Document:

Exhibit
10.3

 

SUNESIS
PHARMACEUTICALS, INC.

2005
EQUITY INCENTIVE AWARD PLAN

 

ARTICLE 1

PURPOSE

 

1.1           General.  The purpose of the Sunesis Pharmaceuticals,
Inc. 2005 Equity Incentive Award Plan (the “Plan”) is to promote the success and
enhance the value of Sunesis Pharmaceuticals, Inc. (the “Company”) by linking
the personal interests of the members of the Board, employees, consultants,
officers, and executives of the Company and any Subsidiary, 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, consultants, officers, and executives of the Company
upon whose judgment, interest, and special effort the successful conduct of the
Company’s operation is largely dependent.

 

ARTICLE 2

DEFINITIONS AND CONSTRUCTION

 

2.1           Definitions.  The following words and phrases shall have the
following meanings:

 

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

 

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

 

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

 

(d)           “Cause”
includes one or more of the following: (i) the commission of an act of fraud,
embezzlement or dishonesty by a Participant that has a material adverse impact
on the Company or any successor or parent or Subsidiary thereof; (ii) a
conviction of, or plea of “guilty” or “no contest” to, a felony by a
Participant; (iii) any unauthorized use or disclosure by a Participant of
confidential information or trade secrets of the Company or any successor or
parent or Subsidiary thereof that has a material adverse impact on any such
entity or (iv) any other intentional misconduct by a Participant that has a
material adverse impact on the Company or any successor or parent or Subsidiary
thereof.  However, if the term or concept of “Cause” has been defined in
an agreement between a Participant and the Company or any successor or parent
or Subsidiary thereof, then “Cause” shall have the definition set forth in such
agreement.  The foregoing definition shall not in any way preclude or
restrict the right of the Company or any successor or parent or Subsidiary
thereof to discharge or dismiss any Participant in the service of such entity
for any other acts or omissions, but such other acts or omissions shall not be
deemed, for purposes of this Plan, to constitute grounds for termination for
Cause.

 

 

(e)           “Change
of Control” means and includes each of the following:

 

(1)           the acquisition, directly or indirectly, by any “person”
or “group” (as those terms are defined in Sections 3(a)(9), 13(d) and 14(d) of
the Exchange Act and the rules thereunder) of “beneficial ownership” (as
determined pursuant to Rule 13d-3 under the Exchange Act) of securities
entitled to vote generally in the election of directors (“voting securities”)
of the Company that represent 50% or more of the combined voting power of the
Company’s then outstanding voting securities, other than:

 

(A)          an acquisition by a trustee or other fiduciary holding
securities under any employee benefit plan (or related trust) sponsored or
maintained by the Company or any person controlled by the Company or by any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any person controlled by the Company, or

 

(B)           an acquisition of voting securities by the Company or
a corporation owned, directly or indirectly by the stockholders of the Company
in substantially the same proportions as their ownership of the stock of the
Company;

 

Notwithstanding the
foregoing, the following event shall not constitute an “acquisition” by any
person or group for purposes of this subsection (e): an acquisition of the
Company’s securities by the Company that causes the Company’s voting securities
beneficially owned by a person or group to represent 50% or more of the
combined voting power of the Company’s then outstanding voting securities; provided, however, that if a person or
group shall become the beneficial owner of 50% or more of the combined voting
power of the Company’s then outstanding voting securities by reason of share
acquisitions by the Company as described above and shall, after such share
acquisitions by the Company, become the beneficial owner of any additional
voting securities of the Company, then such acquisition shall constitute a
Change of Control; or

 

(2)           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
clauses (1) or (3) of this subsection (e)) 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

 

(3)           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:

 

(A)          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

 

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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

 

(B)           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 clause (B)
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; or

 

(4)           the Company’s stockholders approve a liquidation or
dissolution of the Company.

 

The Committee shall have
full and final authority, which shall be exercised in its discretion, to
determine conclusively whether a Change of Control of the Company has occurred
pursuant to the above definition, and the date of the occurrence of such Change
of Control and any incidental matters relating thereto.

 

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

 

(g)           “Committee”
means the committee of the Board described in Article 12.

 

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

 

(i)            “Disability” means, for purposes of this Plan, that the
Participant qualifies to receive long-term disability payments under the
Company’s long-term disability insurance program, as it may be amended from
time to time.

 

(j)            “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.

 

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

 

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

 

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

 

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

 

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(2)           If the Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Stock on the date
prior to the date of determination as reported in The Wall Street Journal or such other source as the
Committee deems reliable; or

 

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

 

(n)           “Good
Reason” means a Participant’s voluntary resignation following
any one or more of the following that is effected without the Participant’s
written consent: (i) a change in his or her position following the Change of
Control that materially reduces his or her duties or responsibilities, (ii) a
reduction in his or her base salary following a Change of Control, unless the
base salaries of all similarly situated individuals are similarly reduced, or
(iii) a relocation of such Participant’s place of employment following a Change
of Control by more than fifty (50) miles from such Participant’s place of
employment prior to a Change of Control.  However, if the term or concept
of “Good Reason” has been defined in an agreement between a Participant and the
Company or any successor or parent or Subsidiary thereof, then “Good Reason”
shall have the definition set forth in such agreement.

 

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

 

(p)           “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.

 

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

 

(r)            “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.

 

(s)           “Participant”
means a person who, as a member of the Board, consultant to the Company or any
Subsidiary or Employee, has been granted an Award pursuant to the Plan.

 

(t)            “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.

 

(u)           “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), net losses, sales or revenue, operating earnings, operating cash
flow, return on net assets, return on stockholders’ equity, return on assets,
return on capital, stockholder returns, gross or net profit margin, earnings
per share, price per share of Stock, and market share, any of

 

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which may be measured either in absolute terms or as
compared to any incremental increase or as compared to results of a peer
group.  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.

 

(v)           “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.  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 (i) in the event of, or
in anticipation of, any unusual or extraordinary corporate item, transaction, event,
or development, or (ii) 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.

 

(w)          “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.

 

(x)            “Performance
Share” means a right granted to a Participant pursuant to
Article 8, to receive cash, Stock, or other Awards, the payment of which
is contingent upon achieving certain performance goals established by the
Committee.

 

(y)           “Plan”
means this Sunesis Pharmaceuticals, Inc. 2005 Equity Incentive Award Plan, as
it may be amended from time to time.

 

(z)            “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.

 

(aa)         “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.

 

(bb)         “Restricted
Stock” means Stock awarded to a Participant pursuant to
Article 6 that is subject to certain restrictions and to risk of
forfeiture.

 

(cc)         “Restricted
Stock Unit” means a right to receive a specified number of
shares of Stock during specified time periods pursuant to Article 8.

 

(dd)         “Stock”
means the common stock of the Company and such other securities of the Company
that may be substituted for Stock pursuant to Article 11.

 

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(ee)         “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.

 

(ff)           “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.

 

(gg)         “Subsidiary”
means any corporation or other entity of which a 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, the aggregate number of
shares of Stock which may be issued or transferred pursuant to Awards under the
Plan shall be seven million five hundred sixty-two thousand four hundred
thirty-seven (7,562,437) shares, plus the number of shares of Common Stock
subject to each option granted under the Sunesis Pharmaceuticals, Inc. 1998
Stock Plan and the Sunesis Pharmaceuticals, Inc. 2001 Stock Plan (the “Existing Plans”)
before the Public Trading Date that expire or are canceled without having been
exercised in full or shares of Stock that are repurchased by the Company
pursuant to the terms of such options.  In
addition to the foregoing, subject to Article 11, commencing on the first
day of the Company’s 2006 fiscal year and on the first day of each fiscal year
thereafter during the term of the Plan, the number of shares of Stock which may
be issued or transferred pursuant to Awards under the Plan shall be increased
by that number of shares of Stock equal to the least of (i) four percent
(4%) of the Company’s outstanding shares of Stock on such date, (ii) four
million six hundred thousand (4,600,000) shares of Stock or (iii) a lesser
amount determined by the Board.  Notwithstanding anything to the contrary
herein, the maximum aggregate number of shares of Stock that may be issued or
transferred pursuant to Awards under the Plan during the term of the Plan is forty-eight
million (48,000,000) shares, subject to Article 11.  The payment of
Dividend Equivalents in conjunction with any outstanding Awards shall not be
counted against the shares available for issuance under the Plan.

 

(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 Subsidiary shall not be counted
against shares of Stock available for grant pursuant to this Plan.

 

(c)           Notwithstanding the provisions of this
Section 3.1 no shares of Stock may

 

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again be optioned, granted or awarded if such action
would cause an Incentive Stock Option to fail to qualify as an Incentive Stock
Option under Code Section 422.

 

3.2           Stock Distributed.  Any 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 a calendar year shall be 1,000,000.

 

ARTICLE 4

ELIGIBILITY AND PARTICIPATION

 

4.1           Eligibility.

 

(a)           General.  Persons eligible to participate in this
Plan include Employees, consultants to the Company or any Subsidiary and all
members of the Board, as determined by the Committee.

 

(b)           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 share limitations contained in Sections 3.1 and 3.3 of the Plan.

 

4.2           Actual 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 individual shall have any right to be granted an Award
pursuant to this Plan.

 

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, provided that the
term of

 

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any Option granted under the Plan shall not exceed ten
years, and provided further, that
in the case of a Non-Qualified Stock Option, such Option shall be exercisable
for one year after the date of the Participant’s death, provided that this one
(1) year period does not exceed the Option’s ten (10) year term, as described
above.  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, cash, promissory note bearing interest
at no less than such rate as shall then preclude the imputation of interest
under the Code, shares of Stock held for longer than six months having a Fair
Market Value on the date of delivery equal to the aggregate exercise price of
the Option or exercised portion thereof, or 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).

 

(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.  Incentive Stock Options shall be granted only
to Employees who are employed by the Company or any subsidiary corporation
within the meaning of Code Section 424(f) and the terms of any Incentive
Stock Options granted pursuant to the Plan must comply with the following
additional provisions of this Section 5.2:

 

(a)           Exercise Price.  The exercise price per share of
Stock shall be set by the Committee, provided
that the exercise price for any Incentive Stock Option shall not be less than
100% of the Fair Market Value on the date of grant.

 

(b)           Expiration Of Option.  An Incentive Stock Option
may not be exercised to any extent by anyone after the first to occur of the
following events:

 

(1)           Ten years from the date it is granted, unless an
earlier time is set in the Award Agreement.

 

(2)           One year after the date of the Participant’s
termination of employment or service on account of Disability or death, unless
in the case of death a shorter or longer period is designated in the Award
Agreement.  Upon the Participant’s Disability or death, any Incentive
Stock Options exercisable at the Participant’s Disability or death may be
exercised by the Participant’s legal representative or representatives, by the
person or persons entitled to do

 

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so pursuant to the Participant’s last will and
testament, or, if the Participant fails to make testamentary disposition of
such Incentive Stock Option or dies intestate, by the person or persons
entitled to receive the Incentive Stock Option pursuant to the applicable laws
of descent and distribution.

 

(c)           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 $100,000.00 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.

 

(d)           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 (or any parent and subsidiary corporations,
within the meaning of Code Section 424(e) and (f)) 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.

 

(e)           Transfer Restriction.  The Participant shall give
the Company prompt notice of any disposition of shares of Stock acquired by
exercise of an Incentive Stock Option within (1) two years from the date of
grant of such Incentive Stock Option or (2) one year after the transfer of such
shares of Stock to the Participant.

 

(f)            Expiration Of Incentive Stock Options.  No Award
of an Incentive Stock Option may be made pursuant to this Plan after the
Expiration Date (as defined in Section 13.2).

 

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

 

5.3           Granting Of Options To Independent Directors.

 

(a)           During the term of the Plan, a person who first
becomes a Non-Employee Director after the Public Trading Date automatically
shall be granted an Option to purchase 90,000 shares of Stock (an “Initial
Option”).  Following the Public Trading Date and commencing on the Company’s
2006 annual meeting of the stockholders, Non-Employee Directors automatically
shall be granted an Option to purchase 30,000 shares of Stock effective as of
each annual meeting of the stockholders (an “Annual Option”); provided, he or she continues to serve as
member of the Board as of such date.  For the avoidance of doubt, an
Non-Employee Director elected for the first time to the Board at an annual
meeting of stockholders shall only receive an Initial Option in connection with
such election, and shall not receive an Annual Option on the date following
such meeting as well.  Members of the Board who are employees of the
Company who subsequently retire from the Company and remain on the Board will
not receive an Initial Option grant but to the extent they are otherwise
eligible, will receive, at each annual meeting of stockholders after his or her
retirement from employment with the Company, an Annual Option grant.

 

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(b)           Options granted to Non-Employee Directors shall be
Non-Qualifed Stock Options.  The per Share price of each Option granted to
an Non-Employee Director shall equal 100% of the Fair Market Value of a share
of Common Stock on the date the Option is granted.  Initial Options shall
become vested and exercisable in two (2) equal annual installments over the two
(2) year period commencing with the date of grant.  Annual Options shall
become vested and exercisable in twelve (12) equal monthly installments over
the twelve (12) month period following their date of grant.  The term of
each Option granted to an Non-Employee Director shall be ten (10) years from the
date the Option is granted.  Upon a Director’s termination of membership
on the Board for any reason, his or her Option granted under
Section 5.3(a) shall remain exercisable for twelve (12) months following
his or her termination of membership on the Board (or such longer period as the
Board may determine in its discretion on or after the date of grant of such
Option).  Unless otherwise determined by the Board on or after the date of
grant of such Option, no portion of an Option granted under Section 5.3(a)
which is unexercisable at the time of an Non-Employee Director’s termination of
membership on the Board shall thereafter become exercisable.

 

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 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
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 the Committee
may 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.

 

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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 may be granted (a) in connection and simultaneously
with the grant of an Option, (b) with respect to a previously granted Option,
or (c) independent of an Option.  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           Coupled Stock Appreciation Rights.

 

(a)           A Coupled Stock Appreciation Right (“CSAR”) shall be
related to a particular Option and shall be exercisable only when and to the
extent the related Option is exercisable.

 

(b)           A CSAR may be granted to a
Participant for no more than the number of shares subject to the simultaneously
or previously granted Option to which it is coupled.

 

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

 

7.3           Independent Stock Appreciation
Rights.

 

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

 

(b)           An ISAR shall entitle the Participant (or other person
entitled to exercise the ISAR pursuant to the Plan) to exercise all or a
specified portion of the ISAR (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 ISAR
from the Fair Market Value of a share of Stock on the date of exercise of the
ISAR by the number of shares of Stock with respect to which the ISAR shall have
been exercised, subject to any limitations the Committee may impose.

 

11

 

7.4           Payment and Limitations on Exercise.

 

(a)           Payment of the amounts determined
under Section 7.2(c) and 7.3(b) above shall be in cash, in Stock (based on
its Fair Market Value as of the date the Stock Appreciation Right is exercised)
or a combination of both, as determined by the Committee.

 

(b)           To the extent any payment under
Section 7.2(c) or 7.3(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 may be
denominated in a number of shares of Stock or in a 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.

 

8.2           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.

 

8.3           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 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.

 

8.4           Restricted Stock Units.  Any
Participant selected by the Committee may be granted an award of Restricted
Stock Units in the manner determined from time to time by the Committee. 
The number of Restricted Stock Units 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 Restricted Stock Unit award will not be
issued until the Restricted Stock Unit award has vested, pursuant to a vesting
schedule or

 

12

 

performance criteria set by the Committee. 
Unless otherwise provided by the Committee, a Participant awarded Restricted
Stock Units shall have no rights as a Company stockholder with respect to such
Restricted Stock Units until such time as the Restricted Stock Units have
vested and the Stock underlying the Restricted Stock Units has been issued.

 

8.5           Term.  The term of any Award of
Performance Shares, Dividend Equivalents, Stock Payments or Restricted Stock
Units shall be set by the Committee in its discretion.

 

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

 

8.7           Exercise Upon Termination of
Employment or Service.  An Award of Performance Shares, Dividend
Equivalents, Restricted Stock Units and Stock Payments shall only be
exercisable or payable while the Participant is an Employee, consultant to the
Company 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, Dividend
Equivalents, Stock Payments or Restricted Stock Units may be exercised or paid
subsequent to a termination of employment or service, as applicable, or
following a Change of 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
shall be subject to the requirements of Section 162(m) of the Code that
apply to Qualified Performance-Based Compensation.

 

8.8           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.

 

8.9           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 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

 

13

 

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, (i) designate one or more Covered Employees,
(ii) select the Performance Criteria applicable to the Performance Period,
(iii) establish the Performance Goals, and amounts of such Awards, as
applicable, which may be earned for such Performance Period, and (iv) 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
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.  In
determining the amount earned under a Performance-Based Award, the Committee
may reduce or eliminate the amount of the Performance-Based Award earned for
the Performance Period, if in its sole and absolute discretion, such reduction
or elimination is appropriate.

 

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.

 

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

 

14

 

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 or a Subsidiary, or shall be subject to any lien,
obligation, or liability of such Participant to any other party other than the
Company 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 may 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 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 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 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.  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,

 

15

 

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.

 

ARTICLE 11

CHANGES IN CAPITAL STRUCTURE

 

11.1         Adjustments.  In the event of any stock dividend, stock
split, combination or exchange of shares, merger, consolidation, spin-off,
recapitalization or other distribution (other than normal cash dividends) of
Company assets to stockholders, or any other change affecting the shares of
Stock or the share price of the Stock, the Committee shall make such
proportionate adjustments, if any, as the Committee in its discretion may deem appropriate
to reflect such change with respect to (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 Code.

 

11.2         Effect of a Change of Control When Awards Are Not
Assumed.  If
a Change of Control occurs and a Participant’s Awards are not assumed by the
surviving or successor entity or its parent or Subsidiary and such successor
does not substitute substantially similar awards for those outstanding under
the Plan, such Awards shall become fully exercisable and/or payable as
applicable, and all forfeiture restrictions on such Awards shall lapse. 
Upon, or in anticipation of, a Change of Control, the Committee may cause any
and all Awards outstanding hereunder to terminate at a specific time in the
future 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.  The Committee shall have sole discretion to determine whether
an Award has been assumed by the surviving or successor entity or its parent or
Subsidiary or whether such successor has substituted substantially similar
awards for those outstanding under the Plan in connection with a Change of
Control.

 

16

 

11.3         Effect of Change of Control When Awards Are Assumed;
Termination Following Change of Control.

 

(a)           In the event of a Change of Control where a
Participant’s Awards are assumed by the surviving or successor entity or its
parent or Subsidiary or such successor substitutes substantially similar awards
for those outstanding under the Plan, then fifty percent (50%) of such
Participant’s unvested Awards shall become fully exercisable and/or payable as
applicable, and all forfeiture restrictions on such Awards shall lapse,
immediately prior to such Change of Control.

 

(b)           In the event of a Change of Control where a
Participant’s Awards are assumed by the surviving or successor entity or its
parent or Subsidiary or such successor substitutes substantially similar awards
for those outstanding under the Plan, if within twelve (12) months following
such Change of Control (i) the Participant’s employment or service with the
surviving or successor entity or its parent or Subsidiary is terminated without
Cause or (ii) such Participant voluntarily terminates such Participant’s
employment or service with Good Reason, then such Participant’s remaining
unvested Awards (including any substituted awards) shall become fully
exercisable and/or payable as applicable, and all forfeiture restrictions on
such Awards (including any substituted awards) shall lapse, on the date of
termination.  Such Awards (including any substituted awards) shall remain
exercisable, as applicable, until the earlier of the expiration date of the
Award or three (3) months following such Participant’s cessation of employment
or service.

 

11.4         Outstanding Awards—Certain Mergers.  Subject to any required action by
the stockholders of the Company, in the event that the Company shall be the
surviving corporation in any merger or consolidation (except a merger or
consolidation as a result of which the holders of shares of Stock receive
securities of another corporation), each Award outstanding on the date of such
merger or consolidation shall pertain to and apply to the securities that a
holder of the number of shares of Stock subject to such Award would have
received in such merger or consolidation.

 

11.5         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 class of shares
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.

 

11.6         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.

 

17

 

ARTICLE 12

ADMINISTRATION

 

12.1         Committee.  Unless and until the Board delegates
administration to a Committee as set forth below, the Plan shall be
administered by the Board.  The Board may delegate administration of the
Plan to a Committee or Committees of one or more members of the Board, and the
term “Committee” shall apply to any person or persons to whom such authority
has been delegated.  If administration is delegated to a Committee, the
Committee shall have, in connection with the administration of the Plan, the
powers theretofore possessed by the Board, including the power to delegate to a
subcommittee any of the administrative powers the Committee is authorized to
exercise (and references in this Plan to the Board shall thereafter be to the
Committee or subcommittee), subject, however, to such resolutions, not
inconsistent with the provisions of the Plan, as may be adopted from time to
time by the Board.  Notwithstanding the foregoing, however, from and after
the Public Trading Date, a Committee of the Board shall administer the Plan and
the Committee shall consist solely of two or more members of the Board each of
whom is both an “outside director,” within the meaning of Section 162(m)
of the Code, and a Non-Employee Director.  Within the scope of such
authority, the Board or the Committee may (i) delegate to a committee of one or
more members of the Board who are not “outside directors,” within the meaning
of Section 162(m) of the Code the authority to grant awards under the Plan
to eligible persons who are either (1) not then “covered employees,” within the
meaning of Section 162(m) of the Code and are not expected to be “covered
employees” at the time of recognition of income resulting from such award or
(2) not persons with respect to whom the Company wishes to comply with
Section 162(m) of the Code and/or (ii) delegate to a committee of one or
more members of the Board who are not Non-Employee Directors, the authority to
grant awards under the Plan to eligible persons who are not then subject to
Section 16 of the Exchange Act.  The Board may abolish the Committee
at any time and/or revest in the Board the administration of the Plan. 
Appointment of Committee members shall be effective upon acceptance of
appointment.  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 any Subsidiary, the Company’s
independent certified public accountants, or any executive compensation
consultant or other professional retained by the Company 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

 

18

 

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

 

(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.

 

ARTICLE 13

EFFECTIVE AND EXPIRATION DATE

 

13.1         Effective Date.  The Plan is effective as the Public Trading
Date; provided that the Plan has
been approved by the Company’s stockholders prior to such date.

 

13.2         Expiration Date.  The Plan will expire on, and no Award may be
granted pursuant to the Plan after, the earlier of the tenth anniversary of (i)
the date this Plan is approved by the Company’s stockholders or (ii) the date
this Plan is approved by the Board (the “Expiration Date”).  Any Awards that are
outstanding on the Expiration Date shall remain in force according to the terms
of the Plan and the applicable Award Agreement.  Each Award Agreement
shall provide that it will expire on the tenth anniversary of the date of grant
of the Award to which it relates.

 

19

 

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
(i) 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 (ii) shareholder approval is required for any amendment to the
Plan that (A) increases the number of shares available under the Plan (other
than any adjustment as provided by Article 11), (B) permits the Committee
to grant Options with an exercise price that is below Fair Market Value on the
date of grant, or (C) permits the Committee to extend the exercise period for
an Option beyond ten years from the date of grant.

 

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 Participant, employee, 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 Participants, employees,
and other persons uniformly.

 

15.2         No Stockholders Rights.  No Award gives the Participant any of the
rights of a stockholder of the Company unless and until shares of Stock are in
fact issued to such person in connection with such Award.

 

15.3         Withholding.  The Company or any 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 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 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.

 

20

 

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 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 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 Subsidiary.

 

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 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 or whether such fractional shares 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

 

21

 

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 paid pursuant to the Plan may in
certain circumstances be exempt from registration pursuant to the Securities
Act of 1933, as amended, the Company may restrict the transfer of such shares
in such manner as it deems advisable to ensure the availability of any such
exemption.

 

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

 

22

 

SUNESIS
PHARMACEUTICALS, INC.

STOCK
OPTION GRANT NOTICE AND STOCK OPTION AGREEMENT

UNDER
THE 2005 EQUITY INCENTIVE PLAN

 

Sunesis Pharmaceuticals, Inc. (the “Company”), pursuant
to its 2005 Equity Incentive Plan (the “Plan”) hereby grants to the Optionee listed
below (“Optionee”),
an option to purchase the number of shares of the Company’s Stock set forth
below.  This option is subject to all of the terms and conditions as set
forth herein and in the Stock Option Agreement and the Plan, each of which are
attached hereto and incorporated herein by reference.  Unless otherwise
defined herein, the terms defined in the Plan shall have the same defined
meanings in this Stock Option Agreement.

	
  Optionee:

  	
   

  	
   

  
	
  Date of Stock Option Agreement:

  	
   

  	
   

  
	
  Grant Date:

  	
   

  	
   

  
	
  Vesting Commencement Date: 

  	
   

  	
   

  
	
  Exercise Price per Share:

  	
   

  	
  $                       per
  share

  
	
  Total Number of Shares Granted:

  	
   

  	
   

  
	
  Total Exercise Price:

  	
   

  	
  $

  
	
  Expiration Date:

  	
   

  	
   

  

 

Type of
Option:                   
o  Incentive Stock
Option      o  Non-Qualified Stock Option

 

Vesting Schedule:                                            [Insert vesting schedule]

By his or her signature and the Company’s signature
below, Optionee agrees to be bound by the terms and conditions of the Plan and
the Stock Option Agreement attached hereto.  Optionee has reviewed the
Stock Option Agreement and the Plan in their entirety, has had an opportunity
to obtain the advice of counsel prior to executing this option and fully
understands all provisions of the Grant Notice, the Stock Option Agreement and
the Plan.  Optionee hereby agrees to accept as binding, conclusive and
final all decisions or interpretations of the administrator of the Plan upon
any questions arising under the Plan or this option.  Optionee further
agrees to notify the Company upon any change in the residence address indicated
below.

	
  SUNESIS PHARMACEUTICALS, INC.

  	
  OPTIONEE:

  
	
  By: 

  	
   

  	
  By: 

  	
   

  
	
  Print Name: 

  	
  Print Name: 

  
	
  Title:
              

  	
   

  
	
  Address:   

  	
  Address:

  
	
   

  	
   

  	
   

  	
   

  

 

1

 

SUNESIS
PHARMACEUTICALS, INC.

2005 EQUITY INCENTIVE PLAN

STOCK OPTION AGREEMENT

Pursuant to the Stock Option Grant Notice (“Grant Notice”) to
which this Stock Option Agreement (this “Agreement”) is attached, Sunesis
Pharmaceuticals, Inc. (the “Company”) has granted to the Optionee an option under
the Company’s 2005 Equity Incentive Plan (the “Plan”) to purchase the number of shares
of Stock indicated in the Grant Notice at the exercise price indicated in the
Grant Notice. Unless otherwise defined herein, the terms defined in the Plan
shall have the same defined meanings in this Stock Option Agreement.

ARTICLE
I

DEFINITIONS; INCORPORATION OF TERMS

1.1           General. 
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.

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.

ARTICLE
II

GRANT OF OPTION

2.1           Grant
of Option.  In consideration of the Optionee’s agreement to remain in
the employ of the Company or its Subsidiaries 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 Optionee 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 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           Purchase
Price.  The purchase price of the shares of Stock subject to the
Option per share shall be as set forth in the Grant Notice, without commission
or other charge; provided, however, that if this Option is designated
as an Incentive Stock Option the price per share of the shares subject to the
Option shall not be less than the greater of (i) 100% of the Fair Market
Value of a share of Stock on the Grant Date, or (ii) 110% of the Fair
Market Value of a share of Stock on the Grant Date in the case of an Optionee
then owning (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 or parent corporation thereof (within the meaning of Section
422 of the Code); provided, further,
that such exercise price shall not be less than the par value of a share of
Stock, unless otherwise permitted by applicable law.

2.3           Consideration
to the Company.  In consideration of the granting of the Option by the
Company, the Optionee agrees to render faithful and efficient services to the
Company or any Subsidiary, with such duties and responsibilities as the Company
shall from time to time prescribe.  Nothing in the Plan or this Agreement
shall confer upon the Optionee any right to (a) continue in the employ of the
Company or any Subsidiary or shall interfere with or restrict in any way the
rights of the Company and its Subsidiaries, which are hereby expressly
reserved, to

 

1

discharge the Optionee, if the Optionee is an
Employee, or (b) continue to provide services to the Company or any Subsidiary
or shall interfere with or restrict in any way the rights of the Company or its
Subsidiaries, which are hereby expressly reserved, to terminate the services of
Optionee, if the Optionee is a Consultant, 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 and the Optionee.

 

ARTICLE
III

PERIOD OF EXERCISABILITY

3.1           Commencement
of Exercisability.

(a)           Subject
to Sections 3.3 and 5.11, the Option shall become 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 exercisable at Termination of
Service (as defined in Section 3.3 below) shall thereafter become exercisable,
except as may be otherwise provided by the Committee or as set forth in a
written agreement between the Company and the Optionee.

3.2           Duration
of Exercisability.  The installments provided for in
Section 3.1(a) are cumulative.  Each such installment which becomes
exercisable pursuant to Section 3.1 shall remain 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 (or five years from the Grant Date
if the Optionee is not an Employee); or

(b)           If
this Option is designated as an Incentive Stock Option and the Optionee 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 or parent corporation thereof (within the
meaning of Section 422 of the Code), the expiration of five years from the date
the Option was granted; or

(c)           The
expiration of three months following the date of the Optionee’s Termination of
Service, unless such Termination of Service occurs by reason of the Optionee’s
death or Disability or as set forth in a written agreement with the Company; or

(d)           The
expiration of twelve months following the date of the Optionee’s Termination of Service by
reason of the Optionee’s Disability; or

(e)           The
expiration of twelve months following the date of the Optionee’s Termination of Service by
reason of the Optionee’s death.

(e)           For
purposes of this Agreement, “Termination of Service” means the time when the service
relationship (whether as an Employee or a consultant) between the Optionee and
the Company or any Subsidiary is terminated for any reason, with or without
cause, including, but not by way of limitation, a termination by resignation,
discharge, death or Disability; but excluding (a) a termination where there is
a simultaneous reemployment or continuing employment or consultancy of the
Optionee by the Company or any Subsidiary or a parent corporation thereof
(within the meaning of Section 422 of the Code), (b) at the discretion of the
Committee, a termination which results in a temporary severance of the
employee-employer relationship, and (c) at the discretion of the Committee, a
termination which is followed by the simultaneous establishment of a consulting
relationship by the Company or a Subsidiary

2

 

with
the former Employee.  The Committee, in its absolute discretion, shall
determine the effect of all matters and questions relating to Termination of
Service for the purposes of this Agreement, and all questions of whether
particular leaves of absence for Optionees who are Employees of the Company or
any of its Subsidiaries constitute Terminations of Service; provided, however,
that, if this Option is designated as 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 Service 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.  Notwithstanding any other provision of the
Plan or this Agreement, the Company or any Subsidiary has an absolute and
unrestricted right to terminate the Optionee’s employment and/or consultancy 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 and the
Optionee.

3.4           Special
Tax Consequences.  The Optionee acknowledges that, to the extent that
the aggregate Fair Market Value of stock with respect to which Incentive Stock
Options (but without regard to Section 422(d) of the Code), including the
Option, are exercisable for the first time by the Optionee during any calendar
year (under the Plan and all other incentive stock option plans of the Company,
any Subsidiary and any parent corporation thereof (within the meaning of
Section 422 of the Code)) exceeds $100,000, the Option and such other options
shall be treated as not qualifying under Section 422 of the Code but
rather shall be taxed as Non-Qualified Stock Options.  The Optionee
further acknowledges that the rule set forth in the preceding sentence shall be
applied by taking options into account in the order in which they were granted.
For purposes of these rules, the Fair Market Value of Stock shall be determined
as of the time the option with respect to such Stock is granted.

ARTICLE
IV

EXERCISE OF OPTION

4.1           Person
Eligible to Exercise.  Except as provided in Sections 5.2(b) and
5.2(c), during the lifetime of the Optionee, only the Optionee may exercise the
Option or any portion thereof.  After the death of the Optionee, any
exercisable portion of the Option may, prior to the time when the Option
becomes unexercisable under Section 3.3, be exercised by the Optionee’s
beneficiary designated in accordance with Section 10.4 of the Plan.  If no
beneficiary has been designated or survives the Optionee, the Option may be
exercised by the person entitled to such exercise pursuant to the Optionee’s
will or the 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 the Secretary’s
office 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 writing signed by the Optionee or the other person then
entitled to exercise the Option or portion thereof, stating that the Option or
portion thereof is thereby exercised, such notice complying with all applicable
rules established by the Committee.  Such notice shall be substantially in
the form attached as Exhibit A (or such other form as is prescribed by
the Committee); and

 

3

 

(b)           (i)            Full payment (in cash or by check)
for the shares with respect to which the Option or portion thereof is
exercised, to the extent permitted under applicable laws; or

                (ii)           To
the extent permitted under applicable laws, through the delivery of a notice
that the Optionee 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 made to the Company upon settlement of such sale;
or

 

(iii)          With
the consent of the Committee, any combination of the consideration provided in
the foregoing subparagraphs (i) and (ii); and

(c)           A
bona fide written representation and agreement, in such form as is prescribed
by the Committee, signed by the Optionee or other person then entitled to
exercise such Option or portion thereof, stating that the shares of Stock are
being acquired for the Optionee’s own account, for investment and without any
present intention of distributing or reselling said shares or any of them
except as may be permitted under the Securities Act and then applicable rules
and regulations thereunder, and that the Optionee or other person then entitled
to exercise such Option or portion thereof will indemnify the Company against
and hold it free and harmless from any loss, damage, expense or liability
resulting to the Company if any sale or distribution of the shares by such
person is contrary to the representation and agreement referred to above. 
The Committee may, in its absolute discretion, take whatever additional actions
it deems appropriate to ensure the observance and performance of such
representation and agreement and to effect compliance with the Securities Act
and any other federal or state securities laws or regulations.  Without
limiting the generality of the foregoing, the Committee may require an opinion
of counsel acceptable to it to the effect that any subsequent transfer of
shares acquired on an Option exercise does not violate the Securities Act, and
may issue stop-transfer orders covering such shares.  Share certificates
evidencing Stock issued on exercise of the Option shall bear an appropriate
legend referring to the provisions of this subsection (c) and the
agreements herein.  The written representation and agreement referred to
in the first sentence of this subsection (c) shall, however, not be
required if the shares to be issued pursuant to such exercise have been
registered under the Securities Act, and such registration is then effective in
respect of such shares; and

(d)           Full payment to the Company (or other
employer corporation) of all amounts which, under federal, state, local or
foreign tax law, it is required to withhold upon exercise of the Option. 
With the consent of the Committee, shares of Stock issuable to the Optionee
upon exercise of the Option, having a Fair Market Value at the date of Option
exercise equal to the statutory minimum sums required to be withheld, may be
used to make all or part of such payment; and

 

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

4.4           Conditions
to Issuance of Stock Certificates.  The shares of Stock deliverable
upon the exercise of the Option, or any portion thereof, shall be fully paid
and nonassessable.  The Company shall not be required to issue or deliver
any certificate or certificates for 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 to listing on all stock exchanges on which such Stock
is then listed; and

 

4

 

(b)           The
completion of any registration or other qualification of such shares 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
Committee shall, in its absolute discretion, deem necessary or advisable; and

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

(d)           The
receipt by the Company of full payment for such shares, including payment of
all amounts which, under federal, state or local tax law, the Company (or other
employer corporation) is required to withhold upon exercise of the Option; and

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

4.5           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 purchasable upon the exercise of any part of the Option unless and until
certificates representing such shares shall have been issued by the Company to
such holder.

ARTICLE
V

OTHER PROVISIONS

5.1           Administration. 
The Committee shall have the power to interpret the Plan 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 Committee in good faith shall be final and binding upon the Optionee,
the Company and all other interested persons.  No member of the Committee
shall be personally liable for any action, determination or interpretation made
in good faith with respect to the Plan, this Agreement or the Option.  In
its absolute discretion, the Board may at any time and from time to time
exercise any and all rights and duties of the Committee under the Plan and this
Agreement.

5.2           Option
Not Transferable.

(a)           Subject
to Section 5.2(b), 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 Option has been exercised, or the shares underlying such Option
have been issued, and all restrictions applicable to such shares have
lapsed.  Neither the Option nor any interest or right therein shall be
liable for the debts, contracts or engagements of the Optionee 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)           Notwithstanding
any other provision in this Agreement, with the consent of the Committee and to
the extent the Option is not intended to qualify as an Incentive Stock Option,
the Option may be transferred to, exercised by and paid to certain persons or
entities related to the Optionee, including but not limited to members of the
Optionee’s family, charitable institutes or trusts or other entities whose
beneficiaries or beneficial owners are members of the Optionee’s family or to
such other

 

5

 

persons
or entities as may be expressly approved by the Committee (each a “Permitted
Transferee”), pursuant to such conditions and procedures as the Committee may
require.

(c)           Unless
transferred to a Permitted Transferee in accordance with Section 5.2(b), during
the lifetime of the Optionee, only the Optionee may exercise the Option or any
portion thereof.  Subject to such conditions and procedures as the
Committee may require, a Permitted Transferee may exercise the Option or any
portion thereof during the Optionee’s lifetime.  After the death of the
Optionee, any exercisable portion of the Option may, prior to the time when the
Option becomes unexercisable under Section 3.3, be exercised by the
Optionee’s beneficiary designated in accordance with Section 10.4 of the
Plan.  If no beneficiary has been designated or survives the Optionee, the
Option may be exercised by the person entitled to such exercise pursuant to the
Optionee’s will or the laws of descent and distribution.

5.3           Restrictive
Legends and Stop-Transfer Orders.

(a)           The
share certificate or certificates evidencing the shares of Stock purchased
hereunder shall be endorsed with any legends that may be required by state or
federal securities laws.

(b)           The
Optionee agrees that, in order to ensure compliance with the restrictions
referred to herein, the Company may issue appropriate “stop transfer”
instructions to its transfer agent, if any, and that, if the Company transfers
its own securities, it may make appropriate notations to the same effect in its
own records.

(c)           The
Company shall not be required:  (i) to transfer on its books any shares of
Stock that have been sold or otherwise transferred in violation of any of the
provisions of this Agreement, or (ii) to treat as owner of such shares of Stock
or to accord the right to vote or pay dividends to any purchaser or other
transferee to whom such shares shall have been so transferred.

5.4           Shares
to Be Reserved.  The Company shall at all times during the term of the
Option reserve and keep available such number of shares of Stock as will be
sufficient to satisfy the requirements of this Agreement.

5.5           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, and any notice to be
given to the Optionee shall be addressed to the Optionee at the address given
beneath the Optionee’s signature on the Grant Notice.  By a notice given
pursuant to this Section 5.5, 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 the Optionee shall, if the Optionee is then
deceased, be given to the Optionee’s designated beneficiary if any, or the
person otherwise entitled to exercise his or her Option pursuant to Section 4.1
by written notice under this Section 5.6.  Any notice shall be deemed
duly given when sent via email or enclosed in a properly sealed envelope or
wrapper addressed as aforesaid and deposited (with postage prepaid) in a post
office or branch post office regularly maintained by the United States Postal
Service.

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

5.7           Stockholder
Approval.  The Plan will be submitted for approval by the Company’s
stockholders within twelve months after the date the Plan was initially adopted
by the Board.  The Option may not be exercised to any extent by anyone
prior to the time when the Plan is approved by the stockholders, and if such
approval has not been obtained by the end of said twelve month period, the Option
shall thereupon be canceled and become null and void.

 

6

 

5.8           Notification
of Disposition.  If this Option is designated as an Incentive Stock
Option, the Optionee 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 or (b) within one year after the transfer of such shares
to him.  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 the Optionee in such disposition or
other transfer.

5.9           Construction. 
This Agreement shall be administered, interpreted and enforced under the laws
of the State of Delaware without regard to conflicts of laws thereof.

5.10         Conformity
to Securities Laws.  The Optionee acknowledges that the Plan is
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 and this
Agreement shall be deemed amended to the extent necessary to conform to such
laws, rules and regulations.

5.11         Amendments. 
This Agreement may not be modified, amended or terminated except by an
instrument in writing, signed by the Optionee or such other person as may be
permitted to exercise the Option pursuant to Section 4.1 and by a duly
authorized representative of the Company.

 

7

 

EXHIBIT A

TO GRANT NOTICE AND STOCK OPTION
AGREEMENT

FORM OF EXERCISE NOTICE

 

               
Effective as of today,
           ,
     , the undersigned (“Optionee”) hereby elects to exercise
Optionee’s option to purchase
          shares of common stock
(the “Shares”)
of Sunesis Pharmaceuticals, Inc. (the “Company”) under and pursuant to the Sunesis
Pharmaceuticals, Inc. 2005 Equity Incentive Plan (the “Plan”) and the Grant
Notice and Stock Option Agreement dated
             ,
     , (the “Option Agreement”).  Capitalized terms
used herein without definition shall have the meanings given in the Option
Agreement.

	
  Grant Date:

  	
   

  	
   

  
	
  Number of Shares as to which Option is Exercised:

  	
   

  	
   

  
	
  Exercise Price per Share:

  	
   

  	
  $            

  
	
  Total Exercise Price:

  	
   

  	
  $            

  
	
  Certificate to be issued in name of:

  	
   

  	
   

  
	
  Cash Payment delivered herewith: 

  	
   

  	
  $            (Representing
  the full Exercise Price for the Shares, as well as any applicable withholding
  tax)

  

 

Type of
Option:                 
o   Incentive Stock
Option      o  Non-Qualified Stock Option

 

               
1.             Representations
of Optionee.  Optionee acknowledges that Optionee has received, read
and understood the Plan and the Option Agreement.  Optionee agrees to
abide by and be bound by their terms and conditions.

               
2.             Rights
as Stockholder.  Until the stock certificate evidencing such Shares is
issued (as evidenced by the appropriate entry on the books of the Company or of
a duly authorized transfer agent of the Company), no right to vote or receive
dividends or any other rights as a stockholder shall exist with respect to
Shares subject to the Option, notwithstanding the exercise of the Option. 
The Company shall issue (or cause to be issued) such stock certificate promptly
after the Option is exercised.  No adjustment will be made for a dividend
or other right for which the record date is prior to the date the stock
certificate is issued, except as provided in Article 11 of the Plan.

               
3.             Tax
Consultation.  Optionee understands that Optionee may suffer adverse
tax consequences as a result of Optionee’s purchase or disposition of the
Shares.  Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.

               
4.             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

 

8

 

and
assigns of the Company.  Subject to the restrictions on transfer herein
set forth, this Agreement shall be binding upon Optionee and his or her heirs,
executors, administrators, successors and assigns.

               
5.             Interpretation. 
Any dispute regarding the interpretation of this Agreement shall be submitted
by Optionee or by the Company forthwith to the Committee, which shall review
such dispute at its next regular meeting.  The resolution of such a
dispute by the Administrator shall be final and binding on the Company and on
Optionee.

               
6.             Governing
Law; Severability.  This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware excluding that body of law
pertaining to conflicts of law.  Should any provision of this Agreement be
determined by a court of law to be illegal or unenforceable, the other
provisions shall nevertheless remain effective and shall remain enforceable.

               
7.             Notices. 
Any notice required or permitted hereunder shall be given in accordance with
the provisions set forth in Section 5.5 of the Option Agreement.

               
8.             Further
Instruments.  The parties agree to execute such further instruments
and to take such further action as may be reasonably necessary to carry out the
purposes and intent of this Agreement.

               
9.             Entire
Agreement.  The Plan and Option Agreement are incorporated herein by
reference.  This Agreement, the Plan and the Option Agreement constitute
the entire agreement of the parties and supersede in their entirety all prior
undertakings and agreements of the Company and Optionee with respect to the
subject matter hereof.

 

(Signature Page
Follows)

 

9

 

 

	
  ACCEPTED
  BY:

  	
   

  	
  SUBMITTED
  BY:

  
	
   

  	
   

  	
   

  
	
  SUNESIS
  PHARMACEUTICALS, INC.

  	
   

  	
  OPTIONEE

  
	
   

  	
   

  	
   

  
	
  By: 

  	
   

  	
   

  	
   

  
	
  Name: 

  	
   

  	
   

  	
  Optionee

  
	
  Its: 

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Address:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  

 

10Exhibit 10.4

 

SUNESIS PHARMACEUTICALS, INC.

 

EMPLOYEE STOCK PURCHASE PLAN

 

Sunesis
Pharmaceuticals, Inc., a Delaware corporation (the “Company”), hereby
adopts the Sunesis Pharmaceuticals, Inc. Employee Stock Purchase Plan (the “Plan”), effective as
of the Effective Date (as defined herein).

 

1.             Purpose.  The purposes
of the Plan are as follows:

 

(a)           To assist employees of the Company and its Designated
Subsidiaries (as defined below) in acquiring a stock ownership interest in the
Company pursuant to a plan which is intended to qualify as an “employee stock
purchase plan” within the meaning of Section 423(b) of the Internal
Revenue Code of 1986, as amended.

 

(b)           To help employees
provide for their future security and to encourage them to remain in the employment
of the Company and its Designated Subsidiaries.

 

2.             Definitions.

 

(a)           “Administrator”
shall mean the administrator of the Plan, as determined pursuant to Section 14
hereof.

 

(b)           “Board”
shall mean the Board of Directors of the Company.

 

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

 

(d)           “Committee”
shall mean the committee appointed to administer the Plan pursuant to Section 14
hereof.

 

(e)           “Common
Stock” shall mean the common stock of the Company.

 

(f)            “Company”
shall mean Sunesis Pharmaceuticals, Inc., a Delaware corporation, and any
successor by merger, consolidation or otherwise.

 

(g)           “Compensation”
shall mean all base straight time gross earnings and commissions, exclusive of
payments for overtime, shift premium, incentive compensation, incentive
payments, bonuses, expense reimbursements, fringe benefits and other
compensation.

 

(h)           “Designated
Subsidiary” shall mean any Subsidiary which has been designated
by the Administrator from time to time in its sole discretion as eligible to
participate in the Plan.  The
Administrator may designate, or terminate the designation of, a subsidiary as a
Designated Subsidiary without the approval of the stockholders of the Company.

 

(i)            “Effective
Date” shall mean the date on which the Company’s Registration
Statement on Form S-1 filed with respect to the Company’s initial public
offering becomes effective.

 

 

(j)            “Eligible
Employee” shall mean an Employee of the Company or a Designated
Subsidiary: (i) who does not, immediately after the Option is granted, own
stock possessing five percent (5%) or more of the total combined voting power
or value of all classes of stock of the Company, a Parent or a Subsidiary (as
determined under Section 423(b)(3) of the Code); (ii) whose customary
employment is for more than twenty (20) hours per week; and (iii) whose
customary employment is for more than five (5) months in any calendar
year.  For purposes of clause (i), the
rules of Section 424(d) of the Code with regard to the attribution of
stock ownership shall apply in determining the stock ownership of an
individual, and stock which an employee may purchase under outstanding options
shall be treated as stock owned by the employee.  For purposes of the Plan, the employment
relationship shall be treated as continuing intact while the individual is on
sick leave or other leave of absence approved by the Company or Designated
Subsidiary and meeting the requirements of Treasury Regulation Section 1.421-7(h)(2).  Where the period of leave exceeds ninety (90)
days and the individual’s right to reemployment is not guaranteed either by
statute or by contract, the employment relationship shall be deemed to have
terminated on the ninety-first (91st) day of such leave.

 

(k)           “Employee”
shall mean any person who renders services to the Company or a Subsidiary in
the status of an employee within the meaning of Code Section 3401(c).  “Employee” shall not include any director of
the Company or a Subsidiary who does not render services to the Company or a
Subsidiary in the status of an employee within the meaning of Code Section 3401(c).

 

(l)            “Enrollment
Date” shall mean the first Trading Day of each Offering
Period.  The Enrollment Date for the
first Offering Period under the Plan shall be the Effective Date.

 

(m)          “Exercise
Date” shall mean the last Trading Day of each Purchase Period.

 

(n)           “Fair
Market Value” shall mean, as of any date, the value of Common
Stock determined as follows:

 

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

 

(ii)            If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean of the closing bid and asked prices for the
Common Stock on the date prior to the date of determination as reported in The Wall Street Journal or such other source as the
Administrator deems reliable;

 

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

 

(iv)          For purposes of the first Offering Period under the
Plan, the Fair Market Value on the Enrollment Date shall be the initial price
to the public as set forth in the

 

2

 

final prospectus included
within the registration statement on Form S-1 filed with the Securities and
Exchange Commission for the initial public offering of the Company’s Common
Stock (the “Registration Statement”).

 

(o)           “Offering
Period” shall mean subject to Section 24, each twelve (12) month
period commencing on any December 1 or June 1 and terminating on the
last Trading Day in the periods ending twelve (12) months later, except for the
first Offering Period under the Plan, which shall commence on the Effective
Date and end on May 31, 2006.  The
duration and timing of Offering Periods may be changed pursuant to Section 4
of this Plan.

 

(p)           “Parent”
means any corporation, other than the Company, in an unbroken chain of
corporations ending with the Company if, at the time of the determination, each
of the corporations other than the Company owns stock possessing 50% or more of
the total combined voting power of all classes of stock in one of the other
corporations in such chain.

 

(q)           “Plan”
shall mean this Sunesis Pharmaceuticals, Inc. Employee Stock Purchase Plan.

 

(r)            “Purchase
Period” shall mean the approximately six (6) month period
commencing after one Exercise Date and ending with the next Exercise Date,
except that the first Purchase Period of any Offering Period shall commence on
the Enrollment Date and end with the next Exercise Date.  Notwithstanding the foregoing, the first
Purchase Period with respect to the initial Offering Period under the Plan
shall end on the last Trading Day on or before the next occurring June 1
following the Effective Date and such period may be more or less than six-months
in duration.

 

(s)           “Purchase
Price” shall mean 85% of the Fair Market Value of a share of
Common Stock on the Enrollment Date or on the Exercise Date, whichever is
lower; provided, however, that the Purchase
Price may be adjusted by the Administrator pursuant to Section 20; provided, further, that the Purchase Price shall not be less
than the par value of a share of Common Stock.

 

(t)            “Subsidiary”
shall mean any corporation, other than the Company, in an unbroken chain of
corporations beginning with the Company if, at the time of the determination,
each of the corporations other than the last corporation in an unbroken chain
owns stock possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.

 

(u)           “Trading
Day” shall mean a day on which national stock exchanges and the
Nasdaq System are open for trading.

 

3.             Eligibility.

 

(a)           Any Eligible Employee who shall be employed by the
Company or a Designated Subsidiary on a given Enrollment Date for an Offering
Period shall be eligible to participate in the Plan during such Offering
Period, subject to the requirements of Section 5 and the limitations
imposed by Section 423(b) of the Code.

 

3

 

(b)           Each person who, during the course of an Offering
Period, first becomes an Eligible Employee subsequent to the Enrollment Date
will be eligible to become a participant in the Plan on the first day of the
first Purchase Period following the day on which such person becomes an
Eligible Employee, subject to the requirements of Section 5 and the
limitations imposed by Section 423(b) of the Code.

 

(c)           No Eligible Employee shall be granted an option under
the Plan which permits his rights to purchase stock under the Plan, and to
purchase stock under all other employee stock purchase plans of the Company,
any Parent or any Subsidiary subject to the Section 423, to accrue at a
rate which exceeds $25,000 of fair market value of such stock (determined at
the time the option is granted) for each calendar year in which the option is
outstanding at any time.  For purpose of
the limitation imposed by this subsection, the right to purchase stock under an
option accrues when the option (or any portion thereof) first becomes exercisable
during the calendar year, the right to purchase stock under an option accrues
at the rate provided in the option, but in no case may such rate exceed $25,000
of fair market value of such stock (determined at the time such option is
granted) for any one calendar year, and a right to purchase stock which has
accrued under an option may not be carried over to any option.  This limitation shall be applied in
accordance with Section 423(b)(8) of the Code and the Treasury Regulations
thereunder.

 

4.             Offering Periods.  Subject to Section 24, the Plan shall be
implemented by consecutive, overlapping Offering Periods which shall continue
until the Plan expires or is terminated in accordance with Section 20
hereof.  The Administrator shall have the
power to change the duration of Offering Periods (including the commencement
dates thereof) with respect to future offerings without stockholder approval if
such change is announced at least five (5) days prior to the scheduled
beginning of the first Offering Period to be affected thereafter.  In no event may an Offering Period exceed
twenty-seven (27) months in duration.

 

5.             Participation.

 

(a)           Each Eligible Employee who is employed by the Company
or a Designated Subsidiary on the calendar day immediately preceding the
Effective Date shall automatically become a participant in the Plan with
respect to the first Offering Period. 
Each such participant shall be granted an option to purchase shares of
Common Stock and shall be enrolled in such first Offering Period to the extent
of twenty percent (20%) of his or her Compensation for the pay days during the
first Offering Period (or, if less, the maximum amount of contributions
permitted to be made by such participant for such Offering Period by payroll
deduction under the terms of this Plan). 
Participants wishing to purchase shares of Common Stock during the first
Offering Period shall do so by making a lump sum cash payment to the Company
not later than ten (10) calendar days before each Exercise Date of such Offering
Period, and each such payment may be made in an amount not exceeding twenty
percent (20%) of such participant’s Compensation for the pay days occurring
during such Offering Period and occurring prior to such lump sum payment; provided, however, that such participant shall not be
required to make such lump sum cash payments, or exercise all or any portion of
such option to purchase shares of Common Stock by making such lump sum
payments.  Following the Effective Date,
each such participant may, during the period designated from time to time by
the Administrator for such purpose, elect to make such contributions (or a
lesser amount of

 

4

 

contributions) for the
first Offering Period by payroll deductions in accordance with Section 6,
in lieu of making contributions in such lump sum cash payments under this subsection (a),
or may elect to make no contributions for such Offering Period; provided, however, that, to make contributions by payroll
deductions, such participant must complete the form of subscription agreement
provided by the Company for the first Offering Period under this Plan.  If (i) during such Offering Period, such a
participant elects to make contributions by payroll deduction, or elects to
make no contributions for such Offering Period, or (ii) on or prior to the
tenth (10th) calendar day before the last Exercise Date of such
Offering Period, such a participant fails to make any lump sum cash payment,
such participant shall be deemed to have elected not to make contributions by
lump sum payment with respect to such first Offering Period.  Except as described in subsection (e)
below, a
participant may not make contributions by lump sum payment for any Offering
Period other than the first Offering Period.

 

(b)           Following the first Offering Period, an Eligible
Employee may become a participant in the Plan by completing a subscription
agreement authorizing payroll deductions in the form of Exhibit A to this
Plan and filing it with the Company’s payroll office fifteen (15) days (or such shorter or longer period as may be
determined by the Administrator, in its sole discretion) prior to the
applicable Enrollment Date.

 

(c)           Each person who, during the course of an Offering
Period, first becomes an Eligible Employee subsequent to the Enrollment Date
will be eligible to become a participant in the Plan on the first day of the
first Purchase Period following the day on which such person becomes an
Eligible Employee.  Such person may
become a participant in the Plan by completing a subscription agreement
authorizing payroll deductions in the form of Exhibit A to this Plan and
filing it with the Company’s payroll office fifteen (15)
days (or such shorter or longer period as may be determined by the
Administrator, in its sole discretion) prior to the first day of any Purchase
Period during the Offering Period in which such person becomes an Eligible
Employee.  The rights granted to such
participant shall have the same characteristics as any rights originally
granted during that Offering Period except that the first day of the Purchase
Period in which such person initially participates in the Plan shall be the “Enrollment
Date” for all purposes for such person, including determination of the Purchase
Price.

 

(d)           Except as provided in subsection (a), payroll
deductions for a participant shall commence on the first payroll following the
Enrollment Date and shall end on the last payroll in the Offering Period to
which such authorization is applicable, unless sooner terminated by the
participant as provided in Section 10 hereof.

 

(e)           During a leave of absence approved by the Company or a
Subsidiary and meeting the requirements of Treasury Regulation Section 1.421-7(h)(2),
a participant may continue to participate in the Plan by making cash payments
to the Company on each pay day equal to the amount of the participant’s payroll
deductions under the Plan for the pay day immediately preceding the first day
of such participant’s leave of absence. 
If a leave of absence is unapproved or fails to meet the requirements of
Treasury Regulation Section 1.421-7(h)(2), the participant will cease
automatically to participate in the Plan. 
In such event, the company will automatically cease to deduct the
participant’s payroll under the Plan. 
The Company will pay to the participant his or her total payroll
deductions for the Purchase Period, in cash in one

 

5

 

lump sum (without
interest), as soon as practicable after the participant ceases to participate
in the Plan.

 

6.             Payroll Deductions.

 

(a)           At the time a participant files his or her
subscription agreement, he or she shall elect to have payroll deductions made
on each pay day during the Offering Period in an amount from one percent (1%)
to twenty percent (20%) of the
Compensation which he or she receives on each pay day during the Offering
Period.

 

(b)           All payroll deductions made for a participant shall be
credited to his or her account under the Plan and shall be withheld in whole
percentages only.  Except as described in
Section 5(a) hereof, a participant may not make any additional payments
into such account.

 

(c)           A participant may discontinue his or her participation
in the Plan as provided in Section 10 hereof, or may increase or decrease the
rate of his or her payroll deductions during the Offering Period by completing
or filing with the Company a new subscription agreement authorizing a change in
payroll deduction rate.  The
Administrator may, in its discretion, limit the number of participation rate
changes during any Offering Period.  The
change in rate shall be effective with the first full payroll period following
five (5) business days after the Company’s receipt of the new subscription
agreement (or such shorter or longer period as may be determined by the
Administrator, in its sole discretion).

 

(d)           Notwithstanding the foregoing, to the extent necessary
to comply with Section 423(b)(8) of the Code and Section 3(c) hereof,
a participant’s payroll deductions may be decreased to zero percent (0%) at any
time during a Purchase Period.

 

(e)           At the time the option is exercised, in whole or in
part, or at the time some or all of the Company’s Common Stock issued under the
Plan is disposed of, the participant must make adequate provision for the
Company’s federal, state, or other tax withholding obligations, if any, which
arise upon the exercise of the option or the disposition of the Common
Stock.  At any time, the Company may, but
shall not be obligated to, withhold from the participant’s compensation the
amount necessary for the Company to meet applicable withholding obligations,
including any withholding required to make available to the Company any tax
deductions or benefits attributable to sale or early disposition of Common
Stock by the Employee.

 

7.             Grant of Option.  On the Enrollment Date of each Offering
Period, each Eligible Employee participating in such Offering Period shall be
granted an option to purchase on each Exercise Date during such Offering Period
(at the applicable Purchase Price) up to a number of shares of the Company’s
Common Stock determined by dividing such participant’s payroll deductions
accumulated prior to such Exercise Date and retained in the participant’s
account as of the Exercise Date by the applicable Purchase Price; provided,
however, that in no event shall a participant be permitted to purchase during
each Offering Period more than 10,000 shares of the Company’s Common Stock
(subject to any adjustment pursuant to Section 19) and during each
Purchase Period more than 5,000 shares
of the Company’s Common Stock (subject to any adjustment pursuant to Section 19);
and provided, further, that such purchase shall be subject to

 

6

 

the limitations set forth
in Sections 3(c) and 13 hereof.  The
Administrator may, for future Offering Periods, increase or decrease, in its
absolute discretion, the maximum number of shares of the Company’s Common Stock
a participant may purchase during each Purchase Period and Offering Period.  Exercise of the option shall occur as
provided in Section 8 hereof, unless the participant has withdrawn
pursuant to Section 10 hereof or otherwise becomes ineligible to
participate in the Plan.  The option
shall expire on the last day of the Offering Period.

 

8.             Exercise of Option.

 

(a)           Unless a participant withdraws from the Plan as
provided in Section 10 hereof or otherwise becomes ineligible to
participate in the Plan, his or her option for the purchase of shares shall be
exercised automatically on the Exercise Date, and the maximum number of full
shares subject to the option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account.  No fractional shares shall be
purchased; any payroll deductions accumulated in a participant’s account which
are not sufficient to purchase a full share shall be retained in the
participant’s account for the subsequent Purchase Period or Offering
Period.  During a participant’s lifetime,
a participant’s option to purchase shares hereunder is exercisable only by him
or her.

 

(b)           If the Administrator determines that, on a given
Exercise Date, the number of shares with respect to which options are to be
exercised may exceed (i) the number of shares of Common Stock that were
available for sale under the Plan on the Enrollment Date of the applicable
Offering Period, or (ii) the number of shares available for sale under the Plan
on such Exercise Date, the Administrator may in its sole discretion (x) provide
that the Company shall make a pro rata allocation of the shares of Common Stock
available for purchase on such Enrollment Date or Exercise Date, as applicable,
in as uniform a manner as shall be practicable and as it shall determine in its
sole discretion to be equitable among all participants exercising options to
purchase Common Stock on such Exercise Date, and continue all Offering Periods
then in effect, or (y) provide that the Company shall make a pro rata
allocation of the shares available for purchase on such Enrollment Date or
Exercise Date, as applicable, in as uniform a manner as shall be practicable
and as it shall determine in its sole discretion to be equitable among all
participants exercising options to purchase Common Stock on such Exercise Date,
and terminate any or all Offering Periods then in effect pursuant to Section 20
hereof.  The Company may make pro rata
allocation of the shares available on the Enrollment Date of any applicable
Offering Period pursuant to the preceding sentence, notwithstanding any
authorization of additional shares for issuance under the Plan by the Company’s
stockholders subsequent to such Enrollment Date.  The balance of the amount credited to the
account of each participant which has not been applied to the purchase of
shares of stock shall be paid to such participant in one lump sum in cash as
soon as reasonably practicable after the Exercise Date, without any interest
thereon.

 

9.             Deposit of Shares.  As promptly as practicable after each
Exercise Date on which a purchase of shares occurs, the Company may arrange for
the deposit, into each participant’s account with any broker designated by the
Company to administer this Plan, of the number of shares purchased upon
exercise of his or her option.

 

7

 

10.           Withdrawal.

 

(a)           A participant may withdraw all but not less than all
of the payroll deductions credited to his or her account and not yet used to
exercise his or her option under the Plan at any time by giving written notice
to the Company in the form of Exhibit A to this Plan.  All of the participant’s payroll deductions
credited to his or her account during the Offering Period shall be paid to such
participant as soon as reasonably practicable after receipt of notice of
withdrawal and such participant’s option for the Offering Period shall be
automatically terminated, and no further payroll deductions for the purchase of
shares shall be made for such Offering Period. 
If a participant withdraws from an Offering Period, payroll deductions
shall not resume at the beginning of the succeeding Offering Period unless the
participant delivers to the Company a new subscription agreement.

 

(b)           A participant’s withdrawal from an Offering Period
shall not have any effect upon his or her eligibility to participate in any
similar plan which may hereafter be adopted by the Company or in succeeding
Offering Periods which commence after the termination of the Offering Period
from which the participant withdraws.

 

11.           Termination of Employment.  Upon a participant’s ceasing to be an
Eligible Employee, for any reason, he or she shall be deemed to have elected to
withdraw from the Plan and the payroll deductions credited to such participant’s
account during the Offering Period shall be paid to such participant or, in the
case of his or her death, to the person or persons entitled thereto under Section 15
hereof, as soon as reasonably practicable and such participant’s option for the
Offering Period shall be automatically terminated.

 

12.           Interest.  No interest shall accrue on the payroll
deductions or lump sum contributions of a participant in the Plan.

 

13.           Shares Subject to
Plan.

 

(a)           Subject to adjustment upon changes in capitalization
of the Company as provided in Section 19 hereof, the maximum initial
number of shares of the Company’s Common Stock which shall be made available
for sale under the Plan shall be eight hundred sixty-two thousand five hundred
(862,500) shares.  In addition to the
foregoing, subject to Section 19 hereof, commencing on the first day of
the Company’s 2006 fiscal year and on the first day of each fiscal year
thereafter during the term of the Plan, the number of shares of the Company’s
Common Stock which shall be made available for sale under the Plan shall be increased
by that number of shares of the Company’s Common Stock equal to the least of (i) one-half
percent (0.5%) of the Company’s outstanding shares of Stock on such date,
(ii) five hundred seventy-five thousand (575,000) shares or (iii) a
lesser amount determined by the Board. 
Notwithstanding the foregoing, in no event shall the aggregate number of
shares reserved for issuance under the Plan, during the term of the Plan,
exceed five million seven hundred fifty thousand (5,750,000) shares of the
Company’s Common Stock during the term of the Plan, subject to adjustment as
provided in Section 19 hereof.

 

(b)           If any right granted under the Plan shall for any
reason terminate without having been exercised, the Common Stock not purchased
under such right shall again become available for issuance under the Plan.  The stock subject to the Plan may be unissued
shares or reacquired shares, bought on the market or otherwise.

 

8

 

(c)           With respect to shares of stock subject to an option
granted under the Plan, a participant shall not be deemed to be a stockholder
of the Company, and the participant shall not have any of the rights or
privileges of a stockholder, until such shares have been issued to the
participant or his or her nominee following exercise of the participant’s
option.  No adjustments shall be made for
dividends (ordinary or extraordinary, whether in cash securities, or other
property) or distribution or other rights for which the record date occurs
prior to the date of such issuance, except as otherwise expressly provided
herein.

 

14.           Administration.

 

(a)           The Plan shall be administered by the Board unless and
until the Board delegates administration to a Committee as set forth
below.  The Board may delegate administration
of the Plan to a Committee comprised of two or more members of the Board, each
of whom is a “non-employee director” within the meaning of Rule 16b-3 which has
been adopted by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended, and which is otherwise constituted to comply
with applicable law, and the term “Committee” shall apply to any persons to
whom such authority has been delegated. 
If administration is delegated to a Committee, the Committee shall have,
in connection with the administration of the Plan, the powers theretofore
possessed by the Board, including the power to delegate to a subcommittee any
of the administrative powers the Committee is authorized to exercise, subject,
however, to such resolutions, not inconsistent with the provisions of the Plan,
as may be adopted from time to time by the Board.  Each member of the Committee shall serve for
a term commencing on a date specified by the Board and continuing until the
member dies or resigns or is removed from office by the Board.  References in this Plan to the “Administrator”
shall mean the Board unless administration is delegated to a Committee or
subcommittee, in which case references in this Plan to the Administrator shall
thereafter be to the Committee or subcommittee.

 

(b)           It shall be the duty of the Administrator to conduct
the general administration of the Plan in accordance with the provisions of the
Plan.  The Administrator shall have the
power to interpret the Plan and the terms of the options 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.  The Administrator at its option may utilize
the services of an agent to assist in the administration of the Plan including
establishing and maintaining an individual securities account under the Plan
for each participant.  In its absolute
discretion, the Board may at any time and from time to time exercise any and
all rights and duties of the Administrator under the Plan.

 

(c)           All expenses and liabilities incurred by the
Administrator in connection with the administration of the Plan shall be borne
by the Company.  The Administrator may,
with the approval of the Board, employ attorneys, consultants, accountants,
appraisers, brokers or other persons. 
The Administrator, the Company and its officers and directors shall be
entitled to rely upon the advice, opinions or valuations of any such persons.  All actions taken and all interpretations and
determinations made by the Administrator in good faith shall be final and
binding upon all participants, the Company and all other interested
persons.  No member of the Board shall be
personally liable for any action, determination or interpretation made in good

 

9

 

faith with respect to the
Plan or the options, and all members of the Board shall be fully protected by
the Company in respect to any such action, determination, or interpretation.

 

15.           Designation of
Beneficiary.

 

(a)           A participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the participant’s
account under the Plan in the event of such participant’s death subsequent to
an Exercise Date on which the option is exercised but prior to delivery to such
participant of such shares and cash.  In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant’s account under the Plan in the event
of such participant’s death prior to exercise of the option.  If a participant is married and the
designated beneficiary is not the spouse, spousal consent shall be required for
such designation to be effective.

 

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

 

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

 

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

 

18.           Reports.  Individual accounts shall be maintained for
each participant in the Plan.  Statements
of account shall be given to participating Employees at least annually, which
statements shall set forth the amounts of payroll deductions, the Purchase
Price, the number of shares purchased and the remaining cash balance, if any.

 

19.           Adjustments.  Upon Changes in Capitalization, Dissolution,
Liquidation, Merger or Asset Sale.

 

(a)           Changes in Capitalization. 
Subject to any required action by the stockholders of the Company, the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option, the maximum number of shares each
participant may purchase each Purchase Period (pursuant to Section 7), as
well as the

 

10

 

 price per share and the number of shares of
Common Stock covered by each option under the Plan which has not yet been
exercised shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common
Stock, or any other increase or decrease in the number of shares of Common Stock
effected without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities of the
Company shall not be deemed to have been “effected without receipt of
consideration.”  Such adjustment shall be
made by the Administrator, whose determination in that respect shall be final,
binding and conclusive.  Except as
expressly provided herein, no issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall affect,
and no adjustment by reason thereof shall be made with respect to, the number
or price of shares of Common Stock subject to an option.

 

(b)           Dissolution or Liquidation. 
In the event of the proposed dissolution or liquidation of the Company,
the Offering Period then in progress shall be shortened by setting a new
Exercise Date (the “New Exercise Date”), and shall terminate immediately prior
to the consummation of such proposed dissolution or liquidation, unless
provided otherwise by the Administrator. 
The New Exercise Date shall be before the date of the Company’s proposed
dissolution or liquidation.  The
Administrator shall notify each participant in writing, at least ten (10)
business days prior to the New Exercise Date, that the Exercise Date for the
participant’s option has been changed to the New Exercise Date and that the
participant’s option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering
Period as provided in Section 10 hereof.

 

(c)           Merger or Asset Sale.  In the event
of a proposed sale of all or substantially all of the assets of the Company, or
the merger of the Company with or into another corporation, each outstanding
option shall be assumed or an equivalent option substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation.  In the event that the successor corporation
refuses to assume or substitute for the option, any Purchase Periods then in
progress shall be shortened by setting a New Exercise Date and any Offering
Periods then in progress shall end on the New Exercise Date.  The New Exercise Date shall be before the
date of the Company’s proposed sale or merger. 
The Administrator shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant’s option has been changed to the New Exercise Date and that the
participant’s option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering
Period as provided in Section 10 hereof.

 

20.           Amendment or
Termination.

 

(a)           The Board may at any time and for any reason terminate
or amend the Plan.  Except as provided in
Section 19 hereof, no such termination can affect options previously
granted, provided that an Offering Period may be terminated by the Board if the
Board determines that the termination of the Offering Period or the Plan is in
the best interests of the Company and its stockholders.  Except as provided in Section 19 and
this Section 20 hereof, no amendment may make any change in any option
theretofore granted which adversely affects the rights of any participant
without the consent of such participant. 
To the extent necessary to comply with Section 423 of the Code (or
any successor rule or provision or any other applicable

 

11

 

law, regulation or stock
exchange rule), the Company shall obtain stockholder approval in such a manner
and to such a degree as required.

 

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

 

(c)           In the event the Board determines that the ongoing
operation of the Plan may result in unfavorable financial accounting
consequences, the Board may, in its discretion and, to the extent necessary or
desirable, modify or amend the Plan to reduce or eliminate such accounting
consequence including, but not limited to:

 

(i)            altering the Purchase Price for any Offering Period
including an Offering Period underway at the time of the change in Purchase
Price;

 

(ii)           shortening any Offering Period so that the Offering
Period ends on a new Exercise Date, including an Offering Period underway at
the time of the Administrator action; and

 

(iii)          allocating shares.

 

Such modifications or amendments shall not require
stockholder approval or the consent of any Plan participants.

 

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

 

22.           Conditions To Issuance of Shares. 
The Company shall not be required to issue or deliver any certificate or
certificates for shares of Stock purchased upon the exercise of options prior
to fulfillment of all the following conditions:

 

(a)           The admission of such shares to listing on all stock
exchanges, if any, on which is then listed; and

 

(b)           The completion of any registration or other
qualification of such shares under any state or federal law or under the
rulings or regulations of the Securities and Exchange

 

12

 

Commission or any other
governmental regulatory body, which the Administrator shall, in its absolute
discretion, deem necessary or advisable; and

 

(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; and

 

(d)           The payment to the Company of all amounts which it is
required to withhold under federal, state or local law upon exercise of the
option; 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.

 

23.           Term of Plan.  The Plan shall become effective on the
Effective Date.  Subject to approval by
the stockholders of the Company in accordance with this Section, the Plan shall
be in effect until the tenth (10th) anniversary of the date of the
initial adoption of the Plan by the Board, unless sooner terminated under Section 20
hereof.  The Plan shall be submitted for
the approval of the Company’s stockholders within twelve (12) months after the
date of the initial adoption of the Plan by the Board.

 

24.           Automatic Transfer
to Low Price Offering Period. 
To the extent permitted by any applicable laws, regulations, or stock
exchange rules, if the Fair Market Value of the Common Stock on any Exercise
Date in an Offering Period is lower than the Fair Market Value of the Common
Stock on the Enrollment Date of such Offering Period, then (i) a new twelve
(12) month Offering Period will automatically begin on the first trading day
following that Exercise Date, and (ii) all
participants in such Offering Period shall be automatically withdrawn from such
Offering Period immediately after the exercise of their option on such Exercise
Date and automatically re-enrolled in the immediately following Offering Period
as of the first day thereof.

 

25.           Equal Rights and
Privileges.  All Eligible
Employees of the Company (or of any Designated Subsidiary) will have equal
rights and privileges under this Plan so that this Plan qualifies as an “employee
stock purchase plan” within the meaning of Section 423 of the Code or
applicable Treasury regulations thereunder. 
Any provision of this Plan that is inconsistent with Section 423 or
applicable Treasury regulations will, without further act or amendment by the
Company, the Board or the Administrator, be reformed to comply with the equal
rights and privileges requirement of Section 423 or applicable Treasury
regulations.

 

26.           No Employment Rights. 
Nothing in the Plan shall be construed to give any person (including any
Eligible Employee or participant) the right to remain in the employ of the
Company, a Parent or a Subsidiary or to affect the right of the Company, any
Parent or any Subsidiary to terminate the employment of any person (including
any Eligible Employee or participant) at any time, with or without cause.

 

27.           Notice of
Disposition of Shares.  Each
participant shall give prompt notice to the Company of any disposition or other
transfer of any shares of stock purchased upon exercise of an option if such
disposition or transfer is made:  (a)
within two (2) years from the Enrollment

 

13

 

Date
of the Offering Period in which the shares were purchased or (b) within one (1)
year after the Exercise Date on which such shares were purchased.  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 the participant in such
disposition or other transfer.

 

28.           Governing Law.  The validity and enforceability of this Plan
shall be governed by and construed in accordance with the laws of the State of
Delaware without regard to otherwise governing principles of conflicts of law.

 

14

 

EMPLOYEE
STOCK PURCHASE PLAN (the “Plan”)

ENROLLMENT/CHANGE
FORM

(Capitalized terms not defined on this form have
the meanings ascribed to them in the Plan)

 

EMPLOYEE
NAME:                                                                                                            

 

ADDRESS:                                                                                                                                                                            

                                                                                (Please Print)

SOCIAL SECURITY:         _______________

 

COMPLETE REASON(S) FOR
ENROLLMENT/CHANGE:

____       New Enrollment

____       Withdrawal (This will reduce your Contribution Rate to 0% and
terminate your participation in the Plan for this Offering Period.  Your existing payroll deduction account
balance will be refunded to you as soon as administratively possible.)

____       Change: Contribution Rate _______
(decreases only)                 Beneficiary  ________

 

 

PAYROLL
DEDUCTION AUTHORIZATION

I
authorize deductions from each payroll check of the following percentage of my
Compensation during the Offering Period in accordance with the Plan.  I understand that if I do not withdraw from
an Offering Period, any accumulated payroll deductions will be used to
automatically exercise my Option.  This
authorization will stay in effect until I change it or cease to participate in
the Plan.

Contribution Rate: 
________  (1—20%, whole increments)

 

 

BENEFICIARY

___________________________________              ___________________    _______________

                                Name                                                      Social
Security #                 Relationship

_____________________________________________________________________

                                Address

_____________________________________________

Signature of Spouse (If beneficiary other than
spouse)

 

 

I have received and reviewed a copy of the Plan and the Company’s
Prospectus issued in connection with my participation in the Plan.  I have carefully reviewed and understand the
terms of the Plan and such other matters as I found necessary to understand the
mechanics and risks of participation in the Plan.

___________________________________________                            __________

                                Employee Signature                                                            Date

 

 

(For Human Resources Department Use Only)

Approved By:        _________________________________________

Date: 
____________                                                                        Payroll
Processing Date:  ____________

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