that attains the status of a Subsidiary on a date after the adoption
of the Plan shall be considered a Subsidiary commencing as of such date.

(hh) “10-Percent Shareholder” means an individual who owns more than ten percent (10%) of
the total combined voting power of all classes of outstanding stock of the Company, its
parent or any of its subsidiaries. In determining stock ownership, the attribution rules of
section 424(d) of the Code shall be applied.

SECTION 3. ADMINISTRATION.

     (a) Committee Composition. The Plan shall be administered by a Committee appointed by the
Board. The Board shall designate one of the members of the Committee as chairperson. If no
Committee has been appointed, the entire Board shall constitute the Committee. Members of the
Committee shall serve for such period of time as the Board may determine and shall be subject to
removal by the Board at any time. The Board may also at any time terminate the functions of the
Committee and reassume all powers and authority previously delegated to the Committee.

     The Committee shall consist of two or more directors of the Company who shall satisfy the
requirements of Rule 16b-3 (or its successor) under the Exchange Act with respect to Awards to Key
Employees who are officers or directors of the Company under section 16 of the Exchange Act.

     The Board may also appoint one or more separate committees of the Board, each composed of one
or more directors of the Company who need not qualify under Rule 16b-3, who may administer the Plan
with respect to Key Employees who are not considered officers or directors of the Company under
Section 16 of the Exchange Act, may grant Awards under the Plan to such Key Employees and may
determine all terms of such Awards.

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     With respect to any matter, the term “Committee”, when used in this Plan, shall refer to the
Committee that has been delegated authority with respect to such matter.

     (b) Authority of the Committee. Subject to the provisions of the Plan, the Committee shall
have full authority and discretion to take any actions it deems necessary or advisable for the
administration of the Plan. Such actions shall include:

     (i) selecting Key Employees who are to receive Awards under the Plan;

     (ii) determining the type, number, vesting requirements and other features and
conditions of such Awards (with the exception of the Section 7(j) Automatic Option Grants);

     (iii) interpreting the Plan; and

     (iv) making all other decisions relating to the operation of the Plan.

     The Committee may adopt such rules or guidelines as it deems appropriate to implement the
Plan. The Committee’s determinations under the Plan shall be final and binding on all persons.

SECTION 4. ELIGIBILITY.

     (a) General Rules. Only Employees, Directors, Non-Employee Directors and Consultants shall be
eligible for designation as Key Employees by the Committee.

     (b) Incentive Stock Options. Only Key Employees who are common-law employees of the Company
or a Subsidiary shall be eligible for the grant of ISOs. In addition, a Key Employee who is a
10-Percent Shareholder shall not be eligible for the grant of an ISO unless the requirements set
forth in section 422(c)(5) of the Code are satisfied.

SECTION 5. SHARES SUBJECT TO PLAN.

     (a) Basic Limitations. The stock issuable under the Plan shall be authorized but unissued
Shares or treasury Shares. The aggregate number of Shares reserved for Awards under the Plan shall
not exceed 11,416,385 Shares on a fully diluted basis, subject to adjustment pursuant to Section
10. In addition, the total number of Shares underlying Awards of Restricted Stock, Stock
Appreciation Rights and Stock Units shall not exceed 1,200,000 Shares. For purposes of determining
whether this 1,200,000 Share limit has been reached, Shares that are withheld from Awards of
Restricted Stock, Stock Appreciation Rights and Stock Units pursuant to Section 14(b) shall not be
counted.

     (b) Additional Shares. If Stock Units, Options or SARs are forfeited or if Options or SARs
terminate for any other reason before being exercised, then such Stock Units, Options or SARs shall
again become available for Awards under the Plan. If SARs are exercised, then only the number of
Shares (if any) actually issued in settlement of such SARs shall reduce the number available under
Section 5(a) and the balance shall again become available for Awards

5

 

under the Plan. If Restricted Stock is forfeited, then such Restricted Stock shall again
become available for Awards under the Plan.

     (c) Dividend Equivalents. Any dividend equivalents distributed under the Plan shall not be
applied against the number of Restricted Stock, Stock Units, Options or SARs available for Awards,
whether or not such dividend equivalents are converted into Stock Units.

SECTION 6. TERMS AND CONDITIONS FOR AWARDS OF RESTRICTED STOCK AND STOCK UNITS.

     (a) Time, Amount and Form of Awards. Awards under the Plan may be granted in the form of
Restricted Stock, in the form of Stock Units, or in any combination of both. Restricted Stock or
Stock Units may also be awarded in combination with NSOs or SARs, and such an Award may provide
that the Restricted Stock or Stock Units will be forfeited in the event that the related NSOs or
SARs are exercised.

     (b) Payment for Awards. No cash consideration shall be required of the recipients of
Restricted Stock or Stock Units under this Section 6.

     (c) Vesting Conditions. Each Award of Restricted Stock or Stock Units shall become vested, in
full or in installments, upon satisfaction of the conditions specified in the Stock Award
Agreement. To the extent required by applicable law, Restricted Stock or Stock Units shall vest at
least as rapidly as 20% annually over a five-year period and any rights to repurchase Shares at
their original purchase price shall also lapse at least as rapidly as 20% annually. A Stock Award
Agreement may provide for accelerated vesting in the event of the Participant’s death, Disability,
retirement, Change in Control or other events.

     (d) Form and Time of Settlement of Stock Units. Settlement of vested Stock Units may be made
in the form of (i) cash, (ii) Shares or (iii) any combination of both. The actual number of Stock
Units eligible for settlement may be larger or smaller than the number included in the original
Award, based on predetermined performance factors. Methods of converting Stock Units into cash may
include (without limitation) a method based on the average Fair Market Value of Shares over a
series of trading days. Vested Stock Units may be settled in a lump sum or in installments. The
distribution may occur or commence when all vesting conditions applicable to the Stock Units have
been satisfied or have lapsed, or it may be deferred to any later date. The amount of a deferred
distribution may be increased by an interest factor or by dividend equivalents. Until an Award of
Stock Units is settled, the number of such Stock Units shall be subject to adjustment pursuant to
Section 10.

     (e) Death of Recipient. Any Stock Units Award that becomes payable after the Award
recipient’s death shall be distributed to the recipient’s beneficiary or beneficiaries. Each
recipient of a Stock Units Award under the Plan shall designate one or more beneficiaries for this
purpose by filing the prescribed form with the Company. A beneficiary designation may be changed
by filing the prescribed form with the Company at any time before the recipient’s death. If no
beneficiary was designated or if no designated beneficiary survives the recipient, then any Stock
Units Award that becomes payable after the recipient’s death shall be distributed to the
recipient’s estate.

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     (f) Creditors’ Rights. A holder of Stock Units shall have no rights other than those of a
general creditor of the Company. Stock Units represent an unfunded and unsecured obligation of the
Company, subject to the terms and conditions of the applicable Stock Award Agreement.

     (g) Effect of a Change in Control. The Committee may determine, at the time of making an
Award or thereafter, that such Award shall become fully vested in the event that a Change in
Control occurs with respect to the Company. If the Committee finds that there is a reasonable
possibility that, within the succeeding six (6) months, a Change in Control will occur with respect
to the Company, then the Committee at its sole discretion may determine that any or all outstanding
Awards shall become fully exercisable as to all Shares subject to such Awards.

SECTION 7. TERMS AND CONDITIONS OF OPTIONS.

     (a) Stock Option Agreement. Each Grant under the Plan shall be evidenced by a Stock Option
Agreement between the Optionee and the Company. Such Option shall be subject to all applicable
terms and conditions of the Plan and may be subject to any other terms and conditions that are not
inconsistent with the Plan and that the Committee deems appropriate for inclusion in a Stock Option
Agreement. The provisions of the various Stock Option Agreements entered into under the Plan need
not be identical. A Stock Option Agreement may provide that new Options will be granted
automatically to the Optionee when he or she exercises the prior Options. The Stock Option
Agreement shall also specify whether the Option is an ISO or an NSO.

     (b) Number of Shares. Each Stock Option Agreement shall specify the number of Shares that are
subject to the Option and shall provide for the adjustment of such number in accordance with
Section 10. Options granted to any Optionee in a particular calendar year shall in no event exceed
25% of the Shares authorized for Award under this Plan subject to adjustment in accordance with
Section 10.

     (c) Exercise Price. An Option’s Exercise Price shall be established by the Committee and set
forth in a Stock Option Agreement. An Option’s Exercise Price shall not be less than 100% of the
Fair Market Value (110% for 10-Percent Shareholders) of a Share on the date of Grant. In the case
of an NSO, a Stock Option Agreement may specify an Exercise Price that varies in accordance with a
predetermined formula while the NSO is outstanding.

     (d) Exercisability and Term. Each Stock Option Agreement shall specify the date when all or
any installment of the Option is to become exercisable. The Stock Option Agreement shall also
specify the term of the Option; provided that the term of an ISO, and to the extent required by
applicable law a NSO, shall in no event exceed ten (10) years from the date of Grant (five (5)
years for ISO Grants to 10-Percent Shareholders). To the extent required by applicable law,
Options shall vest at least as rapidly as 20% annually over a five-year period. A Stock Option
Agreement may provide for accelerated exercisability in the event of the Optionee’s death,
Disability, retirement, Change in Control or other events and may provide for expiration prior to
the end of its term in the event of the termination of the Optionee’s Service. Options may be
awarded in combination with SARs, and such an Award may provide that the

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Options will not be exercisable unless the related SARs are forfeited. NSOs may also be
awarded in combination with Restricted Stock or Stock Units, and such an Award may provide that the
NSOs will not be exercisable unless the related Restricted Stock or Stock Units are forfeited. In
no event shall the Company be required to issue fractional Shares upon the exercise of an Option.

     (e) Effect of a Change in Control. The Committee may determine, at the time of granting an
Option or thereafter, that such Option shall become fully exercisable as to all Shares subject to
such Option in the event that a Change in Control occurs with respect to the Company. If the
Committee finds that there is a reasonable possibility that, within the succeeding six (6) months,
a Change in Control will occur with respect to the Company, then the Committee at its sole
discretion may determine that any or all outstanding Options shall become fully exercisable as to
all Shares subject to such Options.

     (f) Modifications or Assumption of Options. Within the limitations of the Plan, the Committee
may modify, extend or assume outstanding Options or may accept the cancellation of outstanding
options (whether granted by the Company or by another issuer) in return for the grant of new
Options for the same or a different number of Shares and at the same or a different Exercise Price.
The foregoing notwithstanding, no modification of an Option shall, without the consent of the
Optionee, alter or impair his or her rights or obligations under such Option.

     (g) Transferability of Options. Except as otherwise provided in the applicable Stock Option
Agreement and then only to the extent permitted by applicable law, no Option shall be transferable
by the Optionee other than by will or by the laws of descent and distribution. Except as otherwise
provided in the applicable Stock Option Agreement, an Option may be exercised during the lifetime
of the Optionee only by the Optionee or by the guardian or legal representative of the Optionee.
No Option or interest therein may be assigned, pledged or hypothecated by the Optionee during his
lifetime, whether by operation of law or otherwise, or be made subject to execution, attachment or
similar process.

     (h) No Rights as a Stockholder. An Optionee, or a transferee of an Optionee, shall have no
rights as a stockholder with respect to any Shares covered by an Option until such person becomes
entitled to receive such Shares by filing a notice of exercise and paying the Exercise Price
pursuant to the terms of such Option.

     (i) Restrictions on Transfer. Any Shares issued upon exercise of an Option shall be subject
to any restrictions that may apply to holders of Shares generally and shall also comply to the
extent necessary with applicable law (including to the extent applicable, Rule 260.140.8 of Title
10 of the California Code of Regulations) and with the Company’s insider trading policy.

     (j) Automatic Option Grants to Non-Employee Directors. The provisions of this Section 7(j)
have been terminated.

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SECTION 8. PAYMENT FOR OPTION SHARES.

     (a) General Rule. The entire Exercise Price of Shares issued upon exercise of Options shall
be payable in cash at the time when such Shares are purchased, except as follows:

     (i) In the case of an ISO granted under the Plan, payment shall be made only pursuant
to the express provisions of the applicable Stock Option Agreement. The Stock Option
Agreement may specify that payment may be made in any form(s) described in this Section 8.

     (ii) In the case of an NSO granted under the Plan, the Committee may at any time accept
payment in any form(s) described in this Section 8.

     (b) Surrender of Stock. To the extent that this Section 8(b) is applicable, payment for all
or any part of the Exercise Price may be made with Shares which have already been owned by the
Optionee for such duration as shall be specified by the Committee. Such Shares shall be valued at
their Fair Market Value on the date when the new Shares are purchased under the Plan.

     (c) Promissory Note. To the extent that this Section 8(c) is applicable, payment for all or
any part of the Exercise Price may be made with a full-recourse promissory note.

     (d) Cashless Exercise. To the extent that this Section 8(d) is applicable, payment for all or
any part of the Exercise Price may be made by delivery (on a form prescribed by the Company) of an
irrevocable direction to a securities broker to sell Shares and to deliver all or part of the sale
proceeds to the Company.

     (e) Other Forms of Payment. To the extent that this Section 8(e) is applicable, and with
Committee approval, payment may be made in any other form that is consistent with applicable laws,
regulations and rules.

SECTION 9. STOCK APPRECIATION RIGHTS.

     (a) SAR Agreement. Each Award of a SAR under the Plan shall be evidenced by a SAR Agreement
between the Optionee and the Company. Such SAR shall be subject to all applicable terms of the
Plan and may be subject to any other terms that are not inconsistent with the Plan. The provisions
of the various SAR Agreements entered into under the Plan need not be identical. SARs may be
granted in consideration of a reduction in the Optionee’s other compensation.

     (b) Number of Shares. Each SAR Agreement shall specify the number of Shares to which the SAR
pertains and shall provide for the adjustment of such number in accordance with Section 10.

     (c) Exercise Price. Each SAR Agreement shall specify the Exercise Price. A SAR Agreement may
specify an Exercise Price that varies in accordance with a predetermined formula while the SAR is
outstanding.

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     (d) Exercisability and Term. Each SAR Agreement shall specify the date when all or any
installment of the SAR is to become exercisable. The SAR Agreement shall also specify the term of
the SAR. To the extent required by applicable law, SARs shall vest at least as rapidly as 20%
annually over a five-year period. A SAR Agreement may provide for accelerated exercisability in
the event of the Optionee’s death, Disability, retirement, Change in Control or other events and
may provide for expiration prior to the end of its term in the event of the termination of the
Optionee’s Service. SARs may also be awarded in combination with Options, Restricted Stock or
Stock Units, and such an Award may provide that the SARs will not be exercisable unless the related
Options, Restricted Stock or Stock Units are forfeited. A SAR may be included in an ISO only at
the time of Grant but may be included in an NSO at the time of Grant or at any subsequent time, but
not later than six (6) months before the expiration of such NSO. A SAR granted under the Plan may
provide that it will be exercisable only in the event of a Change in Control.

     (e) Effect of Change in Control. The Committee may determine, at the time of awarding a SAR
or thereafter, that such SAR shall become fully exercisable as to all Shares subject to such SAR in
the event that a Change in Control occurs with respect to the Company. If the Committee finds that
there is a reasonable possibility that, within the succeeding six months, a Change in Control will
occur with respect to the Company, then the Committee at its sole discretion may determine that any
or all outstanding SARs shall become fully exercisable as to all Shares subject to such SARs.

     (f) Exercise of SARs. If, on the date when a SAR expires, the Exercise Price under such SAR
is less than the Fair Market Value on such date but any portion of such SAR has not been exercised
or surrendered, then such SAR shall automatically be deemed to be exercised as of such date with
respect to such portion. Upon exercise of a SAR, the Optionee (or any person having the right to
exercise the SAR after his or her death) shall receive from the Company (i) Shares, (ii) cash or
(iii) a combination of Shares and cash, as the Committee shall determine. The amount of cash
and/or the Fair Market Value of Shares received upon exercise of SARs shall, in the aggregate, be
equal to the amount by which the Fair Market Value (on the date of surrender) of the Shares subject
to the SARs exceeds the Exercise Price.

     (g) Modification or Assumption of SARs. Within the limitations of the Plan, the Committee may
modify, extend or assume outstanding SARs or may accept the cancellation of outstanding SARs
(whether granted by the Company or by another issuer) in return for the Award of new SARs for the
same or a different number of Shares and at the same or a different Exercise Price. The foregoing
notwithstanding, no modification of a SAR shall, without the consent of the Optionee, alter or
impair his or her rights or obligations under such SAR.

SECTION 10. PROTECTION AGAINST DILUTION.

     (a) Adjustments. In the event of a subdivision of the outstanding Shares, a declaration of a
dividend payable in Shares, a declaration of a dividend payable in a form other than Shares in an
amount that has a material effect on the price of Shares, a combination or consolidation of the
outstanding Shares (by reclassification or otherwise) into a lesser number of

10

 

Shares, a recapitalization, a spin-off or a similar occurrence, the Committee shall make such
adjustments as it, in its sole discretion, deems appropriate in one or more of:

     (i) the number of Options, SARs, Restricted Stock and Stock Units available for future
Awards under Section 5;

     (ii) the number of Stock Units included in any prior Award which has not yet been
settled;

     (iii) the number of Shares covered by each outstanding Option and SAR; or

     (iv) the Exercise Price under each outstanding Option and SAR.

Except as provided in this Section 10, a Participant shall have no rights by reason of any issue by
the Company of stock of any class or securities convertible into stock of any class, any
subdivision or consolidation of shares of stock of any class, the payment of any stock dividend or
any other increase or decrease in the number of shares of stock of any class.

     (b) Reorganizations. In the event that the Company is a party to a merger or other
reorganization, outstanding Options, SARs, Restricted Stock and Stock Units shall be subject to the
agreement of merger or reorganization. Such agreement may provide, without limitation, for the
assumption of outstanding Awards by the surviving corporation or its parent, for their continuation
by the Company (if the Company is a surviving corporation), for accelerated vesting and accelerated
expiration, or for settlement in cash or for cancellation.

SECTION 11. VOTING AND DIVIDEND RIGHTS.

     (a) Restricted Stock. The holders of Restricted Stock awarded under the Plan shall have the
same voting, dividend and other rights as the Company’s other stockholders. A Stock Award
Agreement, however, may require that the holders of Restricted Stock invest any cash dividends
received in additional Restricted Stock. Such additional Restricted Stock shall be subject to the
same conditions and restrictions as the Award with respect to which the dividends were paid. Such
additional Restricted Stock shall not reduce the number of Shares available under Section 5.

     (b) Stock Units. The holders of Stock Units shall have no voting rights. Prior to settlement
or forfeiture, any Stock Unit awarded under the Plan may, at the Committee’s discretion, carry with
it a right to dividend equivalents. Such right entitles the holder to be credited with an amount
equal to all cash dividends paid on one Share while the Stock Unit is outstanding. Dividend
equivalents may be converted into additional Stock Units. Settlement of dividend equivalents may
be made in the form of cash, in the form of Shares, or in a combination of both. Prior to
distribution, any dividend equivalents which are not paid shall be subject to the same conditions
and restrictions as the Stock Units to which they attach.

11

 

SECTION 12. AWARDS UNDER OTHER PLANS.

     The Company may grant awards under other plans or programs. Such awards may be settled in the
form of Shares issued under this Plan. Such Shares shall be treated for all purposes under the
Plan like Shares issued in settlement of Stock Units and shall, when issued, reduce the number of
Shares available under Section 5.

SECTION 13. LIMITATIONS ON RIGHTS.

     (a) Retention Rights. Neither the Plan nor any Award granted under the Plan shall be deemed
to give any individual a right to remain an employee, consultant or director of the Company or a
Subsidiary. The Company and its Subsidiaries reserve the right to terminate the Service of any
person at any time, and for any reason, subject to applicable laws, the Company’s certificate of
incorporation and by-laws and a written employment agreement (if any).

     (b) Stockholders’ Rights. A Participant shall have no dividend rights, voting rights or other
rights as a stockholder with respect to any Shares covered by his or her Award prior to the
issuance of a stock certificate for such Shares. No adjustment shall be made for cash dividends or
other rights for which the record date is prior to the date when such certificate is issued, except
as expressly provided in Sections 6, 10 and 11.

     (c) Regulatory Requirements. Any other provision of the Plan notwithstanding, the obligation
of the Company to issue Shares under the Plan shall be subject to all applicable laws, rules and
regulations and such approval by any regulatory body as may be required. The Company reserves the
right to restrict, in whole or in part, the delivery of Shares pursuant to any Award prior to the
satisfaction of all legal requirements relating to the issuance of such Shares, to their
registration, qualification or listing or to an exemption from registration, qualification or
listing.

SECTION 14. WITHHOLDING TAXES.

     (a) General. To the extent required by applicable federal, state, local or foreign law, a
Participant or his or her successor shall make arrangements satisfactory to the Company for the
satisfaction of any withholding tax obligations that arise in connection with the Plan. The
Company shall not be required to issue any Shares or make any cash payment under the Plan until
such obligations are satisfied.

     (b) Share Withholding. The Committee may permit a Participant to satisfy all or part of his
or her withholding or income tax obligations by having the Company withhold all or a portion of any
Shares that otherwise would be issued to him or her or by surrendering all or a portion of any
Shares that he or she previously acquired. Such Shares shall be valued at their Fair Market Value
on the date when taxes otherwise would be withheld in cash. Any payment of taxes by assigning
Shares to the Company may be subject to restrictions, including any restrictions required by rules
of the Securities and Exchange Commission.

12

 

SECTION 15. ASSIGNMENT OR TRANSFER OF AWARDS.

     (a) General. Except as provided in Section 14, or in an applicable agreement, or as required
by applicable law, an Award granted under the Plan shall not be anticipated, assigned, attached,
garnished, optioned, transferred or made subject to any creditor’s process, whether voluntarily,
involuntarily or by operation of law. An Option or SAR may be exercised during the lifetime of the
Optionee only by him or her or by his or her guardian or legal representative. Any act in
violation of this Section 15 shall be void. However, this Section 15 shall not preclude a
Participant from designating a beneficiary who will receive any outstanding Awards in the event of
the Participant’s death, nor shall it preclude a transfer of Awards by will or by the laws of
descent and distribution.

     (b) Trusts. Neither this Section 15 nor any other provision of the Plan shall preclude a
Participant from transferring or assigning Restricted Stock or Stock Units to (a) the trustee of a
trust that is revocable by such Participant alone, both at the time of the transfer or assignment
and at all times thereafter prior to such Participant’s death, or (b) the trustee of any other
trust to the extent approved in advance by the Committee in writing. A transfer or assignment of
Restricted Stock or Stock Units from such trustee to any person other than such Participant shall
be permitted only to the extent approved in advance by the Committee in writing, and Restricted
Stock or Stock Units held by such trustee shall be subject to all of the conditions and
restrictions set forth in the Plan and in the applicable Stock Award Agreement, as if such trustee
were a party to such Agreement.

SECTION 16. DURATION AND AMENDMENTS.

     (a) Term of the Plan. If the Plan, as set forth herein, is approved by stockholders at the
May 2003 annual meeting of stockholders, then the Plan shall terminate, subject to Section 16(b),
no later than March 18, 2013. If the Plan, as set forth herein, is not approved by stockholders at
the May 2003 annual meeting of stockholders, then the Plan shall terminate, subject to Section
16(b), no later than January 1, 2004.

     (b) Right to Amend or Terminate the Plan. The Board may amend or terminate the Plan at any
time and for any reason. The termination of the Plan, or any amendment thereof, shall not affect
any Award previously granted under the Plan. No Awards shall be granted under the Plan after the
Plan’s termination. The Board may not, without the approval of the Company’s stockholders (i)
materially increase the number of Shares subject to Awards under the Plan (unless necessary to
effect the adjustments required under Section 10)), (ii) materially modify the eligibility
requirements for Awards under the Plan, or (iii) make any other change with respect to which the
Board determines that Company stockholder approval is required by applicable law or regulatory
standards.

     SECTION 17. EXECUTION.

     To record the adoption of the amended and restated Plan by the Board, the Company has caused
its duly authorized officer to execute this Plan.

13

 

	 	 	 	 	 
	 	Cygnus, Inc.

 	 
	 	By  	/s/John C Hodgman
 	 
	 	 	 	 
	 	Title  	Chairman, President and CEO
 	 
	 	 	 	 
	 

14exv10w2

 

Exhibit 10.2

John C Hodgman

Dear John:

     This Employment Agreement (the “Agreement”) sets forth the terms and conditions of your
employment with Cygnus, Inc. (the “Company,” “Cygnus”). All of such terms are conditional upon
your having signed and delivered this Agreement to the Company. This Agreement and your
commencement of employment will have an effective date of April 2, 2005 (the “Effective Date”).

     In consideration of the mutual covenants and promises made in this Agreement, you and the
Company agree as follows:

1. Position and Responsibilities.

     (a) Position and Responsibilities. As of the Effective Date, you will serve in the
position of Chairman of the Company’s Board of Directors, Chief Executive Officer and President
with appropriate responsibilities for such roles. You will be an “officer” of the Company as that
term is defined in Rule 16a-1(f) of the Securities Exchange Act of 1934. As Chief Executive
Officer and President, you shall report directly to the Company’s Board of Directors. Your office
will be located in the San Francisco, California area. You will be responsible for the orderly
dissolution of the Company and overseeing the Company’s arbitration matter with Ortho-McNeil
Pharmaceutical, Inc., a Johnson & Johnson company (the “Arbitration Matter”).

     (b) At-Will Relationship. Subject to the terms and conditions of this Agreement, your
employment at the Company is “at will” and you or the Company are free to terminate the employment
relationship at any time, with or without Cause (as defined below) in each case subject to the
terms and provisions of Section 6.

2. Salary. You will earn a base salary of $300,000.00 per year (“Base Salary”), which
shall cover all hours worked, payable in the time and manner that salary is paid by the Company and
subject to customary tax deductions.

3. Bonus. You may be eligible for a discretionary bonus to be determined by the Company’s
Board of Directors in its sole and absolute discretion upon settlement of the Arbitration Matter;
however, nothing in this Agreement shall be construed as a guarantee of any bonus.

 

 

John C Hodgman

Page 2

4. Benefits and Reimbursements.

     (a) Benefits. During your employment with the Company, you will be eligible to
participate in all Company employee benefit plans and programs then available or thereafter made
available to all of the Company’s officers.

     (b) Business Expense Reimbursement. During your employment as Chairman of the
Company’s Board of Directors, Chief Executive Officer and President, you will be reimbursed for all
reasonable and approved business expenses upon the properly completed submission of requisite forms
and receipts to the Company in accordance with its business expense reimbursement and travel
policies. Such reimbursements shall be in compliance with applicable rules and regulations
promulgated by the Internal Revenue Service.

5. Other Employment. With the prior written consent of the Company Board of
Directors, you may enter into employment, consulting, or directorship arrangements with other
companies or entities while employed by the Company, with the exception of Johnson & Johnson and
any of its subsidiary or affiliate companies, including but not limited to Ortho-McNeil
Pharmaceutical, Inc., provided, however, that you continue to satisfactorily perform the duties
outlined in Section 1(a) above. An affiliate is defined to be any company, directly or indirectly
controlling, controlled by, or under common control with Johnson & Johnson, wherein “control” shall
mean the ownership of twenty (20%) or more of the outstanding voting securities of such company,
directly or indirectly, or the power to direct or cause the direction of the management of such
company. You will notify the Company in writing at least five business days prior to your
intention to enter into such a service relationship with another company or entity. Such notice
shall include the name of the other entity, the date you intend to commence rendering services and
the nature of such services.

6. Termination of Employment.

     (a) For Cause. For purposes of this Agreement, your employment with the Company
may be terminated for “Cause” by the Company at any time as a result of the occurrence of any
one or more of the following:

	 	(i)  	Your willful misconduct or gross negligence that could
reasonably be expected to have a material adverse effect on the business and
affairs of the Company;
	 
	 	(ii)  	Your willful disregard of lawful instructions from the Board of
Directors (the “Board”) relating to the business of the Company;
	 
	 	(iii)  	The commission by you of a crime, an act involving moral
turpitude or an act constituting common law fraud, or a felony, or any criminal
act against the Company or any Company stockholder; or

2

 

John C Hodgman

Page 3

	 	(iv)  	Your material breach or material violation of a material
provision of this Agreement or of the Company’s Code of Ethics or any other
major Company policy.

For these purposes, no act or failure to act shall be considered “willful” unless it is done, or
omitted to be done, in bad faith without reasonable belief that the action or omission was in the
best interest of the Company. If your employment is terminated for Cause, then you will not be
eligible to receive any discretionary bonus as described in Section 3.

     (c) Termination Without Cause. The Company may terminate your employment without
Cause at any time and for any reason including, without limitation, after the Company has filed its
Certificate of Dissolution with the Delaware secretary of state and has completed all of its
corporate activities, including but not limited to, distribution, if any, to stockholders.

     (d) Voluntary Termination, Death or Disability. You may terminate your employment
with the Company of your own volition or as a result of death or Disability (as defined in the
Company’s Long-Term Disability Plan).

     (e) Upon termination of your employment for any reason, you will be entitled
only to any accrued and unpaid salary due you pursuant to Section 2 above through the date
of termination. You will be entitled to no other compensation or benefits (other than those
benefits provided to you by COBRA, if available) from the Company. In addition, as of the
date of your termination of employment, you will be deemed to have resigned from all Company
positions, offices, directorships and the like unless the Company specifically in writing
requests you to continue on in such other capacity(ies).

7. Other Conditions. As a condition of this Agreement, you also agree to
the following:

     (a) You will not at any time during and subsequent to your period of employment with
the Company make any disparaging statements (oral or written) about the Company, or any of
its affiliated entities, officers, directors, employees, stockholders, representatives or
agents, or any of the Company’s products, in any manner that might be harmful to their
businesses, business reputations or personal reputations; and

     (b) Upon your termination of employment, you will no longer represent that you are an
officer, director or employee of the Company and you will immediately discontinue using your
Company mailing address, telephone, facsimile machines, voice mail and e-mail and you shall
promptly return to the Company any and all Company property.

8. Assignability; Binding Nature. Commencing on the Effective Date, this Agreement
will be binding upon you and the Company and any respective successors, heirs, and assigns. Any
successor of the Company will be deemed substituted for the Company under the terms of this
Agreement for all purposes and any such successor will expressly assume in writing all of

3

 

John C Hodgman

Page 4

the Company’s obligations under this Agreement. This Agreement may not be assigned by you except
that your rights to compensation and benefits hereunder, subject to the limitations of this
Agreement, may be transferred by will or operation of law.

9. Governing Law; Arbitration. This Agreement will be deemed a contract made
under, and for all purposes shall be construed in accordance with, the laws of California. Any
controversy or claim relating to this Agreement any breach thereof, and any claims you may have
against the Company or any officer, director or employee of the Company or arising from or relating
to your employment with the Company, will be settled solely and finally by arbitration in San
Francisco, California in accordance with the rules of the American Arbitration Association (“AAA”)
then in effect in the State of California, and judgment upon such award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof, provided that this Section 9
shall not be construed to eliminate or reduce any right you or the Company may otherwise have to
obtain a temporary restraining order or a preliminary or permanent injunction to enforce the
Confidential Information obligations before the matter can be heard in arbitration. The arbitrator
may provide that the cost of the arbitration (including reasonable legal fees) incurred by you or
the Company will be borne by the non-prevailing party except that, to the extent required by
applicable California law, any arbitration-specific costs will be paid by the Company.

10. Withholding. Anything to the contrary notwithstanding, all payments made by the
Company hereunder to you or your estate or beneficiaries will be subject to tax withholding
pursuant to any applicable laws or regulations. In lieu of withholding, the Company may, in its
sole discretion, accept other provisions for payment of taxes as required by law, provided it is
satisfied that all requirements of law affecting its responsibilities to withhold such taxes have
been satisfied.

11. Entire Agreement. Except as otherwise specifically provided in this Agreement,
this Agreement contains all the legally binding understandings and agreements between you and the
Company pertaining to the subject matter of this Agreement and supersedes all such agreements
including, but not limited to, any employment or change of control agreements, whether oral or in
writing, previously entered into between the parties. You also specifically consent to the
immediate termination of any such agreements and waive any and all provisions contained in such
agreements that may have provided for notice periods with respect to the termination of such
agreements or for the continuation of such agreements beyond their date of termination including
the employment and change of control agreements between the Company and yourself, [prior employment
agreements], and the additional benefits provided to you hereunder constitute adequate
consideration for your waiver of such rights.

12. Miscellaneous. No provision of this Agreement may be amended or waived unless
such amendment or waiver is agreed to by you and the Company in writing. No waiver by you or the
Company of the breach of any condition or provision of this Agreement will be deemed a waiver of a
similar or dissimilar provision or condition at the same or any prior or subsequent time. In the
event any portion of this Agreement is determined to be invalid or unenforceable

4

 

John C Hodgman

Page 5

for any reason, the remaining portions shall be unaffected thereby and will remain in full force
and effect to the fullest extent permitted by law.

13. Intellectual Property.

     (a) General. Any and all intellectual property (including but not limited to
inventions, trademarks, trade secrets, copyrights, software or literary creations) made, developed
or created by you during the term of this Agreement using Company time or Company equipment,
supplies, facilities, resources, or trade secret information or which reasonably relate to the
business of the Company or which reasonably relate to any business conducted by the Company during
the term of your employment by the Company (each, “Intellectual Property”), whether at the request
or suggestion of the Company or otherwise, whether alone or in conjunction with others, and whether
during regular working hours of work or otherwise, shall be promptly and fully disclosed by you to
the Company and shall be the Company’s exclusive property as against you, and you shall promptly
deliver to the Company all papers, drawings, models, data and other material relating to any
Intellectual Property made, developed or created by you as aforesaid. In addition, you covenant
and agree to disclose to the Company any Intellectual Property developed or created by you during
the term of this Agreement, whether or not such Intellectual Property relates to the business being
conducted by the Company at the time of development or creation of such Intellectual Property.

     (b) Works for Hire. You hereby expressly acknowledge and agree that any
copyrights developed or created by you during the term of this Agreement which reasonably relates
to the business of the Company or which reasonably relates to the business conducted by the Company
during your employment by the Company shall be considered “works made for hire” within the meaning
of the Copyright Act of 1976, as amended (17 U.S.C. § 101). Each such copyright as well as all
copies of such copyrights in whatever medium fixed or embodied, shall be owned exclusively by the
Company as of the date of creation.

     (c) Cooperation. You shall, upon the Company’s request and without any payment
therefor, execute all documents necessary or advisable to register or protect the Company’s
Intellectual Property or to vest in the Company full and exclusive title to such Intellectual
Property, the expense of registering or protecting the Intellectual Property to be borne by the
Company. In addition, you agree not to file any documents adverse to the Company’s ownership of
such Intellectual Property.

     (d) Disclosure. This Agreement does not apply to Intellectual Property that
qualifies fully as a nonassignable invention under the provisions of California law. You hereby
covenant and agree to disclose promptly in writing to the Company all Intellectual Property made or
conceived by you during the term of your employment and for one (1) year thereafter, whether or not
you believe that such Intellectual Property is subject to this Agreement, to permit a determination
by the Company as to whether such Intellectual Property should be the property of the Company. Any
such information will be received in confidence by the Company.

5

 

John C Hodgman

Page 6

     If the terms of this Agreement are acceptable to you, please execute the enclosed copy of this
letter and return it to me.

	 	 	 	 	 
	 	Very truly yours,

CYGNUS, INC.

 	 
	 	By:  	 	 
	 	 	Barbara G. McClung 	 
	 	 	Corporate Secretary 	 
	 

AGREED TO AND ACCEPTED BY:

	 	 

     John C Hodgman

6

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